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Graduate of the University of Oregon, Married for 4-1/2 years to my High School sweetheart. I am currently residing in Cleveland while I attend med school.

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    Sunday, April 02, 2006

    SB840: Bringing the Failures of Canada to the Golden State Part II

    Cross posted at

    Last week I introduced you to SB840, a bill in the California State Legislature that would bring socialized medicine to California. In addition to making health-care the sole responsibility of the state, the bill would criminalize private insurance companies, preventing them from operating within the state. The focus of last week's introduction was to explore the inevitable economic repurcussions - both private and public - that would befall the state of California if this bill were to pass. In summary I proposed that the bill would lead to a dramatic increase in taxes at a disproportional rate to the middle and upper class (The Only Republican in San Francisco thought the bill sounded very Marxian, “From each, according to his ability, to each, according to his needs”), and would establish a very powerful disincentive for businesses within the state. This week, I would like to speculate on the potential non-economic consequences of the bill.

    Though the consequences are numerous, I will focus on three that would directly affect the way health care is delivered. Many proponents of the bill claim "the health care delivery system will not change," on the basis that the government will not be running the hospitals, just funding them. To assume that funding and operation have no connection is absurd. Like it or not, the world revolves and operates on the basis of incentives. Money is the universal incentive, and thus, with government controlling the money, the health-care industry would change dramatically.

    The first, and most distressing outcome of SB840 would be a dramatic decline in the quality of health-care within the state. Canada has already seen failures in health care, and the similarities between the current Canadian and the proposed Californian systems should imply similar results. The Pacific Research Center explains one cause of this:
    Incentives matter, and one need only examine the incentives of the Canadian system to predict the results: inefficient use of resources and severe rationing of expensive procedures. Patients consider health care to be free. They pay for it for sure. Canadian doctor and author David Gratzer..., estimates that the system costs each Canadian 21 cents for every $1 they earn, which translates into $7,350 a year for a person earning $35,000. But they don’t pay for it when they use it. The result is an overuse—and inefficient use—of primary care facilities.
    This statement is very interesting. First, I would like to point out that despite the horrible ineptness of the system, it costs an average of 21% of the income, and still suffers from underfunding! Nonetheless, 21% is much more than the estimated 12% that Health Care For All claims (Last week I argued that the bill was planting the seeds for tax increases and new taxes). Currently, doctors and hospitals have an incentive to invest in newer equipment, and training in new procedures, despite the high costs that may be involved in these investments. Not doing so puts them at a competetive disadvantage with other facilities, and limits their ability to provide the best care possible. Yet "under SB840, large capital expenditures such as hospital wings and expensive equipment will require approval of the commissioner." In addition, caps to reimbursement and limitations on choice by patients will remove this incentive. Investing in expensive new machinery by a hospital diverts money away from payroll, supplies, and other procedures. This sort of prioritization results in a lack of investment in new technology, and thus stagnates the health care industry's ability to provide top-notch care. This situation has played itself out in Canada already, with the country grossly

    However, the 12% tax figure is not the only case of HCA being disingenuous in their analysis. HCA also claims that "The health care commissioner will be authorized to raise compensation for primary care to encourage more physicians to take on that role. Some specialists may see their income reduced a little." To say that this bill would encourage doctors and actually increase the number of primary care doctors is not optimistic, it is dangerously naive. This is the second consequence of SB840. Again, looking north reveals that there is a shortage of doctors under the socialized plan. This should come as no surprise. With Government legislating where a doctor can work, putting a cap on income, and limiting the number of primary care and specialists by region, those in the health care industry will suffer from a limitation in their career choices (while the choice to relocate to Nevada or change professions is still an option).

    Furthermore, while "raising compensation" sounds like a great plan, it relies on financial surplus - something that I see as an impossibility without dramatic tax increases. When health-care is perceived as "free", it becomes over-used. Demand for service certainly does stimulate an increase in supply under a free system, any increase in supply will almost certainly not be able to meet the sharp incrase in demand, particularly the income caps that will drive doctors out of the field. Yet, funding primary care doctors at the expense of specialists is a dangerous strategy. The investment that specialists make in order to attain their position (years of expensive and stressful education and years of residency) not only warrant, but demand a high salary. Without a high level of compensation, there is no incentive for specialists to make such a large investment in their education. Therefore, promoting primary care would come at the expense of losing much needed specialists. This would, undoubtedly, lead to shortages of specialists and thus long wait-times for their services. These wait times are a reality in Canada, forcing many to seek health care in the United States.

    SB840 would, however, create some demand for doctors. This is the third unforseen consequence of SB840. According to a longer summary by HCA:
    Doctors who participate in the system will still be allowed to take private patients who pay directly. Although it seems odd that patients would pay for medical care that the state agency would cover, experience in other countries shows that as much as 10% of the population could choose that option.
    In reality, it does not seem odd that those who could afford to pay for care would opt to, considering the decrease in quality of care that would ensue. Being able to demand a higher pay, without the stress of dealing with reimbursements from and limitations by the state, opting out of the state's program would be ideal for doctors, and would likely lure many of the best doctorsaway. SB840 would thus, create a tiered system, where the richest could afford to pay for the best care (at a substantially higher cost), while the lower and middle class would be forced to rely on the inept state health care, without the choice to seek care elsewhere. It's easy to see that this will have the most prominent affect on the middle class, who will be forced to pay more in taxes, while receiving lower quality care.


    Blogger Roger Davis said...

    That 21% figure is interesting. I wouldn't take it as gospel but I am going to look into it.

    Canadian here, eh.

    Several observations. Canadian Doctors used to go to the US. Used to. Apparently they hate HMO's more than they do Canada's godless commie health care system. They're coming back in droves.

    As a patient, I like the Canadian system, with all it's warts. I pick my doctor, change my doctor, whatever I want. I see my doctor ANT TIME and EVERY TIME I want. If I want to see a specialist I TELL my Doctor and he sees I get to one.

    The US has an AMAZINGLY WONDERFUL health care system - for those that are insured. For the 34 + million that aren’t it sucks. America needs to cover EVERYONE with some form of health care. It is a disgrace, an embarrassment that you are the only developed country in the world where three year old children badly burnt in a house fire CAN'T GET INTO A HOSPITAL until the Governor (Jeb Bush) personally guarantees he'll pay the bills.

    Public or private, who cares, BUT someone in YOUR country has to care enough about the 34 million uncovered people to DO SOMETING. The Canadian system has many flaws, BUT three year old burn victims GET CARE, NOW!

    Have a good day.

    7:07 PM  
    Anonymous Anonymous said...

    SB 840 all the way.
    HR 676 all the way.

    6:50 PM  
    Anonymous Anonymous said...

    I make $20K a year and can not afford the $600 to $800 a month for insurance coverage. Not if I want to eat and stay warm and covered. I broke my ankle and after a week of trying to work and failing, I spent some of my hard earned money on a doctor visit, xray, etc. and did survive. But, fear that if I were to have a stroke or heart attack, would just die. Period. I don't have the many hundreds of thousands of dollars it would take to bring me back, and even if I were to sell my home and leave my children in the street, would still not have enough to pay the doctors and hospital. Cancer? Ditto. I have RA and just suffer and deteriorate. If I didn't have this disease I could work more and make more money. But, it would cost more to treat than I make a year. I am watching the process of this bill with great anticipation. This bill is not just something you can sit in your armchair and take apart. This is something that will affect many lives in a positive manner.

    7:07 AM  

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