One world, one (healthcare) problem: Canada
How our neighbor to the North sidesteps one big challenge entirely
One world, one (healthcare) problem: Canada
Improving health is a universal goal, but challenges to providing healthcare are equally universal. In this series, we’ll examine four problems faced by every healthcare system and highlight a country that quite effectively solves it. First up…Canada!
1. If you offer it, the sick will come
Arguably the biggest, inescapable problem in any healthcare system is created by something that is usually good: the option to buy into insurance. The problem is, if you offer health insurance, who’s most likely to show up? Sick people! And sick people are expensive. Plans that attract more and more sick people end up with higher average costs per enrollee, leading to higher average premiums. But higher premiums discourage the healthy even more from signing up and we’ve launched into ever rising premiums matched with fewer and fewer people insured. (Read my discussion of this so-called- insert spooky music here- Death Spiral!)
Insurers respond by making their plans more and more complex, setting prices to sort sick into some plans and healthy into others. For example, attractive low premiums may be paired with high deductibles; the high deductible is a big cost for those using care intensively, but may not discourage a hearty, healthy person who never plans on using care anyway. Additionally, insurers attempt to isolate certain types of enrollees by specializing in certain markets. For example, by selling only employer-based insurance (i.e., to folks healthy enough to be employed) or avoiding whole geographic regions (i.e. decisions of major insurers to leave many ACA marketplaces caused an uproar in early 2018).
2. Basics of the Canadian healthcare system
The Canadian system’s universal provision of coverage is perhaps the easiest of all modern systems to explain. Coverage works like this: If you’re a legal Canadian resident, you are now insured. Voila.
With a little more nuance, coverage of all hospital and physician services for Canadian legal residents is statutorily required and is provided through provincial insurance plans. The financing of this care is shared between the provinces and the federal government, with payments based on the number of people covered in the province. Private insurance can be privately purchased, but only for those services which are not (and this is important) covered already by the provincial plans. Think dental or vision. Funding of the system comes through annual general taxation by the governments.
3. Canada’s take: Enroll everyone, and the problem’s moot
How does Canada deftly solve the problem that sick people disproportionally opt into insurance? What opting in? Everyone is automatically enrolled in the national plan! In a way, the problem doesn’t even exist anymore. Every person, sick or healthy, is now enrolled in the only plan available.
Keeping individuals from buying supplementary insurance further seals the deal. Although other countries with national coverage do allow supplemental insurance, Canada restricts choice outside of the national plan to services not already covered. This means that healthy people can’t opt out of coverage for some services with cheaper private insurance and keeps these healthy (and inexpensive) individuals in the provincial insurance pool.
By prohibiting movement in and out of insurance plans, the Canadian approach wards off the proliferation of complexity in prices, plan types, and geography that results from a multi-insurer system. This reduces administrative costs. A 2014 Health Affairs study found that only 12% of Canadian hospital expenses were administrative costs, such as staff for coding and billing, compared with the U.S.’s 25%. A higher-level study in 2017 showed that the U.S. spent $2,497 per capita on administrative expenses and insurer overhead, or 34% of national health expenditures, compared to only $551 per capital in Canada, or 17% of expenditures. While other key differences exist between the U.S. and Canadian systems, there’s no question eliminating the complexity of sorting the sick and healthy is an important factor making Canada’s healthcare spending more efficient.
As always, keep me updated on what you’re up to or reach out to chat with me about these issues.
 If you’re interested in other applications of economics in morally sensitive problems, these questions are currently under debate for organ donation, particularly in kidneys Check out one economist leading the charge, Mario Macis.