All Commentary
Friday, October 1, 1999

Health Care: Over the Canadian Cliff?

The United States Faces a Stark Choice Regarding Health Care

Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books, including Tripwire: Korea and U.S. Foreign Policy in a Changed World.

Everyone in Washington recognizes that Medicare is headed over a financial cliff. The growth in spending continues to outpace that of revenues; America’s aging population will increase the gap as we enter the next century. Obviously serious reform is a must.

So what does President Bill Clinton propose? A massive taxpayer bailout combined with tighter price controls on existing providers, subsidies for employers who cover retirees, and expanded benefits for program recipients. The GOP Congress, lacking both philosophical principle and political courage, has done little more than mumble that it too desires to reform Medicare. It is the sort of irresponsible behavior that we’ve come to expect from Washington.

The Clinton package would be dubious enough if the administration’s cost estimates could be taken seriously. Alas, federal health-care programs always end up more expensive than predicted. Medicare, Medicaid, renal dialysis coverage, and the short-lived catastrophic health-care initiative all suffered from soaring costs almost immediately.

For instance, within eight years after Medicare’s creation, that program’s tax rate was running at twice the initial projections; Medicare now spends well over 75 times what it did in its first full year. In fact, at Medicare’s inception the House Ways and Means Committee predicted that the hospital insurance (HI) portion would cost $9 billion in 1990, a staggering $58 billion underestimate. HI outlays first exceeded $9 billion in 1974.

The initial costs of Medicare’s kidney dialysis program, passed in 1972, were more than twice projected levels. And just eight months after passage of the 1988 Medicare Catastrophic Coverage Act, quickly repealed in response to a firestorm of popular protest, the Congressional Budget Office hiked its five-year cost estimates by upwards of 100 percent. The problem is endemic to third-party payment programs, which naturally inflate demand and thus expenditures.

There’s no reason to believe that the administration’s proposed pharmaceuticals coverage would be any different. On average, people with insurance use as much as 60 percent more physicians’ services and three times as much hospital care as uninsured people. America’s staggering health-care cost increases in recent years largely stem from what is essentially cost-plus medicine predicated on third-party payment of most medical expenses.

The inevitable response of future Congresses and presidents to soaring costs would be to impose price controls on prescription drugs, just as on other treatments. However, such past efforts have achieved little.

Congress has steadily tightened its re-imbursement policy over the last couple of decades, yet federal outlays for Medicare still jumped from $32 billion in 1980 to an astounding $205 billion this year. The succeeding waves of price controls did, however, reduce services for Medicare recipients. Limits on drug prices would hinder the development of new pharmaceuticals, as well as restrict patient access to drugs.

Unfortunately, the United States seems to be slowly slipping into the sort of collectivist health care that dots the globe. Whatever the actual intent of a succession of presidents and legislators, their endless interventions—provider payments, business subsidies, polyglot regulations, and price controls—are turning the health market into a government-run system.

That we don’t want to go there should be evident from the experience of the highly touted Canadian system. Once promoted by a significant segment of the Democratic party as the answer to America’s health-care crisis, it is now suffering rising costs and declining quality.

The most important benefit of single-payer medicine theoretically is its thrift. Yet the only way Canada has been able to constrain spending while offering “free” care has been to explicitly ration medical services. The Vancouver-based Fraser Institute last year estimated that 187,416 people were on surgical waiting lists, up from 172,766 the previous year. Waiting times, too, were up—11.9 weeks to see a specialist after referral by a general practitioner, for instance. It takes another 6.8 weeks to actually receive treatment.

In Toronto “emergency” heart patients are operated on within 48 hours. “Urgent” cases have to wait up to six weeks. Elective patients can sit for four months or more, and year-plus waits are common elsewhere in Canada. One Canadian doctor wrote the New York Times to complain that “the risk of dying on the waiting list for cardiac surgery is greater than the actual operative risk.”

Equipment that Americans take for granted is rare: Tennessee has more magnetic resonance imagers than does all of Canada. As a result, Canadians with brain tumors have to wait up to a year for an MRI scan. It typically takes three months to receive a CAT scan (though pets with paying owners can be tested within a day!). The United States has three times as many lithotriptors, which smash gall and kidney stones with sound waves, per patient as does Canada. On average, cancer patients wait three times as long as Americans for treatment; they are routinely denied cancer treatment for longer than what their doctors consider to be clinically reasonable.

The problem involves more than high-tech procedures. In Montreal an obstetrician was suspended for exceeding his hospital-imposed quota of deliveries. Delays of months for operations on hands, hernias, cataracts, hip transplants, varicose veins, and tonsils are typical. Patients have to wait even if they are in pain and have limited physical mobility. Yet the Fraser Institute reports that the delays only get worse year after year.

In fact, Canada’s arbitrary budget controls caused the province of Ontario to shut entire hospitals during Christmas 1993. Explained Theodore Freedman, president of Toronto’s Mount Sinai, which was shuttered for two weeks, “This is not about health care. This is about the deficit.” Hospitals have also temporarily dropped specific practices, such as neurosurgery, to save money, and have refused to reopen even for emergency cases.

Ironically, despite these draconian efforts to contain costs, health care isn’t really cheaper in Canada. After accounting for differences in population—America has a larger proportion of elderly, poor urban dwellers, and war veterans, all of whom use more health care—and including costs of tax collection, Canada spends roughly the same share of its GDP on health care as the United States. Indeed, in recent years Canada’s spending has been rising faster than America’s.

The United States faces a stark choice regarding health care: government control or a free market. Medicare’s impending collapse should concentrate legislators’ minds. Instead of approving the President’s counterproductive package of greater government spending and regulation, Congress should emphasize individual responsibility and private choice.

  • Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.