Markets, lower taxes will ease health-care queues

The fundamental problem causing Canada’s health-care scarcity is a lack of private spending

Matthew LauWithout serious government course correction, Canada is headed for a health-care squeeze.

The senior dependency ratio in Canada – the ratio of people 65 years and older relative to the working-age population (15 to 64 years old) – is projected to rise from 25 per cent today to around 40 per cent by 2042. And the older the patient, the more regular and complex their needs.

The health-care squeeze will be felt most acutely in Newfoundland and Labrador, where the senior dependency ratio is projected to be more than 60 per cent, and in New Brunswick and Nova Scotia, at over 50 per cent.

Will provincial governments be able to meet this increasing health-care demand by simply spending more?

All the evidence indicates not.

From 1993 to 2018, provincial health-care spending per capita, after adjusting for changes in the consumer price index, increased by 68 per cent. Over the same period, the median wait times between referral from a general practitioner and receipt of medically necessary treatment from specialists more than doubled from 9.3 weeks to 19.8 weeks.

The fundamental problem causing Canada’s health-care scarcity is a lack of private spending. Mandating that government be the single payer is completely unworkable. There are no markets or competition to encourage innovation or improvement in quality. There are no prices to ration demand, leading inevitably to queues.

Prices and queues both impose costs on the consumer. The difference is that prices represent revenues to the supplier, thereby encouraging supply. Queues are just a deadweight loss.

So costly are the wait times that, according to Statistics Canada data provided to think-tank Second Street, around 276,000 Canadians headed abroad as medical tourists in 2017. So those Canadians paid twice for health care – once for domestic care with their taxes and again for private care elsewhere.

While the United States has significant problems with its health-care system, wait times for medically necessary treatment isn’t one of them.

In 2017, a headline in Forbes proclaimed: “Doctor Wait Times Soar 30% in Major U.S. Cities.” This was based on a study that surveyed physicians in five specialities. It found that the average wait to see the specialist had “soared” all the way to … 24 days.

By comparison, the Fraser Institute’s latest survey of doctors across 12 specialities put the median wait time at 8.7 weeks from referral from family doctor to appointment with specialist, and then another 11 weeks from appointment with specialist to treatment. 

The specialty with the longest wait time in Canada was orthopedic surgery, at 14.6 weeks from referral to appointment, and then another 24.4 weeks to treatment. The American survey pegged the average orthopedic surgery appointment wait time at a mere 11 days in major cities. 

Canada’s health-care scarcity is the predictable outcome of a lack of private markets for publicly-insured health-care services. In this environment, the only way for governments to control costs is by, as many provinces do, refusing to pay doctors properly (unlike the teachers’ unions, doctors can’t just walk off the job) and imposing ceilings on the numbers trained.

The refusal of provinces to pay doctors as much as they could earn elsewhere, such as in the United States, is a problem exacerbated by Canada’s high income tax rates.

In 2015, then-NDP Leader Thomas Mulcair cited New Brunswick’s 58.75 per cent top marginal income tax rate. He asked how the province would be “able to attract and retain top level medical doctors when they’re going to be told, ‘Oh, by the way, our tax rate is now going to be close to 60 per cent?’”

The two-step approach to reverse Canada’s deteriorating access to health care is based on Economics 101.

First, use prices instead of queues to ration demand.

And second, cut income taxes to encourage the labour supply of the most productive Canadians – including doctors.

Matthew Lau is an economics writer with the Atlantic Institute for Market Studies.

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