Despite continuous, decades-long allocation of ever more tax resources, Canada’s Medicare system faces recurrent crises in its present form. At the same time, Canadians clearly want to guarantee universal access to services. How can we reverse the progressive collapse? A new model — Medical Savings Accounts (MSAs) — offers us the opportunity to retain universality, restore service levels, control costs and introduce transparency and accountability to the system.
Currently, federal and provincial governments underwrite Medicare through a complex system of bloc grants to medical authorities. With MSAs, the same money would be divided up among individual healthcare consumers, in the form of credits deposited into dedicated medical saving accounts. With the exception of a mandatory requirement to purchase insurance coverage for long-term and catastrophic care, spending from each account would be controlled by the account-holder. Hospitals, clinics and doctors would charge patients for services rendered, with payments made from individual MSAs. Any money left in the MSA would remain the property of the account-holder.
At the beginning of each fiscal year, health authorities would deposit each citizen’s share of the Medicare budget into the account in that person’s name. Withdrawals would be allowed only to pay for healthcare services. Minor, non-catastrophic events requiring a visit to a clinic or doctor would be paid by direct electronic debit from an individual’s or family’s MSA.
Individuals would cover themselves against catastrophic events by purchasing insurance from competing companies, co-operatives or mutual benefit associations. Money not spent would be rolled over and left to accumulate tax-free over the account-holder’s lifetime until the fund reached some predetermined amount sufficient to create an income stream to cover future emergencies (i.e. $200,000). Ownership of the funds would rest with the consumer and his or her estate.
Special cases, the small minority who ran out of funds or had special needs, would be accommodated separately through additional government assistance.
In stark contrast to the present system, the consumer-controlled model :satisfies the criteria of high-performance public policy — transparency, neutrality and separation.
As things stand now few understand how much the government spends on health care per family. Under MSAs, the costs and results of public spending would become highly transparent. Based on recent expenditures, a Manitoba family of four would receive about $6,500 annually.
Individual consumers would benefit personally because they would keep the money they did not spend unnecessarily on health care. At the same time, the restoration of prices within the system would impart, both to them and to providers, the information on costs and benefits needed to make rational decisions. Consumers would channel resources, not government planners.
Unlike Medicare, MSAs are neutral, in that they contain no bias that favours any particular delivery mode. Universality would be preserved and access maintained, but consumers would be free to steer their share of health-care budgets to the best providers. A decentralized, customer-sensitive system that reflected the decisions of millions of consumers would replace an inflexible single-provider monopoly. Competition would create pressure to contain costs, increase quality and offer timely service.
The freedom to shop around would weed out services and facilities that failed to please consumers. MSA debit cards would facilitate automated billing by lowering transaction costs. This would reduce administrative overheads while providing customers with useful information on their health-care purchases.
The task of elected officials would be simplified because they would be involved in setting policy, not in administration and nuts-and bolts operations. Resources would no longer be allocated through a centrally planned system starved of the information required to accommodate the complete range of individual needs and desires. Separating public financing from private production would allow the emergence of a framework within which flexibility in delivery methods would optimize outcomes.
Since government ownership of facilities would no longer be required, billions of dollars in hospital assets could be transferred to charitable organizations or sold to doctor groups or insurance companies. The proceeds would endow a public fund to help low-income groups and special hardship cases purchase services. Lower taxes and a higher living standard would follow this release of capital.
MSAs would not only motivate consumers to use the system intelligently, but they would also reward providers for delivering services efficiently and effectively. The latter would design insurance plans to promote healthier lifestyle choices (e.g., discounts for non-smokers) that would ultimately lower costs. The flexibility of MSAs would offer policy makers another way to encourage better community-wide outcomes. For example, exercise-club memberships might be paid through individual accounts.
Medical savings accounts have proven successful where they have been tried. Several American corporations offer coverage to their employees through their own private MSAs. Hundreds of employee groups have enjoyed cost savings ranging from 12% to 40%. Individual control over resources has produced high levels of personal satisfaction.
Singapore introduced consumer-controlled MSAs in stages, starting in 1984. Since then, the city-state has reduced its national spending on health care to a third of Canada’s rate, yet facilities are state-of-the-art, service is quick and standards are high. Singapore boasts a life expectancy of 77 years and a thriving economy.
Canadians live in a market system that allocates food, housing and clothing in an efficient, decentralized manner. Health care is too important to leave it operating within a failed, centrally planned model.
In this consumer-based model universality is preserved. The government continues to fund healthcare, but not necessarily deliver it. We know that markets work. MSAs would let them work their magic on Medicare.
