Romanow’s failure?

Frontier Centre, Healthcare, Uncategorized, Worth A Look

In fairness, Roy Romanow had a daunting task — providing a set of recommendations for improving Canada’s health care when at the same time every Canadian has some view or another on what is needed. But he threw his own ideology into the brew, suggesting the paramount principle for health care should be equal access for all services, accepting any recommendations that enhance the central-planning role of government and rejecting many ideas that might involve a role for the private sector or people paying out of their pockets for some of the costs.

His letter to Canadians says it all in one sentence: “In their discussions with me, Canadians have been clear that they still strongly support core values on which our health-care system is premised — equity, fairness and solidarity.”

Funny, with a mother lying in the hospital or a child requiring an operation, I don’t think many Canadians think at those moments about the laudable-sounding ideals of “equality, fairness and solidarity.” Canadians want to have timely access to good health care to deal with their pain and suffering. And, heaven forbid, they may actually want to pay out of their pockets to have it.

In the best of all worlds, Canadians would support equal access regardless of wealth or income so long as quality health care is available to them. With unlimited resources, all Canadians would be able to have the best technology, outstanding and well-trained health-care providers and the least painful and efficient procedures to help them deal with their needs.

But the world is not Thomas More’s Utopia, where resources are so plentiful one does not have to make choices. Instead, we have scarce resources that force us to make choices — how much health care relative to other necessities like food and shelter, how many tax dollars spent on health rather than education or public transport, and how much money spent on hospital versus drug therapy. Someone has to make choices among competing wants and needs.

In a market economy, people would allocate their scarce resources by determining how much of a service they want given the cost of purchasing it. People would have to make judgments as to whether they should spend money on alternative procedures or accept doing without them. The crux of the problem, of course, is that leaving all health-care needs to the market economy alone would result in some outcomes that few would like to see, such as people being unable to afford catastrophic health-care expenditures or poor people not receiving minimal coverage.

But scarcity equally forces decisions to be made in centrally planned economies as well. A planner allocates scarce resources to services so long as the social benefit is at least as great as the cost of resources. To do this, “shadow” values are needed to calculate benefits and costs, an impossible task to do as the Soviets found out in the 20th century. In our current health-care system, we do not even know what cost is incurred with specific services such as kidney dialysis, heart operations etc., never mind the social benefits of various procedures.

Without a shadow price, a central planner often rations services, sometimes arbitrarily. Equal access is undermined when some Canadians have quicker access to procedures than others, a point the report seems to ignore.

In the end, governments throughout the world intervene in health-care markets to provide a minimal standard of good health care and catastrophic insurance. But the private sector plays some role in order to provide opportunities for people to get services that they are willing to pay for, or to improve the efficiency of health-care delivery.

Scarcity forces governments to balance the need to raise taxes, which can be economically costly in a country like Canada where government absorbs over 40% of the economy’s resources, and out-of-pocket payments by people. Canadians pay out of their pockets 30% of health service costs, more than that found in many European countries like Denmark, Germany and Sweden, all of whom have parallel private health care.

In fact, Canada has the only system in the world that provides primary hospital and physician services freely to its citizens but limits public involvement in drugs, home care, long-term care and dental care. In contrast, many continental European countries allow for some private provision of health-care services for primary services, but provide greater public support for other health services, including dental care. Copayments and user fees are also common, requiring Europeans to be at least somewhat conscious of the cost of health-care services when making their own lifestyle decisions. The European approach allows for better rationalizing of public services across different programs while limiting public revenues needed to fund the system compared to Canada’s somewhat dysfunctional system.

The basic problem with the Romanow report is that it does not recognize fully the problem of scarcity that forces choices to be made. Romanow recommends a new level of bureaucracy — a federal-provincial Health Council — and new federal expenditures for diagnostic services (private supply to be banned), various research and other initiatives. Instead of his desired universal pharmacare and home care program to replace all current public and private services, limited public programs for catastrophic drug costs and three aspects of home care are recommended.

The federal cost amounts to $6.5-billion annually within three years. Revenues to pay for these recommendations almost come from thin air.

There are some good ideas in the report. But, by not recognizing the notion of “scarcity,” and by offering more of the same, Romanow’s report is a $15-million failure. I suppose by 2010, once Canadians realize that more spending and greater bureaucracy has solved little, the prime minister at that time — maybe John Manley — will have to strike a new task force. It will be charged with digging us out of this hole created by Canadians demanding more money be spent on services they believe are freely available to them.

Jack Mintz is the president and CEO of the C. D. Howe Institute and professor of taxation at the J. L. Rotman School of Management, University of Toronto.

(c) Copyright 2002 National Post