Pierre Lemieux, who is an economist with the University of Quebec in Outaouais and with the Independent Institute in California, has written a revealing op-ed in today?s Wall Street Journal ($) regarding the hidden costs of Canada?s nationalized health care finance system and the devastating effect those costs are having on the quality and timeliness of Canadian health care:

The Canadian system is built around a compulsory public-insurance regime that provides most medical and hospital services free. Of course, it is not free for the taxpayer, who finances the system at a rate of 22% of all taxes raised in Canada. The Canadian government pays about 71% of total Canadian health care expenditures, compared to 44% paid by the government in the U.S. This translates into public health expenditures of 6% of GDP in Canada and 7% in the U.S. ? a rather small difference. More than three-quarters of the difference in total expenditures is due to higher private expenditures in the U.S. Why are private health expenditures so low in Canada? The main reason is that they are illegal, which gets us to the heart of the system’s hidden costs.
Canadian public health insurance is not only compulsory, it is also monopolistic. The system is administered by provincial governments under strict guidelines imposed by federal law and federal subsidies. Private insurance covering publicly insured services is illegal. Physicians are forbidden to accept private payments above the fees billed to the government. Hospitals are public or non-profit, and tightly regulated. Physicians’ fees are determined — or “negotiated” — by provincial agencies. Prices of drugs are controlled. In short, the public supply of medical services is rationed, and there is little private alternative. Hence the apparent low cost of the system.
The hidden costs include the poor quality of services, and the costs imposed on customers (aptly called “patients” in this case) who have to wait in queues.
Quality is subjective and can only be evaluated through consumer choices, but the government won’t let consumers make choices and vote with their feet if they are not satisfied. Anecdotal evidence of questionable quality is everywhere. In a recent piece in Montreal’s Gazette, a Canadian related her own experience, and contrasted the “kindness, discretion and professionalism” of staff in U.S. hospitals, with the frequent rudeness of unionized personnel in the Canadian system.
Long waiting lines are a fixture of the system. The Fraser Institute, a Vancouver think tank, has calculated that in 2003, the average waiting time from referral by a general practitioner to actual treatment was more than four months. Waiting times vary among specialties (and, less wildly, among provinces), but remain high even for critical diseases: The shortest median wait is 6.1 weeks for oncology treatment; excluding radiation, which is longer. Extreme cases include more than a year’s median wait for neurosurgery in New Brunswick. The median wait for an MRI is three months. Since 1993, waiting times have increased by 90%.
Waiting lines impose a real cost, which is approximated by what individuals would be willing to pay to avoid them. Waiting costs include health risk, lost time (especially for individuals whose time is most valuable), pain and anguish. Socialist systems are notoriously oblivious to anguish, discomfort, humiliation and other subjective factors which bureaucrats cannot measure or don’t value the same way as the patient does.
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Liberalization proposals are met by the “two-tier system” bogey man — that if choice is allowed an unequal system will develop. But if directly paying a doctor is illegal, there are legal ways to jump the queues. As pointed out by Professor Livio Di Matteo of Lakehead University in Ontario, what now exists is a three-tier system. The very rich (like Robert Bourassa, the late Premier of QuÈbec) go to the U.S. for rapid, personalized, high-tech treatments. The second tier is made of “the well informed and aggressive, who can push their way to the front of the treatment line.” The poor and those with no connections get stuck in the queue.
At least two Indian groups are now considering building private clinics or hospitals on their land ? just as other sorts of illegal-elsewhere trade thrive on Indian reserves. Yet, Canadians who patronized such clinics would still be prohibited from purchasing private insurance to cover the service, leaving the opportunity only to the wealthiest.
As noted by Harvard professor Patricia Dantzon, another hidden cost of the Canadian system comes “from forcing everyone to have the same level and type of insurance,” whatever their individual preferences are.
One last cost should not be ignored: the loss of personal responsibility and the habit of dependence on the state. Opinion polls show that Canadians are generally proud of their public health insurance. Indeed, for most people, any basis for comparison has been made illegal. Auberon Herbert, a libertarian Member of Parliament in late 19th century England wrote, “If government half a century ago had provided us all with dinners and breakfasts, it would be the practice of our orators today to assume the impossibility of our providing for ourselves.”

This insightful piece dovetails with a discussion that I have been having with fellow Houston blogger Milton over at Trivial Pursuits regarding the flaws in America?s health care finance system and how self-insurance could be deployed to improve competition between health insurance products currently in the marketplace. One example of self-insurance that is an attractive alternative to many current health insurance products is the woefully underpublicized Health Savings Account (?HSA?) concept that was enacted into law last year. To introduce the concept, it is helpful to review how American health care costs are currently financed.
Every dollar that an employer pays in employee health insurance premiums avoids income and payroll taxes. For the employee with average income, this generous tax subsidy means that government is effectively paying for almost half the cost of the employee?s health insurance.
On the other hand, if the same employer tries to deposit that same dollar into a savings account for the benefit of the employee from which the employee could control the payment of medical expenses, then the government taxes the dollar and grabs almost half of it before it reaches the savings account.
Accordingly, America?s tax laws provide a generous subsidy for third-party insurance and none for individual self-insurance. In so doing, our tax laws promote use of third-party bureaucracies to pay for even minor discretionary health care expenses despite the fact that such expenses would be managed much more efficiently if patients paid them on their own.
The new health savings accounts address this defect in the health care finance system, at least to an extent. The legislation gives deposits into HSAs the same tax advantages as those granted to an employer?s health-insurance premiums. In so doing, individual self-insurance can now compete with third-party insurance on the same financial basis and individuals can now control some of their financial investment in health-care without a tax penalty.
However, even more importantly, the HSA legislation addresses in a rational manner the knotty social issue — that is, how do we allocate dollars between health care and other goods and services? Or stated another way, how do we decide which medical procedures are worthwhile and which ones are not? There are basically three ways:

● In countries such as Canada with nationalized health insurance, government makes the decisions (either directly or indirectly) in an arbitrary, inefficient, and often unfair manner;
● The second method is to restrain spending using the techniques of managed care. Over the past 15 years of increasing managed care in the American health care finance system, most of us have experienced, at best, the irritation, and, at worst, the capriciousness of having employers and large insurers ration health care for us; and
● Finally, the third option is to allow individuals to make their own choices between health care and other uses of their money through vehicles such as HSAs.

In that connection, the HSA is the most flexible health care finance product currently on the market. HSAs allow individuals and their employers to make deposits each year equal to their health insurance deductible (there is currently a limit on the size of the deductible and a supplemental insurance policy is required to cover catastrophic illness or injury expense in excess of the amounts deposited in the HSA). The funds in the HSA grow tax free and the funds may be used to pay such things as health care expenses that would not otherwise be covered by third party insurance, insurance premiums while the owner of the account is changing jobs, and health expenses during retirement.
However, the new law is not perfect. For example, as noted above, the maximum amount that can be deposited into an HSA in any year is currently somewhat limited. Consequently, the combined cost of depositing funds in the HSA and paying for the supplemental insurance that is required can turn out to be more expensive than simply buying a third party policy with a relatively high deductible.
Moreover, products such as HSAs are only part of the solution to the problems in America?s health care finance system. From my vantage point, some sort of nationalized insurance or federally-backed private insurance is still going to be necessary for people who simply cannot afford to fund HSAs or buy private insurance, and for people with severe medical problems who cannot afford the costs attendant to those problems. In regard to these groups, the tough issue is how do you ration the health care? Or, stated another way, there must eventually be a political consensus on the limitations of such federally-insured health care. Otherwise, we simply have created another federal program that balloons into yet another governmental financial debacle.
However, for those of us fortunate to be reasonably healthy and productive, the concept of HSAs is a viable alternative to higher cost private health insurance. I encourage you to examine the product as an alternative to your current health insurance policy.