Canada's Health Insurance and Ours: The Real Lessons, the Big Choices

Canada's Health Insurance and Ours: The Real Lessons, the Big Choices by Theodore R. Marmor and Jerry L. Mashaw As medical costs continue to escalate and more Americans find themselves without insurance, Canada's approach to financing health care has taken center stage in the debate in the United States. Congressional committees have invited Canadian experts to testify, and political organizations have sent parades of representatives on crash study tours to Canada. Leaders of the Chrysler Corporation -- particularly its flamboyant chairman, Lee Iacocca, and Joseph A. Califano, Jr., a board member and former Secretary of Health and Human Services -- have lauded Canada's success. All three television networks, National Public Radio, the major national newspapers, and Consumer Reports have recently done stories on Canadian national health insurance. But the best evidence of the seriousness with which Americans are taking the Canadian model is a concerted attack against it, being financed, until a few months ago, by the American Medical Association (AMA).

In 1989, under the innocent title "Public Alert Program," the AMA committed $2.5 million to "telling millions of Americans the facts about the Canadian health care system." In a campaign reminiscent of its 1948 attack on President Truman's national health insurance plan, the doctors' association placed advertisements in major media and supplied press kits for a blitz of editorials, opinion pieces, and reports about Canada. Similar essays began appearing in national and local papers by people identified as, for example, "a surgeon from White Plains."

The AMA quietly cancelled the effort after a financial scandal forced the head of the campaign to resign and early reports indicated that the advertisements were irritating audiences, including Canadian physicians. The message, however, has already had an effect. Millions of people have heard that Canadian health care doesn't work well and even if it did, it couldn't work in the United States.

The first part of the message is plainly false. Canada's national health system has managed to insure all citizens for a comprehensive range of medical and hospital services, all the while containing medical costs. Contrary to reports, serious limitations on medically necessary services are not common. Moreover, the system is vastly more popular among Canadians than America's health system is among our citizens. Universal access, controlled costs, good care, a satisfied pubic -- when taken together, no fair-minded American can help but be impressed particularly because so many experts have been telling us that we could not possibly achieve all these goals together.

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The second prong of the AMA attack is more serious. Major social programs can seldom be bought off-the-rack from abroad. Can we really learn how to solve our medical care problems by studying Canada?

Canada is not the only country that has provided universal health care at a lower proportionate cost than the United States spends for more restricted coverage. France and West Germany have universal health insurance at a cost of between 8 and 9.5 percent of gross national product GNP Britain, Japan, and Australia do it for between 6 and 8 percent of GNP. The United States, by comparison, spends 11.5 percent of GNP on health -- more than any other nation -- and yet ranks below all of the advanced nations except Spain on measures of infant mortality and life expectancy For all the money spent, we have approximately 35 million people totally without health insurance and other undetermined millions whose health insurance is inadequate. Surely we are doing something wrong.

When other countries are doing things we would like to do, it makes good sense to set aside national pride and learn from abroad. But we need to be careful in drawing lessons, particularly because the pressure groups in the United States with the largest stake in the status quo have powerful incentives to distort other nations' experience and slant information to their own purposes. With admirable frankness, Carl Schramm, president of the Health Insurance Association of America (HIAA), the trade association for private health insurance companies, told Consumer Reports that under a Canadian approach to healthcare financing "we'd be out of business. It's a life-and-death struggle." Conceding it cannot make a credible case that Canadian health insurance is a failure, HIAA claims instead that American politics would never permit us to enact and carry out a Canadian-style program. Of course, the insurance industry would do its best to make sure that was true.

But if ever there were an opportunity for cross-national learning by American policy makers, it is Canada's path to national health insurance (NHI). We share with Canadians a diverse population with a similar distribution of living standards, increasingly integrated economies, and a tradition of fractious, constitutional federalism. Until Canada consolidated its national insurance in 1971, our patterns and styles of medical care closely resembled each other. Canadian regulators even used our joint Commission on Hospital Accreditation to judge their own hospitals until well after World War 11. If public financing of medical care has come to work well in Canada, it is reasonable to think it would work well in the United States, too.

In fact, Canada's health system raises three separable issues for the United States. The first is whether Canada really has an exemplary medical care system, well worth importing if only we could.

A second question is whether Canada's program, no matter how desirable, is politically feasible in the United States. Are the two nations just too different? Is it too late to do what the Canadians did more than twenty years ago?

And, third, even if the Canadian model is desirable and politically acceptable, can the United States successfully adapt it to American circumstances?

Canada's Exemplary Performance
Health insurance in Canada is actually provided not by the national government but by Canada's ten provinces. The Canadian federal government conditionally promises to repay each province a substantial portion of the costs of all necessary medical care, now roughly 40 percent. The federal grant is available as long as the province's health insurance program is universal (covering all citizens), comprehensive (covering all conventional hospital and medical care), accessible (no limits on services or extra charges to patients), portable (each province must recognize the others' coverage), and publicly administered (under control of a public, nonprofit organization).

Annual negotiations between provincial governments and the providers of care determine the total budgets of hospitals and the level of physicians fees. As in the United States, most hospitals are nonprofit community institutions. Unlike U.S. hospitals, they never worry about itemized billings. Instead, they receive their annual budget in monthly installments. Their budgets are adjusted each year, taking into account inflation, new programs, and changes in their volume of services.

As in the United States, physicians practice in diverse individual and group settings and most are paid on a fee-for-service basis rather than by salary. The provincial medical associations determine the structure of a binding fee schedule and negotiate with their governments, usually on an annual basis, a percentage increase in the total pool of money budgeted for paying physicians. In most provinces, if the fees billed to the provincial insurance fund exceed the budget ceiling, the government grants less than it otherwise would at the next round of negotiations. Escalating physician costs -- largely because of increases in procedures per patient -- have led most Canadian provinces to explore more explicit limits on total payments to physicians. Quebec and British Columbia have already set global budget caps which, if exceeded, result in reduced physician fees -- and other provinces, despite predictable physician outrage, are likely to follow suit.

As Figure 1 shows, the growth patterns of Canadian and American health care expenditures were nearly identical until 1971, when Canada fully implemented its national insurance plan. From then on, American health expenditures have continued to rise at a considerably faster rate than in Canada (or, for that matter, any other developed democracy). The gap now amounts to nearly three percentage points of GNP It appears that America's higher payments to doctors, increased administrative expenses, and larger hospital outlays account for about equal shares of this large difference in spending. Few Americans would regard Canada's lower physician payments as harmful; fewer still would regret cutting administrative costs. Some, however, might wonder whether the Canadians spend too little on hospital care while we spend too much. Hospital technology is where the biggest questions about the Canadian system arise. Nonetheless, compared with other countries in the world, the oddity is America's lavish spending on technology, not Canada's more limited expenditures.

Cost control is not the only test of a good health care system. Neither is universal access. A good system should provide high quality care, timely treatment, good working conditions for health care professionals and other workers, and ultimately a satisfied and healthy citizenry. On these questions, it is time to separate myth from fact.

Myth 1: NHI leads to bureaucratic red-tape and high administrative costs. Doctors and hospitals in Canada receive all their payments from one source, a provincial ministry. They do not have to keep track of the eligibility requirements or complicated definitions of insured services in hundreds of insurance plans. Canadian patients never have to file claims, much less deal with incomprehensible forms. Americans, by contrast, have to file multiple, complicated claims, as do most physicians. One reason both patients and doctors in America fear any further government role in health insurance is their frustrating experience with Medicare and Medicaid. A federal agency recently estimated that about one million Medicare enrollees a year find filing claims so complicated or time-consuming that they do not seek reimbursement, losing about $100 million in benefits to which they are entitled. In some states many physicians say they will not treat Medicaid patients, or do not bother to seek reimbursement for treating them, because the meager payments do not even cover the administrative overhead. American providers typically wait 60 to 120 days and often longer for reimbursement from public programs. Canadian providers, in contrast, receive payment in about 30 days.

Because of the simplicity of the Canadian system, administrative costs are negligible by American standards. Moreover, the gap between U.S. and Canadian administrative costs has been widening steadily since Canada completed its program. (See Figure 2.) This six-to-one ratio clearly understates the real difference in cost. It does not count the paper-shuffling burden borne by American patients. Nor does it include the large proportion of recorded payments to doctors and hospitals that are really administrative overhead required by our complex financing arrangements. "An increasing share of the sums Americans think they are spending on hospital and medical care," the Canadian economist Robert Evans notes, "are going in fact to pay for administrators, accountants, lawyers, public relations specialists, and other forms of personnel whose services are not usually considered as contributing to the health of patients."

Myth 2: NHI interferes with the doctor-patient relationship. One ad in the AMA series asks, "Elective surgery--should it be up to you?" The ad implies that Canada reduces the ordinary citizen's freedom of choice in medical care. It is a thinly veiled message to those Americans with either broad insurance coverage or ample funds to buy whatever care they desire. Seeking allies, the AMA represents Canadian-style reform as a threat to America's affluent and insured.

That same message, of course, will hold little appeal to the millions of Americans without the money or coverage to get elective surgery. Nor is it likely to appeal to Americans whose choice of doctor is limited by their health maintenance organization (HMO) or by lower reimbursement for visits to out-of-plan doctors (under so-called "preferred provider organizations," or PPOS). An increasing number of companies are trimming their health care costs by adopting these alternatives. Under the rubric of "managed care," many such plans limit elective surgery, require second opinions, or require approval by an insurance company administrator.

In Canada, by contrast, citizens have no restrictions on their choice of physicians, and their physicians do not have to obtain approval from administrators for treatment they recommend. If freedom of choice is the deciding criterion for many people, it actually works in favor of the Canadian model, not the forms of health care that are now growing most rapidly under the aegis of market-oriented reform in the United States.

Myth 3: NHI leads to long queues for treatment. Another advertisement in the WA series pictures a worried woman and warns, "In some countries she could wait months for her surgery." Every country, including the United States, has waiting lists for elective procedures and sometimes even essential ones. The important question is the impact on the patients' well-being. Americans being treated in hospital emergency rooms, particularly in big cities, often wait for hours for critical care. Private hospitals routinely turn away uninsured patients, dumping them on the public sector. These "economic transfers," estimated at 250,000 annually in the United States, often result in serious delays in treatment, cause long-term harm, and have cost some patients their lives, though federal law now requires hospitals to assure that patients are in stable condition before transfer.

When most Canadians are sick or injured, they are cared for in a timely manner. Indeed, the overall rates of hospital use per capita are considerably higher in Canada than in the United States. Nonetheless, there have developed long waiting lists for some services, particularly for open-heart surgery and magnetic resonance imaging, the newest radiological procedure for diagnosis. These delays typically reflect managerial problems and labor bottlenecks more than chronic shortages of facilities. If they involve patients in urgent, life threatening condition, there is political outrage. Open-heart surgery is currently the most controversial example. Government officials in British Columbia watched their waiting list for cardiac surgery grow to more than 500 during 1990 and, in response, purchased surgery from Seattle hospitals with excess beds and heart surgeons. This incident is the sort that opponents of the Canadian system cite as illustrating its failure. But such cases reveal as much about American slack as Canadian restrictiveness -- and they bring us to the next myth.

Myth 4: National health insurance lowers the quality of medical care. As Table I shows, some expensive, high-technology items are less available in Canada than in the United States. It is unclear, however, whether the rates of investment in such technologies in the United States represent a standard for judging other countries. Many analysts believe the United States has over invested and overused some technologies. Hospitals competing for market share have installed equipment that stands idle much of the time or, even worse, is being used without good medical justification to generate reimbursement from insured patients. The fundamental patterns of investment in the United States have been distorted by differences in insurance coverage. There is no incentive to invest in preventive care if the health benefits are high but reimbursement is uncertain. There is every incentive to invest in high technology if health benefits are uncertain but reimbursement is assured.

Canada has a full range of high technology facilities, but there is considerably less abundance and little competition for market share. Expensive capital equipment is first approved only for specialized medical centers, and subsequent diffusion is closely controlled by provincial ministries of health. This control results in lower rates of cardiac surgery, magnetic resonance imaging, lithotripsy, and some other complex services. In some cases, these lower rates are probably appropriate: The additional use in the United States reflects incentives for overtreatment. In other cases, Canadians are not receiving services that would have some health benefit at a high cost (instead choosing to provide other forms of care and reserving more national income for other purposes). Of course, no nation can provide every service that would conceivably give someone benefit. The question is whether the Canadians are making a reasonable choice and providing medical care of high quality.

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The quality of a nation's health care is never simple to measure. The United States certainly offers medical care of higher quality than does Canada if quality is defined as easier access to complex technologies regardless of their effectiveness. And American medical care may be the best in the world if quality is defined by the technologies and facilities available to the most privileged members of a population. But if we define quality by some measure that reflects both the effectiveness of treatment and the respect and consideration shown to patients -- all patients, not just the affluent and insured America ranks lower than other countries in the West, including Canada, that have national health insurance.

There is certainly no evidence of any Canadian disadvantage if our standard is the actual health of the public, though medical care is only one of the many factors affecting health and by no means the most important. (Canada actually has a clear advantage in life expectancy and infant mortality, but probably for reasons unrelated to its system of health care finance.) And if consumer satisfaction is our basis for judgment, both polls and political behavior give a big edge to Canada.

According to a ten-nation survey published in Health Affairs, Canadians are the most satisfied and Americans the least satisfied with their country's health care system. While only 10 percent of Americans surveyed say their health system functions "pretty well," 56 percent of Canadians thought their health care system works well. Eighty-nine percent of Americans say their system needs "fundamental changes" or "complete rebuilding."

The higher levels of satisfaction in Canada suggest the importance of the distributive dimension of health care quality. Major aspects of American medical care -- the widespread inability to obtain health insurance, the limited extent of immunization, the large number of pregnant women without regular medical attention, and the risk of bankruptcy from illness -- would be considered intolerable in other comparably wealthy nations. Canada has fewer centers of technological excellence, but the average level of care is, by any definition, at least the equal of that in the United States.

Myth 5: NHI leads to rationing. Critics warm that Canada "rations" medical care. If by rationing they simply mean limiting services, every country in the world rations health care. The question is how and how much. The United States limits services by ability to pay and, accordingly, shows significant differences in access to health care by race, class, and employment circumstances. By contrast, Canada and most other developed countries attempt to provide more uniform access to the entire population. Medical care then depends more on a professional assessment of medical need than on insurance status.

Rationing, in this context, is another name for allocation. Whether it is objectionable depends also on the extent of free choice and the distribution of control. Americans in HMOs and other systems of ,'managed care" face systems of corporate rationing; the rules for rationing are matters of business strategy. To be sure, some employees in the United States are offered a choice among such plans, but they are hardly in a position to know much about how the HMOs control their spending. They have no way of knowing, for example, whether an HMO might deny them referral to a specialist in the event of a rare disease or difficult procedure. Because Canadians have free choice of physician, they do not have to worry about that kind of rationing. And while the rationing choices of an American HMO are private, Canada's choices about spending on hospitals and other health services are publicly debated and democratically decided. If Canadians come to feel that they should spend more on high technology services, their system allows them to do so more efficiently and equitably than does ours.

Myth 6: NHI causes an exodus of physicians. Some Canadian physicians were coming to the United States long before Canada introduced national health insurance. Emigration did not increase significantly afterwards. The numbers of emigrants to the U.S. has always been small, never enough to offset a steady increase in the number of Canadian physicians. The ratio of physicians to population has steadily increased and actually grown closer to the U.S. level. In 1987 we had 234 doctors per 100,000 people, while Canada had 216.

Stories about deep discontent among Canadian physicians are much exaggerated. Physicians were the highest-paid professionals in Canada prior to the introduction of universal medical insurance; they still are. When national health insurance began, the provincial governments accepted the existing fee schedules of provincial medical associations, although in most provinces payments were initially set somewhat below 100 percent to reflect the elimination of doctors' risks of unpaid debts. Since that time, provincial medical associations and ministries of health have negotiated changes. Since much of the bargaining for resources and control gets carried out in the public arena, these negotiations are contentious. Provincial ministers of finance typically forecast imminent bankruptcy; medical associations threaten dire service cutbacks if they don't get more money; and the media, always hungry for conflict, seize on the extremes of these positions. These controversies sell newspapers; they do not mean the system is about to collapse.

Is It Politically Feasible Here?
Skeptics claim that the United States and Canada are too different to borrow from each other. Americans are allegedly too individualistic to accept a government program. Skeptics also argue that the United States, with its elaborate checks and balances, cannot adapt programs from a parliamentary system.

But the same arguments could as easily have been offered in 1935 against Social Security or at other times against other national programs. In fact, Canadian doctors remain in individual practice, and Canadians choose freely what practitioners to consult It is unclear that America's current system represents any higher level of individualism.

Moreover, just as the Canadians have set up their program on a federal basis, so might we. The impediments to borrowing the Canadian model do not lie much in the structure of government. They he in the power of the opposition. America's political leaders have traditionally allowed the providers and insurers of health care to control the substance of policy and boundaries of debate. Is it true, as Stanford economist Alain Enthoven argues, that borrowing from Canada is "off the radar screen of American possibility"? A good many people have an interest in maintaining that assumption and thereby contribute to keeping fundamental changes off the radar screen and off the agenda.

We are hardly sanguine that Canadian-style reform is likely in the near term. Nevertheless, the Canadian approach has growing support from unlikely quarters. Like Chrysler's Lee Iacocca, many large employers see themselves threatened in international and domestic markets by the high costs of insuring their employees. The small business community is pleading for government help because their health insurance costs are even more onerous. In 1989 the American Chamber of Commerce, eschewing free market ideology and its usual preference for state and local authority called for federal legislation guaranteeing small employers health insurance options at reasonable rates. Employers large and small see a clear likelihood that they will soon be required to pay for health insurance for both their own employees and others currently uninsured. All around the country, state governments are seeking the equivalent of universal health insurance.

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The opposition of private insurance companies to health insurance reform is changing, too. Making money on health insurance is not easy these days. Relentless medical inflation, costly technology, a growing number of doctors, and an aging population have put the insurance industry repeatedly on the wrong side of the cost curve. More important, consumer hostility to insurers is fueling demands for legislative action. The insurers are seeking a solution that will bring insurance to the uninsured, make less visible the industry's practice of "skimming" (competing for the healthiest customers and ignoring or pricing out the less healthy), and yet leave the future administration of health insurance to them rather than to the state. They fear a political choice between a universal, mandated private insurance program, with substantial regulation of terms and rates, and a state-run insurance scheme that eliminates their role entirely.

Of course, no one should be misled about the recent, death-bed conversion of the health insurers to industry reform. They are as resistant as ever to a Canadian-style plan and have fully participated in the mythmaking about Canada's supposed unsuitability to American circumstances. After all, administrative costs to citizens and policy-holders are income to the industry. But this truism should not obscure the defensiveness of the health insurers, their inclination to discuss reform, and the greater likelihood in the present climate that they might be forced to accept terms they publicly say are unacceptable. Finally, U.S. physicians are increasingly aware that they cannot avoid regulation. Their actions and decisions are already being scrutinized and limited by hospitals, insurance companies, and governmental agencies, all seeking to control costs. Looking at Canada's Medicare, they should be struck by the independence of Canadian physicians, the preservation of fee-for-service practice, and the reduction of bureaucracy, particularly as it affects physicians' everyday practice. If they can overcome their reflexive rejection of government, American physicians will find that a Canadian-style alternative has considerable advantages for their profession and their patients.

The obstacles to reform of American medical care, nonetheless, are enormous. Medical expenditures now divided among the government, employers, private insurance companies, and consumers would have to be converted or channeled into publicly controllable funds. American politicians would have to be willing to put aside their fixation with where costs are counted and deal with real issues of public economics -- how much is spent overall, for what, and on whose behalf. The complaints of pro-market commentators would have to be answered, a task that is much harder now than during the fight over Medicare because free-market ideology has gained influence in economics and policy analysis. Ideology would have to be countered with pragmatic argument, illusion with fact; and all this would have to be done by politicians who were elected by running against government.

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Yet there are the makings of a political compromise here. The public wants broadened, simplified, and stable coverage at reasonable out-of-pocket cost. Firms want to reduce their costs of insuring employees and, at the very least, to avoid paying for the health insurance of the unemployed and uninsured. Insurers fear that they may be in a new ball game in which at best they will be the unwelcome administrators of so-called managed care and at worst they may be excluded from the market. Perhaps they could manage everyone's care on behalf of state insurance schemes. Or, at least, some insurers might play this reduced administrative role, as was the case in Ontario during the mid-1960s. In short, although movement toward something like Canadian national health insurance may appear ideologically a large step, most of the pieces needed for a state insurance program are already in place, and interest-group politics might join with popular sentiment to permit such a move. What would it take to make the Canadian model work in the United States? Part of the answer lies in distinguishing the necessary from the incidental elements of the Canadian success story. We see two essential elements:

  • Near universality of coverage: Canadians in each province are in the same boat, all insured on the "same terms and conditions." Universality has made it politically impossible to deal with cost pressures by cutting the benefits or eligibility of some people.
  • Clear concentration of responsibility: Canadians lodge financing responsibility in a ministry of health or its equivalent. Financing medical care under concentrated rather than fragmented auspices eliminates the administrative costs of multiple payers. Furthermore, it creates more leverage in bargaining with providers. Concentrating responsibility also means leaders cannot disguise costs by shifting them to other groups of patients. All this adds up to clear political accountability: Canadians know whom to hold accountable for the cost and quality of their health care.

    What sorts of changes could be made in these elements without losing what has been necessary for Canada's relatively successful experience?

    Modified Universalism
    Canada's universalism is strong in two ways. Every Canadian belongs to the same provincial health insurance plan as his neighbor and enjoys the same coverage under the plan. Private insurers are legally forbidden to sell coverage duplicating publicly insured services, though they may provide supplementary coverage for such things as private rooms in hospitals or outpatient prescription drugs.

    To maintain the "equal terms" of access, Canadian doctors have been barred since 1984 from charging patients anything above the government's fee schedule (a practice known as "balance billing" or "extra billing"). In these respects, Canada is probably more egalitarian than any other comparable industrial democracy.

    Perhaps not all of these features of Canadian universalism are necessary to an acceptable and workable form of health insurance. Canada itself did not start with such a firmly egalitarian version. The Hall Commission of 1964-66, a governmental commission that helped lay the foundations of Canada's current program, defined universal as no less than 95 percent of the citizens within each province. The political force of universality arises not from complete inclusiveness but from the breadth of the constituency affected. (Our public water supply is closely monitored even if a few people drink bottled water exclusively.)

    There is consequently no reason for American reformers to insist on Canada's very strong contemporary form of universal enrollment. Universal health insurance means providing insurance to all, not necessarily requiring that everyone share exactly the same system. About a tenth of the West German population opts for more expensive commercial insurance without impairing the rest of the system. There is a zone of adaptation and compromise between identical treatment and unacceptably different treatment. What is essential is that the health insurance boat include most Americans on roughly comparable terms, not that all the boat's cabins be the same size or have the same view.

    American public schools are a good analogy. Where state and local arrangements keep public schools strong, the competition of private alternatives does not undermine public support and school quality. But the balance is delicate and easily upset. We cannot force Americans to use public health insurance any more than public schools. But we should worry a lot if many citizens take up the private option. The public program must be sufficiently attractive that most citizens will want to be included.

    Would it be acceptable to permit physicians or other medical professionals paid on a fee-for-service basis to bill for more than the insurance program provided? The answer here is clear. The capacity to contain medical costs depends on establishing firm limits. Balance billing allows providers to escape those limits; it reintroduces barriers to access that universal health insurance is meant to lower. No successful national health insurance program has permitted this practice for long. Canada found over time that balance billing became a serious problem in many communities, threatening both the uniformity of citizen treatment and access to treatment itself.

    Concentrating Financial Control
    Cross-national evidence suggests that it is the concentration of financial responsibility not its precise location, that is crucial to countervailing inflationary health pressures. It so happens that Canada, by constitutional requirement, had no choice but to use provincial governments to administer health insurance. Great Britain, by contrast, concentrates financial responsibility in the national ministry of health, and Sweden does so in each of its county councils. The lesson for the United States is that there are options here.

    The more difficult question is whether Canada's public financing and direct governmental administration are required for political accountability. Public financing -- through earmarked provincial premiums and various federal and provincial taxes -- makes Canadian outlays for health care highly visible. At the same time, Canadian provinces could, and some did, use existing health insurance companies as political buffers between physicians and government. In Ontario in the mid-1960s, private companies served as "post office" intermediaries for the flow of funds and the processing of claims. Such a buffer seemed terribly important then, a concession to the deeply felt hostility of many Canadian doctors to government medical insurance. In fact, the provinces that used financial intermediaries at the outset gave them up within a few years. They made administration complicated and expensive and, once their role in moderating conflict was no longer necessary, they seemed useless (except to the insurance companies).

    One can certainly imagine the use of such intermediaries in the United States. This, after all, has been the pattern with our own Medicare since 1965 -- an arrangement that draws upon private expertise and "economizes" on the number of public employees. The Canadians, we should clearly note, found such indirect management cumbersome and more expensive than direct administration. But contracting out of financial tasks is certainly, on the Canadian evidence, compatible with political accountability. Were this a vital element in an American compromise, giving some limited role to the health insurance industry would not be devastating.

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    In the United States of the 1990s, the crucial political problem facing national health insurance advocates may not be the clout of the health insurance industry, but the public's hostility toward increased taxes. It is worth pondering whether it is possible to have the right level of countervailing power without the fusion of taxing power and negotiating responsibility in a single public agency. What would be lost if, for example, state regulatory authorities set the terms of medical care finance, negotiated with hospitals and physicians, and required that employers finance health insurance directly or pay into a state fund a fixed amount per employee?

    In West Germany, national and state governments constrain the negotiations among physicians, hospitals, and the thousands of sickness funds without channeling social insurance financing through the public budget. But the U.S. lacks the German history of lifelong membership with one health insurance institution and the tradition of "corporatist" bargaining between payers and providers.

    Financing medical care out of general tax revenues, as in Great Britain and in Canada, does seem to reinforce constraints on medical inflation. Other government departments are dependent on the same tax revenues and are, in effect, organized constituencies for controlling health costs. Although contrary to the "privatization" mythology of recent years, there is a strong positive relationship between public finance of health care and cost control.

    Important as it is to concentrate taxing, negotiating, and budgeting power, concentration alone will not constrain health costs. The political will to restrain health care costs is itself a necessary ingredient for success. In the early years of Canadian hospital insurance, budget overruns were very common, and the provincial governments typically covered the deficit. In later years, deficits were much less generously treated and hospital administrators who did not play by those rules often lost their positions. Some version of a spending target -- with serious consequences for missing the mark -- is crucial for the containment of health care costs. That is not a matter of administrative architecture or policy technique.

    American health economists have persistently advised that making patients pay a portion of their hospital and doctor bills is essential to cost containment. Cost-sharing by patients is said to make them cost-conscious and more restrained in their use of medical care. Cost-sharing, of course, adds millions of additional payers to the system of financing, with all the extra administrative costs that entails. Moreover, cost-sharing threatens equity of access by raising the price of medical care to patients who may not be able to afford it. But the real lesson from abroad is that significant patient cost-sharing is unnecessary to control medical inflation. With negligible costs-haring, Canada and Western Europe all achieve greater cost-control than we do.

    The message conveyed to the American public since 1975 -- that less reliance on government is the key to controlling medical costs -- needs to be challenged. That is partly why the Canadian example has become so important. Canada's experience shows that the choice Americans have given themselves -- increasing access or controlling costs -- is false. We have another alternative. The reality, bluntly put, is that as a nation we cannot afford to do without sensibly structured national health insurance. That is what the public says it wants. And it is what the country genuinely needs.

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