Commentary Magazine, November 2004

Miracle Cure: How to Solve America's Health-Care Crisis and Why Canada Isn't the Answer

The United States is the only major Western nation that does not guarantee access to health care to its citizens. In 1993, President Clinton, with the controversial assistance of his wife Hillary, launched an ambitious bid to address this anomaly. Such was the scale of their failure that since then few mainstream politicians have dared to revisit the idea.

Yet the issue of health reform refuses to go away. According to a recent poll by the Commonwealth Fund, 80 percent of Americans believe that the country’s health system should be either “fundamentally changed” or “rebuilt completely.” And as John Kerry emphasized in his presidential campaign, 45 million Americans lacked health insurance in 2003, an increase of 5.2 million since 2000.

One result of these trends has been something of a comeback for the idea of universal coverage. Days before the election, the New York Times published a lengthy op-ed calling for the establishment of “an independent agency that would set national health-care policy, collect medical fees, pay claims, reimburse doctors fairly, and restrain runaway drug prices—a single-payer system that would eliminate the costly, inefficient bureaucracy generated by thousands of different plans.” In other words: health care, Canadian-style.

As Sally C. Pipes notes in Miracle Cure, Canadians are proud of their health system. They see socialized medicine as a defining element of their national character, like cold weather and ice hockey. Politicians frequently sloganeer against “American-style” or “two-tier” health care. No other Western nation, in fact, takes a more interventionist approach. Not only does Canada provide its citizens with universal care; it has made user fees and private insurance illegal for health services that are publicly insured.

A Canadian by birth who now heads the Pacific Research Institute in San Francisco, Pipes also knows that, by American standards, the medical care in Canada is often second-rate. The system suffers in particular from a serious shortage of advanced diagnostic tools like Computerized Tomography (CT) and Magnetic Resonance Imaging (MRI) scanners. The city of Ottawa, with a population of more than a half-million, is served, for instance, by only one MRI machine. The whole country has just two Positron Emission Tomography (PET) scanners. This compares with 250 in the United States and nearly 20 in Belgium.

Why the glaring gap? After paying for doctors, nurses, medicine, and overhead, the cash-strapped Canadian provinces—which, under the country’s constitutional scheme, are responsible for health care—simply have no money left over to make the necessary investment in new equipment. In the U.S., competition ensures that hospitals have the necessary tools: patients who are ill-served can switch providers. But under Canada’s health-care monopoly, market forces are absent.

Because Canada’s system is publicly funded, it does not produce the sort of horror stories so common in the American media—of working families losing their health insurance when a wage-earner loses his job, for instance, or of heartless HMO’s that deny payment for life-saving procedures. Instead, the scandals revolve around overburdened supply. Last spring, Pipes relates, the mother of premature twins had to be airlifted to Alberta because no hospital in British Columbia was able to admit her. In Quebec, hundreds of hospital patients have died from the bacterial pathogen Clostridium difficile, an outbreak blamed on squalid conditions in overcrowded wards. Getting an angiogram can take a month. Last March, a class-action lawsuit was filed on behalf of ten thousand breast-cancer victims in the province who had been forced to wait more than eight weeks for radiotherapy.

Indeed, waiting lists have become a fixture in Canadian health care. According to a survey conducted by the Vancouver-based Fraser Institute, the total waiting time between a general practitioner’s initial referral and the start of treatment averaged eighteen weeks across a sample of twelve specialties. For Americans used to visiting their personal physician on Monday and a specialist on Tuesday, such delays would be intolerable.

The same impatience is increasingly evident among wealthy Canadians. In fact, many of the elites who most aggressively trumpet the Canadian system’s egalitarianism are quick to bundle themselves and their relatives off to hospitals in Buffalo, Boston, or Seattle rather than wait for treatment at home. Pipes doubts whether Canada could even maintain the pretense of universal care if it were not for the fact that wealthy Canadians reduce demand by taking their health needs across the border.

Though the Canadian and American systems may appear to be polar opposites, they are, Pipes shows, quite similar in many ways. Government may not provide Americans with universal coverage, but it is by far the largest player in the health-care market. In 2001, public outlays accounted for no less than 45 percent of health spending in the U.S. (the figure is about 70 percent in Canada). This includes funding for Medicare, Medicaid, and the Veterans Administration. As Pipes writes, “U.S. health care is more socialist than not.”

Even America’s private system is in large part a creature of government. The popularity of employer-funded health plans dates to the 1940’s, when wage-and-price controls forced companies to add in-kind benefits as a means to boost remuneration for valued workers. The plans remain popular because of their favorable tax treatment, which results in a $140-billion indirect subsidy. (With this sum included, the public share of health spending in the U.S. rises from 45 to 56 percent.) And, of course, the government also has a major say in the benefits offered by private plans, regulating everything from minimum hospital stays following breast reconstruction to the administrative status of Medicare patients who fall from spacecraft.

Another similarity identified by Pipes is that neither government-funded medicine in Canada nor employer-sponsored coverage in the U.S. provides an adequate economic incentive for consumers to limit their demand for care. From the patient’s perspective, care is effectively free, or close to it. This helps to explain why costs are skyrocketing on both sides of the border. In Canada, the provinces devote nearly a third of their total expenditures to health. If current trends continue, that number may exceed 50 percent by 2020. In the U.S., premiums for employer-sponsored health plans have increased at three times the rate of workers’ earnings during the last four years.

Like its Canadian counterpart, the U.S. health-care system is burdened, Pipes argues, by “too much government, too much bureaucracy, and too many regulations.” Her prescriptions for reform aim to strengthen the “sovereignty of the patient.”

This would mean, for starters, changing the tax code. As U.S. law now stands, workers have little incentive to opt out of their employer-provided plans. Health benefits provided by employers come to workers tax-free, while other health plans must be bought with after-tax income. The result is that many Americans are effectively denied the one clear benefit that a private health-care system is supposed to deliver: choice. Washington, Pipes argues, should level the playing field, allowing Americans to pay for their health coverage out of pre-tax income whether they purchase it individually, at work, or through a church, community group, or trade association.

A second major reform that Pipes advocates is to change the way people think about health coverage. Insurance, she notes, “works best when it’s used infrequently”:

That’s why life, homeowners, and automobile insurance are all affordable—because we don’t want to die, and we can’t use car insurance to change the oil and fill up our gas tanks. Health insurance should work along the same lines. Ordinary health maintenance should not be treated as an event that triggers insurance coverage.

In practice, this would mean moving away from managed care and adopting low-premium, high-deductible health plans that would protect patients from catastrophic costs but require them to pay minor costs out of pocket. Like President Bush, Pipes champions the expansion of health savings accounts, which would permit Americans to set aside money for routine health-care expenses in a tax-free roll-over account. Since patients enrolled in such plans would be required to pay for most routine care themselves, they would have an incentive to ration their consumption, shop for value, and bring down costs.

Reformers in both Canada and the United States too often idealize the system that stares back at them from the other side of the border. Having lived and worked in both nations, Pipes offers a more realistic assessment. As she sees it, both nations have increasingly embraced the same failing, statist model.

Though the Clinton health-care plan went down to defeat a decade ago, Miracle Cure is a powerful reminder that conservatives cannot afford to be complacent about the issue. With consumer dissatisfaction high, it is only a matter of time before universal coverage reemerges as a campaign issue. If the U.S. is not to go the way of Canada, market-oriented reformers must find ways to make the private system give Americans the kind of health care they want. The ideas of Sally C. Pipes are a good place to start.