Chapter 14: Education

1. Chapter 14: Education • When the US discussed improvements to its healthcare system (2010), Canada was often mentioned • Most Canadians consider our Medicare one of the best health systems in the world… • But worry this may not persist • There currently are huge struggles for increased healthcare funding and overall healthcare reform • Healthcare has risen from 6% of GDP in 1960 to 9% of GDP in 2007

2. Chapter 13: Healthcare • What’s Special About Healthcare? • Canada vs. The World • History of Canadian Healthcare • Health Expenditure Trends • The Canadian Health Act • Challenges and Future Directions

3. What’s Special About Healthcare? Healthcare is publicly provided for 5 (now familiar) reasons: • Poor information • Adverse selection and moral hazard • Paternalism • Income Redistribution • Externalities

4. Poor Information • Often, consumers are fairly well informed about the goods they buy (you know how an apple tastes, you can test drive a car, etc) • When you are sick, you may not be well informed about the treatment you buy • In addition, the expert in the field is also the person selling you the product (the doctor) • Imagine if you trusted a car dealer about the “right” car for you

5. Adverse Selection • If health insurance were a private option, those most likely to be sick would purchase it • This leads to more expensive claims • This leads to higher premiums • This leads to more people not buying insurance • The end result would be UNDERPROVISION of healthcare

6. Moral Hazard • If people have health insurance, their actions may change in two ways: • They live unhealthy lifestyles, knowing they are covered (unhealthy eating, unhealthy living, extreme sports, etc) • They over consume healthcare since it’s free (“Last night on House the woman had Ebola, so I figured I should get tested.”) This effect can be shown through supply and demand:

7. Adverse Selection: P Without insurance, a patient pays P0 and consumes Q0 (where S=D). This causes healthcare expenditures of area A. S=MC (constant) P0 A B (1-x)P0 Q Q0 Q1 D=MB With insurance, x% is covered, and a patient pays (1-x)P0 and consumes Q1 (where new S=D). This causes healthcare expenditures of Area A +B (expenditures increase).

8. Paternalism • Some may not purchase health insurance: • They don’t know how it works • They don’t think they need it (“I am INVINCIBLE!”) • They forget about it Mandatory medical insurance (such as public healthcare) makes sure everyone is covered.

9. Income Redistribution • Canadians generally agree that everyone should have equal access to medical services, regardless of ability to pay. (Even the US supplies free EMERGENCY medical services, regardless of ability to pay.) • Public Healthcare redistributes income from the rich (who pay more taxes) to the poor (who may not be able to afford healthcare) • Also, lower incomes may have a greater need for healthcare, resulting in a greater redistribution

10. Externalities • Health services typically carry positive externalities (if people around you are vaccinated and healthy, you are less likely to be sick) • Since goods with positive externalities are underconsumed in private markets, public healthcare would increase consumption therefore increase positive externalities

11. Canada vs. The World A “snapshot” of country statistics can give us an idea of Canada’s healthcare compared to the world: • Demand for healthcare can be examined through senior population (who have higher healthcare demand) • Number of physicians can give us and idea of health care supply • Life expectancy and infant mortality can give us an idea of healthcare output

12. Canada vs. The World 4) Healthcare expenditures can give us an idea of how much we spend on healthcare, and can then be compared to healthcare results • Note that Canada spends less on healthcare than the US, but has better life expectancy and lower infant mortality • Note also that factors other than healthcare (income support, weather, etc) also affect these healthcare statistics:

13. Go Canada, Go!

14. History of Canadian Healthcare 1940 – hospital and medical care were privately funded, with religious or voluntary organizations running some hospitals considering ability to pay 1947 – Saskatchewan introduced hospital insurance By 1961 – All provinces had hospital insurance, with the federal government covering 50% of costs on average (physician payments were still private)

15. History of Canadian Healthcare 1962 – Saskatchewan started provincial Medicare 1971 – All provinces had Medicare, federal government covering about 50% 1977 – Federal government funded healthcare and post-secondary education through Established Program Financing (EPF), offering equal per capital grants to provinces (increasing with GDP growth) 1982-1995 – EPF limited and changed to give more to provinces eligible for equalization

16. History of Canadian Healthcare 1984 – Canadian Health Act Passed, laying out 5 conditions for EPF transfers 1996 – EPF grants replaced with Canadian Health and Social Transfer (CHST), covering health, education, and post-secondary education (Health Act still applied) 2004 – CHST broken into Canada Social Transfer (CST - welfare and post-secondary education) and Canada Health Transfer (CHT) 2006-07 – 20.1 Billion in CHT grants

17. Health Expenditure Trends Jumps : 1966-1971 (Medicare), 1979-1983, 1988-1992 (10%) Drops in 1992 to 1996 (restraints and cuts), public backlash Spending increase 1996-2004 (response to backlash)

18. Health Expenditure Trends Hospitals receive less funding due to more community and home health services Drug costs have increased due to rising drug prices, advances in using drugs as treatments, and aging population

19. Canada Health Act The Canada Health Act (1984) lays out 5 conditions for federal grants for healthcare: • Universality: All residents are entitled to health insurance coverage • Accessibility: No financial or other barriers for medically necessary hospital and physician services (provincially defined). Reasonable compensation for hospitals and physicians, extra billing prohibited.

20. Canada Health Act 3) Comprehensiveness: All medically necessary services (provincially defined) must be insured. 4) Portability: Coverage is maintained when a resident moves within Canada or travels outside the country (covered at provincial rates). 5) Public Administration: Health insurance administered on a non-profit basis by a public authority

21. 2006 Per Capita Health Expenditures While all provinces support the Act, per-capita expenditures vary widely Government fines for violating the act have been small Public support, not fines, enforce the Act

22. Challenges and Future Decisions Health Care Costs have been increasing: • $98.8 billion was spent by government in 2005 • $43.2 billion was spent privately in 2005 • Inflation adjusted expenditures nearly tripled between 1975 and 2002 • How long until these increasing expenses cut into education, welfare, policing, protecting the environment, and infrastructure? (Courchene 2002)

23. Challenges and Future Decisions Health Care Cuts have been made: • Acute care beds in hospitals have declined 23% from 1995 to 2003 • Average acute-care hospital stay has decreased from 10 days in 1980 to 7.3 days in 2003 Are people right? Is healthcare in decline?

24. Are we doooooooomed? • Canada’s self health ratings haven’t changed in 10 years • Life expectancy has increased • Lower population proportion report health problems limited daily activities • Work-related injuries are down • Low-birthrate baby rate is stable since 1980’s • More overweight since the 1980’s, especially women • Death rates have declined Noooooooo doooooooom

25. Challenges and Future Decisions Healthcare isn’t in decline, but cost pressures are incoming: • Aging population • Improving technology (decreasing some costs, making other costs available – ie MRI) • New (expensive) drug treatments

26. Challenges and Future Decisions Increased waiting times incited 3 reports: • Mazankowski Report (Alberta, 2001) • Kirby Report (Senate, 2002) • Romanow Report (Canada, 2002) More than 100 recommendations include revolve around the issues of: • Cost reductions • Quality improvements • Better management • Better accountability

27. Future Issues 5 big issues lie in the future of healthcare: • Changing incentives • Defining medically necessary services • A national pharmacare program • Privatization • User charges

28. Changing Incentives Currently, a FEE-FOR-SERVICE method is used to pay physicians • This encourages physicians to quickly deal with patients • This discourages physicians from referring to nurses and other health providers Kirby recommended a capitation program, where patients enrol in a group practice, who get annual payment for number of patients, adjusted for factors such as age and gender.

29. Defining medically necessary services “Medically necessary services” vary from province to province • This results in significant variations in per-capita spending • Some provinces are thinking of coming up with a common list • But doesn’t “medically necessary” vary from patient to patient?

30. National Pharmacare Program Kirby and Romanow suggest that drugs be covered under a public health system • Critics argue that such a plan would be too expensive • In addition ½ the cost of prescription drugs is currently covered by employee benefit plans (Coutts 1997)

31. Privatization A 2005 Supreme Court of Canada decision (Chaoulli v. Quebec) ruled that if medicare waiting times are long, restricting private medical insurance coverage violates citizens’ rights to life and security of person. • Other provinces have similar laws restricting private medical insurance • On one hand, private medical services may reduce costs and waiting times • On the other (amputated) hand, this may lead to the eventual death of medicare

32. User Charges Mazankowski recommends user charges to discourage health care overuse Kirby counters most care is beyond patient control - charges discriminate against the sick User fees can take the form of: • Deductibles • Nominal service fees (ie: $5) • Co-insurance (patients pay a %) Canada is the only industrialized country that prohibits user charges for public insured health services (Senate 2002)

33. Chapter 13 Conclusion • Healthcare is public due to: adverse selection, moral hazard, paternalism, income redistribution and POSITIVE EXTERNALITIES • Canada has average or above-average outcomes at above-average cost • But we beat the US • Provinces supply healthcare with federal contributions • Canada Health Act (1984) outlines 5 healthcare requirements for federal contributions

34. Chapter 13 Conclusion • Canadian health is improving, but experts agree that changes may be needed in the future due to increasing costs • Costs will increase due to population aging, technical advances, and drug advances • Current debates are: incentives, “medically necessary services”, national pharmacare, private sector roll, and user charges