Arnold Kling  

Canadian Health Care

Comment of the Week, 2003-08-2... Demand Too Elastic?...

Pierre Lemieux discusses the distortions in measured costs under a socialized system. Criticizing an article in the New England Journal of Medicine that reports on lower administrative costs in Canada than in the United States, he writes,

Canada's long waiting lines saves the health system money but at a cost to patients...
The second category of hidden costs relates to the partial conscription of medical personnel in the Canadian system...
The system costs Canadian taxpayers more than $75-billion -- more than 20% of all taxes levied in Canada. The administrative cost of collecting these taxes can be roughly estimated at $1-billion. But...(what economists call the "deadweight loss" of taxes), is much higher -- perhaps of the order of $20-billion.

When my wife and I stayed at a Bed and Breakfast on Prince Edward Island, the owner said that seven years ago when they first moved to PEI, he was put on a three year waiting list to be assigned a personal physician. He has a heart murmur, and he was unhappy about this. One day, by chance he ran into the head of the provincial health service and talked her into moving him to the head of the queue. He told this as a reassuring story, but it made me wonder about the people he bumped back.

For Discussion. On the surface, the multiplicity of providers makes competition inefficient. Reducing the number of providers should save on administrative overhead. Which examples of private competition and government monopoly illustrate the fallacy of such thinking?

UPDATE: One classic example of the doubtful efficiency of monopoly is the post office, which is the subject of a recent opinion piece by Rick Geddes.

Comments and Sharing

COMMENTS (5 to date)
Eric Krieg writes:

Yeah, we could say the same thing about Medicare. Its administrative costs are very low. But its bankrupting the government at a furious clip.

Sometimes you get what you pay for.

Patrick R. Sullivan writes:

What was that East German auto called, the Trabant?

But I don't believe the Canadian figures for administrative costs. Government employees being notoriously unproductive (I know I was when I was a government employee), receiving high benefits, and outrageous job protections.

And I too have had Canadian friends complain about waiting lists. One is out of pocket $50,000 US, because his father was going to be put on a waiting list for TESTS, so he took him to the Mayo clinic where they discovered stomach cancer, and operated a day or two later. The man would be dead if his sons hadn't had the money.

As my friend bitterly told me, "They tell us it's free. But you know what, you get what you pay for."

Bernard Yomtov writes:

What exactly is the basis of the $20 billion deadweight loss estimate? Seems bizarrely high to me, and Lemieux cites it with no support whatsoever.

No doubt there are problems with the study, but there are externalities, uncounted costs, and costs borne by patients in the US system as well.

Anthony writes:

Canada isn't the only one with Goverment controlled medicare. Doesn't every other industrialized country? Germany, Japan, UK, Taiwan, France, etc?

I would argue that the HMOs have much the same effect as government control by limiting supply and mandating choices.

Manitoba had an interesting system (Ontario has it somewhat as well). The government pays the doctor whether you visit or not. Essentially they get paid when you are well.

What does that mean? Doctors are much more willing to dispense advice on the phone and more willing to have quick visits. If you see another doctor because yours isn't available it gets deducted from him/her.

This reduces costs - if you can catch something early - it is less likely to get serious and statistically costs are reduced.

The fellow whose dad went to the Mayo - the experience of tests of billing in Canada has been the opposite. If there is a bill assoicated with doctor's visits poor people delay them. This increases the overall cost of medical care.

The US spends more on medical care as a percent of GDP while covering proportionally less people.

Taiwan recently introduced nation wide medicare (5 years ago). What happened? Doctors are making less money and as a percentage of GDP medical expenses have declined.

John Jarrell writes:

Nice thing to have waiting lists in Canada. Too bad for the 20-30M people in the USA who can't get on one.

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