Private health insurance, not government bureaucracy, spurs health-care innovation

Canadians are often led to believe that private insurance for medically-necessary services is somehow antithetical to the spirit of universal care. In reality, private insurers are a common feature of universal systems around the world. Perhaps more importantly, they’re often at the forefront of designing innovative solutions to help patients access new (and better) treatments.

Far from being the norm, Canada is fairly unique among developed universal health-care countries, as the Canada Health Act (CHA) prohibits user fees and extra billing and disallows private insurance to share the cost with the public plan for medically-necessary services. By contrast, other universal health-care countries embrace private insurers as partners to the public insurer or even as alternative sources of coverage for basic health care.

For example, in Switzerland and the Netherlands basic health insurance is provided entirely by private insurers. In Germany, people are allowed to opt out of the public insurance system and use private insurance for their primary coverage. In Australia, Italy and the United Kingdom, private insurance allows patients a wider choice of providers and faster access to health care. And in several other countries, private insurance helps cover expenses with co-pays and deductibles built into the government insurance plans.

While the advantages and disadvantages of private versus public health insurance plans have been debated extensively, one factor is often overlooked—the incentive to innovate.

It’s well-established that private-sector organizations have stronger incentives than public-sector organizations to innovate, where innovation includes the provision of new services and new methods of payment. For example, private health insurers in the United States are implementing new policies and procedures to make the cost of gene therapies more manageable for their clients—primarily businesses that provide health insurance to their employees.

Policy and payment innovations include tying payments for gene therapies and other high-cost medicines to the results of those therapies and medicines in patients. And stop-loss programs that limit an insured employer’s costs to an upper-limit threshold. This provides more certainty to insured clients about the maximum costs that will be incurred when paying for new drugs.

Moreover, the increasing use of digital technologies in health care, along with the potential for therapeutic breakthroughs using gene therapy and personalized medicine, underscores the importance of promoting an environment conducive to innovation in the financing of health care.

New health-care technologies tend to be expensive, and innovative insurance and payment arrangements can therefore be integral to the introduction and widespread use of new technologies. Clearly, private insurers are more likely than government insurers to develop and introduce such new arrangements.

In Canada, if the federal government implements a national pharmacare plan, the CHA’s prohibition on private payment for medically-necessary services will presumably extend to drug therapies. As a result, government bureaucrats will be responsible for balancing cost-containment against the benefits of new (and likely more expensive) technologies across most parts of Canada’s health-care sector. The absence of private payment options for basic health care means Canadians have limited options to “overrule” bureaucratic determinations of how cost-containment will be balanced against innovation.

Many Canadians might willingly pay for private insurance that, among other things, would provide financial coverage for new health-care technologies that are a) not covered by the government plan or b) feature long wait times due to the government’s emphasis on cost-containment.

Unlike government bureaucrats concerned about containing costs, private insurers are incentivized to construct payment plans that facilitate greater numbers of patients. Politicians who effectively tell Canadians they are not allowed to pay privately for health-care services should be asked one simple question. Whose life are you trying to save, anyway?