The best solution: questions and answers on the Canadian health care system

Washington Monthly, June, 1998 by Pat Armstrong, Hugh Armstrong, Claudia Fegan

The Monthly is determined not to give up on finding big solutions to the health care problem. Everybody else seems to have decided on tiny incremental steps, which, worthy as they may be individually, lead along conflicting paths. That's why we ran the article in April by Eric Schnurer ("A Health Care Plan Most of Us Could Buy"), because we thought it presented a major solution that would solve the problem for the largest segment of the population, the middle class.

But the working poor were left out of that plan. And the way they can he included, as they are not now in any program, is with the Canadian Plan, which we continue to favor above all others. It not only has the merit of universality, but also has a strong practical appeal to physicians who used to oppose it just because it sounded socialistic, but now realize that its freedom of choice of doctors offers them a better life than they're leading under the HMOs.

How much does it cost?

There are various ways to answer the question of public health care costs. One way is to look at the cost of health care goods and services exchanged as a percentage of all goods and services exchanged -- the Gross Domestic Product (GDP). In 1995, Canada spent 10 percent of GDP on health, compared to 14 percent in the United States. In 1995, Canada spent $2,049 per person, or about 55 percent of what Americans spent per person.

A much better way to look at the Canadian system is to focus on public costs and the share paid for from the public purse. In 1995, Canada's governments spent just under 7 percent of the GDP on health, a figure that is not very different from the 6.6 percent that comes from tax dollars in the United States. Although the proportion of public money spent in Canada and the United States is very similar, Canadians get much more for their health dollar and many more Canadians receive care from these public expenditures. This public money covers every Canadian for a wide range of services. In contrast, fewer than 30 percent of Americans are covered by government Medicare (13 percent), Medicaid (12 percent), and military (4 percent) care plans combined.

Another way to look at costs is to examine what individuals pay. For services covered by public insurance, most Canadians pay nothing. Unlike Medicare and Medicaid in the United States, there are no deductibles or user fees, no limits related to contributions or nature of the plan, no restrictions on which of the insured services can be used, and no means tests. For most there are no premiums to pay for basic care, only taxes.

Why does Canadian health care cost less?

The simple answer to the question of why Canadian health care costs less is that so much of it is publicly financed. Before medicare, there were no significant differences in what Canadians and Americans spent on health care services. Since the introduction of the Canadian health care system (which they call medicare with a small "m"), the differences in expenditures have steadily and significantly increased. What the Canada Health Act calls "public administration" has kept Canadian health care spending under control while providing quality care to the entire population. There are several reasons why public administration makes for cheaper care. One of the most important areas for cost savings is in administration itself. When Larry Haiven was released from a U.S. hospital after his heart attack scare, he received an itemized bill, detailed down to the sample tube of toothpaste, the aspirin pill, and the laxative he didn't take. In Canada, Larry did not receive a bill at all after his first hospital stay with a real heart attack. The Canadian hospital had no reason to collect the kind of details he was later to receive from the U.S. hospital. It would have been wasteful to go to the trouble of allocating the cost of insignificant items like toothpaste tubes to individuals patients. Indeed, it would have been wasteful to allocate the cost of medications or surgical supplies to individual patients. Instead, the hospital simply purchases the supplies it needs and in turn provides them to the patients who need them.

Hospitals in Canada save on administrative costs not only because they do not have to keep detailed accounts for each patient, but also because they do not have to send each of them, or their private insurer, a bill. Moreover, Canadian hospitals do not have to send out these bills according to the different criteria and forms used by different insurers, do not have to worry about whether they can collect, and do not have to calculate how many "charity" cases they can afford to take on.

All this contrasts sharply with the situation in the United States, where, according to one study, hospitals "must keep more extensive records in order to facilitate billing to the state and federal governments, insurance companies and patients, and in anticipation of malpractice suits." Comparing hospitals in California and Ontario, this study estimated that "roughly half" the difference in hospital costs could be explained by higher administrative expenditures south of the border.