Let Them Have Cake (and Eat it Too)

According to a new Leger Marketing poll, 52 percent of Canadians want to allow "those who wish to pay for health care in the private sector to have speedier access to this type of care while still maintaining the current free and universal health care system."

If the poll had asked, "Do you think Canadians should be allowed to have their cake and eat it too," I suspect more than 52 percent would agree, but the question as posed is essentially the same.

Advocates for private, for-profit health care insist that market discipline makes the system more efficient. This is true, but when economists talk about "efficiency", they mean allocative efficiency, or the ability for markets to direct investments to the areas in which they will generate the best return.

In the United States, where for-profit health care is well developed, the market for health care is very "efficient" by the economists' definition. Health care corporations regularly generate profits of 20 to 30 percent. They do this not by running their businesses more productively, but by limiting access to care and insulating themselves from risky patients.

The American practice of risk selection (refusing to cover people at elevated risk of sickness) and coverage exceptions (refusing to treat illnesses that occur as a result of "pre-existing conditions") is well-documented. The only way to ensure top-notch care is to be wealthy enough that price is no object.

From a business point of view, it makes perfect sense, but that's exactly the point. The purpose of a health care system is to treat sickness and promote health, not to provide lucrative investments. A system that actively avoids caring for those who most need it and provides no coverage at all to tens of millions of people is not a good system, even if it does cost less.

Of course, the American system doesn't cost less. In fact, it costs more than any other system on Earth.

Just just how expensive is two-tiered (or "parallel", which sounds more benign) care? I dug into the statistical abstract of the World Health Organization's World Health Report 2005 and found some shocking results.

There's not much point in comparing the United States to, say, Sierra Leone, so I limited my comparison to the 28 member countries of the Organization for Economic Cooperation and Development (OECD), all of which are more or less industrialized and affluent.

Of OECD members, the U.S. spends the highest share of its Gross Domestic Product (GDP) on health care, at 14.6 percent1. Canada spends 9.6 percent, slightly higher than the OECD average of 8.6 percent.

Also among the OECD members, the U.S. has the lowest government share of total health expenditures. The government pays for 44.9 percent of total health costs, equal to Mexico. Canada's government share, at 69.9 percent, is slightly below the OECD average of 71.9 percent.

Despite having the lowest public share of total health spending, America still manages to have the highest health expenditures as a share of government spending, accounting for 23.1 percent of the total government budget. In Canada, government spending accounts for 15.9 percent of the total government budget, a little bit higher than the OECD average of 14.2 percent.

It gets really interesting when we look at America's per capita health care spending. The U.S. spends $5,2742 a year for every American, higher than any other country. (The next highest country, Switzerland, spends only three quarters as much3.) Canada spends $2,222 per capita, slightly higher than the the OECD average of $1,950 per capita.

But here's the clincher: American government spending per capita is $2,368 per year - higher than the total amount Canada spends per capita, and the highest in the world. Canada's public spending per capita is $1,552, a bit higher than the OECD average of $1,394 per capita.

So, to summarize: America spends more overall on health care than any other country in the world, and has the highest government spending per capita in the world despite the lowest government share of total spending in the OECD. (Globally, the U.S. government covers the same portion of total health spending as El Salvador, Ethiopia, Gambia, Mexico, and Somalia.)

Yet for all this lavish spending, both public and private, America has the dubious distinction of providing no coverage at all to 45 million citizens, and only partial coverage to another 50 million.

Someone benefits from "parallel" health care, but it's not the public. Canada can try to have its health care cake and eat it, too, but after the folks at the head of the table wipe the crumbs from their mouths, we may discover the plate is empty.


  1. All statistics are for 2002.
  2. All dollar amounts are in U.S. Dollars.
  3. Amounts for other countries are based on the average exchange rate.

Ryan McGreal
April 27, 2005

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