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An Adaptive, Performance-Driven, Health Insurance System
14/06/2005

As I explained in my previous posting, whether or not we end up with "two-tier" health insurance in Canada, we need to improve the delivery of health care services by the public system. We need to set standards for reasonable wait times, and ensure that we meet those standards.

If we want to avoid two-tier health care, this measure is mandatory. It's the only way to remedy the problem described by the Supreme Court. Furthermore, it addresses the real problem of patients suffering lengthy delays.

On the other hand, if two-tier health care is inevitable, I'd say this measure is still mandatory. If we want to have a good, effective, public health care insurance system after two-tier, we still need a way to ensure that the system is delivering good service.

That's just a recap of my last post. But the question is, how do we acheive it? Once we determine what "reasonable" wait times consist of, how do we effectively reach those targets? I present a suggestion below.

Background

Right now, each province has a health insurance plan that sets the prices for a long list of services that it covers. These services include things such as check-ups with your doctor, all types of tests and surgeries. The services are already provided by a mix of public organizations and private companies.

The problem is that we have a supply-driven system, when -- for the sake of patient-fairness and customer satisfaction -- we need one that is driven by demand. We have a system that sets a budget, and then tries to deliver the most health care that it can for that budget. Instead, we need a system that delivers the health care we need, and allows the budget to set itself.

As I mentioned above, the provincial health insurance provider sets the prices and a variety of public and private organizations step in to provide the supply. Unfortunately, we have waiting lists and underserved areas because not enough supply is being provided.

In a market economy, the signal to create more supply is sent by high prices. Since our current system allows for competition on the supply side, there is nothing that prevents us from using the signal of prices in the same way. Nothing, that is, except for the fact that we are used to having fixed budgets and prices set with that budget in mind... rather than prices set at the level that would provide adequate supply to produce reasonable levels of service.

The Concept

So, my proposal is a simple one. It's objective is to create a provincial health insurance plan (PHIP) that adapts to demand in order to provide service at reasonable levels. Or, more specifically, it's a system that adapts the fees that it pays in order to encourage the health care market to provide services at adequate levels.

This system would set the price for each service depending on the adequacy of the service level. At regular intervals the wait times would be assessed. If the times are too long, the price that the insurance plan pays will be increased a pre-determined amount. If there is an oversupply, the prices can be reduced. This creates a control system that, over time, will find and track the right price that encourages sufficient supply.

Additionally, this approach would be adopted on a regional basis. PHIP fees may then be higher or lower depending on the region. This would help to address the problems we face here in Ontario where many regions outside Toronto are undersupplied in terms of family doctors and specialists.

This is a system that should be able to efficiently deliver service at the target level, thus eliminating unreasonable wait times. The catch, as far as the provincial government is concerned, is that the budget will be driven by demand rather than set by the Finance Minister. But, as health care users, this is exactly what we should want.

Criticisms

I'm sure I will get a number of criticisms of this plan in the comments section. (Any posting with diagrams gets people excited!) I welcome critics. I'm sure this plan is imperfect and it's really just a starting point. However, let me mention some of the criticisms that I already expect.

This plan relies on a mix of public and private delivery of health care services. Some may not realize that we already have a lot of private delivery, but we do. Almost every time I have used my OHIP card, it has been in a private clinic of some kind or another. I'm not sure if my proposal requires an increase in the amount of private delivery, but even if it does, I am not concerned. I do highly recommend Joseph Heath on the subject (link PDF). Private delivery does not matter to me; what matters to me is universal public health insurance.

Specifically on the private delivery question, some may raise the point that private delivery costs more, because of the profit component. There is nothing about my plan that prevents the provincial health ministry from providing a service publicly, if they think they can do it cheaper than the private market... just as an American private insurance company may provide some services if they think they can do them cheaper in-house.

On the flip-side, others will complain that this approach may lead to a dramatic increase in health spending. To this I would say that if we need to spend more to eliminate unreasonable waits, then we simply need to spend more. There is no getting around that. If we end up with two-tier health care, we will still be spending more -- though not all of it through the public purse -- in order to improve our health care system. No matter what we choose we will be spending more. The point is to do it in the most efficient way, and there are reasons to believe that single-payer remains a very efficient way to do it. (Again, see Heath for some theory, or for practical evidence consider our health outcomes compared to our national spending.)

Finally, some have argued that what we need are user fees to constrain demand. While there's no doubt some people are seeing their doctors for frivolous things, that's not where most of the money is going. Most of the money is going to expensive services and products that are generally happening on the recommendation of doctors. The advantage of keeping a no-fee system is that early visits to doctors can help prevent some problems before they become more serious and more expensive.

Conclusion

The plan that I've suggested here is based on a refocusing of health care in Canada on meeting stated service-delivery targets, rather than just giving us the most that we can get for the budget that is politically expedient. The hope would be that we can then deliver health care at a standard that eliminates the unreasonable waits that led to the recent Supreme Court decision. However, even if two-tier comes to Canada, I would still recommend this system as a way of ensuring that provincial public health insurance meets the standards that we deserve.


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