Time to get serious about User Fees

In response to an advisory panel report commissioned by the Canadian Medical Association, CMA president Dr. Jeff Turnbull conceded that when it comes to health care financing, all options should be considered in order to manage the unsustainable growth in health care spending. The report provided 10 recommendations; among them, changing the way that hospital services are financed and allowing greater competition in the delivery of publicly funded medical services. But the most contentious endorsement was related to patient funding – specifically the use of user fees.

Available economic evidence and international experience support Dr. Turnbull’s call for user fees. Every country in the developed world has the same social goals for healthcare as Canada – universal access.  Yet, nearly all of them also have some form of patient cost-sharing where patients are responsible for contributing to a portion of their health care costs. In many European countries, those who cannot afford to contribute are either given a tax-funded subsidy or are exempt altogether. Notably, these countries achieve universal health care without the long wait times that have become the standard in Canada.

The fundamental problem with the way health care is financed in Canada—also the primary reason why health care spending across most provinces has grown at an unsustainable pace – is that patients bear no responsibility for the costs of the medical services that they use. That leads to an unawareness of price, and that has created a situation where, for example, people use their local hospital emergency ward for minor bumps and bruises, something they may otherwise think twice about doing if a minor fee was required.

In fact, economic research shows that patients do react to price signals. Research from the RAND Health Insurance Experiment, the largest social science experiment in history, shows that patient cost-sharing is effective in reducing unnecessary use of medical goods and services. Overall, the study found significant differences in health care utilization between participants with a free care plan (no cost sharing) and those with a cost sharing plan. Importantly, the study concluded that while the use of healthcare was reduced, it did not result in increased negative health outcomes for most people. The exception was a small percentage of individuals who had a chronic health condition such as high blood pressure.

The RAND study concluded there is no need to shield most people from the entire cost of healthcare. They noted that when it comes to user fees, it would be far more efficient to exempt only those people who have chronic health conditions requiring regular preventative medical treatment. After all, they are the only people whose health outcomes might be affected by exposure to user fees.

Critics of user fees claim they transfer costs from third-party payers to patients. That is precisely why we need them. The real world tells us that insurance can increase the demand for health care. As with any type of insurance, when people are shielded from the costs of a good or service – and the good or service is considered highly valuable (like health care) – they will demand more of that service because it costs them little or nothing up front. This is rational and predictable behavior.

Some contend that health care is not a regular commodity because its demand is based on ‘need’ as opposed to ‘preference’. While it’s true that people will not ‘demand’ a kidney transplant or triple by-pass heart surgery if they don’t ‘need’ it, research shows that people do seek more of the non-urgent types of medical care than they need. And when people are shielded from the costs, they demand more expensive types of treatment, even when less expensive types of treatment would be nearly as effective.

This is because an individual’s ‘demand’ for health care services is distorted due to the absence of price. Without appropriate price signals, demand for health will almost always outweigh supply. Consequently, timely access to medical services is typically not available for those that need it.

If all policy options are on the table – it’s time to look elsewhere for more sustainable ways to finance Canadian health care while maintaining universal access. Ideally, provinces should have the green light to experiment with policies currently used in a number of European countries. This will require temporary suspension of enforcement of the Canada Health Act. It’s the only way to get to the experiments in health care reform that Dr. Turnbull and others seek.