The Two Most Important Things You Need to Know About "Public Versus Private" Health Care

Public discourse over the state of our health system has repeatedly stumbled over the issue of "privatization" and how it relates to the "unsustainable" situation of escalating costs and growing waiting lists. Some point out that Canada already has "private" clinics, that Paul Martin and Jack Layton have both used them, and that most doctors and even most (not-for-profit) hospitals are already "private" actors, so why get worked up about greater privatization of delivery of health services? Now that the Supreme Court has ruled that in certain situations banning private health insurance for medically necessary services is unconstitutional, and large parts of the non-medicare health system are already being purchased privately, what could be wrong with allowing people to purchase better health care? Is the whole "public versus private" debate much ado about nothing? To understand why it is not, voters (and governments, and judges) need to grasp the implications of two fundamental distinctions: first, between financing and delivery; and second, between medicare and non-medicare components of health care expenditures.

Financing versus Delivery. This distinction is recognized as fundamental by everyone who studies health policy, but its implications weigh perhaps most heavily in the analysis of the Kirby Senate Committee Report on health care reform. Kirby states that a public monopoly (single-tier) health insurance for medically necessary services is essential to the achievement of both efficiency and equity because of the gains from larger scale; simpler administration; restrictions on the impact of inevitable market failures; and better cost control. These gains are so significant that Harvard Professor David Himmelstein has estimated that adopting a single-payer system in the US would free up sufficient funds to allow universal coverage in a country that now has over 30 million uninsured people. Kirby, however, does not see any similar advantages for public delivery: indeed, he sees competition in delivery (either within the public sector or in the private sector) as crucial to the sustainability of the system. This is another version of the "governments should steer, not row" philosophy that underlies much contemporary policy that goes by the name of New Public Management, Smart Regulation, et cetera.

The Kirby view strikes me as being quintessentially liberal--and Liberal. It is certainly true that more private and competitive health care delivery will not necessarily destroy our cherished medicare system. The heart of medicare is single tier financing of medically necessary physician and hospital services, not the idea that healthcare providers should be public employees. But the professed open-mindededness of the Kirby approach --"we are completely neutral as to whether delivery is done by private actors, interested only that competititon be allowed and efficiency be attained" runs into at least a couple of objections. The notion (endorsed by the B.C. Medical Association) that private, for-profit clinics would necessarily spend public monies more efficiently is highly questionable. Researchers at McMaster University released a detailed study in 2004 of for-profit hospitals in the US indicating that services cost 19% more in for-profit hospitals than in non-profit ones and that health outcomes were worse on average in for-profit facilities. Furthermore, trade policy analysts generally agree that the greater the degree of privatization and marketization, the greater the likelihood that health care measures will fall outside of trade treaty exclusion clauses for public services and therefore be subject to NAFTA and GATS/WTO obligations. These obligations could make reversing privatization prohibitively expensive--either in terms of financial compensation to private actors under NAFTA, trade sanctions under the GATS, or both. In short, there is a danger that privatization could get "locked in", whether it is in the public interest or not.

These considerations do not mean that competitive or for-profit delivery is always wrong. But in my mind they should create a presumption in favour of healthcare that is public or not-for-profit in how it is delivered, and not just in how it is financed. If that presumption is to be rebutted, it should be on a case-by-case basis in terms of demonstrated cost savings and efficiencies for the health system as a whole, without harm to quality of service or equality of access.

Medicare versus Non-Medicare. It is remarkable how seldom combatants in health care debates take the trouble to distinguish between different categories of health care expenditure, or to even specify what they mean by "medicare". It turns out to matter very, very much. Indeed, to use the term "medicare" as a synonym for health expenditures or even for public health expenditures is extremely misleading. Between 1993 and 2003 total annual health expenditures in Canada grew by about $50 billion--by 69.8 percent, as compared to 66.8 percent growth in GDP. But if we break these aggregate figures down we see a surprising result. If we reserve the term "medicare" for the two major founding programs which came into being in the 1960s, that is, hospital services and physician services, we find that their combined cost as a share of GDP actually declined over the decade--from 5.11 percent to 4.29 percent! The big increases occur in such categories as "other professionals", "other institutions", "prescription drugs", "capital", and "public health and administration", according to the Canadian Institute for Health Information. As Hugh Scott, the former executive director of the McGill University Health Centre, puts it, "it is difficult to see what is unsustainable about medicare funding as viewed from this perspective".

Indeed, when we look more closely at the categories of healthcare expenditure that are growing fastest, we find that they are to a large degree private. Compared to other countries, Canada is distinguished by the degree to which classic medicare (hospitals and physicians) is public, while the fastest growing items of expenditure, e.g. "other professionals", and to a large degree "drugs", are private. That makes it prima facie very difficult see how further privatization--whether of funding or delivery, and whether of medicare or non-medicare items--can be the panacea for reining in "unsustainable" cost increases.

Indeed, medicare has adapted quite well to technological and demographic change, although it has been temporarily compromised by under-funding and under-supply of health care professionals. A decade ago, the concerns about "waste" and "over-servicing" in the context of budget-cutting at the federal level led to major cutbacks in hospitals and decreases in health professional enrolment opportunities. The resultant personnel shortages are the root source of long current waiting lists. Fortunately, current efforts to increase the supply of health professionals, coupled with an effective waiting list management strategy, should mean than by the time the first baby boomers turn 65, most waiting lists will have been greatly reduced or eliminated.

The real question for the future is not whether we can continue to afford the publicly funded medicare component of our healthcare system, but whether we can afford the privately funded, non-medicare components of that system.