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Free Money?
California policymakers underestimate the cost and complexity of Canadian health care

Cynthia Ramsay
Medical Progress Today
September 22, 2006

Last month, the State Assembly passed SB–840, the California Health Insurance Reliability Act, which would see the government become the sole payer of most health–care services in the Golden State.

In their commentaries, critics have invoked the great failures of the Canadian "single–payer" system. The bill's supporters have rejected the comparisons and, as a proud Canadian living in British Columbia, I side with them. Not even Canadians would try such a lavish, unrealistic health–insurance plan.

There are many things one could criticize—and perhaps commend—in the California Health Insurance Reliability Act. However, two points stand out: its colossal scope and the contention that it will generate savings. Under the act, the state government would pay for all services deemed medically appropriate by a patient's health–care provider. The plan would cover benefits including but not limited to:

  • Inpatient and outpatient health–facility services
  • Inpatient and outpatient services by a licensed health–care provider
  • Diagnostic imaging, laboratory and other evaluative services
  • Durable medical equipment including prosthetics, eyeglasses, hearing aids and their repair
  • Rehabilitative care
  • Emergency transportation and necessary transportation for health–care for disabled and indigent persons
  • Language interpretation and translation for health–care services
  • Immunizations and preventive care
  • Prescription drugs listed on the formulary
  • Mental and behavioral health care; dental care
  • Podiatric care, chiropractic care, and acupuncture
And many, many other services—including services offered by a bona fide church, sect, denomination or organization whose principles include healing entirely by prayer or spiritual means provided by an authorized and accredited practitioner or nurse of that establishment.

This is important, because the legislation has only a prayer of actually lowering health care spending.

The assembly believes that Californians could get all this without having to pay any deductibles or co–payments, although there would still be premiums. They are also betting (based on a 2005 Lewin Group report) that the abolition of private insurance—with its high administration and drug costs—would reduce health–care spending by $340 per family in 2006. This same report concluded that, assuming that spending growth would be constrained by the growth in state GDP, savings by 2015 would total $343.6 billion.

These assumptions, based on misconceptions about Canadian health care, are almost certainly too optimistic. Canada's health–care system is often mislabeled as a single–payer system. While private insurance is not permitted for those services covered by government plans (which differ somewhat province to province), the private sector has always contributed significantly. For instance, in 2005, private sector spending in Canada was 30.4 percent of total expenditure, with the federal, provincial and municipal governments paying the balance with tax revenues.

Even in British Columbia—which has more experience with universal insurance than most provinces—there has always been a reliance on out–of–pocket payments and private insurance to pay for those services not covered by the government. From the beginning, there was the recognition that a single payer could never afford to pay for all of the health services desired by the public.

The B.C. hospital insurance program was implemented in 1949. (The deal between the federal and provincial governments in Canada, whereby provinces received about half of their hospital costs from the federal government if they implemented a universal hospital insurance program, started in 1957.) When hospital premiums and coinsurance were abandoned in 1954 for various reasons, the provincial sales tax was increased by 2 percent and a daily hospital stay charge was implemented.

British Columbia is one of two provinces in which residents also have to pay a premium for health care to the Medical Services Plan, which covers mainly physician services: monthly premiums range from $54 Cdn to $108 Cdn, with financial assistance available. There are also charges for ambulance service and income-dependent fees for certain home–care services, ambulatory care, nursing home intermediate care and adult residential care.

Under the B.C. Hospital Insurance Act, the benefits provided were mainly those "as are recommended by the attending physician and as are available in or through the hospital to which the person is admitted as an inpatient." The coverage of such things as radiological diagnostic and therapeutic services, lab services, physiotherapy and medications was at the discretion of the insurance commissioner. Coverage was limited to short–term hospital care, including the acute phase of long–term illness.

Even with the 1957 act, outpatient–care coverage was optional for provinces and, while most rehabilitation, psychiatric and long–term units in general hospitals were included, psychiatric hospitals, tuberculosis sanatoria and custodial and nursing homes were not.

In 1968, physician services also became covered by universal insurance. In order to receive federal funding—again about half the costs—the B.C. medical insurance plan had to cover medically necessary services provided by physicians. It also included, on a limited basis and without federal funds, chiropractic, optometry, orthotic, physiotherapy, podiatry, orthodontic and a few other services; some of which, such as orthotic and optometry, are no longer included—or are further restricted—because of cost. Today, however, the government will cover services provided by a nurse practitioner or midwife in a hospital, as well as several additional outpatient services.

While federal–provincial financial agreements and legislation have changed over the years, Canada still has universal health insurance. Our coverage has always been a far cry from what California proposes in bill SB–840, yet we have not managed to reduce health–care spending.

Just three years into government–run hospital care in British Columbia, in 1952, the government noted that "the demands for additional beds and better standards of service are being put forward on all sides, presumably with the assumption that someone other than the proposer will pay for them. It seems the government is expected to satisfy these demands at no additional cost to the people."

In the past 30 years, total per capita health–care spending in Canada more than doubled in real dollar terms; health spending was 10.4 percent of GDP in 2005. The private sector's share of the "single–payer" system has increased 27.7 percent since 1975. If it hadn't, our infamous waiting lists and other rationing would be worse. People paying out–of–pocket and private insurers have picked up the slack and will continue to do so—to the benefit of our health.

The idea that a state government can pay for virtually every health–care service and save money doing it can be called many things–just don't call it Canadian.

Cynthia Ramsay is an independent health economist and businesswoman living in Vancouver, B.C.

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