Exploding The Myths Of MSAs

Commentary, Healthcare & Welfare, Frontier Centre

On September 11, the federal government may agree to increase healthcare funding by $4.2 billion. It will probably be for nought. In the absence of genuine structural reform, more money might simply add to the system’s ongoing performance problems.

Economist Martin Zelder describes this paradox in a recent Fraser Institute monograph, Spend More, Wait Less? The Myth of Underfunded Medicare in Canada. His research shows that, with the exception of Québec, spending more achieves no reduction in waiting times. In fact, increased budgets in many branches of medicine actually reduce the number of treatments and lengthen waiting lists because the extra money disappears into higher operating costs, particularly salaries and wages.

No one should be surprised about the public Medicare monopoly’s tendency to spend extra resources on itself instead of on patients. Zelder has concluded the obvious to those familiar with the problems of monopolies: systems dominated by producers will focus on their own needs before those of consumers.

One fundamental reform can eliminate the problem: transferring existing resources from the public monopoly directly to consumers in the form of Medical Savings Accounts. Instead of pumping dollars at the wholesale level in the form of bloc funding to large institutional providers, MSAs direct resources to individuals at the retail level, allowing millions of individuals and families to decide where they’re going to invest them. The public dollars remain the same, but the system must now cater to the consumers instead of the other way around.

In the Frontier Centre’s proposed MSA system, the government would put the money now spent on our behalf, about $1,750 a year per individual, into an account controlled by each person or family. People would be required to use the funds to buy catastrophic insurance, with the remainder available for incidental expenses. Unspent funds would accumulate as the property of MSA consumers, thus giving them a real incentive to make wise decisions.

A Medicare system that shifts power to consumers perplexes defenders of our producer-dominated model. Let’s examine their criticisms.

1) An individual MSA doesn’t cover everything, because you must purchase catastrophic health insurance to cover major trauma or illness. A gap would rise up that would force people to pay more outside the MSA to obtain adequate coverage.

That’s not true. Comprehensive insurance coverage for major trauma or illness would use up only about half of most people’s MSA allotment. Our model accommodates the needs of the small minority with pre-existing conditions, the disabled and the elderly, who normally might not be able to obtain coverage at all in a free market. It removes the ability of insurance companies to cherry-pick low-risk groups, and it creates a targeted subsidy to cover them. Indeed, one option would be to sell our healthcare infrastructure and convert these community assets, worth several billion dollars, into an endowment fund whose earnings stream would underwrite aid for the few who would fall through the cracks.

2) Singapore, the only country to have adopted the MSA system in a comprehensive manner, does not have universal healthcare coverage.

That was the case fifteen years ago, but Singapore in 1993 modified its system to widen access to the unemployed and the poor. By statute, Medi-Fund, a principal pillar of Singapore’s MSA system, gets regular top-ups from the country’s ample budget surpluses. Interest earnings from this endowment fund cover those who land outside the system. Nobody is denied care. Its health-care industry surpasses ours in key indicators like speed of service, technological sophistication and, most importantly, patient outcomes. A recent United Nations study ranked Singapore’s system as the world’s sixth most effective, in terms of results obtained for money spent. Canada’s public healthcare monopoly scored a dismal thirtieth place.

3) An MSA system lacks the advantage of Canada’s low administrative costs under Medicare.

Our public monopoly doesn’t spend much on tracking health outcomes or production costs. This is a problem, not an advantage. The Soviet Union saved money, too, by ignoring real-world accounting and reporting systems. It collapsed because it could not function without the price or cost information that guides the use of resources in a normal market economy. MSAs might cost a few pennies more on the dollar to administer, but creating transparent costing information would clearly be worth it if better outcomes followed. The use of consumer choice to wash out the frivolous use of medical resources would likely recover way more money than any “administrative economy” produced by failing to measure costs.

4) MSAs will discriminate against the poor, because poor people are generally sicker than those who are better off.

That’s exactly backwards. People who are sick are generally poorer because of their illness, not the other way around. Delays in treatment exacerbate their problems. MSAs empower the poor, by putting cash in their pockets and giving them a way around the endless queues at clinics and hospitals. They can bid their way to another provider just as the well-off do now.

The defenders of the status quo need to be more open-minded about consumer-based alternatives to our stagnant government healthcare monopoly. Why not think, at least a little, “outside the box”?

We desperately need to modernize our concept of Medicare, especially in view of the daunting demographic realities of our aging population. Medicare’s central principle is that the government continues to fund a system where no one is denied access. MSAs preserve this important rule.

It’s government’s job to make sure people have the resources to treat their illnesses. It doesn’t do a very good job of running the complex machinery of service delivery.

MSAs do both.