Private Care in Canada

The following is reprinted from Public Health Reports, a journal of the U.S. Public Health Service. It was authored by Carolyn A. Decoster, RN, MBA and Marni D. Brownell, PhD with the Department of Community Health Sciences, University of Manitoba.

Physicians for National Health newsletter, September 1998


In Canada, health care is publicly insured and available to all at no charge. Recently, financial pressures have threatened the system and led to considerable debate about how to save it. One proposal is to permit privately funded health care alongside the public system, resulting in what is popularly called a two-tiered system. This paper presents some of the arguments for and against two-tiered health care. Using as an example cataract surgery-a procedure that is available both publicly and privately-the authors look at some common beliefs about private health care in Canada. They conclude that the growth in private sector cataract surgery does not appear to be related to cutbacks or rationing, that private access does not necessarily shorten waiting times, and that, contrary to popular belief, it is not only the well-to-do who pay for private surgery in Canada.

Canadians cherish their health care system. Health care is viewed as a right, and nobody is denied medical or hospital care because they are unable to pay. Research in the province of Manitoba reveals that even in the remote northern communities, over 80 percent of residents see a physician at least once a year. However, cuts are being made to health care budgets across the country, and there is a widespread perception that the health care system is in peril.

The Canada Health Act of 1984 ensures universal access, comprehensive coverage, and public funding for 1997 hospital and physician services. Both patients and physicians experience substantial freedom of action within the system: patients are free to chose their doctors and to visit more than one doctor for the same complaint. Physicians are free to prescribe treatments and to admit patients to hospitals with little scrutiny.

Although the Canada Health Act is a federal law, its administration is a provincial responsibility. Provinces provide annual block grants to each hospital, which then allocates funds to its programs and services. The majority of physicians are paid through a fee-for-service arrangement: a claim is fled with the provincial government for each patient service provided, and physicians are reimbursed according to fee schedules negotiated between provincial governments and medical associations. Although only hospital and physician funding are mandated by legislation, many provinces have expanded their public health insurance programs to cover prescription drugs, home care, and long term institutional care.

Public administration with a single payer system has helped control costs in Canada. Part of the reason that the United States has the most expensive health care system in the world is the administrative costs of its huge private insurance system. For every dollar the American commercial health insurance industry spent on health claims in 1988, it spent 33.5 cents for administration, marketing, and overhead, while the U.S. Medicare system spent 2.3 cents and the public health care system in Canada spent 3 cents.

Although public financing in Canada has successfully controlled administrative costs, it has been somewhat less successful in controlling the cost and volume of services. For most of the last 30 years, Canada has spent one to two percentage points more of its gross domestic product (GDP) on health care than the average spent by the Organization for Economic Cooperation and Development (OECD) countries. In 1994, per capita spending on health care- was approximately Can$2500, or 9.8 percent of GDP. Canada was second only to the United States, which spent $3,516 per capita, or 14.3 percent of GDP, on health care. Health care spending grew rapidly in Canada until the mid-1980s, but unrestrained growth in health care cannot be publicly financed without limit, particularly given the growing recognition that many therapeutic measures are unproven and that health is determined by many factors outside the health care system.

Canadian provinces finance health care through a combination of provincial revenues and federal transfers. The contribution from the federal government in Ottawa empowers it to enforce the Canada Health Act since it can levy financial penalties against provinces that contravene the Act. (An example of a contravention of the Canada Health Act would be permitting doctors to practice outside of the public system.) However Ottawa's contribution has gradually declined from the original 50/50 cost-sharing agreement to less than 20 percent of health care expenditures today. The pace at which this contribution has fallen has escalated in recent years as the federal government has focused on getting control of the deficit. In 1997-1998, cash payments from Ottawa to the provinces to assist with financing health, social services, and post-secondary education will be $6.6 billion less than in 1994-1995-an astounding 40 percent reduction.

The decline in the federal contribution has had two major consequences. First, the provinces are scrambling to maintain the public health care system with substantially reduced resources. As a result, hospitals have had their budgets frozen or decreased, measures have been adopted to curtail physician fee payments, and media attention to these issues has generated public concern. Second, the provinces are less vulnerable to financial penalties imposed by Ottawa. Given the federal government's much smaller relative financial contribution, any further withholding of funds only serves to dilute its power even further. These two factors have enhanced the appeal of private sector health care.

In Canada, the term "private health care" is generally care that is paid for by private sources: private insurance plans, employer-provided health plans, deductibles and other out-of-pocket expenses. Like the United States, Canada has both publicly and privately owned hospitals, clinics, and other facilities. Ownership is a separate issue from sources of payment; a physician in private practice may receive all of her or _ his income from the public health insurance program. The vast majority of physicians practice entirely within the public sector, that is, all of the care they provide is paid for by public sources. Very few physicians practice entirely in the private sector; some practice both publicly and privately. Private clinics generally offer procedures that are not covered by the public purse. Some types of cosmetic surgery, _ such as breast implants or tattoo removal, fall into this category. Sometimes the procedure is covered publicly but the overhead expenses at the private clinic must be paid for by the patient. Despite the extra expense, patients may-and some do- opt for private health care because they perceive waiting times in the public system to be unacceptably long.

A Two-Tiered Health Care System

One of the frequently heard recommendations for reform is to supplement the current public system with a parallel private health care system for those patients who are willing to pay-creating what is often called a "two-tiered" system. Proponents of a two-tiered system argue that it would relieve pressure on the public system, thus ensuring its survival. Critics of the two-tiered option say that it would erode the public system by destroying its broad base of support and increasing costs.

A two-tiered system is a popular concept with many doctors. At its last two annual meetings, the Canadian Medical Association (CMA) debated the merits of a two-tiered system; both years, resolutions promoting a private system running parallel to the taxpayer-funded one were narrowly defeated. The CMA has taken a leadership role in debating the merits and appropriate place of regulated private insurance alongside the public system.

At the 1995 CMA meeting, one speaker noted that "the majority of people could not afford private care, and they are the vast majority requiring the most care." Members of the Prime Minister's National Forum on Health concur with that view. The Forum comprises 24 Canadian health experts with a mandate to advise the federal government on innovative ways to improve health and the health care system. The Forum found that Canadians care passionately about their health care system, rate equal access and quality of care as its most important features, and believe that two-tiered health care would erode these core values. The forum also found that the public sector has managed the system efficiently and effectively and thus rejected calls for private, parallel systems. Members of the Forum warned that the private system tends to skim off the best people-both providers and patients-and the highest profit technologies, leaving the majority of patients with less choice and potentially less quality.

How would a two-tiered system result in inequities? A widely publicized account of queue-jumping serves to illustrate how private health care can have an impact on equity of access. In the public system, queue-jumping is allowed based on medical need, not on the patient's ability to pay. Yet a patient in Ontario, Canada, jumped a six-month queue for a magnetic resonance imaging (MRI) - high technology diagnostic procedure-by using her husband's benefits plan and paying $600. The Ontario Health Insurance Plan (OHIP) prohibits charging for (or selling private insurance to cover) medically necessary services that are covered by OHIP. Nevertheless, the private insurer used by the husband's company arranged for the MRI within a few days at a Toronto hospital where there is normally a six to nine-month wait for non-urgent MRls. Said the patient's doctor, "If she got an MRI because she could pay for it, when it's a service to be covered by OHIP, that's just not right. She needed an MRI, but she didn't need it any more than anyone else I refer." The MRI patient queue-jumped because her husband's employer provided private health insurance and she had $600. Other patients had to wait.

Another argument against a two-tiered system is that it has the potential to drive up costs. First, there are the obvious costs to consumers who elect to pay for private services, including deductibles and co-payments. In addition, there are other, less obvious implications of allowing a privately funded system to coexist with the publicly funded one. Consumers who pay for private services may object to paying taxes to support the public system since they have chosen not to use it, thus weakening support for the public system. Additionally, the question has been raised whether physicians-who are trained at enormous public expense-should be permitted to opt out of the public system.

Does growth in the private sector relieve pressure on the public sector? Do private clinics offer faster service? Are private clinics used by the well-to-do, leaving more room in the public system for those who can't afford to pay? While the answers to these questions are still not clear, recent experience with cataract surgery can shed some light on them.

The Example of Cataract Surgery

Because of technological improvements, cataract surgery which previously required absolute bed rest for several days and thick, distorting glasses that limited patients' mobility, can now be done safely and quickly on an outpatient basis. Laser surgery and lens replacement allow vast improvements in vision and hence in quality of life. In recent years, the growth in rates of cataract surgery across Canada has been remarkable.

From 1991-1992 to 1993-1994, age-standardized cataract surgery rates increased 15 percent. We cannot measure the medical necessity of these procedures, but we can look at how rates of cataract surgery vary between provinces. Large variations in rates of surgery in similar populations suggest that at least some procedures may not be medically necessary. According to a recent report from the Health Services Utilization and Research Commission of Saskatchewan, in 1993-1994, age-and sex-adjusted rates of cataract surgery across Canadian provinces ranged from 12.9 to 23.5 per 1,000 population ages 50 and older, an 82 percent difference. The provinces of Manitoba, New Brunswick, Quebec and Ontario, which collectively comprise 69 percent of the Canadian population, each had a rate of approximately 17 per 1,000. Alberta's rate, at 23.5 per 1,000 population, was 38 percent higher than in the above four provinces, and the rate for residents of Saskatoon, Saskatchewan, was a remarkable 80 percent higher, at 30.6 per 1,000 population. It is doubtful that disease incidence fully explains such wide variations in rates: a substantial body of research has documented variations in rates of procedures that appear to be unrelated to disease incidence.

Private Sector as an Escape Value

Does growth in the private sector relieve pressure on the public sector? Researchers at the Manitoba Centre for Health Policy and Evaluation (MCHPE) explored the interaction between private and public sector growth in cataract surgery in a recent report on hospital downsizing in Winnipeg. Winnipeg is home to over half of Manitoba's population and has seven hospitals, including two tertiary care teaching facilities. From 1991-1992 to 1994-1995, approximately 20 percent of Winnipeg's hospital beds were closed due to cutbacks in provincial government funding. Cataract surgery has been consolidated at one of the community hospitals but is also available at three private clinics in Manitoba, two in Winnipeg and one in Brandon, Manitoba's second largest city.

These data (Figure 1) suggest that private sector growth cannot be explained by public sector rationing or cutbacks and that private sector growth does not relieve the pressure on the public sector. From 1990-1991 through 1995-1996, the number of cataract surgery procedures expanded rapidly in both public and private sectors in Manitoba. While cataract surgery in the private sector grew from 284 to 660 procedures (a 132 percent increase), in the public sector during the same years there was an increase from 3,556 to 6,211 procedures (a 75 percent increase).

Waiting Times

Another claim of the two-tiered proponents is that private clinics can offer faster service. A recent survey by the Alberta branch of the Consumers' Association of Canada investigated this belief. In Alberta, as in Manitoba, ophthalmologists may operate in a public hospital, a private clinic, or both. The Consumers' Association conducted a telephone survey of ophthalmologists' offices and clinics in five Alberta cities. They asked how long it would take to get an appointment with the ophthalmologist and, if cataract surgery were recommended, how long the wait would be for surgery.

The initial appointment to see the specialist was available within three to four weeks. But there were intriguing differences in the waiting times for surgery. For surgeons who operated only in public hospitals, the prospective "patients" were told that they would have to wait from two to eight weeks for cataract surgery; the average was six weeks. In contrast, the waiting times for surgery at private clinics were from one day to four weeks. However, the waiting times were lengthy-up to a year for surgery performed in public hospitals by surgeons who operated in both public and private sector settings. Patients in Alberta whose doctors operated both privately and publicly would get the impression that the wait to have surgery in a public hospital was far longer than the wait for surgery in a private clinic. What these patients would not know is that if they had gone to a surgeon who operated only in the public hospital, the waiting time would have been far shorter. Thus, patients' perceptions of longer waiting times in the public sector would be influenced by which physicians they consulted.


In both Alberta and Manitoba, public insurance pays the surgeon's fees for both public and private cataract surgery. Public insurance also pays for all of the support services at public hospitals, whereas private clinics charge patients a facility fee for overhead and support services. The private facility fee in Manitoba ranges from $510 plus the price of the lens in one facility to $ 1,273 including the lens in another. In Alberta, private patients pay a facility fee that is between $700 and $1,275-twice the documented overhead at two of Alberta's public facilities performing the operation. There is a clear financial incentive for surgeons who operate in both public and private facilities to channel their patients to their private practice.

Another example of how privately funded health care drives up costs also comes from the Alberta Consumers' Association. Basic eye examinations were no longer publicly insured as of December 1994. Prior to de-insurance, Alberta Health reimbursed optometrists and ophthalmologists $35.94 for a routine eye examination. A survey of optometrists and ophthalmologists by the Alberta Consumers' Association found that just five months after de-insurance, the average cost had risen to $46.79, a 30 percent increase.

Income Level of those Using Private Services

Are only the wealthy paying for cataract surgery, leaving the public system for those who cannot afford to pay? We looked at the relationship of income and use of the private sector in Manitoba, and our data suggest the answer is no.

We determined the mean household income of neighborhoods in Winnipeg using 1991 public use Census data. Data were aggregated into geographic units with an average population of 700 people. Based on mean household income, these geographic units were ranked from poorest to wealthiest and then grouped into five population quintiles, each containing 20 percent of the city's population.

Each Winnipeg resident was linked to a geographic area by six-digit residential postal code, and thus for each resident a quintile income rank was assigned, with Q1 being the poorest 20 percent and Q5 the wealthiest. This approach has been used in previous research using administrative data.

The overall age- and sex-adjusted rate of private clinic cataract surgery per 1,000 Winnipeg residents fluctuated from year to year: 0.61 in 19931994, 0.52 in 1994-1995, and 0.68 in 1995-1996. (These rates include not only the three private clinics in Manitoba but also a well-publicized clinic in Alberta that attracts a few hundred Manitoba consumers every year.) Surprisingly, over one-third of private clinic cataract procedures on Winnipeg residents were performed on residents of neighborhoods in the lowest two income quintiles (Figure 2). Out of 446 private cataract procedures on Winnipeg residents in 1995-1996, 178 were performed on patients from neighborhoods in the lowest two income quintiles. This pattern holds true for 1993-1994 and 1994-1995.


Is private sector growth caused by rationing or cutbacks in the public sector? Evidently not. Do private clinics provide faster service? Sometimes, but the differences may depend on the individual physician's type of practice. Are only the wealthy being channeled to the private sector? No. Fully one-third of Winnipegers who paid for their cataract surgery in 1993-1994 were from the city's low-income neighborhoods. Do private clinics increase costs? Yes, for the patients who pay for the service, the cost is significant, approximately $1,000. In the case of cataract surgery, the benefits of a two-tiered system are far from proven.

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