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Back to Basics: Health Insurance

Source: Dr. David Gratzer

What is "medicare"? Medicare is a common yet inaccurate term, for it doesn't refer to an easily identifiable government program. A description of it might note that medicare covers many health services, that it is provincially administered and that the federal government contributes to its financing. A health analyst would probably define the term using language such as, "Medicare is a state-financed health insurance plan". This is a straightforward definition that is often repeated.
 
But is medicare health "insurance"? It may seem so at first. Medicare, after all, means that the cost of health services isn't directly borne by the patient. People sometimes say that health services are "free". Such a claim is untrue. A visit to the doctor isn't free. The doctor gets paid by a third party (the government). Medicare thus seems like insurance: a certain amount of money is paid to the state, which covers expenses incurred.
 
But the idea of insurance has been distorted in health care. Insurance is meant to protect people in times of unforeseen or catastrophic events: automobile insurance (for car accidents), life insurance (for death) and disability insurance (for physical injury).
 
However, medicare does more than just protect us against the cost of health care after a serious accident or a bout with cancer. Medicare covers the costs associated with checkups, X-rays and even frivolous visits to an emergency room.
 
Such coverage comes at a steep price. Imagine if a homeowner has insurance that covers all home expenses. Fire damage would be covered, but so would house painting, window washing, recarpeting, wallpapering and cleaning. Under such circumstances, how often would the homeowner get the house cleaned? Often. How frequently would he or she redecorate? Frequently.
 
The same is true of our health "insurance" - because it covers nearly all health care expenses, taxpayers must shell out billions of dollars each year. The average working Canadian pays roughly 21¢ of every dollar earned for this all-inclusive insurance. This means that Canadians earning $35,000 a year pay $7,350 for medicare. Of course, part of this amount goes toward paying for the elderly and the chronically ill, but a large share goes toward paying for an inefficient system. Here again, there's a perverse incentive to overconsume: because we know we're paying handsomely for medicare, we like to feel we're getting our dollar's worth.
 
The problem occurs because medicare covers both catastrophic health expenses and discretionary spending. The "free" nature of health care in Canada means that the doctor-patient relationship is corrupted and that institutional providers are allowed to remain uncompetitive. The only way to address these problems is to allow patients more control over their health expenses. In short, discretionary spending must be divorced from catastrophic expenses: people should be covered in extreme situations but left to pay for minor problems, so long as they can afford to do so.
 
Economists speak of the "rationing" of health care. Given that people's demands far outstrip supply, even in the wealthiest nations, health services must somehow be rationed. In Canada, rationing is achieved through restricting supply. Do people stay too long in hospitals? Then reduce the number of hospital beds. Do people get too many MRI scans? Then don't buy MRI machines. In many ways, rationing is achieved through waiting lists.
 
This approach may seem satisfactory, but it isn't. Government reforms aren't - indeed, can not possibly be - designed for the individual case. It may make sense, say, to restrict the number of frivolous cases at an emergency room. Good luck trying to work that idea into policy. If emergency room use is expensive and many of the cases are deemed frivolous, then the policy maker's response is to reduce the number of emergency rooms. This is an arbitrary and unsatisfactory method of rationing care. In the long run, the outcomes are far from clear. Cost control may be achieved, but many unintended consequences may develop - chronic over-crowding of emergency rooms being a case in point.
 
Demand-side reform would be very different. People would be empowered to make their own decisions about diagnostic tests, treatments, hospital stays and visits to the emergency room - and face, to some degree, the financial consequences. If you want another X-ray, fine, but you are going to have to pay for it.
 
Note: All references are to the full-length edition of Code Blue: Reviving Canada's Health Care System published by ECW Press, Montreal. To order Code Blue, call 514-499-8173, visit ECW's web site at http://www.ecwpress.com www.ecwpress.com or ask for it at your local book store. (Distributed by General Distribution Services: 416-213-1919)



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