Returning British Columbia to Prosperity

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Health Care: Getting British Columbia Healthy Again

In a short 35 years, socialized health care has become one of Canada's defining characteristics. Unfortunately, as the following analysis will illustrate, Canadian health care is in a self-imposed crisis due to a poorly formulated institutional structure.

This section begins with the general economics associated with health care as well as a discussion of the implications of the Canada Health Act. It then presents health care results, such as access to technology and waiting times for both Canada and British Columbia. It summarizes the reforms undertaken in a number of countries in order to catalogue some of the alternatives available, and also summarizes the RAND study on health premiums and consumption. As with all policy sections, this one concludes with a series of policy recommendations for British Columbia; included in this are measures that assume the repeal of the Canada Health Act, or at least a failure on BC's part to comply.

Economics of Health Care

Like the provision of welfare, health care is affected by the economics of moral hazard. Moral hazard exists when individual behaviour changes following the introduction of an insurance program. In other words, by its very presence, an insurance scheme or similar program, such as health care, reduces the costs of certain behaviour and thus alters the actions of individuals accordingly.

This can be seen quite clearly in how health care is "purchased" in Canada. Decisions that have adverse health consequences, such as smoking, do not influence the "purchase" price of health care for individuals, as they do life insurance, since health care is financed by various taxes, not purchased directly. There is no direct penalty in terms of the cost of health insurance for those who choose unhealthy lifestyles since the full cost of smoking is not fully borne by the individual.

Impeding the Use of Markets: the Canada Health Act

To a large extent, the Canada Health Act prevents the use of market mechanisms to allocate resources within the socialized portion of the Canadian health care system. By legislative dictum, the federal government has precluded voluntary choices and forced a command-and-control system of resource allocation in health care.

Health care delivery, although largely a provincial responsibility, is nonetheless constrained by the federal government through its financing and associated regulatory power. The federal government effectively oversees the health care system in Canada under the auspices of the Canada Health Act and its accordant ability to withhold transfer payments as a means of disciplining provinces that contravene the act.

Canada Health Act (1984)

In 1984, the federal government, in spite of opposition from organized medicine and some provincial governments, passed the Canada Health Act, which reaffirmed the principles of the Medical Care Act of 1966 and added an additional principle: accessibility. By adding accessibility as a principal of Canadian health care, post-1984 the federal government could assess dollar-for-dollar penalties by reducing provincial transfers for any user fees or extra billing that the provinces permitted.

Although the original intent of socialized health care was a 50-50 federal-provincial split in health care funding, the last 30 years has seen a dramatic decrease in the amount of health care funded by the federal government. For instance, in 1970, the provincial government of Saskatchewan, the birthplace of Canadian socialized medicine, contributed 36 percent of that province's total health care funding. By 1990, its contribution had increased to 73 percent, a 103 percent increase in the proportion funded by the province (McArthur, Ramsay, and Walker, 1996).

Five Principles of the Canada Health Act

It is worth discussing briefly the five principles of the Canada Health Act—universality, accessibility, portability, comprehensiveness, and public administration—to understand the constraints it places on health care delivery.

Universality requires that 100 percent of a province's residents receive health insurance. In other words, universality requires that every Canadian receive medical care. However, it is quite clear that universality does not exist. For instance, even though low-income households in British Columbia are exempt from paying medical premiums, the BC Ministry of Health concluded that only 97 percent of BC residents were actually covered by the Medical Services Plan. In other words, nearly 100,000 British Columbians were without public health insurance (McArthur, Ramsay, and Walker, 1996).

Accessibility refers to the principle that financial and other barriers should not preclude access to health care services. Put differently, one of the goals of socialized medicine is to prevent wealthy Canadians from purchasing higher quality, or faster, better, health care service. The data, however, shows quite clearly that Canada's health system is not equally accessible to all. For example, BC Workers' Compensation uses private clinics to jump queues in order to reduce their own costs by more speedily returning workers to work. Similarly, research in British Columbia concluded that queue-jumping was mainly undertaken for non-medical reasons, and those most likely to queue jump were those in positions of prominence, such as politicians, health professionals, celebrities, and others of high influence (Alter, Basinski, and Naylor, 1998; and Amoko, Modrow, and Tan, 1992). In fact, a number of studies, including one completed in 2000, concluded that the poor had less access to medical specialists than wealthier Canadians (Alter et al., 1999; Dunlop, Coyte, and McIsaac, 2000). In addition, long and worsening waiting lists for medical procedures and access to medical specialists have become the norm in the Canadian health system rather than the exception.

Portability refers to the ability of Canadians to travel out-of-province or abroad without fearing loss or lack of applicability of health care coverage. In reality, portability is limited, even within Canada. For instance, Quebecers travelling to other provinces must pay all medical expenses out-of-pocket, then request reimbursement from their government. The province will only reimburse the equivalent costs in Quebec. Any cost difference is borne by the resident.

The fourth principle, comprehensiveness, implies that the Canadian public health care system will cover all, or at least the most necessary health care services. However, the list of services covered by the various provincial health plans is by no means exhaustive. In fact, in 1999, public expenditures on health care covered only 69.5 percent of total health care expenditures in Canada. Thus, a little over 30 percent, or nearly one-third of all health care expenditures were made privately (OECD, 2000).

The Canada Health Act's fifth principle is public administration. There is nothing about the principles of universality, accessibility, portability, or comprehensiveness that require health insurance to be publicly administered (McArthur, Ramsay, and Walker, 1996). However, the Canada Health Act does require that health care be publicly administered. The rationale for public administration has been cost minimization. It was believed that a single provincial insurer providing first-dollar coverage of all insured services (meaning zero deductibles) would minimize administrative costs. This belief overlooked the fact that creating a monopoly brings about its own set of costs: higher prices, lower quality service, lagged innovation, and poor customer satisfaction (McArthur, Ramsay, and Walker, 1996). Additionally, recent work by economists at the University of Chicago suggests that theoretical savings from risk-pooling in life insurance markets do not, in fact, exist, implying that the monopoly provision of health insurance in Canada may be largely ill-founded (Cawley and Philipson, 1999). Thus, public administration and the subsequent monopolization of health care in Canada may come at a very high cost and with very little benefit.

Markets Versus Government

The net effect of the Canada Health Act is to significantly tilt the provision and financing of health care in Canada away from markets and towards government command and control. Under the act, health care in Canada is a single-payer, fee-per-service system. Since the single payer is the state, consumers are not charged for their consumption of most health care services. Physicians who supply medical services bill the government for each service rendered at a rate collectively negotiated with the government. Hence, market prices do not emerge as a mechanism for resource allocation.

Economics 101: Demand Curves Slope Downwards

The emergence of waiting lists should not surprise anyone familiar with basic economics. A central principle of economics is the "law of demand," which tells us that, all other things being equal, the quantity demanded of a particular good rises as the price of that good falls. This well-established law of economics applies forcefully to the market for health care: as the relative price of health care falls, people consume more of it. Hence, if the price of health care is negligible, we would expect the demand for it to be very high.

That the "law of demand" should apply to health care is not only intuitively obvious; it also receives a great deal of empirical support. Perhaps the most decisive empirical test of this proposition was provided by the RAND Corporation in its Health Insurance Experiment (Newhouse and the Health Insurance Group, 1993). Researchers at RAND observed the behaviour of families who were assigned to different health insurance plans and tracked over 10 years. Some families received complete insurance (zero price for health care) while other families received only partial coverage for their health care expenses. Researchers confirmed that families with more health insurance consumed more health care. In other words, as the price for routine medical expenses rises, people consume less health care. Moving households from full insurance to co-insurance has the effect of reducing consumption of health care services. More importantly, the study did not observe negative health effects on non-low-income households that used less health care due to the presence of deductibles and other user fees.

State of Canadian Health Care

Health Care Table 1 contains information on health care expenditures for OECD countries. It strongly suggests that Canada's health care difficulties are not rooted in the level of health care spending. For instance, in 1998, Canada ranked 5th among OECD nations in health care expenditures relative to the size of the economy. Only the US (13.6%), Germany (10.6%), Switzerland (10.4%), and France (9.6%) spent more on health care as a percentage of the economy than Canada (9.5%) (OECD, 2000). Canada also ranked 5th in the dollar value of health expenditures, as measured by purchasing power parity (OECD, 2000).

While Canada spends more than most OECD countries on health care, given our high level of government intervention in its provision, one would expect the health care system to show the traditional outcomes of such intervention: higher prices, lower quality service, and lagged innovation. In addition, given the absence of a functioning price system, we would also expect to see rationing as an alternative mechanism for allocating medical resources. Unfortunately for Canadian health care consumers, that is exactly what we observe.

Health Care Table 2 gives information on select medical technologies and their availability in the OECD countries. Despite spending 28.8 percent more than the OECD average on health care, Canada performs quite poorly with respect to access to medical technologies. For instance, Canada ranks 21st of 28 OECD countries with respect to access to CT Scanners (Harriman, McArthur, and Zelder, 1999). In fact, of the four technologies examined, Canada is only competitive in access to radiation equipment.

Even in radiation equipment, the one area where Canada performs well, early warning signs are now emerging that Canada faces problems. For instance, in October of 2000, the Canadian Association of Radiologists warned that up to half of all radiology services, ranging from ultrasounds to CAT scans, could be shut down unless updated or replaced (Arnold, 2000).

The lack of a functioning price system in health care has necessitated the use of rationing as a means of allocating health care resources. The result of rationing is that people must wait for medical procedures and treatment. In fact, waiting times have significantly increased over the last 7 years—the longest period for which comprehensive and comparable data are available. For instance, between 1993 and 1999, the median wait between referral by a general practitioner and seeing a specialist increased from 3.7 weeks to 5.6 weeks (Zelder, 2000d). Similarly, the median wait time between an appointment with a specialist and receiving treatment increased from 5.6 weeks in 1993 to 8.4 weeks in 1999.

In 11 of 12 specialty categories (e.g., neurosurgery, orthopaedic surgery, and medical oncology) the median wait times between both the referral and specialist appointment, and between the specialist appointment and treatment increased between 1993 and 1999. In some cases, the increases were quite large. For instance, the total median wait time for neurosurgery increased from 12.9 weeks in 1993 to 18.2 weeks in 1999, an increase of 41.1 percent. Canadians are clearly waiting longer for medical treatment (Zelder, 2000d).

The State of
British
Columbia's
Health Care

Cost of Health Care

Unfortunately for British Columbians, the state of the health care system in BC mirrors the state of Canada's overall health care system. According to budget estimates, British Columbia will spend $8.3 billion on health care in fiscal 2000/01, representing 37.1 percent of total budgeted provincial expenditures (BC Ministry of Finance & Corporate Relations, 2000a). This figure does not include an additional $500 million in health care spending announced in December 2000. Excluding the extra $500 million, the BC Government expected health care expenditures to increase 7.1 percent over last year. British Columbia, like Canada as a whole, devotes a great deal of resources to health care without achieving corresponding results.

A more precise method by which to assess expenditure data is through Statistics Canada's Financial Management System (FMS). The FMS is a standardized system of accounting that allows for easy inter-provincial comparisons.

According to the most recent FMS information, British Columbia spent $8.5 billion on health care in the fiscal year 1999/00. The FMS divides health care spending into four major categories: hospital care ($4.2 billion), medical care ($2.9 billion), preventive care ($582.0 million), and other ($800.5 million) (Statistics Canada, 2000a). As Health Care Figure 1 depicts, total real expenditures on health care have increased an astounding 40.5 percent since 1991/92.

According to FMS data, expenditures on health care represent 33.2 percent of total provincial expenditures, the single largest envelope of provincial expenditures. In fact, expenditures on hospital care (16.4%) represent the single largest area of expenditure, with K-12 education following closely at 16.0 percent of total expenditures (Statistics Canada, 2000a).

Medical Technology

The state of medical technology in BC is as troubling as Canada's ranking in the OECD for access to medical technology. A 1999 case study investigating access to a variety of medical technologies in British Columbia, Washington State, and Oregon concluded that British Columbia lacked, both in relative and absolute terms, access to a host of medical technologies (Harriman, McArthur, and Zelder, 1999). Health Care Table 3 summarizes the results from the case study for a variety of medical technologies.

Except for ultrasound, CT scanners, and spectroscopy, British Columbia maintains substantially lower levels of access to technology than either Washington State or Oregon. For example, the percentage of hospitals with MRI technology in British Columbia was a pale 20 percent, while Washington State and Oregon maintained significantly higher levels of access, namely, 100 percent and 80 percent, respectively.

In fact, the wait times for access to the available technologies have been increasing. Health Care Figure 2 illustrates the median wait times for computed tomography, MRIs, and ultrasound in British Columbia from 1994 through 1999. The largest increase in waiting time occurred for MRIs, which increased from 8.7 weeks in 1994 to 16.0 weeks in 1999.

Rationing in British Columbia

British Columbia's performance in reducing, or at least maintaining waiting times, is equally as disturbing. As Health Care Figure 3 depicts, the total median wait time in British Columbia has increased from 10.4 weeks in 1993 to 15.8 weeks in 1999, an increase of 51.9 percent. It is also substantially above the median wait time maintained by Ontario (11.8 weeks) and only marginally below Alberta's wait time (16.3 weeks).

British Columbia fared even worse with respect to total wait times for specialists. Health Care Figure 4 shows the wait times for three select specialties: orthopaedic surgery, cardiovascular surgery (urgent), and radiation oncology. In all three categories, British Columbia's waiting times exceeded those of Alberta, Ontario, and the Canadian weighted average. In cardiovascular surgery (urgent), for instance, British Columbia's wait time exceeded Alberta's, Ontario's, and the Canadian average by 4.8 weeks, 4.7 weeks, and 4.2 weeks, respectively.

The trend with respect to wait times for specialists (appointments and treatment) has generally been worsening. Health Care Figure 5 depicts the trend for orthopaedic surgery and radiation oncology between 1993 and 1999. The wait time for orthopaedic surgery has increased by 12.2 weeks, representing a 55.0 percent increase, while the wait time for radiation oncology experienced a marginal decrease.

Other Problems Plaguing Health Care

Several factors apart from rationing are contributing to waiting times not just in British Columbia, but in Canada. For instance, the lack of a health care pricing mechanism has resulted in a situation wherein resources are not always used most productively. For example, a study completed by Martin Zelder of The Fraser Institute examining health spending and waiting times concluded that between 1993 and 1998, additional health spending did not result in reduced waiting times or increased rates of treatment by specialists, implying that funds were not used productively (Zelder, 2000e).

High unionization rates in the health care sector have created another challenge to its effective and efficient delivery: high labour costs. Health economist Cynthia Ramsay investigated the cost of wages and salaries in health care in 1995 and concluded that roughly 4.0 percent of the entire health care budget could be saved if the wages and salaries paid to non-medical staff were market-based, as opposed to union-imposed. For example, an analysis of 18 employment categories at the Royal Columbian Hospital revealed a wage premium of $3.94 per hour relative to comparable private sector positions. For instance, purchasing clerks employed in the health care sector received a 50 percent wage premium over their market counterparts; laundry workers garnered a 34 percent wage premium. The range of wage premiums in the health care sector relative to comparable market-determined wages ranged between 25 percent for store attendants and 63 percent for painters (Ramsay, 1995). In fact, had it paid market wages for non-medical services the savings for the Royal Columbian Hospital in 1995 alone would have amounted to some $5.4 million, the equivalent of 3.3 percent of its annual budget (Ramsay, 1995).

Another problem affecting British Columbia's waiting times, and which is generated by hospital employees' high unionization rates, is work stoppages. Recent analysis by The Fraser Institute's Martin Zelder has concluded that work stoppages aggravate waiting times. For instance, the number of strike days (per capita) lost in the health care sector in British Columbia increased from 4.1 days in 1993 to 27.9 days in 1999, while waiting times increased from 9.7 weeks in 1993 to 15.8 weeks in 1999 (Zelder, 2000a).

Two International Examples of Health Care Alternatives

It is clear that health care in this province—and this country—is in need of a serious solution to the many problems currently facing it. Fortunately, there are myriad available alternatives. The following section briefly presents such two alternatives based on the experiences of Germany and its two-tier health care system, and Singapore, which uses a system of mandatory savings to finance health care.

Germany: Two-Tier Health Care
in Action

[This section on German health care is based largely on the work of Dr. William McArthur, Cynthia Ramsay, and Michael Walker in their 1996 book, Healthy Incentives: Canadian Health Reform in an International Context. The book is available on the Internet at www.fraserinstitute.ca/publications/books/health_ reform/.]

Germany has been described as a "midpoint in the spectrum of systems that countries have adopted to protect their populations against the financial consequences of illness" (McArthur, Ramsay, and Walker, 1996, p. 63). Germany maintains a two-tier health care system: one tier is private and the other public. In 1992, 87.9 percent of German citizens were covered by the public system, referred to as Statutory Health Insurance (SHI). A little over ten percent (10.3%) were covered by private health insurers. The remaining citizens were split evenly (1.6 percent each) between a state program covering civil employees and welfare recipients, and citizens voluntarily choosing no insurance (McArthur, Ramsay, and Walker, 1996).

Citizens may only opt out of the public system if their income reaches a certain pre-determined threshold, or they are self-employed. In 1995, the threshold was DM 5,850 per month (roughly $4,300 Canadian). All others, including students, the unemployed, farmers, and workers earning less than the threshold, are automatically covered by the public system.

As one would expect, the two systems operate quite differently. The public system is financed through a dedicated payroll tax of 13.2 percent (as of 1995) up to a threshold income of DM70,200 per year (roughly $52,000 Canadian). The payroll taxes are unrelated to usage, risk, or demographics. Further, user fees and co-payments are limited. Thus, there is very little connection between health care costs and individual payment. The public system is also characterized by heavy regulation, the aim of which is to control costs.

The private system, on the other hand, is characterized by heavier reliance on market mechanisms for the allocation of health care resources. For instance, contribution rates vary according to usage and risk, largely based on sex and age. Contribution rates also reflect the medical history or risk of the insured.

Germany's two-tier health care system has permitted greater diffusion and use of technology—Germany ranks 9th in CT Scanners, 8th in radiation equipment, 8th in lithotriptors, and 6th in MRIs (Harriman, McArthur, and Zelder, 1999).

The incorporation of some of Germany's health care policies, particularly the ability to opt out of the public system and the subsequent development of a private, parallel system, would inevitably ease the pressures currently daunting Canada's public health care.

Singapore: Mandatory Savings

[This section on the Singaporean health care system is based largely on the work of Dr. Thomas A. Massaro and Yu-Ning Wong in their study Medical Savings Accounts: The Singapore Experience, and to a lesser extent on the work of Mukul G. Asher and his study, Compulsory Savings in Singapore: An Alternative to the Welfare State. Both are available electronically on the Internet at www.ncpa.org.]

Rather than provide social welfare services such as welfare and health care directly, the government of Singapore uses forced savings, through which individuals accumulate funds to expend on these programs. The Central Provident Fund (CPF) is a government-required system of individual savings that is used for everything from retirement to home purchases, health care expenditures, education, and investing.

Singapore maintains three separate health care programs under the auspices of the CPF: Medisave, Medishield, and Medifund. Medisave was enacted in 1984 to help citizens meet their individual health care responsibilities. Contributions are graduated according to income and age. They begin at 6 percent of total wages and rise to 7 percent at age 35 up to a maximum contribution of S$360 per month (roughly $412 Canadian). Contributions increase to 8 percent at age 45 up to a maximum of S$450 per month (about $515 Canadian).

Once an individual's Medisave account reaches S$16,000 (roughly $18,300 Canadian), all future contributions are redirected to their Ordinary account, also part of the CPF. Medisave funds can be used at all public and private hospitals. In fact, in 1992, 83 percent of hospitalized patients used at least a portion of their Medisave accounts to pay for their hospital bills (Massaro and Wong, 1996).

The second health care account, Medishield, was established in 1990 after it was determined that low-income workers were unable to accumulate sufficient funds in their Medisave accounts to pay for their own medical care. Medishield is a catastrophic insurance program that pays extraordinary hospital expenses for those under 70 years of age. Premiums range from S$12 to S$132 per annum (roughly between $14 and $151 Canadian), depending on age, and are automatically deducted from the Medisave account. Medishield coverage begins when the length of a hospital stay exceeds 1.5 times the average stay, which results in only between 20 and 25 percent of hospitalizations receiving Medishield coverage (Massaro and Wong, 1996).

The third form of health care savings in Singapore is the Medifund program. Medifund is a government-funded program established in 1993 to provide financial assistance to the poor whose Medisave accounts are low and who have limited resources to pay for expenses out of pocket. The Medifund program receives in excess of S$100 million per annum in government subsidy.

In addition to forced savings, Singapore also directly subsidizes roughly 19 percent of all health care expenditures (as of 1992). A central component of the subsidy program is a tiered structure of payments to health care providers. There are five classes of wards available in hospitals, each with different subsidies and varying amenities. For instance, Ward Class B1, the second highest ward class available, receives a total government subsidy equal to 20 percent of the total cost. Alternatively, the lowest ward class, Class C, receives an 80 percent subsidy (Massaro and Wong, 1996).

Access to health care facilities and treatment, medical technology, and health outcomes in general in Singapore are more than competitive with in neighbouring Asian countries. In fact, many of the indicators of health outcomes in Singapore are comparable with those of managed care providers in the United States (Massaro and Wong, 1996). The Singaporean model of individual savings provides strong evidence of the efficacy of an individual-based system of health care allocation.

Research Breakthrough:
RAND Study

[This section on the RAND health experiment is based largely on the work of Martin Zelder (2000), "Canadian Health Reformers Should Understand RAND" Fraser Forum (February). Digital document available on the Internet at www.fraserinstitute.ca.]

The RAND Experiment was conducted by the California-based RAND Corporation over an 11-year period from 1971 to 1982. The study included about 2,000 non-elderly families in a variety of different insurance plans. The set of families was randomly selected and were randomly assigned to insurance plans that varied both in their coinsurance rates and deductibles.

The coinsurance rate, the fraction of expenses paid out of pocket by the families, varied from 0 to 95 percent. The deductible amounts, the level of annual health spending at which the insurance company pays all subsequent charges, were percentages of family income (5, 10, or 15 percent), up to a maximum of $1,000 (US).

Outcomes within the assigned plans for about 1,400 of the families were followed for 3 years; the other 600 were tracked for 5 years. This enabled the researchers to measure the effects of different plans accurately. The effects fell into two categories: health spending and health outcomes.

Those families who paid 25 percent out of pocket (up to a total of $1,000 US maximum per year) incurred annual health care costs, on average, of US$826. By comparison, those in the "Canadian" group (0 percent co-insurance) incurred annual costs of US$1,019. In other words, a 25 percent co-insurance rate led to a reduction in annual costs of US$193, or 19 percent. Cost savings estimates for British Columbia based on the introduction of a 25 percent premium (as indicated by the RAND study) would be approximately $1.6 billion (Zelder, 2000f).

The truly remarkable finding contained in the RAND analysis, however, relates to the change in health status among the families studied. Before-and-after measures of health status were collected to determine any health effect associated with changes in health consumption due to the varying insurance schemes. This permitted researchers to determine whether members of the "Canadian" type of plan, who received more health care, were better at improving and maintaining their health than those who paid 25 percent or more out of pocket. Extraordinarily, access to "free" health care did not benefit the "Canadians," with very minor exceptions. "For the average person there were no substantial benefits from free care" (Newhouse et al., 1993, p. 201).

Reform Attempts in BC

The BC government's cost containment initiative with respect to prescription drugs, referred to as reference-based pricing, in theory reduces costs by paying only for the least costly drug in a therapeutic group of pharmaceutical drugs, unless the physician specifically requests an exception. However, a US study of 12,900 patients in Health Maintenance Organizations (HMOs) found that restrictive prescription programs have adverse health effects and produce other unintended negative consequences, which end up defeating the intentions of the programs. In HMOs with restrictive drug payment programs, there were 83 percent more doctors visits, and 160 percent more prescriptions written, with drug costs actually increasing by 161 percent compared to HMOs which honoured physicians' discretion in selecting pharmaceutical treatment (McArthur, 1997).

The BC government Columbia recently announced a series of initiatives, referred to as BC's Health Action Plan: Putting Patients First (available on the Internet at www.bchealthaction.org/index.html), aimed at improving health care in the province. Unfortunately, the plan is largely based on simply spending more money, as opposed to fundamentally altering the manner in which health care is delivered in the province (Zelder, 2000e). For instance, the plan calls for 400 new nurses, resources for nurses to upgrade current skills, increased medical residencies for doctors, additional resources for ambulatory and emergency services, and new money for medical technologies and specialized services (BC Ministry of Health, 2000).

Policy Recommendations

This section is broken into two separate parts: intermediate policies and long-term policies. The reason for the delineation is the presence of the Canada Health Act. As long as the federal government prevents provinces from enacting broad-based institutional reform, many of the most necessary and productive reforms cannot be implemented. Thus, we include policy recommendations that could improve health care delivery under the constraints of the Canada Health Act, as well as longer-term reforms.

Intermediate Policy Recommendations

(1) Use private (both non-profit and for-profit) health contractors to more efficiently deliver health services.

Contracting out the delivery of health services does not contradict the Canada Health Act as long as the clinics are prevented from charging user fees and the costs are covered by the provincial health insurance plan. If private contractors were to provide health services, it would clearly improve the health care sector's incentive structure. Additionally, it would provide greater accessibility by increasing the sector's productive capacity. Perhaps most importantly, if private contractors were to provide health services, it would reduce costs, yet result in no negative service affects (Zelder, 1999).

(2) Negotiate a renewed Labour Accord.

British Columbia should immediately implement market wages for all hospital staff, including both medical and non-medical employees. This would inevitably entail a reduction in non-medical staff remuneration with commensurate increases in medical staff remuneration.

(3) Eliminate Reference-Based Pricing.

Evidence shows that restrictive drug programs can have adverse effects on patient health and create unanticipated incentives, which may actually drive up net costs.

Longer-Term Policy Recommendations

(1) Adopt a system of Medical Savings Accounts.

Under a system of Medical Service Accounts (MSAs), the province would channel health care spending through individuals rather than service providers. Each individual's MSA would be divided into two parts: one for regular expenses, such as regular doctors' visits and prescription drugs; the second to fund a catastrophic insurance plan. Any surplus in the fixed annual amount could be carried forward, or applied to an RRSP, but individuals would be required to make up any deficit from personal funds. The government-funded catastrophic illness plan would ensure that no individual would be left bankrupt as a result of a major illness (Goodman and Musgrave, 1992; Ferrera, 1995; Massaro and Wong, 1996; Scandlen, 1998; Ramsay, 1998; and Gratzer, 1999).

(2) Allow and facilitate the privatization of health care service delivery.

British Columbia should acknowledge and promote the presence of private alternatives to the public provision of health care. Health care service providers should be privatized over a pre-determined period to introduce a pricing system that would improve health care resource allocation, create and promote patient-caregiver accountability to improve service delivery, and finally, introduce competitive pressures for health care delivery.

Fraser Institute Policy Contacts

Martin Zelder, Director of Health Policy Research
Phone: (604) 714-4548
E-mail: martinz@fraserinstitute.ca

Recommended Readings

[Note: For complete publication data, please see the list of references.]

Peter Ferrara (1995). More than a Theory: Medical Savings Accounts at Work.

John C. Goodman and Gerald L. Musgrave (1992). Patient Power: Solving America's Health Care Crisis.

David Gratzer (1999). Code Blue: Reviving Canada's Health Care System.

Thomas A. Massaro and Yu-Ning Wong (1996). Medical Savings Accounts: The Singapore Experience.

William McArthur, William, Cynthia Ramsay, and Michael Walker (1996). Healthy Incentives: Canadian Health Reform in an International Context.

Joseph P. Newhouse, and the Insurance Experiment Group (1993). Free for All? Lessons from the RAND Health Insurance Experiment.

Cynthia Ramsay (1998). Medical Savings Accounts: Universal, Accessible, Portable, Comprehensive Health Care for Canadians.

Michael Tanner (1995). Medical Savings Accounts: Answering the Critics.

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