Friday, August 25, 2006

The great (?) health care debate

A couple days ago I was composing a post about the privatization of health care in Canada. The issue is of course in the forefront now that The Canadian Medical Association has a new president, Dr. Brian Day, the owner of Canada's largest private health-care clinic. He advocates the introduction of a (legal) hybrid of public-private health care. After reading more than a few inconsistent and inaccurate news reports, I said to hell with it and trashed my post. The CMA and the media are giving me the excuse I need to continue to loathe health care issues. Further, I'm young, fit, healthy, and therefore ignorant. Still, I'm glad the privatization debate is being pushed to the forefront. No more pussyfooting around. I was thrilled to see Maisonneuve accurately describe the debate:
The CMA is merely laying the foundation for a debate that is long overdue in this country: a debate that has to transcend the overly simplistic notion that public health care is a zero-sum game.
In fact, Joe Boughner did such a nice job, I'll post his entire blurb (I'm not sure how long it's available on-line for) .
FYI: I plan to post more frequently once again in the near future, I'm just fraught with more deadlines than I can handle right now.

FYI #2: Canada's seven major dailies are referred to by Maisonneuve as The Big Seven.
CURING THE HEALTH-CARE DEBATE, by Joe Boughner (Aug. 24):

Public health care is dead; long live public health care! Canadians who are used to bold proclamations from the various interest groups involved in the health-care debate can be forgiven if they are confused about the Canadian Medical Association's take on the matter. It would seem that even the Big Seven can't agree on what the group has to say. “Doctors split on health-care solution,” remarks the Globe across the top of today's A7 a cautious observation when compared to the Post's declaration: “Doctors ok with private health option.” At least the Citizen, which runs the same Norma Greenaway article as the Post, offers a qualifier: “MDs back private care if wait times too long.” Looking beyond the headlines, the story starts to get a little clearer, even if the CMA's stance doesn't. Delegates at the association's national council in Charlottetown passed a series of resolutions described by the Globe as “confusing and sometimes contradictory.” Creating a parallel private system to ensure better access? Agreed! Opening the door to the private insurance that would allow such a system to exist? Nay! To further the confusion, delegates backed a motion to ”acknowledge the strengths” of the public system while repeatedly lamenting its lack of funding, insufficient staffing and poor patient care. All in a day's work for the association that earlier this week elected a private practitioner that supports medicare as its new president.
While it's tempting to lambaste the CMA for its ambiguous stand, the reality is that the delegates are only reflecting the true nature of health care in Canada. Contrary to what many folks on either end of the political spectrum will tell you, the health-care debate is no longer simply a matter of black vs. white, private vs. public. As anyone who wears glasses or gets their teeth cleaned could attest, Canada already has a mixed system. Such “non-essential” services aren't covered by government health plans in most provinces, and private sector insurance has moved in to fill the void. The CMA is merely laying the foundation for a debate that is long overdue in this country: a debate that has to transcend the overly simplistic notion that public health care is a zero-sum game. It won't be an easy debate for the Big Seven to cover, but avoiding misleading one-sided headlines like the Post's would be a good start.


BSF said...

You should post: we need a proper debate on the whole issue of how to provide universal access to necessary health care. One thing which we need is for the debate to spread beyond the usual suspects making the usual claims. Far too many of the long-time participants have nothing new to say.
As the debate has run in the past, the aim of too many participants has been to be the first to accuse others of favouring American-style health care and the utter destruction of Medicare. Not helpful. The Chaoulli decision at the very least forced recognition of the fact that other countries do have hybrid systems which seem to work reasonably well.

Part of the problem is the definition of the word private: does it refer to supply, payment (i.e. insurance) or capital funding. We also need to get past the claims that economics doesn't apply in health care. To be sustainable in the long run, even a national health insurance system has to take account of downward sloping demand curves and upward sloping supply curves, and of the need to allocate scarce resources among virtually unlimited ends. See what you think of the stuff that's going up here
and here
(statement of interest - I was involved in the writing of these).

Brian Ferguson

true dough said...

Prof Ferguson,

Thanks for the links. I am well on my way to caring.

In some respects the hybrid system has me sold, but I find other areas murky.

I'm sold on quality. As you point out in one of your papers, a move towards privatization could increase incentives on the demand side (economizing the consumer's choices) and also on the supply side (increasing investment and competition). This is a great point for those who are concerned that public health services will deteriorate if we move in the direction of privatization. You drive this point home on the supply side here:

“Canadian hospitals get over 90% of their funds from public sources. American hospitals are also dependent on the public sector - on average about 60% of their funding comes from various government programs - but with a fundamental difference. Canadian hospitals (with a few minor variants) get their funding in the form of global budgets while American hospitals get theirs by selling their services to government programs - Medicare, Medicaid and the like.”

Under a hybrid scheme, if Canadian health providers compete in order to sell their services to government programs, the government will be under pressure to issue contracts to providers who can keep up with the services and technological advancements being pushed forward in the competitive private sector. This is a major strength of the hybrid system.

However, I'm less decisive in other areas, such as the privatization of payment for care. Specifically, in a hybrid scheme, what affect does health insurance have on the labour market if employers become financiers of health insurance offerings? For example, if we expect employer-offered health insureance to gradually become more prominent, couldn't we expect this to come at the cost of decreased worker mobility across Canada? Further, could we expect real wages to fall over time if health insurance is valued by employers at the same monetary cost as wages? I haven't seen this addressed anywhere by the major players - perhaps I'm missing something in the debate.

Prof Ferguson, do you have a stance on the affect of privatization of payment for care on labour?

happyjuggler0 said...

Well, as bsf, aka Brian Ferguson, aka Professor Ferguson, alluded to, most everyone seems to be making the same arguments and not adding anything new, so I'll spare you all on my libertarian opinions on what to do.

However, I'll add a couple of things anyway, noting I am American and far from familiar with Canada's health care system.

1) The US is most definitely not a free market health care system, leftist propaganda notwithstanding. Indeed, it is also a hybrid system. Alas. :(

2) I don't see how you can manage a health care system with government being 100% of the payments system without some horrendous consequences. Anyone remember that prices in a market system reflect supply and demand, eh? And that the absence of such market derived prices means (otherwise avoidably) large shortages in some places?

My point simply is that if the government sets the prices, then you will indeed have the same lines such as in the Soviet Union that some of us grew up seeing on tv, and some services will simply not exist at all for lines to even form up on. Not good eh?

A hybrid system thus has one huge virtue over a single payer system. There are market prices for those who care to pay them (or are forced to pay them due to means testing) instead of getting their health care for "free". These market prices act as a warning to those in government who have some inkling of economics that they will have unhealthy shortages when they set price ceilings, and one can even hazard a reasonable guesstimate at how much of an effect this will have. But in the absence of a market price rule such "prices" give you no useful information about supply and demand factors, and you have to wait for noticable shortages to develop before you can adjust prices. In the meantime people needlessly die and are needlessly maimed and go through needless suffering while in line, (or should I say queue?) due to Soviet style pricing.

I'll leave it to you Canadians to sort out what sort of hybrid you want. Just keep in mind that the US doesn't have a free market health care system, so before you judge its faults you ought to consider which faults can be properly blamed on the lack of market efficencies due to government distortions.

In my opinion a proper analysis would yield the insight that virtually all of the US healthcare faults lie in government distortions. But I promised not to go there....

P.S. Yikes, did your (bsf) parents really give you bs for initials? If you were a politician I'd say it was foresightful signaling on the part of your parents. :)

happyjuggler0 said...

Partially off topic post:

I can't help but wonder how much of the Canadian fear of "American style free market health care" is about disdain for free markets and how much is about disdain for the US.

Canadians (as a generalization) seem to view being a bit to the left economically to the US as being more compassionate, and thus superior.

From my libertarian perspective, I am saddened that people think that more government equals more compassion. One need only look at communism to see the fallacy of taking that notion too far.

But aside from the communist extreme, more government is still not compassion from my point of view. It seems empirically obvious that such "compassion" works out to a significantly higher NAIRU, especially when one looks past official unemployment numbers and adds the off the books numbers in countries like Sweden.

I don't see how anyone can view more unemployment as compassion. This is the seemingly inevitable result of government "compassion" though.

The rioting in France recently does not look like anyone's definition of the recipients of compassion either.

true dough said...

happyjuggler, I think we're seeing a shift towards more libertarian attitudes in Canada. Hopefully a transition in our health care system will prove this sooner than later.

You say: “I can't help but wonder how much of the Canadian fear of "American style free market health care" is about disdain for free markets and how much is about disdain for the US.”

I really don't think Canada's disdain for the U.S. is the cause of the stagnation in our health care system.
Rather, I think a lot of Canadians just think the U.S. doesn't have a pretty system. But I think the hybrid system could be made to work.
Further, I don't see how the U.S. could get away with ditching the hybrid system. The health industry is an exception in that it is one market where the laws of economics in a competitive market just don't cut it (assuming the health of the lower class are a priority). Perhaps that's why I avoid this subject.

In at least one respect, the results of a 100% private system would surely be the same as a 100% private system: in your words, “...people needlessly die and are needlessly maimed and go through needless suffering while in line...” The only difference is that the suffering would be by the lowest class, instead of the general public in the case of a 100% public health care scheme. Where would the lower class get good affordable health care in a full-blown private scheme? Perhaps Wal-Mart.

In a hybrid system, two objectives are taken care of: the incentive for innovation exists and the lower class are taken care of.

Anyway, I think many Canadians are moving away from socialist ideals, we just like to avoid the controversy associated with change. Another thing about Canadians, we generally don't find the use of “eh” to be so cute on foreigners. Ha. ;)

true dough said...


I meant to say:

"In at least one respect, the results of a 100% public system would surely be the same as a 100% private system..."

happyjuggler0 said...

No, I don't suppose you think eh is as funny as I do. Oh well, I may not be perfect but I am American.

I am definitely libertarian, albeit of the minarchist variety a la Milton Friedman and others, instead of the "pure" anarchocapitalist variety. On a side note, I can't guarantee that that wiki link will be accurate in the future, but I more or less agree with it as listed right now. Minarchism has a wide umbrella of similar definitions as one might guess from reading the linked article.

As libertarian as I am, I have a hard time believing that even in my achievable utopia (please excuse the oxymoron), I don't see the US as ever letting people simply die in the streets do to a lack of health insurance. It doesn't happen now either.

Once upon a time, in the US and elsewhere, doctors charged patients based on their ability to pay. One way or another the same will hold true in the US even under a more libertarian health care system, although I don't see the rich paying more than the middle class most of the time, if ever. This means that patients of means will simply have to pay more than in an unsubsidized die-in-the-streets system. Working out the mechanics of this is the rub.

Some examples of government distortion that makes the US far from a free market health care system:

Tax incentives for corporations to provide health insurance. This has profound implications for moral hazard reasons as poor health choices (smoking, obesity, lack of exercise, etc.) are not monetarily punished.

It also means that people make less efficient choices in picking medical treatment when they think it is free. It also means that their health insurance is not very protable from job to job, and this distorts the labor market as well.

Licensing of the medical profession makes illegal the practice of learning and applying a small number of techniques (stitching patients up in emergency rooms is but one example where you don't need eons of training) makes for higher labor costs per ailment. One implication is that some will forgo treatment due to its high cost.

Medicare and Medicaid are horrible distortions in and of themselves, regardless of one's opinion of whether or not they ought to exist and in what form. Aside from the distortions from price ceilings, there are the same moral hazards from "free" or heavily subsidized insurance as from corporation provided insurance.

Malpractice suits. In addition to medical malpractice insurance costs being passed on to patients, this has other less obvious implications. The most damning is defensive medicine, where doctor's order needless (and highly expensive) tests to cover their backs.

It is essentially impossible to find out a doctor's record, although this would be one rare area that government could step in and mandate disclosure. Instead it effectively does the opposite.

The FDA practices defensive permission-granting to new drugs and devices. Thus a life saving (or life enhancing) drug that may be available in Europe is not available in the US until a few years later. This desire to prevent deaths from bad drugs winds up creating deaths from an oppotunity cost perspective. Ditto pain and other suffering instead of deaths.

This process also raises the cost of drugs in the US as the effective patent length is shortened. The higher costs also prevent some drugs and treatments from existing in the first place on the margin. This is all invisible though as people basically never see opportunity costs and they are very hard to quantify.

Anything that raises the cost of treatments also raises the cost of insurance, thus increasing the amount of privately uninsured.

It is worth noting that no one is withheld treatment in the US, and the poor don't have to pay.

Those are the highlights from the top of my head. But it ought to be clear that the above don't fall under the category of free market. These are not minor in and of themselves, and cumulatively they add up to a system that can only dubiously be called free market health care. It would be worth trying out before we discard it as many on our (the US) economic left would have us do.

However due to poor (and inaccurate) framing people seem to think the US is a free market health care system.

true dough said...

You're right - many people think of the US system as being 100% private. The "private" label that the US has is really unfortunate from a Canadian perspective because it seems to distort our ability to weigh the pros and cons of health reform. The sooner we can recognize the real problems of the US health system, the less likely we'll follow in its footsteps.

You say: “...It also means that their health insurance is not very portable from job to job, and this distorts the labor market as well.”

I find this to be the most interesting part of the privatization debate, perhaps because it is entirely ignored here. This is one of the subjects I addressed in my response to Prof Ferguson. I haven't heard of any economists attempting to forecast the effects of a hybrid health system on Canada's labour market. For example, what will be the impact on worker mobility, or on real wages if health insurance is valued by employers at a one-to-one cost with wages? David Cutler has a good paper on this in the US context, but I wonder what kind of impact Canada can expect.

Anyway...”minarchism” - a wonderful term. I am particularly amused by the variety of minarchists cited by Wikipedia, which include Milton Friedman and Bureaucrash (apparently fronted in part by JA$ON, the "Crasher-in-Chief").