Some thoughts on ecology, evolution and economics

Fixing medicare



Canadians are obsessed with health care.  Our publicly-funded system is one of a very few cultural differences (along with the length of our football fields) between ourselves and our great neighbours to the south. As such, medicare is a source of pride and identity.  Jeffrey Simpson has recently pointed out that this pride is sometimes misplaced. The system, he argues, does not give good value for money. He proposes the following reforms while recognizing that the political will to put them in place is currently absent:


  1. Make regional health authorities responsible for managing health care delivery and fund them according to their track record in reducing wait times and maintaining access for all Canadians.
  2. Encourage a range of private sector reforms, including:
    • Fund hospitals according to use, rather than through annual block funding
    • Make hospital facilities (especially operating rooms) available after-hours and on weekends for patients willing to pay
    • Contract privately-owned clinics for specialty services like cataracts, joint replacements and hernias
    • Establish public-private partnerships to build and operate long-term care facilities – taking the pressure off of hospitals to house patients with less serious conditions
  3. Pay doctors by salary rather than by fee-for-service
  4. Develop a network of provincial home care programs
  5. Establish a national drug plan

The first two proposals would contribute more to reducing wait times and improving customer service than reducing costs. The fifth proposal would achieve substantial cost efficiencies by increasing the purchasing power of the government in negotiating prices with drug companies. It also, however, would expand coverage as drugs are currently covered only in hospitals, and for the poor and elderly.  Simpson recommends that this could be paid for through a fixed contribution payroll tax like the current Canada Pension Plan.

One of the problems with addressing the cost of caring for the Baby Boomer generation is that their contributing period for a payroll tax is coming to an end in the next 10 to 15 years. There are two other ways to raise income to ensure that a publicly funded system treats  the Boomers and their survivors fairly and honorably:

an estate tax – Eliminated in Canada in the 1970’s, this measure would provide revenue to the government when it is needed, as the large majority of health expenses are incurred in the last year of life.  It does not require a large working population to fund it. However, this is seen as an inefficient (there be lawyers!) and heartless way of paying for health care.  It could also be seen as a tax on the heirs of the Boomers, which is precisely what I am trying to avoid.

a health premium – Only a few provinces charge a health premium.  It currently covers only 3% of the cost of medicare. Canadians should be encouraged to pay something close to the real cost of their medicare through these income adjusted premiums. This approach has the virtue of being transparent and directed towards something most taxpayers support.  It has some of the drawbacks of a payroll tax as the high earning years of the Boomers – the period when they would be expected to make the maximum contribution –  will not last long.  Still, this approach has potential to draw revenue from the Boomers for the next 35 years when it will be most needed.

Bending the Cost Curve

Health care discussions always return to the prospect of saving money through efficiency.  In the face of increasing demands for health care, this discussion is misleading.  Such efficiencies are difficult to find and inevitably directed towards more and better service rather than lower costs.  Some of the suggestions above, drawn from successful experiments in other countries, will help.  It is possible that in a low-growth economy, something that more and more developed countries are dealing with, the dynamic of Baumol’s cost disease may no longer come into play.  We will probably remain transfixed with the potential for new and better medical treatments in the future.  I suggest that a constituent assembly of taxpayers be gathered in each province to discuss wage demands and new medical  technologies as they arise. Some of these will most certainly be welcomed but others must be rejected after a consideration of the fundamental question, “Will we be healthier?”.


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