November 2001

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"Don’t Privatize Health Care": Genuine Concern or a Quest for Higher Wages?

by Nadeem Esmail

A "[p]rivatization virus attacks health system" (CUPE).

The argument has been heard time and again. At times it erupts from proponents of the current and inefficient health care system in Canada. Often it comes from non-medical hospital staff unions who argue that the private provision of health care can only lead to a deteriorating quality of care. These unions argue that private provision will not be more efficient or save money, but will cause Canada’s situation to worsen.

They fail to mention that the impressive wage premiums that non-health workers in the monopolized health care sector enjoy would also be likely to vanish if private provision was to become prominent in Canada. These unions have worked for years to negotiate wage contracts that are more than generous for their members, driving up hospital staff costs (Ramsay, p. 17) while capturing funds that could have been better spent on actual health care.

Of course we need to remember that unions do not exist to act benevolently for the rest of us. They exist to secure better pay and working conditions for their members. And indeed, there is no question that these unions have been militant and active, working to garner the high wages that their members enjoy today (see table 1). Non-medical hospital workers across Canada have engaged in work stoppages and strikes trying to attain large wage increases and benefit packages that are well beyond what the market would provide. This has led to a great deal of frustration with our monopoly health care provider; the government is unable to replace these workers in event of an action, or even sustain an acceptable level of service without them, and as a result is forced to allow wage increases where there is no competitive reason to do so. The unions have all the control they need to get what they want; to get it, they need only to bring our health care system to a grinding halt.

A non-monopolistic market of private providers, in which the government continues to supply comprehensive insurance and the market provides the services, could generate alternatives for patients affected by strikes, and correspondingly reduce the unions’ ability to erode health care provision with work stoppages. Private providers would also be far more able, through competitive pressure, to negotiate market based wages which would tend to be several dollars an hour less than those negotiated with unionized non-medical workers (Ramsay, p. 18).

The overly generous pay rates for non-medical workers contrasts sharply with the less than competitive pay rates for doctors, nurses, and other health professionals (OECD). But because the latter group are more involved with actual patient care than are the cleaning and maintenance persons that make up non-medical staff, the doctors’ and nurses’ unions may be less willing than the non-medical staff to withdraw their services to support their wage demands (McMahon and Zelder, p. 11). This has resulted in Canadian physicians earning only 55 percent of their counterparts in the US, and nurses earning 85 percent of their equivalent US market wage (OECD). The consequences are predictable: nursing unions in Canada have become frustrated and more militant in recent years as they search for the same fruits that non-medical staff unions have enjoyed for many years.

Added to the equation is the considerable brain drain of doctors and nurses, especially the most qualified, to the United States. Between 1980 and 1997, 19 doctors and 15 nurses emigrated to the US for each doctor and nurse who immigrated from the US (Murray and Zhao, p. 3.15). They’re leaving for the better pay and reduced workloads that the US system, with its emphasis on private provision, can offer.

The problem of under-appreciated health professionals is not unique to Canada. Swedish nursing unions have been rallying in favour of private provision, pointing out that private firms are more productive than the public providers, and pay higher wages to health professionals as productivity rises. In a nutshell, the health professional unions can clearly see the benefits of private provision and are not the ones fighting it.

Private provision would not only make our skilled health professionals better off, it would allow more high-quality services for the population because costs would fall and output would rise—characteristics commonly associated with private industry. One of the groups who wouldn’t be better off from a move to private provision of health care would be the non medical support staff, who would likely see their pay premiums erode.

References

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Nadeem Esmail (nadeeme@fraserinstitute.ca) completed his B.A. in Economics at the University of Calgary, and his Masters in Economics at the University of British Columbia. He is Health Policy Analyst at The Fraser Institute.

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