Two scenarios involve a 25% coinsurance rate--one federally initiated and one enacted in violation of the Canada Health Act--and the third describes a medical system in chaos.
A crucial aspect of the future of medicine in British Columbia is the future of government-funded health insurance, or medicare. Three scenarios are possible; two of these hypothetical futures are hopeful, the third is pessimistic.
The first positive scenario involves a future in which medicare has been reformed at the national level. Essential to such reform is the redefinition of “accessibility” in the Canada Health Act to mean that a 25% coinsurance payment is assessed for each use of the system, up to a relatively low deductible limit. This is exactly the reform which was studied in the RAND Health Insurance Experiment.
The RAND researchers randomly assigned about 2000 randomly selected nonelderly families to a variety of different insurance plans. The plans varied in terms of their coinsurance rates—0% to 95%—and their deductibles—5%, 10%, or 15% of family income, up to a maximum of $1000 (all figures are in $US). The families were followed for 3 to 5 years in order to understand how assignment to different insurance groups affected health spending and health outcomes.
The RAND researchers found that those families who paid 25 percent out-of-pocket (up to a total of $1000 maximum per year) incurred annual health-care costs, on average, of $826. By comparison, those in what could be called the “Canadian” group (0% coinsurance rate) incurred annual costs of $1019. This means that a 25% coinsurance rate led to a reduction in annual cost of $193, or 19%.
The truly remarkable finding contained in the RAND analysis, however, relates to the change in health status among the families studied. At the beginning and end of the study, the health of each member of each family was assessed using a battery of tests derived from leading medical research to measure physical health, mental health, “social” health (measuring interpersonal contacts), and general health (overall health assessments). These before-and-after measures of health status permitted the RAND researchers to determine whether members of the “Canadian” plan, who received more health care, had better success in improving and maintaining their health than those who paid 25% out-of-pocket or more. Extraordinarily, access to “free” health care did not benefit the “Canadians,” with very minor exceptions. “For the average person there were no substantial benefits from free care.”
The fact that this additional care consumed by the “Canadians” in the RAND analysis provided no substantial benefits implies that much of the additional health services currently consumed due to the accessibility of medicare are wasted. Consequently, a future in which accessibility was redefined to mean a 25% coinsurance rate would be one in which currently wasted medical expenses could be diverted to patients who would truly benefit from them.
If the Canada Health Act (CHA) is not revised in this fashion, however, a second scenario may arise in which British Columbia chooses to violate the CHA “accessibility” criterion. The potential consequences of such a transgression are elaborated in the CHA: “Where. . . the health care insurance plan of a province does not or has ceased to satisfy any one of the criteria described in sections 8 to 12 [public administration, comprehensiveness, universality, portability, accessibility] . . ., the Governor in Council [i.e., prime minister] may . . . direct that the whole of any cash contribution to that province for a fiscal year be withheld.”
The cash contribution that may be withheld is the Canada Health and Social Transfer (CHST), a block grant that encapsulates federal transfers for education, welfare, and health. Because the CHST is a block grant, the portion of it to be spent on health is not specified. Thus, violation of the CHA implies that the entire CHST grant may be withheld.
Bearing this penalty, however, would be advantageous for BC if its loss of the CHST transfer were more than compensated for by its financial gain from reforming its health-care system. In particular, the findings of the RAND experiment, discussed above, indicate that BC could reduce its public health spending by 19% if it redefined accessibility to mean a 25% coinsurance rate. Thus, BC would benefit from opting out of the CHA if this saving in reduced health spending exceeded the CHST payments it would forgo.
Since the advent of CHST (fiscal year 1996–97), the opting-out calculation has been unfavorable for BC; see Table 1. Nevertheless, in the future, public health spending will undoubtedly rise, and if CHST payments decline (or rise at a slower rate), it will be financially advantageous for BC to opt out.
If neither of these first two scenarios (or some variant on them) arises, however, a third, more troubling scenario will likely come to pass. That view of the future encompasses a medical system in collapse, with ever-growing waiting time and its adverse consequences for morbidity and mortality. Consider the rapid, albeit erratic, growth in BC waiting time between 1992 and 1998 (Table 2). Over that period, median waiting time between a GP’s referral and treatment by a specialist has risen from 11.2 to 15.2 weeks, a 36% increase. Between 1997 and 1998 alone, waiting time rose 2.6 weeks, or 21%. Without meaningful reform, it is this third legacy to which British Columbia will be condemned.
1. Newhouse, J. P. and the Insurance Experiment Group. Free for All? Lessons from the RAND Health Insurance Experiment. Cambridge: Harvard University Press, 1993:201.
2. Canada Health Act, Sec. 15. 1984.
Mr Zelder is director of Health Policy Research at The Fraser Institute, an independent Canadian economic and social research and educational organization. He holds a PhD in economics from the University of Chicago.
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