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The Canadian Cure

by Daniel Kraker
Minneapolis, Minnesota

In 1946 ...

In 1946 Tommy Douglass, the colorful premier of the huge but sparsely inhabited Saskatchewan, revolutionized Canada’s health care system. Using the authority that Canada’s courts had given provinces over health care, Douglass crafted North America’s first universal health insurance scheme. He did so at a time when Saskatchewan was heavily in debt and suffered from a severe shortage of doctors and nurses. Douglass had no model to follow and little data on actual costs.

Before Douglass shook the foundations of Canadian health care it looked much like the current American system. The federal government had tried to institute a national health care plan immediately after World War II, but abandoned the effort when the provinces failed to reach consensus.

By 1949 both British Columbia and Alberta had followed Saskatchewan’s lead. In 1957 the federal government adopted the Hospital Insurance and Diagnostic Services Act. A paltry six pages, the bill stipulated that once a majority of the provinces, representing a majority of the population, adopted a universal hospital insurance plan, the federal government would pay approximately half of the costs of normal maintenance and operating expenditures for hospital care. Four years later all provinces had universal hospital insurance plans in place.

Provincial innovation had become federal policy. The ink was barely dry on provincial hospital insurance before Douglass was at work on a plan to cover all essential medical coverage, regardless of where it was provided. Despite a massive propaganda campaign (in which Douglas was likened to Marx) and a three-week strike by Saskatchewan doctors, a universal health care plan went into effect on July 1, 1962.

Once again, the federal government followed Saskatchewan’s lead. The Medical Care Act of 1966, or medicare (with a small "m") as it is referred to in Canada, is only eight pages in length (by contrast, American Medicare is governed by 35,000 pages of statutes, regulations and program manuals).

By 1971, all Canadians were guaranteed access to essential medical services, regardless of employment, income or health.

Canada’s universal medical care system was designed from the bottom up, by provinces and for provinces. There is no "Canadian" health care system, but rather ten distinct provincial systems, tailored to the needs of their citizens and to their unique political philosophies. To qualify for federal support (originally about half of total provincial costs), the provinces are required to meet five principles: comprehensiveness, universality, portability, accessibility and public administration. These elements ensure that all essential services are covered; that everyone is covered and can receive care in any province; and that health care is administered by a nonprofit public agency.

As a result, Canada’s version of national public health insurance is characterized by local control, doctor autonomy and consumer choice. Ironically, with the increasing dominance of HMOs and the increasing complexity of rules covering federal medical payments, the United States health system is quickly becoming characterized by absentee ownership, centralized control, little consumer choice and doctors who must ask bureaucrats permission to dispense medical care and advice.

The key to the Canadian system is that there is only one insurer -- the government. Doctors generally work on a fee-for-service basis, as they do in the U.S., but instead of sending the bill to one of hundreds of insurance companies, they send it to their provincial government. In both countries there is a continual tug over the dollar between health care providers and insurers. The difference is that in Canada the insurance company is owned not by shareholders, but by the taxpayers -- who, as one analyst explains, must constantly balance "their desire for more and better service against their collective ability to pay for it."

During our own year-long debate on universal health care back in 1993, the Canadian option was rejected by both the Republican and Democratic parties. Thus Americans know little about Canada’s system, and what we think we know is usually wrong. Remember the late Senator Paul Tsongas’ oft-repeated claim that he would have died in Canada with his form of lymphoma? The truth is that the experimental bone marrow transplant operation that saved his life was pioneered in Canada.

Now that George W. Bush has moved into the Oval Office, it will likely be at least four more years before the word "universal" is uttered in the same breath as health care. During the presidential debates George W. echoed his father’s sentiment that the Canadian model was a "cure worse than the disease. When you nationalize health you push costs higher, far higher."

Costs and outcomes: American and Canadian systems compared

The statistics paint a starkly different picture. In 1971, the year that all ten provinces adopted universal hospital and medical insurance programs, Canadian health care costs consumed 7.4 percent of national income in Canada, compared to 7.6 percent in the United States. In the thirty years since, however, Americans’ health care expenditures as a percentage of Gross Domestic Product (GDP) have nearly double-date 14 percent -- while Canadians’ have remained relatively stable, increasing only to about 9 percent. And despite its high cost, the U.S. system fails to insure more than 44 million of its citizens. Some analysts predict that figure will grow to 60 million by 2008.

Canada’s system is not only efficient; it is immensely popular. A 1993 Gallup Poll found that 96 percent of Canadians prefer their health care system to that of the United States. As Saskatchewan doctor E.W. Barootes, originally an opponent of universal health care, puts it, "today a politician in Saskatchewan or in Canada is more likely to get away with canceling Christmas than ... with canceling Canada’s health insurance program."

In a 1998 poll conducted in the five major English-speaking countries (Australia, Canada, New Zealand, U.K., U.S.), 24 percent of Canadians thought they received excellent care in the past twelve months: the highest figure out of the five countries. Nineteen percent of Americans felt that they had received excellent care, which tied for third with Australia.

Comparing the effectiveness and quality of health system across borders is a challenging process. Nevertheless, it is instructive to note that the empirical evidence indicates that Canada’s system is more effective than America’s. The World Health Organization (WHO) has devised an index that measures how efficiently health systems translate expenditures into health. One yardstick they use is known as the average disability adjusted life expectancy (DALE) of a population, which measures a population’s health rather than strict life expectancy. WHO combines this data with figures on the amount of choice patients have, the autonomy of health care providers, the equity of health care distribution and related issues. In 1997, Canada ranked 35th on this index. The U.S. ranked 72nd.

Life expectancy and similar statistics are admittedly crude measurements of the quality of medical care. Such figures are influenced not only by the quality of health services but by social, environmental and demographic factors. Nevertheless, Canada consistently outperforms the United States on such measures. Canadians have the second longest life expectancy of all countries (79 years). The United States ranks 25th at under 77 years. This may seem like an insignificant difference, but it has been estimated that to raise the life expectancy by only five years would require the elimination of all deaths from cardiovascular disease and almost all deaths from cancer, the two leading causes of death in the U.S. and Canada. More importantly, Canadians have a better chance of living free of disability. Canadians average 70 years of disability-free life, compared to 68 in the United States.

Infant mortality rates are also frequently used to grade the health of a particular population. Here the U.S. fares even worse. In countries belonging to the Organization for Economic Cooperation and Development (OECD), the median infant mortality rate was 5.8 deaths per thousand live births in 1996. The U.S. rate was 7.8, better only than Hungary, Korea, Mexico, Poland and Turkey. Canada’s was 5.6. Maternal mortality rates in the United States were double those in Canada in 1988, with seven out of every 100,000 dying in Canada compared to 14 in the U.S.

WHO has developed sophisticated criteria to measure the effectiveness of health care services. These indexes measure a system’s level of responsiveness (which includes autonomy, confidentiality, choice of care providers, quality of basic amenities, etc.); distribution (to all members of society); and fairness of financial contribution (which reflects inequality in household contributions to their health care costs). The U.S. scores better than Canada only on the responsiveness index, where it ranks 1st to Canada’s 7th. When all these criteria are combined with basic health measurements, the WHO ranks Canada 7th, the U.S. 15th.

Canada has been able to maintain high-quality care at minimum per-capita expense largely because of one of the five criteria mandated by the federal government -- public administration. Single-payer public insurance creates enormous administrative savings compared to a multi-payer managed care system. The difference is due to huge insurance bureaucracies and the duplication of administrative efforts between companies and marketing expenses: in a public program, such duplication would be superfluous.

During the debate over Clinton’s national health care proposal, the New England Journal of Medicine calculated that the U.S. could save as much as $67 billion in administrative costs (easily enough to cover every uninsured American) by cutting out the 1,500 private insurers and going to a single government insurer in each state. HMOs consume anywhere from 9 to 30 percent of their revenue on overhead. That doesn’t include the significant cost to physicians and hospitals of dealing with the paperwork required under the American system. Administrative costs are sucking up an ever-greater portion of the health care spending pie. Between 1968 and 1993 the number of U.S. physicians rose 77 percent, while the number of administrators rose 288 percent. According to federal government figures, U.S. health care spending (excluding administrative costs) rose 196 percent between 1980 and 1991. Over that same period administrative costs rose 350 percent.

Nor do these figures include the most important, albeit unquantifiable cost of all: the psychological and emotional burden that comes with patients having to answer the dreaded question, "Do you have insurance?"

Dr. David U. Himmelstein of Harvard’s Medical School puts it bluntly. "If you want to cover everybody in society at a reasonable cost," he says, "the only way to do it is single-payer. The savings are on administration and waste. Basically, you get more health care and less bureaucracy from a single-payer system than from any other alternative."

The changing face of Canadian health care

Canada’s health care system has changed significantly over the past 30 years. In the late 1970s, worried about its open-ended agreement to pay half of each province’s medical bills, the federal government began to transfer a lump sum per capita payment to each province, based on past practices. Since it was no longer picking up precisely half the tab, the federal government no longer required the provinces to mail in their bills. This reduced the administrative costs to the federal government.

Doctors continued to send their bills to their provincial government. Their fee schedules for various services were, and still are, negotiated by the provincial medical associations and the provincial governments. The province establishes the overall level of payments to hospitals and physicians. The setting of specific fees is left to the provincial medical associations.

In the early 1980s, many provinces placed limits on the fees doctors could collect for their services -- essentially capping their incomes. These caps, however, were seldom effective. Many doctors simply imposed additional fees on patients for services -- a practice called "extra billing." This controversial practice led to the passage of the Canada Health Act in 1984, which established penalties for provinces that permitted extra billing and combined the hospital and medical insurance bills into one comprehensive piece of legislation. Within two years all the provinces had passed legislation banning extra billing, despite vehement physician opposition, including a strike by Ontario doctors. Doctors must choose to work within the confines of the publicly funded system or to accept only those patients who can afford to pay out-of-pocket. Most have chosen the former.

The ban on extra billing has not left physicians impoverished. In 1997 Canadian doctors averaged about $120,000 in annual income, while American doctors averaged about $165,000.

In 1996 the federal government began to lump health care payments to provinces together with payments for post-secondary education and social assistance. The intent was to give provinces the flexibility to set their own priorities among these broad purposes. But it also slashed the federal contribution to these social programs from $18.5 billion Canadian to $12.5 billion in 1998. The provincial health plans absorbed half of this cut. Thus today federal payments make up only slightly more than 20 percent of provincial medical care costs, on average. In some provinces this figure is even lower. British Columbia, for example, which has a population about that of Chicago or the Bay Area, pays for 88 percent of its health-care costs.

Many Canadians worry that a continued reduction in payments will reduce the incentive for the provinces to continue to enforce the five basic health care principles that most of the country holds sacrosanct. The principle of portability has in fact already been violated by Quebec. According to the Canada Health Act, a physician treating an out-of-province patient is to be paid at the rate in the physician’s, not the patient’s, province. In accordance with the federal law, all provinces have signed a Reciprocal Billing Agreement -- except Quebec, which will only pay doctors in other provinces up to its own set of fees. As a result, many clinics and emergency departments across the country have posted signs advising patients that Quebec medicare will not be accepted. The federal government has done little to punish the province.

As federal contributions to health care decline, provinces are finding themselves trapped, according to former Canadian Medical Association President John O’Brien-Bell, "between the public’s unlimited expectations of a free system -- expectations which are fueled by politicians -- and a federal government intent on reducing the debt." On a per capita basis, Canada’s national debt is about twice as high as that of the United States.

Feeling the squeeze

Canadian provinces are discovering that costs can only be cut so far before quality is sacrificed. Waiting times are probably the most serious concern with Canadian medical care. Canadians are often forced to wait not only for non-emergency surgeries but for simpler services such as hospital beds and diagnostic tests like angiograms. They do not wait, however, for care that is required immediately. A recent survey found that 12 percent of Canadians waited four months or more for non-emergency surgery, compared to only one percent of Americans. (Compared to other industrialized countries Canadian patients fared relatively well. In the U.K., one-third of respondents to the same survey reported waiting times of more than four months.)

"Canada rations by queuing," explains Morton Lowe, M.D., coordinator of health sciences at the University of British Columbia. "You have to wait your turn for a hip transplant even if there are three poorer people in front of you. Which I think is damn fine. In the U.S., if you’re rich, you get it fast, and if you’re poor, you don’t get it at all. That’s how they ration."

It is useful to note that if Canada increased its per capita health care spending to American levels, waiting lists would likely be largely eliminated.

The spiraling costs of prescription drugs in Canada is a problem shared by Americans, but Canada’s response has been much different. In Canada per capita spending on drugs increased by over 100 percent in real terms between 1975 and 1996. This increase is of special concern because prescription drugs provided outside of the hospital are not covered by medicare.

While politicians in the U.S. bicker over the best way to deliver cheaper drugs through Medicaid and Medicare, a number of Canadian provinces have already introduced universal "pharmacare" plans. The plans have varying deductibles and co-payments, with seniors and social assistance recipients paying the lowest out-of-pocket costs. Most plans also feature special drug programs for residents with AIDS, cystic fibrosis or organ transplant recipients, among other conditions.

British Columbia’s scheme is the most innovative. It uses a reference-based pricing scheme to help control costs, through which it generally pays for only the lowest-cost drug. (Denmark, New Zealand and Australia have similar plans.) The policy obligates family doctors to prescribe the lowest-cost, or "reference" version of a drug.

The logic behind reference-based pricing is that in some drug classes, an older, cheaper drug works just as well as a newer "copycat" drug. If a doctor believes the reference drug isn’t suitable for a particular patient, he or she must get permission to prescribe another by faxing a special authority request to Pharmacare. British Columbia doctors send in about 6,000 of these a month, which at times overwhelms the province, resulting in delayed responses.

Today, between the different provincial government drug plans already in existence and private health insurance coverage, 97 percent of the Canadian population is protected by some form of drug coverage. Meanwhile, senior citizens in the northern U.S. are taking well-publicized bus trips to Canada to fill their prescriptions.

Another problem shared by both countries is access to health care. Canada guarantees access to basic care, but services such as dental and vision care are not covered by medicare. Access to these types of care, therefore, is determined in much the same way as in the U.S. -- the rich get it, the poor in most cases do not. In 1999, for example, only 40 percent of low-income citizens received dental care, compared to nearly 80 percent for the wealthiest citizens.

Specialty care also tends to be more accessible to the wealthy. Studies have shown that while poorer Canadians are more likely to visit doctors and receive hospital care, they are less likely to have certain types of surgery, such as bypass and cardiac surgeries. A 1999 survey found that 46 percent of Canadians had trouble getting access to specialty care in the previous year.

Interestingly, access to specialty care is also limited in the American system. Obviously the 44 million Americans without any insurance experience grave difficulties in accessing health care. But so do Americans in managed care plans–40 percent reported difficulties similar to Canadians in obtaining specialty care.

One national plan, ten provincial plans

The provincial plans that have evolved in Canada are similar but not identical. All medically necessary services provided by licensed practitioners in hospitals, clinics and doctors’ offices are covered by the provincial plans, as required by the Canada Health Act. The services of psychiatrists and psychiatric hospitals are fully covered in all provinces, but by provincial choice, not federal requirements.

Provinces are distinguished mostly by how far they have decided to extend coverage beyond physician services and general hospital costs. As noted above, four provinces offer nominally universal Pharmacare plans. Routine dentistry and optical care are not covered by any province -- medicare coverage in these areas commonly includes only inpatient dental surgery, refractions and partial payment for corrective lenses. Five provinces -- Ontario, Alberta, British Columbia, Manitoba and Saskatchewan -- provide partial coverage for chiropractic care.

Long-term care and home care coverage, also not covered under medicare, differ only slightly among provinces. For nursing home care, accommodation and overhead costs are usually charged back to the patient, whereas all health service and drug costs are insured. Public coverage for home health care is growing, and most of the provinces already provide at least partial funding for both transient postacute home care and chronic home support services. However, the design and scope of home care services vary widely across the provinces.

Private care, public money?

The cutback in federal funding has led provinces to adopt cost-cutting strategies. One of the most popular -- and controversial -- has been the introduction of for-profit care. Although virtually all hospitals are nonprofit institutions, with global budgets established by provinces, the Canada Health Act does not prohibit private providers. Only a handful of provinces, including Saskatchewan, have passed legislation expressly forbidding for-profit hospitals and clinics.

Other provinces are moving in the opposite direction. Ontario’s Community Care Access Centres (which provide the province’s home care services) are not only required to establish competitive bidding mechanisms for the services they fund, they are also prevented from awarding all their contracts to the established nonprofit provider, ensuring that for-profit (often U.S.-based) firms will be introduced, whatever their quality and price. Nova Scotia, Prince Edward Island and New Brunswick have hired private firms to handle their billing.

Alberta has taken this reality a step further with its recent passage of Bill 11. The legislation allows care at private, overnight surgery clinics to be covered by provincial medicare insurance. It also allows doctors to work in both public and private systems.

The bill was passed despite weeks of demonstrations in the province. Critics claim that Bill 11 violates the Canada Health Act and is only the first step in a greater movement toward an American-style two-tiered system. In exchange for an additional fee, these facilities offer quicker access to medicare-insured services -- but according to the principle of universality, citizens must get insured services "on uniform terms and conditions." Critics also argue that it violates the accessibility principle because those unable to pay would be excluded from private clinics.

Ominously, once Canada embraces privatization it will be very costly for it to reverse course. According to the provisions of the North American Free Trade Agreement (NAFTA), if Canada privatizes any part of its health system it must handsomely compensate U.S. (or Mexican) companies if it decides later to end this practice.

Is regionalization the cure?

Most provinces have also tried to cut costs and improve delivery by decentralizing control over health care to the district, or local board, level.

The jury is still out on the effectiveness of regionalization. Many districts have instituted cost-cutting programs that read like a corporation’s after a merger, often including lay-offs and reductions in hospital beds. In most provinces these districts will eventually be managed by elected board members, who will be responsible for their own hospitals, nursing homes, ambulances, home care and public health services. They will receive annual grants from the government based on their populations and specific health care needs. Doctors still send their bills to the province.

Ironically, regionalization may result in a loss of authority of individual hospitals, clinics and agency boards. For example, 30 district boards in Saskatchewan have replaced more than 400 local boards. These new districts sit strategically between the expectations of the provincial government, the interests of health care providers, and the wants and needs of citizens. The idea is that a healthy tension between these three actors will result in an efficient and successful system.

The only long-term solution to Canada’s health care concerns is increased federal funding. A vast majority of Canadians -- nine out of ten, according to government polls -- favor spending any federal budget surplus on medical care. Popular opinion holds that provinces should not have to (and in most cases can’t afford to) shoulder the majority of health care costs. It remains to be seen whether the Canadian government will act on its citizens’ wishes. If it doesn’t, calls for a two-tiered system will grow louder.

Canada’s system is trying to cope with the same problems the U.S. has -- an aging population and increased cost of drugs and technologies. But because of the pioneering work of Tommy Douglass, the strategies Canada is embracing are founded on equity, public administration and decentralized control. The U.S., on the other hand, is struggling to find solutions within a structure based on a paper-hungry, profit-motivated private insurance bureaucracy. In trying to fix the health care system, we would do well to learn from our neighbors to the north -- and in fact, Massachusetts Representative John Tierney made the first move in that direction last year with a proposal to fund the research and development of state health care plans.

Daniel Kraker is a writer and researcher with the Institute for Local Self-Reliance ( )

This article is re-published with permission from The New Rules, Spring 2001, published by the Institute for Local Self-Reliance, 1313 5th Street SE, Minneapolis, MN 55414. Subscriptions: $15 per year (four issues).

© 2001 Institute for Local Self-Reliance

Published in In Motion Magazine June 4, 2001.

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