Introduction
Health care sectors in the USA and Canada are major sources of employment. They are also key public fund recipients. Therefore, the health care policies in these countries are important for both their contribution and impact on the overall national growth. Most industrialized countries publicly fund their health care sector. The USA is the only country among the industrialized ones that does not provide universal insurance-based health care. In addition, it does not offer a fully tax-financed system. In the United States, public funds are channeled to the health care sector through two key insurance programs named Medicare and Medicaid. The main questions asked in both the US and Canada is whether the investment that goes into the health care sector is worth it.
Although this paper eventually leads to a conclusion that the Canadian health care policy is more efficient and of better quality than the USA one, the reader should also understand that both policies have inherent problems that policy makers grapple with in varied magnitudes. For example, even after achieving substantial cost benefits, the Canadian policy makers still have to find ways of curtailing an ever-increasing wage bill that can threaten economic prosperity when left alone.
Healthcare spending
In 2009, health care spending in the USA was almost USD 8000 per capita. The country has a population of 306 million and a GDP per capita of USD 45,797. Therefore, USA spends 17.4 percent of its per capita GDP on health care, with the public and private sources funding the sector almost equally. An additional 12 percent comes from out-of-pocket payments. In comparison, Canada spends about USD 3500 per capita for its population of 33 million people. It spends only about 8.7 percent of its USD 39,924 GDP per capita on health care per person. Its ratio of public to private source of financing is 6 to 1 and out-of-pocket per capita expenditures amount to about USD 627 (Squires 3). The above figures are represented in the comparison table below.
Table 1: Health spending in USA, Canada, 2009 (Squires 3).
The table below shows trends in out-of-pocket spending in the USA.
Table 2: Out-of-pocket health expenditures for USA (Rice and Rosenau 147).
The USA health care spending is high because the country has a sizeable aging population, but only to a less extent compared to the health burden imposed by high obesity rates. The percentage of the population that is obese in the USA is 33.8 percent, while that of Canada is 24.2 percent. Both USA and Canada have a similar percentage of their population aged above 65. However, the rate of increase for this segment of the population is higher in Canada than the US. Canada’s elderly population increased by 12.5 percent in 1999 to 13.9 percent in 2009. In the same period, the elderly population of the United States increased from 12.5 percent to 13.0 percent (Squires 4-5).
In reviewing the supply and utilization of doctors and hospitals in the two counties, Canada’s 2008 statistics show a 5.5 doctor consultation per capita, while that of the USA is 3.9. At the same time, there are more acute care hospital beds per 1000 population in the USA at 2.7 than Canada at 1.8. In addition, the average length of state for acute care in Canada is 7.7 days, while it is 5.4 days in USA. USA hospitals spent USD 18,142 per discharge in 2009, while Canadian hospitals in the same year spent 13,483 per discharge, with both country figures being adjusted for cost of living to make the comparison (Squires 5).
Table 3: Supply and utilization of doctors in hospitals in OECD countries, 2009 (Squires 5).
The USA has more use of expensive medical technology compared to Canada. Its physician income in both primary care doctors’ category and orthopedic physician’s category is higher. From this data, it is apparent that the USA spends considerably more on health care, in various categories; thus, it is expected to have better quality. Nevertheless, the actual numbers for notable health conditions vary between the two countries, with Canada having an overall better quality of health care. The country had 89 percent breast cancer, 64 percent cervical cancer, and 65 percent colorectal cancer survival rates from 2004 to 2009. During the same period, figures for the USA were 87 percent, 69 percent, and 63 percent respectively.
So far, the discussion shows that health care expenditure in the USA is higher than in Canada, but understanding the sources of the spending helps to demonstrate detailed differences in the health care policies of the two countries.
USA has a fragmented insurance and health care delivery system. As such, it has many health care expenditure openings. On the other hand, incomes are higher for practitioners in the USA health care industry compared to that of Canada. Another factor contributing to the difference is the extra care received for patients in many facilities in the U.S. The administrative costs in the U.S. are higher than in Canada by about 40 percent.
Overview of USA health care system
Federal and state governments provide and enforce regulations that private and public service providers in the health care industry in the USA have to adhere to. The main elements of the sector are the government, insurers, providers, public, and private regulators. The government acts through its legislative, executive, and judicial branches of federal, state, and local levels. The executive role of the government is provided by the Department of Health and Human Services (HHS).
Under HHS, other agencies administer the Medicare and Medicaid programs. They include Children’s Health Insurance Program, Agency for Healthcare Research and Quality, and Centers for Disease Control and Prevention. Others are Food and Drug Administration, as well as the National Institute of Health. Military veterans receive health care from the Office of Veterans Affairs, which runs the Veterans Health Administration. Serving members of the Department of Defense receive their health care through TriCare. The native tribes of American and Alaskan origin have a separate organization, the Indian Health Service, which caters for their health needs.
In the USA, the state acts like a customer to the providers of health care and acts like a shareholder. The entire program’s structure is rooted in a private organization’s mode of operation. Thus, federal and state agencies buy Medicare, just as other entities would do. At the same time, the state ensures that any American aged 65 and above, as well as the disabled or those ridden with renal disease and are at the end stages get Medicare. Another intervention that the state makes to correct the imbalance caused by a market centered health care system is the purchase of Medicaid and CHIP, as well as their regulation in ensuring that they cover poor mothers and their children. Other beneficiaries are disabled youth and the newly poor, who have used all their assets and income to cover medical costs.
State and local governments intervene by running hospitals to ensure that the poor and the needy are not left out of a market centric health service. They also provide preventive services at community health centers and run public health activities, such as the regulation of food safety at eating-places.
The rest of the public not covered by state programs on health care purchasing have to rely on insurance or out of pocket expenditure. Private insurance is under three categories, in relation to their role in the provision of health care and the manner of operation. There are the Health Maintenance Organizations (HMOs) and high deductible plans. There are also the Preferred Provider Organizations (PPOs). These insurance programs are available for purchase by anyone.
However, most Americans get insurance through their employers. The 2009 statistics show that only 10 percent of Americans actually buy insurance directly. However, they are many people who are living without insurance because employers who do not offer health insurance as part of their employee benefits employ them. The 50 million people living without care cover are about 17 percent of the total population (U.S. Census Bureau par. 7).
Actual health care provided to individuals can be in the form of hospital, physician, dental, prescription drug, home health, or long-term care. In some cases, there is mental health and other professional and public health services also provided, though such instances are not as popular as the previous category. Judicial and legislative support for health care provision is available through the Patient Protection and Affordable Care Act (ACA). It came into effect in 2010 (Rice and Rosenau 30). The law brings up many reforms to the industry, although it does not alter the systemic structure described in the above paragraphs significantly.
One of the new provisions of the health care policy in the USA is the availability of federal and state-based insurance exchanges. They are established for individuals who are unable to get employer-based insurance. It can also serve as an affordable option for small employers seeking to purchase cover. The new policy lets providers organize into legitimate groups that allow them to share savings achieved in the Medicare program, rather than suffer all the out of pocket costs or pay a premium price for cover when usage is only a fraction of the cover provided.
Under the ACA provisions, private insurance coverage assumes the following characteristics. To begin with, families and individuals obtain subsidies if they are below the federal poverty level. The subsidies are for the purchase of health insurance only. The law now mandates individuals and families to have health insurance coverage to ensure that the program is successful. The program can only succeed when there are a significant number of people taking up cover to break-even costs and lead to savings due to economies of scale. Therefore, those who fail to take up health insurance are supposed to pay a penalty, unless they can prove that the lowest available health cost plan was still expensive. The cost plan has to exceed 8 percent of a person’s income to be regarded as expensive (Rice and Rosenau 56).
The health exchanges would not exist without the law and the law puts them under the jurisdiction of states. For example, state authorities will ensure that insurers offer packages that cover essential health services.
The new health policy of the USA is also strict on the premium that insurers can charge. It forces insurers to offer a guaranteed issue of a policy, instead of offering a floor or ceiling value of premiums. The key provision of the guarantee is that the insurer will not turn on the policyholder’s back and charge higher based on the holder’s health status or pre-existing conditions. However, the same provision allows providers to charge up to three times the ordinary package for high-risk individuals, like the elderly and smokers.
Health care affordability rests with private providers, thus the policy also helps to ensure that the insurers do not use too much of the premiums to fund non-related health costs. Therefore, it specifies that 80 percent of the funds collected in the form of premiums must go back to beneficiaries as part of health benefits they sign up for (Rice and Rosenau 31). The following figure shows the status of health care affordability for adults in the USA.
Figure 1: Barriers to health care among adults in 2009 (Kaiser Family Foundation par. 2).
Medicare and Medicaid are public insurance covers, where the state buys cover on behalf of the public. The ongoing policy for Medicaid is that the state can accept federal subsidies. When they do so, then Medicaid is expanded to individuals and families whose income is below 138 percent of the federal poverty level (Rice and Rosenau 31). On the other hand, Medicare, which calls for co-sharing of costs, now has preventive services that require no co-payment.
It is also changing systematically to ensure that there are no vague regulations on the drug coverage policy under the program. The government is also reducing its payment to Medicare Advantage plans and encouraging the provision of bonuses to Medicare Advantage plans that are performing best in terms of quality. Such as policy provision ensures that programs supported by the government and provided by the private sector achieve market efficiency, even when market conditions are skewed in favor of inefficient operations.
Under the provision to ensure that costs are not escalated purposefully to make the programs profitable is the use of a board that makes binding recommendations on costs. This is to ensure that fee-for-service Medicare costs do not grow faster than one percent of GDP. Similar to the establishment of insurance exchanges, the new policy is also making it mandatory for employers with more than 50 employees to take up coverage or pay penalties.
Some employers are eligible for tax credits to make the program affordable for them and to ensure that its mandatory nature does not negatively influence the profitability of their core businesses. In addition, there are taxes imposed for very generous employers, who offer policies exceeding USD 10,200 for individuals and USD 27,000 for families. The excise tax corrects the balance in the industry to ensure that employers do not overly rely on a medical insurance provision to increase costs and limit their tax obligations.
The policy has specific regulations for health care providers. It allows them to form the Accountable Care Organization. After doing that, they can share the savings achieved in the Medicare program. The government is also exploring the development and provision of bundled payments for entire episodes of care, rather than just pay for every instance separately, according to a recognized cost range. In order to match physicians’ compensation and health care needs, the policy is also linking Medicare to hospitals and physicians.
In such cases, access to Medicare is improved when performance targets are met. Physician numbers are critical to the achievement of health care sector goals. The new policy on providers aims to increase the number of positions for physicians working in primary care. Increases are foreseen in rural and underserved areas. The main method of increase will be the provision of scholarships and loans. The policy also has various forms of support for other health care providers. For instance, it provides room for additional federal support for training programs. It offers grants for loan repayment. It also establishes a career ladder for nursing.
Lastly, the policy also has provisions for consumers. It increases taxes on unearned and investment income. It also increases taxes on earmarked payroll taxes for Medicare for high-income individuals and families. Moreover, the policy requires that restaurants and vending machines do not misguide consumers deliberately. To act as a preventive health care program, the policy demands that vending machines and restaurants provide visible nutritional content information, like the number of calories contained in the foods offered.
Interventions for improving quality of care include the establishment of Centers for Medicaid and Medicare Services (CMS). The agency improves reporting on care, the outcome of care, and patient experience measure. Specific state governments also have their public reporting systems for ambulatory care (The Commonwealth Fund 55). There are also research initiatives on clinical guidelines, patient experience, and disparities, all handled by the Agency for Healthcare Research and Quality.
As part of efficiency improvements, the Medicare Medical Home Demonstration project was initiated in 2009. It has monitored the distribution of finances to the providers who form part of the project. However, the USA system still faces wide scale coordination problems because of a large degree of fragmentation of national health system. Insurance cost administration accounted for about 7.1 percent of total health expenditure in 2007 (The Commonwealth Fund 56).
At the same time, most local standards for reporting and delivering care are incompatible with each other. As a result, it is difficult to accomplish wide usage of electronic medical records. A high population of uninsured people relying on hospitals for care increases the cost burden for hospitals and contributes to an average increase in costs. Ideally, universal coverage of insurance would eliminate such costs. The non-insured population also demands more cost intensive health care interventions because of a previous lack of preventive care access or usage.
Overview of Canada health care system
The Canadian health system is a hybrid system encompassing social components and market components. Funding comes from public sources, while care provision is solely in the hands of private entities and individuals. The care is universal, it is comprehensive, and anyone can access it. Many people, both in and outside Canada view it as very affordable. Administration happens separately in the provinces, although it is constituted as a national system. The power of federal government is different from that of the provisional government, thus the only way to run federal programs in Canada is by collaborating with the provincial government; hence the uniqueness in the health care system mode of administration.
The entire Canadian health system is under the legislative regulation of the Canada Health Act, although supporting laws can provide specific regulations (Bernard 2).
In every province, a single public agency administers health care. The central government pays half the costs of health care, while provincial governments match the contribution equally. It is only in the administration that there are notable differences among provinces. However, for patients, access is universal throughout Canada. The central government may enter into specific intergovernmental funding agreements with specific provisional governments. All the necessary hospital and physician services are under the Canadian Medicare program that fully pays for them. It is only in the non-core health services that Canadians may opt for private insurance. Such services include dental care, prescription drugs, and home care.
About two-thirds of Canadians have private insurance coverage. This high number is attributed to the affordability of the cover, given that people do not pay for primary care. Individuals also do not come directly in contact with tax deductions for health care purposes and cannot readily associate the cost of public health care to their incomes. Incomes come not from any government taxation. The government moves on to allocate funds to health care after the collection of general taxes. Federal governments receive their share of government funding through transfer payments, which used to provide other funds for public expenditure as part of the existing system.
Public programs provide preventive health care services. In specialized health care, supplemental private insurance can collaborate with public programs to offer integrated coverage (The Commonwealth Fund 12).
To qualify for public funding, provisional and territorial health insurance plans need to offer first dollar coverage of basic physician and hospital services (The Commonwealth Fund 12). Senior citizens, children, and social assistance recipients are eligible for specialized coverage of provisional government health programs. The central government, on the other hand, provides specialized health services to First Nations, Inuit, and members of the Royal Canadian Mounted police. It also has special programs for the Canadian Forces, veterans, refugee claimants, and inmates. However, qualifying inmates must be in federal penitentiaries (The Commonwealth Fund 12).
In the last decade, funding of health care has come from public sources, with private sources contributing less than 30 percent of the cost. Private care is available through employment based group plans. Many employees receive employer supported covers for vision and dental care, among other categories that private insurance takes care of in the health care realm.
Planning of health interventions and deliberate programs for care are under the administration of provisional authorities. The delivery of health care, which includes education of care providers, is in the hands of the provinces and territories. They hold the powers to fund any program not already covered by national government. They deliver health care in their local jurisdictional areas. They are also free to consolidate their operations.
Physicians run private practices and they receive compensation for their service to patients on a fee-for-service basis. The provincial governments can also provide alternative forms of public payment. Authorities can offer capitation, salary, and blended types of funding to the physicians. These arrangements are growing and might soon become the preferred forms of provincial government payment to physicians. Presently, they account for about 21 percent of all payments to physicians (The Commonwealth Fund 12).
Physicians are not free to charge patients what they like. Instead, they have to follow guidelines provided by the provincial health insurance plan. They will have to opt out of the public plan to charge separate rates. There is no regulatory oversight governing the provision of primary care by physicians, but there are practices that limit the usefulness or availability of self-referrals. Physicians based in hospitals are also private practitioners, who receive similar compensation to those operating individually. The other category of providers covers nurses and other health care professionals. The professionals work in hospital settings or community-based care settings.
The remunerations extended to the nurses are determined by the unions representing them and their employers. Other specialists in health care settings can also work in the public, as well as the private sector. Hospitals providing acute care can be profit making or nonprofit making organizations. They can be owned by various entities. Presently, municipalities, religious orders, universities, and governments are the main owners. The facilities have annual budgets funded according to negotiated terms.
Reforms in the Canadian health policy concentrate on supporting innovations and stimulating quality improvements across the nation. Canada recently established the Patient Wait Times Guarantee Trust. There are also similar funds for programs dealing with specialized diseases and safety concerns, such as cancer and mental health. Government facilities have implemented evidence-based wait time benchmarks in priority areas to provide countrywide feedback on the effectiveness of the system and to increase access and quality of health care in the institutions.
The entire industry benefits from the central government funded Canadian Patient Safety Institute, which promotes best practice. It is also the duty of the institute to formulate industry-wide standards that promote the provision of health care in Canada. The health care system is assessed and improved in terms of quality at the provincial levels. The local authorities and institutions oversee their implementation and report to established authorities at provincial and national levels. Reporting is mainly done in institutions that are charged with the improvement of specific aspects of the Medicare system.
Currently, Canada is seeking to have all its residents have electronic health records. There is a common architecture for the electronic health records that the provisional governments have certified and are going to implement to achieve a 100 percent compliance target by 2016 (The Commonwealth Fund 14). The National Pharmaceutical Strategy is already addressing the issue of drugs to improve safety and affordability of drugs. Presently, the policy has led to the achievement of several results. First, the Common Drug Review is bigger. In addition, the Drug Safety and Effectiveness Network design is now available.
One of the main objectives of administration of the Medicare program in Canada is to control costs. The objective is achieved by the use of single-payer purchasing power. The government also increases real spending to ensure that the overall cost of health care remains affordable. Various control measures govern fees and health care expenditures. For example, hospitals have to provide annual budgets. Health regions are also under the regulation of global budgets. Health care providers have to follow commonly negotiated fee schedules. Drug formularies and reviews of the diffusion of technology also exist as control mechanisms. Governments are also constantly looking for ways to update their purchasing strategies so that the overall drug prices remain low.
The reforms in the Canadian system come as innovations seeking to make it better at responding to emerging challenges. Resultantly, the country is focusing on using data to evaluate the health care system in a bid to achieve quality, efficiency, and affordability (The Commonwealth Fund 15).
Reflections
Differences in health care policies in Canada and the USA were non-existent about three decades ago, but today they are very visible. For starters, the private health care provision policy of the USA contributes to a high number of people missing out of health coverage, while the public health care provision policy of Canada ensures that all residents receive comprehensive health care. Interestingly, even after Canada covering all its residents with comprehensive health care, it still spends far less that the USA on overall health care provision.
Americans can only expect health care from employers or from the public programs that buy health insurance on their behalf. However, they face many instances where they have to pay for a given percentage of health care costs from their pockets. Therefore, although the health care costs might be similar across providers, the consumers face different charges, given that employers will provide varied health insurance covers for their employees.
At the same time, employees face a health care burden when they are changing jobs. They cannot easily move their accrued benefits across health insurance covers tied to their employment status. Unlike personalized health insurance coverage, the employer based programs cease when an individual leaves employment because they are tied to the employer purchasing the cover on behalf of an employee, rather than the beneficiary.
The new policy provisions in the USA aim to provide universal coverage of health care. However, there are problems that only time will tell whether they are adequately provided for in the new policy. A key issue facing the USA policy is the growing number of people who become uninsured because of their pre-existing conditions. People with historical health problems face the trouble of getting appropriate insurance and may only qualify for primary benefits from a diverse range of available insurance covers provided individually or through their employers.
Employers, on the other hand, will go ahead with the policies for the provision of health care, willingly so that they avoid associated penalties. Unfortunately, many will alter their salary and benefit programs to employees, such that the cost of providing health care insurance passes on to the employee. In such conditions, the only reprieve for employees is the purchasing of insurance as a single wholesale cover for an entire organization; rather than specific covers for every employee, which would make costs prohibitive. Were it not for the penalties imposed by state and federal government on employers, many of them would not consider taking up health insurance for their employees.
Unfortunately, it is the market-based system of the USA that is causing too much discrimination in health care provision. This goes beyond what the corrective measures initiated and run by government can handle. In contrast, Canadians do not have to worry about their employment status when thinking of being able to afford health care. They are free to get care, irrespective of their income status. They can just go to a doctor of their choice and get care.
They are also free to pick any hospital and receive free care. There is no available or foreseen barrier to accessing health care for an individual in Canada. On the other hand, even the wealthiest Americans have to grapple with taxation issues when dealing with matters of health care. The Canadian health system is well endowed with physicians and other health providers. The country prohibits any private health care program that duplicates comprehensive services that are already offered by provisional plans. Consequently, there is more overall efficiency of health care expenditure in the country.
Fragmentation of the USA health care system has caused its annual per capita health expenditure to remain the highest in the world for the last few years. The USA policy is a reactive one, while the Canadian policy is a proactive one. Canada has already dealt with the basic question of providing universal care and its public system has worked for a number of decades now. Similarly, the USA has solved the challenge of providing universal care, but ensuring that the solution remains sustainable has become a huge problem due to the inherent features of the adopted system. Although the USA may be ahead of Canada in terms of medical care innovations, it remains behind in terms of quality of health care provided.
A key reason for the difference in quality, despite a head start in innovations is the fragmentation of the industry. The lack of a single or narrowed flow of technologies, information, and practices from and among state governments and the central movement causes bottlenecks in the implementation of efficient measures. There are too many uncoordinated stakeholders in the United States health care system.
Meanwhile, the Canadian system thrives because it does not attach funding conditions to specific organizations or individual contribution. The government provides funding in accordance with the overall tax revenue collected from the entire country’s tax base. This ensures that it is possible for Canada to increase its expenditure on health care without necessarily hurting the economy, because it can appropriate resources from other productive sectors to fund the public health bill.
Both Canada and USA ration health care, but the USA rations more according to the ability to pay, while Canada’s criterion for rationing is the severity of need. The USA condition ensures that those who qualify for various insurance coverage plans suddenly grow a higher appetite for health care because they are not limited to costs, but to the range of benefits provided by their covers. As the situation persists, insurers face increased levels of claims and are forced to increase both their administrative costs and their cover premium costs to cater for the increased activity in their industries. The government has to intervene to keep costs artificially low, given that market forces originally determine them. A high demand for services is supposed to lead to higher prices when supply remains relatively constant.
In the Canadian policy, the price hike problems facing the USA system are unlikely to arise because there are price ceilings imposed by the government. The main source of funding is also not profit motivated, thus is does not have to respond to market forces. Moreover, providers face no incentive to keep prices artificially high because they must compete with other providers who offer non-basic health care, which is not covered in the public health system. The Canadian system is better in quality and efficiency because public funds are not subject to market dynamics. At the same time, private funding of health care is free to follow market forces. Individuals and employers are free to terminate insurance coverage without affecting access to free comprehensive care.
Works Cited
Bernard, Elaine. The Politics of Canada’s Health Care System. Cambridge, MA: Harvard Trade Union Program, 2014. Print.
Kaiser Family Foundation. Primary Care Health Professional Shortage Areas (HPSAs). 2014. Web.
Rice, Thomas and Pauline Rosenau. “United States of America: Health System Review.” Health Systems in Transition 15.3 (2013): 1-431. Print.
Squires, David A. “Explaining the Healthcare Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality.” Commonwealth Fund Publication 1595 (2012): 1-13. Print.
The Commonwealth Fund. International Profiles of Health Care Systems. 2010. Web.
U.S. Census Bureau. “Income, Poverty and Health Insurance Coverage in the United States 2009”. 2010. Web.