The Role of Individual Freedom in Health Care Supply Policy

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by Karl Herba, BA Honours Economics, McGill University

Within the past decade, the Quebec health care system has been substantially shaped by two opposing forces. On one hand, a rapidly expanding overall budget deficit has highlighted the need for fiscal conservatism and decreased health care spending. At the same time, the senior citizen population is increasingly large, corresponding to an increase in the demand for medical services. Current governments thus face the potentially explosive task of addressing important fiscal priorities while attempting to meet the appropriate medical needs of the population.

Not surprisingly, perhaps, historical evidence suggests that governments have traditionally been unsuccessful in cutting health care costs. In Canada, health care spending as a proportion of total spending rose from 1970 to 1991, as did health care spending per capita.1 Theoretically, of course, in a public health system, governments can attempt to improve the productivity and the efficiency of the health care sector by changing the allocation of resources. For instance, they could make greater use of less costly physician substitutes like nurses or physiotherapists under certain circumstances,2 while reducing the use of MDs. In this vein, most efforts to control costs and increase productivity in the health care field have concentrated on the supply side.

Two supply policies in particular lead to strong restrictions on individual freedom. First, rigid licensing requirements and restrictions on residency positions serve as a means of keeping out competitors and preventing a drop in incomes under a salary cap system.3 Although such policies might lead to a higher standard of medical care (assuming that they screen out less highly qualified candidates), this is not guaranteed, particularly when one considers that many restriction policies are based on citizenship or other attributes largely unrelated to skill level. Second, policies directed at influencing the practice locations of physicians can affect both physician and consumer freedom. These policies often attempt to redress the perceived urban/rural imbalance in MD location. For instance, in the Quebec case, policies directed at influencing practice location4 would provide a financial incentive to practice in rural areas. A physician attempting to set up an urban practice thus encounters both financial and legal disincentives to his free choice of location.

The fact that these policies decrease individual freedom is not in itself a reason to reject them, for they might create social benefits. Rather, those benefits must be weighed against the loss of freedom for either patient or physician when evaluating a policy’s effectiveness.

In looking at supply policies and government control over health care, one is reminded of John Stuart Mill’s suggestion that "the most cogent reason for restricting the interference of government is the great evil of adding unnecessarily to its power."5 Since public restrictions on physician supply represent an extension of public power and a decrease in individual liberty (for both the patient and the physician), it remains difficult to justify them in a non-socialist state unless they provide substantial individual benefits. It is doubtful that licensing requirements and locational subsidies do.

Notes

1. OECD, OECD Health Systems: Facts and Trends 1960-1990, Health Policy Studies Number 3, vol 1.

2. Raisa B. Deber, L. Mhartre Sharmila, and G. Ross Baker, "A Review of Provincial Initiatives," Limits to Care: Reforming Canada’s Health System in an Age of Restraint, eds. Ake Blomqvist and David M. Brown, Policy Study 20 (Toronto: C.D. Howe Institute, 1994), pp. 91-124.

3. Robert B. Sullivan, Mamoru Watanabe, Michael E. Whitcomb, David A. Kindig, "The Evolution of Divergences in Physician Supply Policy in Canada and the United States," Journal of the American Medical Association 276 (9), Sept. 4, 1996: 704-709.

4. Denis Bolduc, Bernard Fortin, and Marc-Andre Fournier, "The Effect of Incentive Policies on the Practice Location of Doctors: A Multinomial Probit Analysis," Journal of Labor Economics, vol. 14 (4): 703-32.

5. John Stuart Mill, "Objections to Government Interference," The Libertarian Reader, ed. David Boaz (NY: Free Press, 1997), pp. 25-27.

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