Policy recommendation:
a Canadian MSA experiment

Canadian health care is often described as ``free care''--i.e. free for the patient at the point of service. In reality, patients do pay for much of their health care. If health care services are covered by provincial health plans, there is no cost sharing for the patient: provincial governments pay the entire bill for insured services. However, the Canada Health Act's guarantee of free access to medical care only applies to insured services and, therefore, many services are not covered or only partially covered by government plans. Physiotherapy, chiropractic and optometry, for example, are not insured in some provincial health plans. Moreover, many drugs are not covered.

Medical services are financed by almost all Canadians through general taxes, insurance premiums, and out-of-pocket expenditures. On average, every Canadian contributes almost $2,500 to the health care system each year. In 1994, total health expenditure (public and private) per capita amounted to $2,478. Close to $700 of this amount was paid by private individuals. Almost one third of all health expenditures come from the private sector--this translates into more than 22 billion dollars of health costs not covered by public insurance (all figures for spending on health are from Health Canada 1997).

Add to this the fact that governments' health reform to date has consisted mainly of cost cutting measures such as the closing of hospitals, the capping of physician fees, and other measures that reduce patients' access to the health care system, it is not surprising that almost 60 percent of Canadians are supportive of ``more medical services being provided by private suppliers alongside the public health system.''34

Both the theory and the empirical evidence indicate that MSAs have the potential to curb health expenditures, improve efficiency in the Canadian health care system, and increase the health care options available to Canadians. And surveys have shown that a majority of Canadians are willing to consider the idea of a medical savings account as a way to encourage responsible use of the system (72 percent), allow patients to choose services more suited to their needs (67 percent), and increase physicians' accountability (55 percent).35

As the magnitude of the many effects brought about by MSAs is uncertain, it would be beneficial to conduct a pilot experiment in one region of Canada. This sort of experiment would shed light on various issues of concern, including:

• How will MSAs influence the consumption of health care services?
• Will the use of necessary services decrease by more (or less) than unnecessary services?
• Will the change, if there is a change, in health care consumption differ across income groups?
• Will MSAs affect individuals' use of preventive medicine?
• Will MSAs affect individuals' health status?
• Will physicians induce demand if MSAs decrease consumption?

It should be noted that the technology is now available to facilitate the transition from the present health insurance system to MSAs. Nothing more is required than a computer system using a debit card or a credit card to keep track of MSA balances. Such a computer system could easily transfer funds from MSAs to the providers' accounts. In 1995, British Columbia introduced PharmaNet, a computer network that connects community pharmacies. PharmaNet allows pharmacists to review complete information about a patient's use of prescription drugs, and calculates patients' eligibility for provincial insurance benefits at the prescription counter. Such a system could be adapted and used in the proposed MSA pilot study.36

The cost of such an experiment may seem substantial, especially since the Canadian health care system is recognized for its low administrative costs and the increased choice in health insurance markets that results from an MSA plan will result in duplication and overlap of services. However, economics is a paradoxical science that has proven time and time again that competition between providers ensures products of the lowest cost and the highest quality for consumers. Although it may seem intuitive that a single provider would be more streamlined and efficient, this is rarely the case. Monopolies tend to be inefficient, more costly, less technologically advanced and, in general, worse at delivering services to consumers than a multiplicity of providers.

For all of these reasons, the introduction of MSAs holds great potential. MSAs allow for increased competition in the health care sector while offering Canadians universal, portable, accessible, and more comprehensive health care than they currently enjoy. MSAs offer incentives for government, providers, institutions, and patients to use the health care system more prudently. Most important, however, an MSA places the spending power squarely in the hands of the person who cares most about your health and that of your family--you.

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Last Modified: Wednesday, October 20, 1999.