Fixing health care from the bottom up

Lawrence Solomon
National Post
May 16, 2000


It isn’t brain surgery. Fixing medicare only seems complicated because the health-care bureaucracy devises convoluted reforms to maintain its control over one of Canada’s largest economic sectors. Any top-down plan will inevitably be next to impossible to administer efficiently.

The real solutions to medicare’s plight are all simple, but some are more desirable than others.

Simple plan No. 1 involves keeping the status quo, but putting more government money into medicare. The federal government supports this plan if the money comes from the provinces, and the provincial governments support this plan if the federal government pays. Under this plan, politicians will bolster medicare just enough to quiet the most vociferous criticisms. Medicare will operate at the general public’s pain threshold. Those who can afford it will be treated in executive health clinics and across the border.

Simple plan No. 2 involves going to two-tier medicine. Under this approach, those who can afford better health care won’t need to leave the country for it, and the government won’t need to put quite as much money into medicare, since many middle-class Canadians will pay for part of their care directly.

Two-tier medicine has other advantages, too. Doctors will become more service-oriented when patients — not the government — hold the pocketbook. Paying patients are likelier to take charge of their own health. But two-tiered medicine will do nothing to empower those who most need help — the poor and other disadvantaged groups, which have the highest morbidity rates and the lowest lifespans.

Simple plan No. 3 involves health-care allowances, under which medicare would provide all Canadians, rich or poor, with an annual allowance equal to what they currently cost the system, plus an annual top-up. Variations of this system work well in many countries, including Canada, where some employee plans have adopted it. To determine its value for the Canadian public as a whole, Toronto-based Consumer Policy Institute hired U.S. health actuarial firm Milliman & Robertson, the world experts in the field. Here are the basics of health-care allowance for Canada:

The government gives every Canadian an insurance policy that has a deductible, plus a debit card account to which it deposits an annual allowance for routine needs based on age and gender (older people, who tend to have more medical needs, or those with chronic conditions receive larger annual allowances; younger people smaller ones). In a healthy year, the account will be in the black. In an unhealthy year, after drawing down the entire annual allowance, the individual’s insurance policy automatically kicks in to cover all medical expenses. A 35-year-old woman pays a $165 deductible should she need to use her insurance policy, and a 60-year-old man $183. Low-income Canadians never pay a deductible under the actuarial plan.

Everyone over time winds up with a positive account balance because in each year, three out of four Canadians — whether they have chronic conditions or not — won’t have spent their annual allowance. Half of the unspent amount goes back to the government to let it break even relative to the status quo, and half stays with the individual.

The half that stays with individuals amounts to more than $6-billion each year — more than $200 for every man, woman and child — which they can then spend on health needs not currently covered by medicare, such as prescription drugs, dental work, home care, preventive medicine and even future years’ deductibles. The savings cannot be spent for non-medical needs, but they can be invested, as in an RRSP. Once they grow beyond an amount that the individual needs for future health care, and he is retired, the surplus can be taken out as retirement funds.

All health-care critics acknowledge that the current system operates inefficiently. Those with a bureaucratic mindset try to squeeze out savings by capping doctors’ incomes to prevent them from “churning” patients, and by creating elaborate, top-down rules to stop people from using expensive hospital emergency wards for routine medical needs. The health-care allowance approach lets individuals find the savings from the bottom up, by giving patients the financial incentive to question needless doctor’s visits and by letting people choose, say, between paying $300 from their health-care allowance account for an emergency ward service or $30 for service in a doctor’s office.

More importantly, those who most use emergency services — the poor and the otherwise unempowered, who don’t have a good relationship with a family doctor — would have a powerful financial incentive to develop one. To increase their incomes, doctors would similarly have an incentive to court them — after all, they’d have the same personal health-care budget as a rich person. This is the healthiest outcome of all.

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