The Impending Canadian Health Care Funding Crisis

Articles Include:

      •      Health Care Isn't Free-Even in Canada

      •      Healthy Children-A Case for Government Non-intervention

      •      A Thriving Health Care Sector Could Contribute to a Healthy Economy

      •      Are Doctors and Drug Companies the Biggest Drain on Health Care Funding?

      •      A Case for Repealing the Canada Health Act

Contents       .......        October 1996

Editor's Notes
This Issue's Authors

Cover Stories :
Health Care Isn't Free-Even in Canada
Healthy Children-A Case for Government Non-intervention
Child Poverty and the Welfare Cutbacks in Ontario
Child Support-The View from Mars
Mistaken Diagnosis
October Question and Answer
A Case for Repealing the Canada Health Act

Also Featuring :
Student Profile
A Thriving Health Care Sector Could Contribute to a Healthy Economy
Functional Consolidation of Emergency Fire Dispatch
Rent Control Laws Must Go
Free Market Olympics Were a Hidden Success
The Broken Window Fallacy
Real Cops, Canadian Style

Editor's Notes

The provincial legislatures and federal Parliament have returned from their summer recesses with a bang. The politicians are attempting to address all sorts of topics from the Somalia inquiry to education funding shortfalls. Among the more urgent issues they must grapple with is health care in Canada-how long will it continue to be funded by government, how will it acquire more desperately needed funds, how long can the Canada Health Act continue to be enforced, and what should be done, if anything particularly, about the health of Canada's children?

Governments believe that they can do something about child health, and they are experimenting with a variety of solutions on that front, most notably in B.C. with the formulation there of the new Ministry of Children and Families. Governments are far less sure about what to do about health care funding, on the other hand, which surely is a potential crisis in the making.

This issue of Fraser Forum examines both health care funding and child health (especially as it relates to child poverty). We offer suggestions and solutions and some startling statistics for you to contemplate.

This Issue's Authors

Jason Clemens worked as a summer intern at The Fraser Institute this year. He is profiled on page 13 of this issue.

Joel Emes has his Masters in Economics from Simon Fraser University. He is a research economist at The Fraser Institute.

Marc Law worked as a summer intern at The Fraser Institute this year. He is currently working on his Masters in Economics at Queen's University in Kingston.

William McArthur, M.D., is a Visiting Fellow in Health Policy at The Fraser Institute. He is a practising physician in Vancouver, and was B.C.'s first Chief Coroner.

Fazil Mihlar is Policy Analyst at The Fraser Institute. He received a B.A. in Economics from Simon Fraser University, and an M.A in Public Administration from Carleton University.

Lydia Miljan is Director of the National Media Archive, a division of The Fraser Institute. She earned an M.A. in Communications from the University of Calgary. She researches and writes On Balance.

Kate Morrison is Co-ordinator of the National Media Archive. She has a B.A. (Honours) in Economics and Communications from Simon Fraser University.

Filip Palda is Professor at l'École Nationale d'Administration Publique in Montreal, and Senior Fellow of The Fraser Institute. He is the author, co-author, or editor of several Institute books and publications. He received his Ph.D. in Economics from the University of Chicago.

Cynthia Ramsay is Health Economist at The Fraser Institute. She has her M.A. in Economics from Simon Fraser University.

John Robson is a freelance writer based in Ottawa. He has his Ph.D. in History from the University of Texas at Austin. He has written several Critical Issues Bulletins and many articles in Fraser Forum.

Christopher Sarlo teaches economics at Nipissing University in North Bay, Ontario. He is the author of Poverty in Canada, published by The Fraser Institute.

Karen Selick practices law in Belleville, Ontario, and is a columnist for Canadian Lawyer. You can reach her at kselick@connect.reach.net.

Michael Walker is Executive Director of The Fraser Institute. He received his Ph.D. in Economics from the University of Western Ontario. He has written, edited, or co-authored dozens of Fraser Institute publications.

Walter Williams is John M. Olin Distinguished Scholar at George Mason University in Fairfax, Virginia, and is a syndicated columnist. He has a Ph.D. in Economics from the University of California at Los Angeles.

Health Care Isn't Free-Even in Canada

Jason Clemens and Cynthia Ramsay

Canadians tell me again and again that medicare enriches their lives. It embodies what is good about Canada, and what they want to see preserved for themselves and their children. Hon. David Dingwall, federal Health Minister, speaking to the House of Commons Standing Committee on Health, April 30, 1996.Note

In the name of preserving Canada's health system, the federal government is financially punishing any province that has recognized that the private sector must become a larger part of the health care sector if Canada's health system is to be saved at all, if it is to be preserved for ourselves and for our children.

Many who oppose private sector involvement in the delivery and financing of health care in Canada argue that no one should have to pay for health care. Health care should be available to all who require it regardless of their ability to pay for it. The argument concludes that the objective of universal and accessible health care for all Canadians can be achieved only if the system is entirely managed and funded by government. There are at least two holes in this argument. The first is that every Canadian taxpayer is already paying for their health care and that of others and, second, allowing the government to keep its monopoly will only succeed in destroying our cherished health care system.

Taxpayers are paying for health care

Health care in Canada is financed from general revenues collected by the government through taxation. So, there are at least 13,569,050 Canadians paying hard cash for our country's "free" health care system. Revenue Canada, Tax Statistics on Individuals: 1993 Tax Year (Ottawa: Minister of National Revenue, 1995).Note In 1995, Canada spent 10.5 percent of its gross domestic product (GDP) on health care; or, as table 1 shows, 21 cents of every dollar earned by working Canadians went to paying Canada's health care bill in 1995.

Click here to view Table 1: Expected Increases in Overall Health Care Costs in Canada

Fewer payers, more users-a fatal combination

There are many cost pressures on the Canadian health care system. The Canadian population is aging, new technology is expensive, and government budgets must be controlled. The demographic picture shows that the pressures will continue to build and that the Canadian health care system, which is already showing signs of strain, will not be able to survive in its current form.

Table 2 illustrates the demographic changes that Canada will experience over the next 50 years. The percentage of workers in the population will decrease by 9.2 percent while the percentage of seniors (people aged 65 years and older) will increase by 85.0 percent. This means that there will be fewer taxpayers supporting an older population: the ratio of seniors to workers will more than double over the next 50 years, from 19.8 percent to 40.3 percent.

Click here to view Table 2: Expected Demographic Changes in Canada

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. . . 21 cents of every dollar earned by working Canadians went to paying Canada's health care bill in 1995.
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The aging population is one of the biggest challenges facing Canada's health care system as seniors are the largest consumers of health care (table 3). In 1995, seniors accounted for 37.1 percent of the total use of health care services. By 2040, it is expected that their use will increase to 56.7 percent. These estimates are conservative. Estimates by the Canadian Institute of Actuaries put senior health care consumption at 67 percent by 2030. Troubled Tomorrows: The Report of the Canadian Institute of Actuaries' Task Force on Retirement Savings, January 1995.Note A growing number of seniors means a growing demand for health services, and a diminishing number of taxpayers to pay for them. And there are already problems with our health care system. Waiting times for many operations and diagnostic tests greatly exceed medically acceptable norms according to an annual survey of Canadian specialists, and the supply of medical technology in Canada greatly lags behind that in the United States. C. Ramsay and M. Walker, Waiting Your Turn, 6th ed. (Vancouver: The Fraser Institute, 1996).Note

Click here to view Table 3: Distribution of Health Care Consumption by Age in Canada

A dark future for Canadian taxpayers

Taxes, taxes, beautiful, lovely taxes. The character of Prince John in Walt Disney's animated feature film Robin Hood.Note

Within 50 years, over 22 percent of Canada's population will be over 65 years old. If Canada's population today had such a large proportion of seniors, the taxation rate for the average Canadian family (2 or more individuals) would have to be increased from 48 percent to 94.5 percent in order to keep the health care system up and running. Such an increase in the taxation rate would be needed simply to cover the increased expenditures on health care resulting from the increased demands placed on the system by an older population. The 94.5 percent taxation rate assumes that government spending in other areas also changes in accordance with the changing age distribution and that the government deficit remains constant. A taxation rate estimate of 94.5 percent is a conservative estimate as it assumes relatively high interest, inflation, and wage rate growth. For example, real wage growth of 4.5 percent is assumed.Note

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In 1995, seniors accounted for 37.1 percent of the total use of health care services. By 2040, it is expected that their use will increase to 56.7 percent.
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In order to deal with the national debt problem and the aging population, the Canadian Institute of Actuaries, in its report Troubled Tomorrows, estimated that over the next 35 years, the government would have to implement one of the following taxation policies (assuming no decreases in real spending):

       •       70 percent increase in federal and provincial income taxes,

       •       400 percent increase in the goods and services tax (from 7 to 35 percent), or

       •       increase payroll taxes by 17 percent of gross pay.

Click here to view Table 4: Future Taxation Rates for the Average Family in Canada

Ultimately, health care is a question of economics

The argument that all will be well with the Canadian health care system if the government increases funding to it is simply erroneous. The increases in taxation that will be needed to maintain the health care system in its current form are highly unrealistic. A more likely scenario is that waiting times will continue to increase, the availability of new medical technologies will become even more restricted, and even more Canadians will seek their health care outside of Canada's borders.

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. . . waiting times will continue to increase, the availability of new medical technologies will become even more restricted, and even more Canadians will seek their health care outside of Canada's borders.
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Most Canadians are already paying a high price for their health care either through the taxes they are paying, or through delayed access to treatment, or both. The main problem, however, is that these costs are not readily apparent, and a public system that does not have apparent pricing mechanisms can never meet the demands placed upon it. While it is probably possible to rank medical interventions according to their efficacy and necessity, the ultimate question of how far down the list the public sector will go, or is able to go, is not a medical question but a fiscal one. In the end, all questions about medical care are questions about economics. Denial of this central fact is the most significant weakness of Canada's health system, and it will lead to the system's destruction unless Canadians begin to realize that health care is not free, even in Canada.

Healthy Children-A Case for Government Non-intervention

Cynthia Ramsay

[The following is an edited version of a brief to the House of Commons Standing Committee on Health presented earlier this year.]

On September 28, 1995, the House of Commons Standing Committee on Health undertook to study preventative strategies for healthy children. It has heard from Health Canada representatives and several national interest groups during the last year, and it is now in the process of reviewing the testimony it has received. It hopes to have a draft report prepared for tabling in the House of Commons this fall.

When the initial work plan of the Standing Committee on Health (SCH) was published in November 1995, the study should have ended. The plan gave no clear evidence that preventative strategies for healthy children were needed at the national level. A year has gone by and the study will likely recommend areas for government intervention, whether it is needed or not. This is cause for concern as such government intervention is unnecessary and likely will frustrate rather than encourage the efforts of parents to care for and nurture their children.

A cause for pause ignored

Health Canada already oversees about 30 programs in its Child Development Initiative. These programs treat most of the concerns raised by witnesses to the committee: injury reporting and prevention, immunization, children's mental health, promotion of breast feeding, parenting support and skills development, support of aboriginal parents and children, and numerous other areas.

Children's health is important. However, there is no evidence that a "crisis" is imminent-a crisis requiring increased federal funding directed towards children's (or adults') health. In fact, witnesses to the SCH indicated at the earliest stages of the study that the health and well-being of children has been improving over the years: infant death rates have declined substantially, low birth weight babies have a higher survival rate, and injury mortality rates have declined. Cited from testimony given by Dr. Denise Avard to the House of Commons Standing Committee on Health at meeting no. 71 (December 5, 1995). Dr. Avard is the Executive Director of the Canadian Institute for Child Health.Note

In addition, the determinants of children's health listed in the SCH's work plan are remarkably similar to the determinants of adults' health: accidents and injuries, diseases (cancer), income, education, and environment, for example. This being the case, the SCH should have asked itself at the beginning whether a separate study focusing only on children's health was merited. With the study near completion, the SCH has another opportunity during the testimony review process to ask itself whether more federal funding directed specifically at initiatives concerning children's health is really imperative. Children's health is improving, and there are already numerous federal programs, national interest groups and organizations concerning themselves with this "imminent crisis."

The alleged problem

Witnesses to the SCH stressed that poverty is the leading contributor to poor child health, and that none of Health Canada's programs seem to deal with child poverty. They stated that the top priority for policy action should be for government to help poor families meet their basic needs. This is a valid assertion. One function of government in any civilized society should be to help the most needy. However, there was a considerable amount of misinformation presented to the SCH concerning the number of children who live in families that cannot afford to pay for basic needs.

A "basic needs" approach to poverty is an attempt to measure poverty in "absolute" terms. Absolute measurements of poverty are concerned with measuring the extent to which some people cannot afford the basic physical necessities of life which are required for long-term physical maintenance (health and well-being). An absolute measure of poverty provides a clear, fixed standard which provides a meaningful distinction between the poor and non-poor. A "relative" approach to poverty, however, defines as poor those who are less well off than most others in their society. Proponents of relative measures of poverty believe that there needs to be a more egalitarian distribution of income and wealth in society, and that everyone in society is entitled to a certain relative standard of living (the average standard of living in the society). A relative approach to poverty, therefore, really measures income inequality and does not provide a useful measure of poverty. Christopher Sarlo, Poverty in Canada, The Fraser Institute: Vancouver, 1996.Note

Most of the witnesses addressed the level of poverty in terms of families not being able to meet their "basic needs." Using a basic needs approach, however, does not show that there are "over one million children living in poverty" and, therefore, there are not more than one million children living in conditions of risk to their health because of poverty. Several witnesses and the SCH's own work plan use inflated "poverty" figures presumably based on Statistics Canada's low-income-cut-offs or other such measures which, at most, could be said to measure relative poverty. No government, organization, or individual can ever eradicate relative poverty, unless, of course, they manage to completely eliminate even the smallest variations in income levels.

Professor Christopher Sarlo at Nipissing University calculates comprehensive poverty figures using a true basic needs approach. Prof. Sarlo defines the "poor" as individuals and families who cannot afford to pay for the "basic needs" of food, shelter, clothing, health care, and some important discretionary purchases such as transportation. This is a much more valuable approach to measuring poverty as it determines the number of families that are in real need of assistance, which is the first step towards targeting public aid to these families in various ways.

Table 1 indicates that, in 1993, of the almost 7 million children and youth in Canada, approximately 313,203 children (below the age of 18) were living in poverty, for a poverty rate of 4.6 percent. This estimate by Prof. Sarlo is one fifth the size of the approximately 1.5 million estimate which is usually quoted. Organizations such as the Canadian Institute for Child Health (CICH) would have us believe that 41 percent of families with the head of the household under the age of 30 are living in poverty. In reality, the poverty rate for families with the head of the household under the age of 35 is much less, at about 26 percent (table 2).

Click here to view Table 1: Child Poverty-1993

Click here to view Table 2: Poverty Rates by Age, 1993

Real poverty is a serious problem, and it should be taken seriously and measured with as much accuracy as possible. Grossly inaccurate measures of poverty based on relative income levels are not useful for public policy decisions and tend to lead us to an incorrect definition of the problem (thereby to the prescription of the wrong solutions).

Is further federal intervention necessary?

The Committee could therefore decide to study in greater detail the programs managed by Health Canada [some 30 programs] under the Child Development Initiative. This could provide better understanding of how and where these programs are delivered, help determine their strengths and weaknesses and attempt to evaluate their effectiveness [emphasis added]. In this phase, the Committee may decide to focus its attention on one or more of these federal prevention programs. Nancy Miller Chenier and Odette Madore, "Preventative Strategies for Health Children: Proposed Workplan," Research Branch, Library of Parliament (November 20, 1995) p. 5.Note

It is surprising to find that there are already so many federal initiatives directed at improving children's health. However, it is more surprising that the federal government may have no idea "how and where these programs are delivered ... their strengths and weaknesses and ... their effectiveness." It should be imperative that the federal government determine the effectiveness of all of these programs (not just one or two) before embarking on any new initiatives. Such an evaluation should be considered a necessity and not a matter of "could" and "may."

A case for less rather than more federal government intervention

It is nearly impossible for the federal government, or any institution which is national in scope, to identify individual families, and individual children, in need of support. Given that there are just over 300,000 children living in poverty across a country with almost 30 million people, it should be evident that national programs are not the

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Real poverty is a serious problem, and it should be taken seriously and measured with as much accuracy as possible.
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most efficient or the most effective way in which to target aid to those families in need. "Collaboration . . . happens a lot more easily at the local and community levels than it appears to happen at central government levels" and community resources have tended to be "very underrated in terms of what they're able to do." Paraphrased from testimony given by Mr. Dan Keating to the House of Commons Standing Committee on Health at meeting no. 71 (December 5, 1995). Mr. Keating is the Director of Human Development Program at the Canadian Institute for Advanced Research.Note

Representatives from the Canadian Public Health Association (CPHA) make some valuable points to the committee. They stress the need to devolve power, control, and accountability to the community when reforming the health care system. They point out that the professionalization and institutionalization of health care has not contributed to great gains in children's (or adults') health in recent years. However, the CPHA is incorrect in thinking that there is a need for a strong federal government role to set goals for child health. Being so far removed from the issue, the federal government should not be allowed to dictate from above what the goals of every community ought to be. Besides, even if it did attempt to define some set of national goals on how supportive communities should be for families in need, there is no possible way that it could monitor communities' behaviour with respect to these national goals, and there is no possible way it could expect to enforce the national goals it had established.

Recommendations

More government intervention is not the solution to the alleged problem of child health, especially when the government does not seem to know the effectiveness of the programs it is already administering. More "national" initiatives are not needed. Rather, an evaluation of the programs already in place is required: no doubt, certain programs are in need of revision or even elimination.

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More government intervention is not the solution to the alleged problem of child health, especially when the government does not seem to know the effectiveness of the programs it is already administering. More "national" initiatives are not needed.
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Perhaps one of the most striking aspects of the SCH's work plan is their almost total omission of the importance of parents in a child's life. In the work plan, there is mention that a stable adult relationship is a positive factor for the health of a child. The examples of such a relationship given, however, include a teacher or a coach. There is no mention of parents. Actually, the word "parent" appears to be mentioned only once in the entire work plan. This is unsettling. It would seem that the federal government is in some way trying to usurp the role of parents. How can a federal government ensure that a child is given all the "understanding, love, support and happiness" he or she needs to be healthy and successful in life? How can the federal government really think that it can affect such determinants of a child's health?

We should expect that support for families in need is available from extended family and from individuals within the local community. Charity groups, church groups, schools, and parent groups are but a few examples of the local institutions available for families in need of additional support or if the family support network breaks down.

We have to get into the notion that if you've decided as a person, male or female, to have a child, then you've got to take responsibility. And we, as a society, shouldn't be in there helping you not be responsible. Now, if there's a crisis, we ought to step up and help. But it shouldn't be our policy to take over your role. Government is absolutely a poor parent, and we ought to quit trying to be one. Cited from a speech given by Ms. Eloise Anderson at a luncheon hosted by The Fraser Institute on December 11, 1995. Ms. Anderson is Director of the California State Department of Social Services.Note

Hopefully, the SCH will keep these powerful ideas in mind as it reflects upon the evidence which has been presented to it. In doing so, it should have only one recommendation in its draft report to be tabled in the House of Commons this fall: further government interventions directed at the health and well-being of children are unnecessary.

Child Poverty and the Welfare Cutbacks in Ontario

by Chris Sarlo

[The following is an edited version of a brief to the Standing Committee on Social Development, Government of Ontario, in June 1996. The committee was investigating the impact of welfare and other government program cutbacks on children and invited the author's comments.]

My research on the measurement of poverty highlights that portion of "low-income" households that is likely to be deprived of the basic necessities of life. The argument is that the inability to acquire all the physical necessities (which includes nutritious food purchased at grocery stores; rental accommodation including a full range of essential household furnishings, supplies and a telephone; clothing purchased new at popular department stores; personal health and hygiene needs; and transportation) poses a serious threat to health and well-being and is likely to prevent full functioning in the labour market. I have constructed "basic needs" poverty lines for families of different sizes and in different communities in Canada and have calculated the incidence of poverty.

What is particularly relevant for this committee is the comparison between the incomes of welfare recipients and basic needs poverty lines. If the goal of the Canada Assistance Plan (CAP), the federal-provincial cost shared program which established welfare, was to "provide income to meet the cost of basic requirements of a single person or family when all other financial resources have been exhausted," then it seems to me that the only way to determine whether CAP is achieving its goal would be to compare social assistance benefits with the cost of all basic needs, i.e., with a basic needs poverty line. Table 1 provides this comparison for the following family categories in Ontario.

Click here to view Table 1: Ontario Welfare Rates

       •       Employable couple with two children

       •       Single parent and one child

       •       Single parent and two children

       •       Single parent and three children

Prior to the roughly 22 percent cut in benefits in the fall of 1995, Ontario welfare recipients in these categories had total incomes from all sources, including tax credits and tax benefits, which exceeded basic needs poverty lines by over $5,600 per year, on average. This positive "poverty gap" was the largest, by far, of any province in Canada. Prior to the cuts, Ontario clearly had the most generous welfare rates in Canada.

The cuts to the benefits of non-disabled recipients reduced social assistance by about 22 percent but it resulted in a somewhat less than 22 percent reduction in total income to recipients. This is because other income sources (from child tax benefits to various tax credits) remained fixed. Thus, total incomes of these recipients will have fallen by roughly 18 percent, on average. Now the income of these Ontario recipients is no longer the highest in the country, but they are still above average. And the total incomes of recipients still equals or exceeds the basic needs poverty lines. However, now the poverty gap is much smaller, ranging between $0 and $2,700 and averaging about $1,600. In other words, these families have sufficient resources to cover all their basic needs with a margin of about $1,600.

In some cases, social assistance recipients will be unable to obtain rental accommodation at the slightly below average costs assumed in these poverty lines. As a result, they may select a smaller or less adequate apartment; they may move to another location where rents are lower; or they simply pay the higher costs leaving less of their budget for other necessities. Thus, they may well be pushed into poverty for as long as their shelter costs are above average and as long as they choose to live in a high rent area.

You have heard from other witnesses that welfare in Ontario places families and children below the poverty line and that the recent cuts push them deep into poverty. I am here to tell you that this is not the case. Social activists frequently use Statistics Canada's Low-Income Cut-Offs (LICO) as a poverty line. This is simply not credible. StatsCan itself has warned against using LICO as a poverty line. These lines are set high enough to include many thousands of people who would not regard themselves as poor. I have referred to those with incomes in the region of the low-income cut-offs as "near poor," that is, they have their basic needs covered but cannot afford some of "social amenities" that most others enjoy.

What we are most interested in, it seems to me, would be the number of children who live in families whose reported incomes are below the basic needs poverty line. Children in this situation are likely to suffer real deprivation. They may be hungry, they may be poorly housed and they may be ill more often. This can, in turn, lead to poor performance at school and lower lifetime earnings.

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. . . children are better off in families where a parent has gainful employment.
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What, then, is the nature of the deprivation for the children of welfare recipients as a result of these cuts? Families will still have sufficient resources to cover basic needs, however, they will have about $4,000 less, on average, for amenities-such things as vacations; restaurant meals; more expensive entertainment and recreational services. It would be difficult to make a case, therefore, that the cuts in welfare benefits will adversely affect children's health. The resources are still there to cover basic physical necessities. All of this assumes, of course, that recipients do not or can not earn back the amounts lost due to the cuts, an option that is allowed without "taxback" under the new rules.

Longer term, the cuts may actually improve living standards. To the extent that welfare has now become a less attractive alternative to work, employable recipients are now likely to search more aggressively for employment and fewer people will apply for assistance in the first place. It is my view that children are better off in families where a parent has gainful employment. The benefits of employment extend far beyond the income earned. The sense of independence and self esteem that comes from earning one's own way as well as a more positive attitude about the future will result in a much better home environment for children.

What about the claim that the cuts are mean-spirited and that the government is fighting the deficit on the backs of our most vulnerable citizens? I believe that there is widespread recognition that everyone needs a safety net. Any one of us could, despite good planning, fall into a situation in which we were unable to support ourselves for some period of time. Ideally, a safety net would provide sufficient resources to cover all basic needs but still be structured so that an employable person would always be better off by working. Intelligent people may disagree on where that balance should be. But by the early 1990s, the Ontario welfare system had got to the point where welfare was an attractive alternative to work for lower skilled persons. To the extent that the cuts increase the incentive to work, some who are worse off now because of the cuts will be better off in the long run. The status quo was, therefore, mean-spirited.

It is also important to remember that in this province, there are tens of thousands of working poor families who earn less than their employable counterparts on welfare. It is not only unfair that working folks earn less than those on welfare but egregiously so because the working poor pay taxes, part of which support employable people who are, in fact, better off. There can't be anyone who feels good about this kind of perverse redistribution.

But, we are often told, there are no jobs. Although this is clearly an exaggeration, as low skilled people find work every day in Ontario, and as 90 percent of those people who want jobs have them, there is no question that because of structural changes in the economy, it is more difficult than it used to be to find a job. The apparent lack of employment opportunities for those who so desperately need them is, in my view, our biggest social problem. We need a strong and healthy economy, but large government involvement in the economy and high taxes have worked against economic growth and a buoyant labour market. For that reason, policies of deregulation, less government intervention, lower taxes, and a more positive investment climate provide the best chance for job creation in the future, and consequently, the best chance for our children.

Families on welfare are not, in general, pushed into poverty by the Ontario government's cuts to welfare. While these people's living standards are lower than before, they compare well with recipients in the rest of the country. In virtually all cases, employable persons on welfare in Ontario still have sufficient resources to provide their children with all the basic necessities. This province's children are far more at risk from irresponsible parents than they are from the reductions in social assistance. On that matter, social activists are curiously silent.

Child Support-The View from Mars

Karen Selick A version of this article has previously appeared in Canadian Lawyer.Note

Imagine for a moment that you've just come down from Mars and you're trying to understand Canada's laws on child support and custody. You read a famous case that says the children of a broken family have the right to as high a standard of living as either of their parents. You look at some statistics and you learn that on average, men earn more than women. This gap is especially pronounced after marriage, and even more so after divorce.

"This is simple," you think. "The obvious thing to do is to let most children from broken families live with their fathers where they can enjoy a higher standard of living."

You continue reading through more family law decisions, and you learn that a common complaint of separated and divorced Canadian wives is that they've been disadvantaged by their family responsibilities. They've lost career opportunities, experience, contacts and seniority.

"This fits in perfectly," you think. "These long-suffering women should be allowed the chance to make up for lost time in their careers. Why not relieve them of the burden of child-rearing and let the children go live with their fathers? That would also have the effect of putting some of the men on the 'daddy track' at their jobs and smoothing out the wage gap between the sexes that feminist groups are always complaining about."

Then you read some studies about the problems suffered by children from single-parent families. You learn that the girls are more than twice as likely as the daughters of intact families to get pregnant during their teens. Both girls and boys are more than twice as likely to drop out of high school. You also learn that the overwhelming majority of children in single-parent families over the past few decades have been living with their mothers.

"Gee," you think, "mothers haven't been doing such a great job of raising kids on their own. This seems like another reason to try letting the children of broken marriages live with their fathers. They couldn't do much worse."

You discuss your conclusions with an Earthling friend who happens to be a family law practitioner. He chuckles at your naiveté.

"Maybe your Martian courts make practical, realistic decisions like that," he says, "but when I tried making arguments like yours in the early years of my practice, the judges looked at me-no offence intended-as if I came from Mars. Most of them believe children belong with their mothers, and that's all there is to it. I've even heard some of them announce this openly in the courtroom. The bias is so well-known that most men don't even attempt to get custody of their kids. Why waste a huge chunk of the family wealth litigating a lost cause? So mothers usually get custody of the kids, and we force fathers to give money to the mothers."

"But does this system work well?" you ask.

"Not really," the lawyer admits. "If your kids need a three-bedroom home to live in, it's a lot nicer to be the parent who gets to live there with them than to be the parent who pays for the house while living in a bachelor apartment. If you have to put food on the table for your kids, it's more fun being there to eat it with them than it is to supply grocery money to your ex-wife. Let's face it: a lot of child support money gets spent in ways that are of considerable benefit to the mothers.

"It's especially irritating for men if the wife was the one who decided to leave the marriage in the first place, or if she moves away so that dad hardly ever gets to see the kids. After the tax collector and the ex-wife each take a slice off the top, there's not much incentive left for a man to keep slugging away at a difficult job. So a lot of men resent having to pay support, even though they love their kids and would be glad to support them if they could get to live with them."

"Well, if the judges won't be practical," you suggest, "maybe the mothers themselves will be. Maybe someone should point out to divorced women the benefits to the kids and to themselves of letting the kids live with dad."

"Are you joking?" the lawyer replies. "Most women fight like enraged grizzly bears to keep their kids out of dad's hands. Once they're through with a man, they think he's an irresponsible moron, even though he was good enough to marry, good enough to live with for several years and good enough to procreate with-not just once, but in many cases two or three times. Then these women frequently go out and get re-married-to some other woman's cast-off irresponsible moron. But let the kids live with dad? Never."

You climb back into your space ship and return to Mars, disappointed that you have once again failed to find intelligent life forms elsewhere in the universe.

Student Profile

Jason Clemens' participation in public policy includes three years in student government and five years with a political party at both the provincial and federal levels. Jason first became involved with The Fraser Institute after attending a Student Seminar in 1995, followed by the Student Leaders' Colloquium in 1996. Jason worked as a student intern this summer, where he helped compile the 1996 edition of The Fraser Institute's annual publication, "Inside Canada's Government Debt Problem and the Way Out."

Jason focused on finance as he completed an Honours Bachelor's Degree in Commerce (1994) at the University of Windsor. He also completed a Post-Baccalaureate Degree in Economics (1995) at Simon Fraser University, and is currently completing a Masters' Degree in Business Administration concentrating on policy and international business at the University of Windsor. Jason has received a number of academic awards including the John B. Kennedy Memorial Scholarship, the University of Windsor Entrance Scholarship, and the Simon Fraser Bursary Award.

In addition to being a full-time student, Jason has worked with a major financial institution for 7 years, and has operated an independent business for 4 years. He hopes to eventually complete additional graduate work in the field of public policy/finance and pursue a career in private industry focusing on international business and the investment decision-making process.

A Thriving Health Care Sector Could Contribute to a Healthy Economy

Cynthia Ramsay and Michael Walker

In 1994, most provinces spent a third of their budgets on health care. Health Canada, National Health Expenditures in Canada 1975-1995 Summary Report (January 1996), table 19.Note Recent estimates indicate that with Canada's current health system, its current sources of funding, and the aging population, there was a shortfall in current dollar terms of at least $1 trillion by 1995. Office of the Superintendent of Financial Institutions Canada, Social Insurance Programs Division, "Health Care Cost Actuarial Projections," June 4, 1996.Note It is, therefore, understandable that governments are focused on reducing their expenditures. However, rather than cutting deficits by simply controlling total health care costs, public sector costs should be reduced by creating incentives for those who can afford to do so to opt out of the public sector health care budget. Currently, there is no opportunity for those who would like to spend more on health care to do so in Canada. The growth of the health care sector in Canada suffers as a result, and so does the Canadian economy. In July 1996, Quebec's 35,000 job losses were primarily in the health and food services sectors. Statistics Canada, The Labour Force: July 1996, cat. 71-001-XPB (Ottawa: Ministry of Industry, August 1996) p. A-2.Note

The present federal government came to power in the fall of 1993 with promises of job creation, economic growth, and a rising standard of living for Canadians:

         A strong economy is the essence of a strong society. A Liberal government will put jobs and economic growth at the forefront of its objectives. Liberal Party of Canada, Creating Opportunity: The Liberal Plan for Canada (Ottawa: Liberal Party of Canada, 1993) p. 15.Note

Despite these promises, economic growth in Canada has been sluggish, while the U.S. economy has been flourishing. From 1990 to 1995, 6.1 million new jobs were generated in the United States while only 341,000 were generated in Canada. Statistics Canada, Labour Force Annual Averages: 1995, cat. 71-220-XPB (Ottawa: Ministry of Industry, February 1996) p. A-46; U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, May 1996, table A-1, p. 5.Note The U.S. job growth rate doubled Canada's. Meanwhile, governments across Canada are stifling the growth of one of the largest potential job generating industries in Canada: health care.

Employment opportunities

The health care sector provides some of the most satisfying and rewarding jobs in our society. From "high tech" to the caring professions to research and development, the health care sector is one of the key elements contributing to the economic prosperity of a country. While governments have been cutting back on funding, they have made it virtually impossible for Canadians to voluntarily pay more for their own health care. In prohibiting any private health care financing in Canada, governments are sacrificing the tangible benefits of job growth and economic prosperity for the illusory benefits of socialized medicine.

One of these illusory benefits is that socialized medicine is cheaper. This contention would appear to be accurate on first glance. In Canada, 9.7 percent of our gross domestic product (GDP) was spent on health care in 1994, while the Americans spent 14.3 percent of their GDP on health care that year (table 1). However, there are potentially greater costs associated with a government monopoly health system which are not captured by simple cost-to-GDP comparisons. One should be cautious in comparing one country's health care system to another's because there is no way to hold the quality of care constant, and no way by which to account for the costs associated with the lengthy waits that are part of Canada's health care system. Waiting times for cancer radiation treatments are three times longer than those for identical conditions in the United States, and significantly longer than oncologists think medically acceptable. William MacKillop, Kingston Regional Cancer Centre, Kingston, Ontario, 1994.Note The supply of medical technology in Canada greatly lags behind that in the United States Cynthia Ramsay and Michael Walker, Waiting Your Turn, 6th ed. (Vancouver: The Fraser Institute, 1996) p. 27.Note and there are increasing risks of losing some of our best younger physicians and specialists as salary caps become the norm.

Click here to view Table 1: Health Expenditures as a Percent of Gross Domestic Priduct in Canada and the United States

The employment aspect is yet another reason that simple cost comparisons between the United States and Canada should be made with caution. In 1965, Canada employed more health care workers as a percent of its population than did the United States (table 2). By 1993, however, health employment in the U.S. constituted 7.3 percent of total employment, while in Canada the comparable figure was 5.7 percent, or 1.6 percent lower. Obviously, many factors affect job growth. However, a comparison of unemployment figures for the two countries during this same period adds another element to the discussion (table 3). In 1965, Canada had a lower unemployment rate than the U.S. By 1993, Canada's unemployment rate was 11.2 percent, while that of the U.S. was 6.9 percent. In 1995, there was still an approximately 4 percent difference between the American (5.6 percent) and Canadian (9.5 percent) unemployment rates. If current estimates of Canadian health care spending in the United States are correct, Canada loses approximately 10,000 health care jobs to the United States a year. The Financial Post, August 23, 1996, p. 8. Note

Click here to view Table 2: Health Employment as a Percent of Total Employment in the United States and Canada

Click here to view Table 3: Unemployment as a Percentage of the Labour Force in the United States and Canada

As the population ages, even more economic activity will be generated by the health care sector. Government attempts to choke off such a natural development and expression of consumer needs will lead more people to pursue health care options outside Canada, sending potential investment and employment opportunities south.

Increasing demand for health care

A person's health care needs increase with age. Consequently, the cost of a health care system increases as the population it is serving ages. Already, almost 40 percent of total health care spending in Canada (public and private) is spent on people aged 65 or older (table 4). Per capita, the public sector spends approximately seven times more on the 65 and older age group than on the 15-44 year old group; it spends more than four-and-a-half times as much on the 65 and older age group than on the 45-64 year old group (table 5).

Click here to view Table 4: Health Spending by Age Group in Canada, 1994

Click here to view Table 5: Health Care Spending in Canada Per Capita, 1994

Table 6 documents the average annual expenditure per capita of Americans on health care. These data represent out-of-pocket spending and spending on private insurance. They do not include expenditure by the U.S. government in the form of Medicare. Private spending on health care constituted 56 percent of total health care spending in the United States in 1993. In 1993, Medicare expenditures per person served (over 65 years old) was approximately US$4,221. Statistical Abstract of the United States, 155th ed. (Washington, D.C.: U.S. Department of Commerce, Bureau of the Census, 1995), nos. 151 and 160.Note Nonetheless, the U.S. data also indicate that health spending increases as a person ages. With regard to private expenditure on health care in Canada, table 7 shows that family expenditure on health care as a percentage of total family consumption expenditure increases with age, from 2.1 percent for a family with a husband who is less than 45 years old to 3.8 percent for a family with a husband who is 65 years or older.

Click here to view Table 6: Average Annual Expenditure Per Capita on Health Care in the United States, 1993

Click here to view Table 7: Family Expenditures in Canada, 1992

Canada's population is aging, as is that of the United States (table 8). The percentage of the Canadian population over 65 years old has increased from 7.7 percent in 1965 to 12.2 percent in 1996. By the year 2010, 13.8 percent of the Canadian population is expected to be over 65 years old. The aging of the Canadian population is a trend that will continue. Therefore, either the costs of our health system will continue to increase or rationing by waiting will be used increasingly to control these costs. Beyond doubt, the demand for health care services will increase. Canada has the choice of benefiting from this demand, suppressing it, or redirecting it to the United States and other parts of the world. It is estimated that Canada currently redirects about $1 billion of economic activity a year to the United States in the form of health care purchasing. The Financial Post August 23, 1996, p. 8.Note

Click here to view Table 8: Population Greater than 65 Years Old as a Percent of Total Population

That Canadians do spend such an amount on health care in the United States despite the obvious inconveniences shows that there are a number of Canadians willing to pay more for their health care than the government will presently allow. The suppression of demand by rationing access suggests that further potential demand exists. An older Canadian population could afford to pay for some of its own increasing health care demands if the public health care system would permit it, or if there were private options available in Canada. Table 7 shows that on average all two-parent families have a positive income after expenditures on taxes and consumption purchases, with families with a husband aged 65 years or older having an average of $2,413 remaining after all expenditures. As well, single individuals over age 65 years have positive savings on average. These savings represent income that could potentially be spent on health care.

Conclusion

Health care in Canada is organized as a function of government, and governments must get their fiscal houses in order. Therefore, the increasing cost of providing health care is viewed as a problem. However, while the Canadian population is aging and thus making increased demands on the health care system, this population also has the funds to contribute to its health care expenditures. As well, there is a high unemployment rate in Canada, with potentially well-paid and interesting employment opportunities in the health care sector being left unexploited. By restraining the growth of the health care sector, governments are already adversely affecting the quality and quantity of health care available to all Canadians. If they continue to suppress the natural increase in the demand for health care in Canada, they also will hinder the growth and employment prospects for our economy.

Mistaken Diagnosis

William McArthur, M.D., and Cynthia Ramsay

Currently it is popular to ascribe all the problems associated with funding health care to two sources: doctors and drug companies. If the money paid to the doctors and the drug companies were cut, there would be unlimited resources with which to provide all Canadians with all of the care they desire, and all the problems, such as growing waiting lists, would be resolved quickly, or so the theory goes. But this is a mistaken diagnosis. Payments to doctors at 14.2 percent of total health costs are at a 20 year low, and pharmaceuticals purchased from the public purse constitute only 5.6 percent of government spending on health care. Cutting payments in these areas is unlikely to reduce overall costs, and may in the end increase government spending on health care.

The physicians

Canadians have been told repeatedly that Canada has too many doctors who see too many patients too often, solely for the purpose of increasing their own incomes. The reasoning is that doctors are presently paid according to the number of health services they provide for patients. This method of payment, or fee-for-service, is said to provide a financial incentive for doctors to "over-doctor" their patients; and encourages patients to see them for minor ailments which would resolve themselves without treatment. However, the evidence suggests that payments to doctors may not represent a significant problem in Canada.

A comparison with other OECD countries reveals that Canada is not out of line with respect to the number of physicians per 1,000 population or the number of patient visits to doctors. Table 1 shows that some countries with high quality care, including Belgium, Denmark, France, Germany, Norway, Spain, and Switzerland have far more physicians per capita than does Canada. Figure 1 reveals that Canadians visit their doctors less often than the Australians, Swiss, Italians, Germans, and Japanese. These data challenge the widely-held belief that Canadians and their physicians are abusing and overusing their health care system.

Click here to view Table 1: Number of Physicians per 1000 population in 1992

Click here to view Figure 1: Physician Contact per Annum, 1991

Unfortunately, policy makers do not seem to be cognizant of these data. Recent health reform measures indicate that policy makers believe that physicians are consuming an excessive portion of the health care dollar, and that this situation will be corrected if physician remuneration is switched to capitation or salary. Under a capitation scheme, doctors receive payments according to the number of patients on their practice roster. In a salaried environment, doctors receive a base income regardless of their patient load. It is thought by some that introducing these systems will succeed in reducing the costs of physician services because they take away any financial incentive to over-doctor. However, capitation or salary payment schemes provide incentives to "under-doctor," since remuneration is not related to the health services provided.

The U.K. has used a capitation system of payment for nearly 50 years, but the experience there is that it has done little to improve the delivery of care. In fact, prior to the reforms introduced in 1990, hospital waiting lists were as bad or worse as those currently observed in Canada. Swedish doctors are generally salaried and their productivity is about one third that of Canadian physicians. Furthermore, the state has to assume the overhead costs of their practices, which in Canada are paid by the doctors. Since it is not clear from the evidence that payments to doctors represent a significant problem, policy makers should proceed cautiously. Under-doctoring is as serious a problem as over-doctoring, and both capitated and salaried systems would increase overhead costs to the taxpayer. The outcome could be a reduction in productivity with a consequent increase in costs.

The drug companies

Drug costs have increased more than other health expenditures over the last 20 years. By 1994, pharmaceuticals consumed approximately 14 percent of total health costs. Healthy Incentives: Canadian Health Reform in an International Context, edited by W. McArthur, C. Ramsay & M. Walker, The Fraser Institute, 1996, p. 142; and Policy and Consultation Branch, Health Canada, National Health Expenditures Summary 1975-1994, January 1996.Note

On the surface, it would seem that government, the monopoly provider and purchaser of health care in Canada, should be concerned about the escalation of pharmaceutical spending. But when this spending is examined more closely, a different picture appears. The government pays for 43 percent of all pharmaceuticals dispensed outside hospitals, and this figure increased from 2.7 percent of total health care costs in 1980 to 5.6 percent in 1994. National Health Expenditures Summary 1975-1994, Ibid.Note However, public spending on pharmaceuticals, which in 1994 amounted to $100.14 per capita, falls far below the OECD average. OECD Electronic Data, version 3.6, released May 1995.Note

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. . . pharmaceuticals have brought an enormous increase in the capability to fight and control disease. In many cases they have replaced more expensive interventions.
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In addition, pharmaceuticals have brought an enormous increase in the capability to fight and control disease. In many cases they have replaced more expensive interventions. Thirty years ago one of the most common procedures performed in Canadian hospitals was a vagotomy and pyloroplasty, an intra-abdominal surgical procedure designed to relieve the symptoms of peptic ulcer disease. As a result of a number of drugs that have come on the market, this procedure is seldom performed today, and the consequence is a substantial reduction in costs, combined with considerable reduction in patient suffering and disability. Certainly, in this case, drug costs have risen, but the much more expensive cost of surgery is now eliminated. There are many similar examples of how new drugs have reduced treatment costs overall, but they are ignored by those who choose to focus only on the cost of drugs and not on their benefits. Such a one-sided approach is dangerous as "there is growing clinical and documentary evidence demonstrating that reforms to cut government exposure to rising drug costs have an unanticipated and adverse impact on the national health services, in the form of additional specialist referrals and hospitalizations; denial of needed therapies, particularly for the elderly and other vulnerable groups; deterioration in overall quality of medical treatment; increased bureaucratization; and higher costs system wide." William Looney, Drug Budgets: The Hidden Costs of Control. The Impact of European Drug Payment Reform on Access, Quality and Innovation, Centre for the New Europe, June 1995.Note

An alternative

Reducing spending on physician services and pharmaceuticals is unlikely to significantly reduce the overall cost of health care in Canada. To date, the reform measures contemplated, and in some cases implemented, in these areas have the potential of increasing the costs of the health care system without improving the quality of care available. If governments are seriously concerned about both the health of their citizenry and the overall efficiency of the health care system, they should examine hospital expenditures. About half of all taxpayer funding of health care goes to acute care hospitals, and over half of the patients in acute care should not be there. The Health Services Utilization Group for the Conference of Federal/Provincial/Territorial Deputy Ministers of Health, "When Less is Better: Using Canada's Hospitals Efficiently," June 1994.Note Clearly, restructuring the hospital sector would produce efficiency gains. This will be the topic of an article in next month's issue of Fraser Forum.

[William McArthur and Cynthia Ramsay are two of the authors, along with Michael Walker, of "Improving Health Care for Canadians" in Healthy Incentives: Canadian Health Reform in an International Context, edited by William McArthur, Cynthia Ramsay, and Michael Walker, published in August by The Fraser Institute. Copies of the book are available for $19.95 plus G.S.T., shipping, and handling. Call the Institute at (604) 688-0221, ext. 325 for details.]

October Question and Answer

Joel Emes

Q:What is the fiscal situation of the provinces' medical systems?

A:Table 1 shows the hospital debt and unfunded medicare liabilities of each province. Hospital debt refers to the accumulated debt of public hospitals less any endowment funds the hospitals may have. Unfunded medicare liabilities represent the money needed today to fund services for the population over the age of 17 at current service levels throughout their lives. Unfunded medicare liabilities are different from hospital debt because they represent a promise to provide the current level of medical service to all Canadians aged 18 or older. In other words, the liability will increase or decrease if the level of service promised is increased or decreased. In the extreme case, eliminating medicare would eliminate this liability.

Click here to view Table 1: Hospital Debt and Unfunded Liabilities of the Medicare System, by Province, 1996

Click here to view Figure 1: Unfunded Liabilities of the Medicare System (per person) 1996

A Case for Repealing the Canada Health Act

Marc Law and Fazil Mihlar This article is an elaboration of one of the policy recommendations in the health care section of the forthcoming Fraser Forum Critical Issues Bulletin, "The Liberal Government in Action: A Critique Issued to the Chrétien Government," which evaluates 14 policy areas.Note

Worshipping at the altar of the Canada Health Act

. . . I don't mind debating the principles of the Canada Health Act, but those principles are just not negotiable. . . . Hon. David Dingwall, Federal Minister of Health, addressing the House of Commons Standing Committee on Health on April 30, 1996.Note

The Canada Health Act, passed in 1984, represents a federal-provincial cost sharing agreement concerning health care. To qualify for federal funding, a province's health program has to meet five requirements:

       1.      universality-it has to cover all residents of a province

       2.      portability-it has to cover residents of one province requiring medical services in another province

       3.       comprehensiveness-it has to cover all medically necessary services

       4.       accessibility-uniform and reasonable access to health services unimpeded by charges or other means, and

       5.      public administration-it has to be a non-profit program administered by a public authority

The fifth "not negotiable" principle of the Canada Health Act prohibits provinces from responding to both the fiscal and health needs of their citizens. The Canada Health Act is impeding the kinds of changes the provinces must make to their health care systems, such as allowing an increased role for private clinics and other private health providers.

Other G-7 countries have realized that they can no longer satisfy the demand for health care while controlling their spending with a completely publicly-funded system. Indeed, other G-7 countries have allowed parallel private systems to develop, which have relieved some of the cost pressures on their public systems. In Canada, the provinces can not experiment with new modes of financing or delivery of health care because of the Canada Health Act, which does not allow for private delivery or financing of those health care services provided by the public system.

Freezing economics from the health care debate

Economics is often defined as the study of choices; how society allocates scarce resources in the presence of unlimited human wants. Choices about health care-how it should be provided and financed-necessarily involve choices about how to use scarce resources. Whether society should devote more resources to finding a cure for AIDS or to building a hospital is ultimately an economic decision as either option involves choices about resources that have alternative uses. Any rational debate about the future of Canada's health care system must include a consideration of the principles of economics.

Markets use a system of relative prices; prices are the most efficient mechanism for allocating scarce resources to their most valuable uses as revealed by individual choices. Over the last three decades, however, competitive market mechanisms have been largely absent in the Canadian public health care sector. For political, ideological, and historical reasons, politicians and policy makers have not allowed market forces to play a role in the provision of health care. The standard argument offered is that since health care is such an important service, its provisions and financing should be left to the state as the market can not be trusted to provide reliable and effective health care to all Canadians. The principles of economics have been essentially frozen out of the health care debate.

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Other G-7 countries have realized that they can no longer satisfy the demand for health care while controlling their spending with a completely publicly- funded system.
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Faced with rising costs and large fiscal deficits, however, the various levels of government in Canada have been forced to cut their health budgets; as a consequence, many services have been delisted and long waiting lists have developed for many of the elective procedures still insured. Clearly, the Canadian health care system is in a crisis; the government is failing to provide Canadians with reliable and effective health care.

Dispelling the myths about Canadian health care

In spite of these facts, most Canadians continue to cling to the myth that we have the best health care system in the world. Indeed, a large number of Canadians still believe that our health care system upholds the principles of the Canada Health Act. Even a cursory examination of the evidence shows that this faith is misplaced.

Reality check: universality

Universality requires that all Canadians be covered by our health care system for publicly insured services. Formal universality is achieved in Canada except in provinces such as B.C., which charge premiums. In B.C., it is estimated that approximately 97 percent of the residents of the province are actually covered by the provincial insurer. Often, young healthy adults will choose to not pay their premiums, and hence, they go without coverage for periods of time. Of course, this does not mean that they will be denied care if they need it. As in the United States, people are not denied care in Canada because they do not have insurance. However, the real issue is not universality but the quality of care being provided by the public system. Ensuring universal access to a declining standard of care will benefit no one. Allowing those who could contribute financially to their health care to do so will improve access to a higher quality of care for everyone.

Reality check: accessibility

Access to medical care in Canada varies from province to province. Cynthia Ramsay and Michael Walker, Waiting Your Turn, 6th ed. (Vancouver: The Fraser Institute, 1996).Note For example, British Columbians are waiting 9 weeks for treatment after having seen a specialist, Albertans 6.6 weeks, Ontarians 5.2 weeks, and Prince Edward Islanders 11.8 weeks. In general, those provinces which spend more on health care tend to have shorter waiting lists for treatment. As well, in Canada, those people needing treatment the most are not receiving treatment first. According to a study on hip and knee replacement surgery in Ontario, approximately 80 percent of patients with severe pain or disability were waiting 7 months or longer for treatment. C.D. Naylor and J.I. Williams, "Patterns of Health Care in Ontario," Institute for Clinical Evaluative Sciences in Ontario, 1993.Note Furthermore, about 80 percent of queue jumping in British Columbia was found to be for non-medical reasons; the patient was a member of parliament or knew the head of surgery, for example. D.H.A. Amoko, et al. "Surgical Waiting Lists II," Healthcare Management FORUM, Vol. 5, No. 4, 1992.Note

Reality check: portability

In addition, Canadian health care is not fully portable. For one thing, it does not completely cover any Canadian needing care outside of Canada. As well, there is no reciprocal billing agreement between Quebec and the other nine provinces. Thus, a Quebecer who needs medical attention outside of Quebec must pay for medical services out of pocket and is reimbursed later only for the amount that the service would have cost in Quebec.

Reality check: comprehensiveness

Canada's health care system is not comprehensive by any means. Hospital insurance only covers services performed in a hospital and medical care insurance covers services performed by physicians; they both cover only medically necessary services and there is not a national consensus as to what services are medically necessary. The range of insured services is not only incomplete; it varies widely across provinces and territories.

The misguided federal policy position

The federal government's stubborn unwillingness to "negotiate" the principles of the Canada Health Act is most destructive. There is nothing about universality, portability, comprehensiveness, and accessibility that require health care to be entirely publicly administered. In fact, it is this principle that is putting the whole Canadian health system at risk. Virtually every other industrialized nation has a parallel private health care system. Such systems have not increased the disparity of health care services available to rich and poor people. In fact, in many cases, the private sector presence has improved, through competition, the health care delivered by the public sector. Competition in the health care industry can improve the quality and accessibility of health care services.

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. . . the introduction of market-based reforms benefits the health care sector.
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Consider the experience of the United Kingdom and New Zealand with respect to health care reform. Until quite recently, both countries had health care systems very similar to Canada's. In fact, Canada's system was modelled on the U.K.'s. Faced with escalating costs, long waiting lists, and declining quality of services, both the United Kingdom and New Zealand began to liberalize their health care sectors. Today, both the government and private sector compete in the provision of health care services in these countries. Public sector health care budgets have become more manageable, service quality and choice have improved, and waiting lists have been shortened. There is clear empirical evidence that the introduction of market-based reforms benefits the health care sector. This is a reality the Canadian federal government refuses to accept.

Conclusion

While the provisions of the Canada Health Act may represent noble ideals, the reality is that the federal government has been unable to enforce these principles, except that of public administration. Actions by the federal government that penalize provinces for increasing the involvement of the private sector in health care will only serve to worsen the situation. Health care is a provincial responsibility. The provinces have an electorate to whom they are responsible and they should have the freedom to reform their health systems as they and their citizenry feel appropriate. If the federal government wants to initiate a process of truly meaningful health care reform, it will start by repealing the Canada Health Act.

Bibliography

McArthur, W., C. Ramsay and M. Walker, eds. Healthy Incentives: Canadian Health Reform in an International Context. Vancouver: The Fraser Institute, 1996.

Functional Consolidation of Emergency Fire Dispatch

J.G. Bale, Deputy Fire Chief, City of Surrey Fire Department, Surrey, British Columbia

[This is a synopsis of a submission that won the Local Government Category in the 1996 Fraser Institute/Financial Post Economy in Government Competition.]

Vancouver's Lower Mainland is a densely populated region of British Columbia. It is comprised of 20 separate cities and municipalities. Pressure has been mounting in recent years for many of these communities to amalgamate into larger centres, thus reducing the obvious duplication of services.

Municipal boundaries have traditionally divided fire department jurisdictions causing duplication of services and inefficient use of firefighting resources. By consolidating resources such as dispatch services, municipalities could improve service levels at less cost to taxpayers. The city of Surrey's "partnership" with Pitt Meadows, Maple Ridge, and other municipalities has proven that functional consolidation works.

The municipalities of Pitt Meadows and Maple Ridge will save taxpayers $1.6 million over the next five years by consolidating dispatch services with the Surrey Fire Department. In addition, they will experience significant service delivery improvements, services which these two communities were previously unable to provide. Savings over the next five years could total approximately $2.8 million if six community fire dispatch services are consolidated with Surrey's.

Apart from reducing costs through consolidation, many significant service benefits can result from combining dispatch services. These benefits include:

       •       multiple dispatchers: more diverse human resources able to handle the complex communications spurred by an emergency incident

       •        Computer-Aided-Dispatch System: reduced response times and improved reporting capabilities

       •       Better communication from automatic Mutual Aid Agreements and

       •       More cost-effective backup and disaster protection facilities

Consolidation of dispatch services has also opened the door for discussion of other cooperative initiatives such as hazardous material response units and automatic aid agreements. These initiatives could potentially result in additional savings and improvement in response times.

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By consolidating resources such as dispatch services, municipalities could improve service levels at less cost to taxpayers.
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Opposition to these initiatives arises when fire department administrators and city officials feel a loss of power, a compromise of control, or a loss of independence. Unions may also resist the reduction in staff levels that would result from sharing resources. The pressure to provide better levels of service at a lower cost will, however, induce municipalities across the country to look for cost-savings wherever possible.

Rent Control Laws Must Go

Fazil Mihlar

By the 1980s, there appeared to be an almost unanimous consensus that rent control was not beneficial to either the landlord or the tenant. Lately, however, there has been a revisionist movement among economists and policy analysts. These revisionists mistakenly argue that a well-designed rent control program, such as rent review (a mild version of rent control) could be beneficial for society. The premise for this position is the lack of perfectly competitive market features in the rental housing market. Indeed, it is argued that the housing market has significant non-competitive features, including search and mobility costs, differences in the product, and the lack of complete information.

Human beings are fallible. Markets are imperfect. But it does not logically follow that government intervention will improve matters.

Most Canadian provinces have some form of rent control. British Columbia's rent "protection" system is considered to be the soft option, since there is no statutory limit on the percentage increase in rent. Ontario's rent "control" system, on the other hand, is considered to be the hard option, since it has a statutory limit on rent escalation. Government policy-makers who enact rent control argue that the goal of such legislation is to protect tenants from steep increases in rent. The research evidence from around the world, however, suggests that these controls are harmful. In fact, rent control is worse than the "problems" it tries to cure, since it has several unintended economic consequences.

Rent controls have had a deleterious effect on rental housing markets in the United States, Israel, Sweden, and Canada. Rent control is a form of price fixing, and it has several adverse impacts. The case of Ontario is illustrative of the generally negative impact of rent controls.

In Ontario, rent control has discouraged new construction of private rental housing. Private rental housing starts declined from an average of 27,000 units between 1969 and 1974, to 4,283 units between 1975 and 1977, three years after rent controls were introduced. By the early 1990s, as Ontario's NDP government tightened rent controls and pursued a policy of public housing, the private rental housing starts declined further to 2,285 units by 1993. Since rent control is a form of price fixing, rental housing supply falls because the production of housing services yields low rates of return.

Rent control also discourages landlords from maintaining their rental property. In fact, the average rental stock in Ontario has aged significantly since the recent decline in rental construction. Numerous studies also suggest that the quality of rental housing in Ontario has declined. The deterioration of rental housing is not surprising, given that expenditures on maintenance and repair are not rewarded with higher rents.

Rent controls have contributed to a major shortage of rental housing. Toronto's average vacancy rate was 2.3 percent during the 5 years prior to rent control. In the 1980s, after rent controls were enacted, the vacancy rate was 1 percent or less. Rent controls distorted the housing market's normal price and quantity adjustment and resulted in less growth in rental housing. This lack of supply has an adverse effect on the very people the government intended to help with rent control. These groups include low-income households, single parents with children, and new entrants to the community. In such a climate, landlords can allocate scarce rental units to perceived low-cost tenants by selecting households without children and relatively higher-income households.

Rent control appears to be relatively costless for the government. A closer examination reveals, however, that it reduces tax revenue. The tax loss occurs in three different ways. First, rent controls decrease income and corporate tax by reducing gross rent and thereby the taxable income of landlords. Second, rent controls reduce property taxes by lowering the number of new units constructed and reducing the maintenance on existing rental housing stock. Third, rent controls reduce capital gains taxes by reducing the market value of rental dwellings, and hence the capital gain realized on the sale of these dwellings.

Moreover, government budgets are affected adversely by increased expenditures on activities such as rent control administration and public housing. In 1994-95, the Ontario government spent over $1 billion in administering rent control and providing public housing.

Rent control is not a solution to the so-called housing problem. In fact, it ends up hurting its intended beneficiaries. The problem appears to be that some Canadians do not have sufficient income for adequate housing. If poverty is the problem, then it should be dealt with through an income supplement to the poor, rather than interfering directly in the housing market and causing a misallocation of resources to the detriment of both landlords and tenants.

Free Market Olympics Were a Hidden Success

Filip Palda

In the contest to skewer the way capitalists organized the Atlanta Olympics, the gold medal goes to Team Media. Some credit should also go to their coaches: the international bureaucrats who control the games. Propaganda against free markets is a sport Team Media dominates. In perfect synchronization the team declared that these games were tacky, commercial, and that governments had to step in to make sure things ran properly. It is hard to know what spectators think of this performance. What you see is a matter of where you are sitting.

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Reporters ignored the good things that came from putting the games together with the help of commerce.
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The view from on high, the so called "Samaranch perspective" is that capitalists are a low form of life with a limited role, like bacteria to be set loose on an oil slick. Bacteria have their uses, but control of a crisis belongs with government. This view is a comfort to disciplinarians and to timid souls who prefer the whip hand of government to the invisible hand of the market. A closer look at what happened in Atlanta teaches a different lesson.

The Atlanta games were put together and acted out by people who agreed with each other. The beauty of agreement is that it forces both sides to think. This is why free market Olympics are smart Olympics. They make good use of information. If organizers want a music park they cannot just write a cheque on the backs of taxpayers. They must convince a sponsor such as IBM. IBM asks itself whether having its logo on display is worth the cost to its shareholders. IBM will go ahead if it deems that spectators at the park will have a good time and feel open to the IBM message. IBM executives must try to calculate whether their shareholders will benefit at the same time that spectators benefit. Only win-win scenarios get played out in this market. This is why free-market Olympics are democratic and efficient. If the games are to go ahead based on voluntary agreement, every-body's interests have to be served.

When governments fund the games, sensible agreements take a back seat to strong arm tactics. Taxpayers have to fork money over, whether they like it or not. Funding by force produces a Montreal-style Olympics in which organizers have the slack to make billion dollar mistakes at the expense of a captive public. Funding by force also gives organizers the slack not to use their brains in search of better ways to serve athletes. The concept of a Reebok Ring would never have intruded on the thoughts of old-time Olympic bureaucrats flush with public funds. (The "Ring" was a depot in Atlanta where Russian athletes came to fit themselves out with equipment at Reebok's expense.) In a free market Olympics, nations that once wanted to destroy each other now explore new ways to help each other's athletes.

Reporters ignored the good things that came from putting the games together with the help of commerce. They took the easy course by carping about slow buses, computer glitches, and aggressive T-shirt salesmen. This is why the media missed the biggest scoop of the games, the story of how athletes, entrepreneurs, and spectators got something out of the Olympics without forcing distant taxpayers to pay for their pleasure.

The Broken Window Fallacy

Walter Williams

With each reading of the late Henry Hazlitt's Economics in One Lesson, I'm impressed by how clearly this economist/columnist understood basic economics and how much better off we'd be with one iota of his insight.

In Hazlitt's broken window story, a hoodlum tosses a brick through a baker's window and flees. The baker is furious, but a person in the crowd that gathers reminds the baker that his misfortune has a bright side. The $250 it takes to replace his plate glass window will create work for the glazier. And, after all, if windows were never broken, what would happen to the glass business? The baker was also reminded of the multiplier effects. The glazier will have $250 to spend with other merchants, who in turn will have $250 to spend with still other merchants and so on. One just might conclude that the brick-throwing hoodlum, far from being a public menace, was a public benefactor.

Hazlitt says that the first conclusion is correct: more business for the glazier. The glazier will be no more unhappy to learn about the vandalism than an undertaker is to learn of a death. The baker, however, will be out $250 that he planned to pay the tailor to make him a new suit. Because he has to replace the window, he has to do without the suit. So, instead of having a window and a suit, he has to make do with just a window. The glazier's gain in business is the tailor's loss of business. From the community's point of view, it is poorer by one suit that would have come into being. It's easy to see the hoodlum's act as stimulating employment because the new window will be visible. Since the baker can't buy a new suit, the unemployment for the tailor is invisible.

There are many versions of how we buy into various versions of the "broken window" fallacy. Some history professors teach that while World War II was a terrible thing, it brought us out of the Great Depression. No such thing. Yes, there was an increased demand for guns, tanks, and bombs. Neither Santa Claus nor future generations gave us resources to fight World War II. North America had the resources at the time of World War II to make war equipment. Those same resources could have gone into houses, cars and refrigerators.

A variant of the broken window fallacy is when mayors, labour bosses and the chambers of commerce tell us we need to use tax money or float a bond to construct a convention centre, new sports arena, or bridge because of all the jobs that will be created. Taxpayer money comes from taxpayers. If taxpayers kept their money, they would spend it on cars, home remodelling, and other things that would also create jobs. So, like Hazlitt's broken window story, certain jobs are created while others are reduced or don't come into being. The advantage for politicians pushing government spending is that the created jobs are visible, but the jobs that are eliminated or don't come into being are invisible.

Social security is another variant of the broken window fallacy. People who support the program marvel at its benefits. They have no idea of what there'd be if the same money were put in private retirement plans. Among those benefits would be a higher national savings rate, a greater investment rate and a higher gross national product, which, according to some estimates, would be 18 percent higher. All that is invisible while social security cheques are visible.

Reading Hazlitt will make you more informed than most economists.

Real Cops, Canadian Style

John Robson

It is night. Red and blue lights flash in the darkness. Radios crackle with terse communications as the brave men and women on the front lines in the fight against crime adjust their equipment and make one last check of their weapons.

Then the command comes: "Move in!" Crouching low to avoid giving the trapped suspects a good target, hugging the contours, the officers move with precision and speed toward the surrounded building. They reach the door without shots being fired, but this is the tensest moment. Flattening themselves against the wall on either side of the door, they prepare for a forced entry. One officer bangs hard on the door.

"Open up, police!" he shouts, but immediately two others step out and smash the door off its hinges with a special battering ram. Armed officers pour into the dwelling, seizing and cuffing the startled occupants before they can react.

One, more alert than the others, is apprehended in the act of dumping huge quantities of contraband white stuff down the drain. In a few moments it's all over. The suspects are in custody, the contraband and illegal lab equipment are seized and tagged, and the operation is a success. Canadians can sleep more soundly, knowing that no one in British Columbia will be producing and selling that deadly threat to our nation's future: non-quota dairy milk.

And as the cruisers drive off, the cop in the passenger seat turns to the handcuffed, stunned suspect in the back seat and says "Well, buddy, you're in big trouble now. But it could be worse. At least we didn't find any wheat."

But milk? Come on. Milk? I certainly agree that you should never, ever take crack cocaine for any reason whatsoever, though I don't think it justifies a law against it. Wise choice does not, in my opinion, grow from the barrel of a gun, and I think it especially tragic that officers put their lives on the line to interfere in transactions that, though foolish, are quite voluntary. I am also worried about the kinds of laws necessary to detect and punish victimless crimes, particularly the bizarre American asset-seizure laws For one thing, since they seize the assets of accused people, not convicted ones, it becomes impossible to hire a lawyer, and for another, in many cases the property is not returned even though there is no conviction or even no charges. Instead the police keep it. "Give us your car or we'll charge you with trafficking and you won't be able to afford a lawyer." Did we move to Iraq while I was asleep, or what?Note that are now leaking across the border.

But milk?

Of course, milk would probably kill you if you put it into a syringe and main-lined it. I suppose you could drown in it. And a big milk jug could fall off a shelf and crush your head. Milk can, under some circumstances, be dangerous.

But the account above Which is fictional, but was inspired by real incidents in which government personnel raided B.C. farms, and related instances of B.C. farmers dumping milk down the drain to avoid charges.Note doesn't involve the arrest of persons proposing the intravenous consumption of dairy products, the prolonged submersion of citizens in large vats of milk, or the deliberate storage of big jugs of it on high wobbly shelves.

No, it involves people who decided that voluntary exchange was a good thing, that the milk and dairy product marketing boards were politically obnoxious and quite unjustified infringements on the liberties of a free people, and that the state had no place in the udders of the nation. For this they got busted.

Obviously the government was obliged to enforce the law once it was foolish enough to pass it, and I have no complaint with the officers who were doing a difficult and dangerous job. Those farmers have pitchforks, and know how to use them.

But like the mercifully repealed Quebec laws against English-only kosher food on major Jewish holidays, and the also mercifully abandoned proposal to ban unpasteurized cheeses by the federal government, the ban on private transactions between two consenting adults and a cow is inherently ludicrous.

How does the government know that 48% of milk and milk products in Canada should be produced in Quebec? How would you begin to measure that? You couldn't, of course.

And the government doesn't know. It got it wrong, not by choosing that particular number but by believing there was some such number that, in principle, should be set and enforced by the state. And now it's arresting people to conceal its error. Just as the Berlin Wall was built to keep undesirables out of the workers' paradise, so the marketing system is designed to protect hapless consumers against the menace of low prices and an appealing variety of products and to make sure producers don't innovate to try to make customers happy. And it is backed by armed force. Call the cheese police! That isn't just ludicrous, it's offensive.

Until something is done about this kind of stupid law, maybe I'll just drink water instead. Even if they ban that, they'll never be able to prove I flushed my stash as the cops broke down my door. I'm just kidding, of course. I would never drink contraband water.Note

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Last Modified: Wednesday, October 20, 1999.