Healthcare’s Magicians And Spendthrifts

Commentary, Healthcare & Welfare, Frontier Centre

A local academic recently claimed that the profit motive "has become the sole cost driver in Medicare." He said that Canada’s basic healthcare system costs the same as it did in 1971 and attributed increases in spending since to "the private system we have no control over", namely drug companies, and private clinics.

"We", of course, is that dwindling clique of thinkers who believe that a handful of central planners "know" best how to organize the healthcare needs of millions of Canadians. In the unplanned sector profits play a critical role in organizing resources as millions of consumers and producers voluntarily exchange goods and services. Profits attract new investment and more supply, automatically driving prices down over time as new, increasingly efficient methods displace old methods.

This elegant dynamic, which is missing from the public sector, explains why traditional government operations, by default mostly non-profit monopolies, suffer from notoriously low productivity and high costs.

To see this disconnect between the producers and consumers in our non-profit healthcare system, it is worth reading a new book Code Blue: Reviving Canada’s Health Care System by David Gratzer, a Winnipeg medical student and columnist. Gratzer systematically peels the rotten onion at the core of our crisis-ridden healthcare garden. While think tanks continue to grind out the dry data that verifies the problem, he fleshes out the deterioration with real-life examples of suffering and tears.

Some of those cited in Gratzer’s case studies are famous, most are not; some are rich and some are poor. But all bear the scars of encounters with the vicious practice that now passes for cost containment under Medicare. We ration by restricting access, by making people wait way past the safety line before their ailments are treated. Each year the queues grow longer, hospital closets and hallways fill with surplus patients and people die who shouldn’t have.

Denying the problem is not just a journalistic habit, it’s a pervasive national mindset. Even the Reform Party, hardly a bastion of sympathy for coercive state monopolies, pussyfoots around the slow collapse of Medicare.

Gratzer divides the apologists into two major camps: the Magicians, who seek reform through better management, and the Spendthrifts, who want to pour in more money. What neither group addresses are the negative incentives built into a zero-price system without profits.

Patients have no idea what treatment costs, so they stampede the system. Doctors get paid for every visit or procedure, so they tend to overtreat. Hospitals, knowing that demand in their captive market far outstrips their capacity to meet it, treat us less like customers and more like broken furniture. The results are stressed facilities, exploding costs and inferior service.

Throw more money in? We have, billions more. Gratzer shows that cutbacks to federal health transfers, the usual target of Spendthrift finger-pointing, have been more than offset by increases in provincial spending. Yet service levels continue to plummet.

The Magicians’ remedy, greater efficiency through increased centralization, has proven similarly futile. In Manitoba there was the former Tory government’s ultimate central planning folly, the experiment with "rethermalized" food. Why pay hundreds of workers in dozens of kitchens when we can just zap up frozen dinners? Never mind that they taste like cardboard or that individual tastes and circumstances might dictate decentralized food services. The customer’s only alternative is to order a pizza, and many do.

Gratzer’s recommends we restore consumer sovereignty to healthcare. Let people control their own budgets through Medical Savings Accounts, in the same way they handle their RRSPs. Governments still fund the healthcare system through taxes, but not in the form of block grants to an unresponsive system. Instead, the money lands in individual bank accounts restricted to covering direct health costs and insurance for major medical problems. Profit-seeking hospitals, clinics and doctors would charge prices and compete for clients. Unspent funds would accumulate and remain the property of the individual and his or her estate.

Where MSAs have been tried, they have consistently reduced costs and improved service. Corporations like Quaker Oats, who provide employees medical coverage in the form of MSAs, have realized savings as high as 40%, with no restrictions on access. People ration themselves because they keep the money if they don’t spend it.

That makes more sense than the creation of more planning boards and commissions. Profit may be a four-letter word to some academics, but in a competitive model it indicates which provider is meeting real needs.

And isn’t that the whole point? We aren’t meeting those needs with Medicare. Let’s look at something else.