New Health Spending is a Waste
Contact:
Martin Zelder, Director, Health Policy Research
The Fraser Institute, (604) 714-4548 Email: martinz@fraserinstitute.caRelease Date: 16 February 1999
VANCOUVER, BC>>> While surgical patients languish in hallways and closets, Finance Minister Paul Martin has announced a 5-year $11.5 billion infusion to the healthcare system. Reduced surgical waiting times are the promised consequence. Will this expectation be realized? It appears doubtful.
Amazingly, money doesn't help
It seems natural to expect that more money will reduce waiting time—until one examines the data. From 1990 through 1997, The Fraser Institute has collected data from each province on surgical waiting times for 12 different specialties (for example, neurosurgery, orthopaedic surgery). For 1997, the median waits range from 1 week for urgent cardiovascular surgery in Alberta, Saskatchewan, and Quebec, to 52 weeks for elective cardiovascular surgery in Newfoundland. The median wait averaged across all different types of surgeries in Canada as a whole was 6.8 weeks in 1997, with Ontario having the lowest overall median value (5.4) and Saskatchewan having the highest (12.4). Comparable numbers exist for the earlier years of the survey.
For the same time period (1990-1997), data on health spending per capita (inflation-adjusted) by province are also available. The question is: when provinces increased health spending, did their waiting times decrease?
Analysis of the data finds no connection. For example, in 1997, health spending in Saskatchewan increased by $102 million and waiting time also increased (by 3.9 weeks), while in British Columbia spending rose by $401 million and waiting time decreased (by .9 weeks). These two examples are representative of the overall absence of any wait-reducing effect of spending. In other words, increases in health spending don’t reduce waiting times. Because more money didn’t help in the past, why should we expect it to now?
Why not?
Two explanations exist for this surprising result. Both stem from defects in the current system. First, government enterprises inherently lack the profit motive’s impetus to reduce costs and satisfy customers. In a seminal book, Dennis Mueller of the University of Vienna surveyed 50 studies comparing government and private provision of goods and services, and found that in only 2 cases did government firms perform better. So, pervasive government inefficiency is one explanation for our finding that health spending increases don’t reduce waiting times. This explanation implies that increased spending filters through to health system bureaucrats and employees without affecting patient outcomes.
A second explanation, while less insidious, also illustrates the malfunctioning of the system. Suppose that the spending supplement is actually used to provide more medical consultations and procedures. Consider an individual with specific but apparently non-life-threatening symptoms (for example, lower back pain). Before additional money is put into the system, the individual, suppose, forgoes making an appointment to see her GP because she reckons that the wait is too long. After additional money is infused, she figures that her expected waiting time will be reduced. Unfortunately, other previously discouraged consumers think similarly, and also make appointments.
Consequently, even though more patients are being seen and treated, more patients are also attempting to be seen and treated. This combination of circumstances could be exactly what we observe in our data analysis: increased spending has no effect on waiting. More people are being treated in this case, but still more could be treated if the system were repaired.
Less waiting without more spending
Less waiting can be achieved with less spending and without deterioration in health outcomes. This remarkable conclusion is the product of the leading economic analysis of health insurance and usage, the RAND Corporation Health Insurance Experiment. The RAND researchers wanted to determine how additional insurance coverage influenced use of medical care, reasoning that for many individuals not in critical distress, being required to pay a higher out-of-pocket price would induce less usage. It did.
In particular, they discovered that increasing the share paid out-of-pocket by consumers from 0 percent to 25 percent reduced expenditures by 19 percent. The reduction occurred entirely in outpatient services, presumably more discretionary and less urgent than inpatient treatment Consequently, this reduction in usage did not compromise individual health, except in 3 minor and specific cases. Were an increase to a 25 percent copayment rate tried in Canada, the implication is that total health spending would be reduced by $15 billion without any significant impairment in Canadians’ health.
Fixing medicare
The lesson here for Canada is obvious. Interpret "accessibility" in the Canada Health Act to mean 25 percent copayments (with income replacement for low-income people) for all covered care, rather than the current interpretation of 0 percent copayment. Until then, to our detriment, we wait—no matter how much money is spent.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
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