The August 21 issue of the New England Journal of Medicine carries an article claiming the administrative costs of health care in the United States are higher than in Canada: $1,059 (U.S.) in the United States versus $307 (U.S.) in Canada. The lead author, Professor Steffie Woolhandler of Harvard Medical School, co-founder of Physicians for a National Health Plan (PNHP), has written many similar articles over the years, all concluding the U.S. should embrace Canada’s system of government monopoly health insurance.
As Woolhandler and her coauthors note, U.S. patients, doctors, and hospitals must deal with multiple insurers, each of which has different policies and paperwork. In Canada, providers must deal with only one, government-run, insurer per province. Woolhandler and her colleagues assert competing private insurers cause high administrative costs, and that a single payer would be able to capture the waste and spend it on patient care. Unfortunately, Canada’s experience shows that is not the case.
In 2002, the average Canadian patient waited almost four months from the time his general practitioner decided surgery was necessary until a specialist provided the care. That delay has been growing since 1993, when it was only nine weeks.
Further, Canadians have very little access, relative to other developed countries, to doctors and high-tech imaging machines. In a comparison of access to doctors Canada ranked 17th of 20 countries. Canada ranked of 17th of 22 countries in a comparison of access to CT scanners, 18th of 23 countries for access to MRI machines, and 13th of 14 countries for access to lithotriptors.
Remarkably, this lack of access comes at a high price. After accounting for the fact that Canada has a relatively young population, Canada spends more on health care than all multi-payer OECD countries outside the U.S.–countries such as Germany, Switzerland, and Japan.
Despite these facts, Woolhandler and her PNHP colleagues assume that arbitrarily low administrative costs are the primary indicator of a well-functioning health care system, ignoring other costs imposed by government monopoly. With some of the longest waiting times in the world and age-adjusted health expenditure higher than all other OECD nations with universal health care systems, the Canadian model is clearly not the rousing success it is purported to be.
Low administrative costs, caused simply by government monopoly, do not necessarily reflect a better health care system or low overall costs. Consider the automobile industry: Wouldn’t it be cheaper if we got rid of all the salesmen, advertising, marketing, and models that differ in trivial matters such as color? If we all got our cars from the government-run factory wouldn’t we have a fairer and cheaper automobile “system”?
They tried that in the Soviet Union and East Germany, and the results were Ladas and Trabants.
The Woolhandler article also ignores the fact that much of the administrative costs in U.S. health care are created by the federal and state governments. About half of U.S. health care is privately financed, and even that share is subject to an increasing burden of regulation that reduces competition and adds to costs. Private insurers in the U.S. are essentially selling government-mandated policies.
Without competition, providers have little incentive to act in the interests of consumers. Hospitals in Canada do not feel the need to perform more surgeries to reduce waiting lists or to provide higher quality care, because they are secure in the knowledge that patients cannot go anywhere else. Provincial insurers are not concerned with long queues for health services or a lack of access to doctors or technology, because those who pay insurance fees will never stop paying or go elsewhere.
It would be a serious mistake for Americans to opt for a Canadian-style single-payer system considering only the money saved on administration and not the needless suffering and money lost unaccountably through lack of competition. Canadians who take the fact that we spend less than our neighbors on administration as a reason to be smug are making no less serious a mistake.
Increased competition in health care results in better outcomes and higher quality of care for patients. A small increase in health care administration costs in Canada, through the introduction of competition, would be a good thing.
John R. Graham is director of the Pharmaceutical Policy Research Centre, and Nadeem Esmail is a health policy analyst, at the Fraser Institute. Their email addresses are, respectively, [email protected] and [email protected].
For more information …
“Costs of Health Care Administration in the United States and Canada,” by Steffie Woolhandler, T. Campbell, and D.U. Himmelstein, was published in the August 21, 2003 issue of the New England Journal of Medicine. The article is available for purchase ($10 in either HTML or PDF format) from the Journal‘s Web site at http://content.nejm.org/.