Consumerizing Medicare

Commentary, Healthcare & Welfare, Frontier Centre

Let’s make life simpler for politicians who want to deliver on their promise of universal, high- quality Medicare. We can do this by "consumerizing" the system and putting health-care customers back in control.

Consumerization would consist of two elements. First, government would continue to fund universal health care but lose its monopoly on providing the actual services. To put it another way, the government would continue to socialize funding by collecting taxes to pay for everyone’s care. But it would withdraw from its role as the exclusive manager of clinics and hospitals. Second, the government would allow citizens the option of receiving individually the money it now gives directly to institutions, i.e. to the bureaucracy, the unions and the provider associations. Most of Medicare’s problems would disappear if we separated the financing and production functions.

On average, state-provided health care now consumes about $1,800 a year per Canadian. What if we allowed individuals and families to assume direct control over that money by placing it into Medical Savings Accounts (MSAs) instead of institutional budgets? Consumers could spend it where and when they wished. Restoring market choice would automatically transform Medicare. Providers would have to rethink their product or lose their customers. Unpalatable food at this hospital, too few nurses at that one, or waiting lists for procedures everywhere? These problems would quickly disappear in a consumerized system because customers would be able to shop elsewhere instead of having to accept the present monopoly’s slipshod service or paying à la carte prices south of the border.

Consumerization can occur in two ways. We could make it compulsory for everyone to fund his or her own account, and reduce taxes correspondingly. (Low-income families would receive an MSA grant.) Alternatively, we could continue to pay taxes and have the government return the value to us through vouchers. In either case, the new rules would allow individuals to opt out of the public system and take their share of funding to the plan of their choice.

Half the account would be dedicated to long-term care and catastrophic insurance provided by competing companies. These might be existing commercial insurance carriers, employer groups, co-operatives, mutual benefit societies or trade unions. To keep them honest, policies would be have to be renewed annually, and the insurers would be forbidden to reject coverage on the basis of family history or health risk. They would, however, be allowed to levy special charges for broad groups like smokers, who voluntarily incur special risks to their health. The maximum liability on insurers for a single illness in one person in any year would be limited to, say, a million dollars.

The rest of the MSA would underwrite day-to-day medical expenses, paid directly by consumers. Any funds left over would accumulate and compound tax-free. After death they would revert to the individual’s estate, not to the government — a twist that would make politicians proposing the consumerized system very popular indeed.

Even if the government chose to retain ownership of some hospitals and clinics, a system based on MSAs would move these facilities into competitive markets and force them to be responsive to consumer choice. The power to move one’s patronage to another facility or to switch insurers would discipline providers and make them serve the public efficiently and effectively. It would restore accountability.

The poor, who are now trapped on waiting lists by their inability to seek help stateside, would become purchasers with equal rights. Fairness would become a fact, not a myth, in a predictable system with real incentives to deliver value for money.

As things now stand, the government takes both our money and our power of choice. It arrogates all the important decisions to itself and leaves us impotent. MSAs make sense because they return sovereignty to the patient.

Don’t expect change immediately. Our present leaders are wedded to pouring more money into low-performance monopoly healthcare. In five or ten years unmanageable costs and deteriorating service (double-decker gurneys in hospital corridors?) will force their hand.