UBC Reports | Vol. 48 | No. 3 | Feb.
Accounting for health-care policy
Debate over private or public funding is clouding the real issues,
suggests health-care economics expert
by Prof. Robert Evans Economics
Two fundamental accounting relationships -- iron laws of
finance -- must be clearly understood if one is to make sense of
health-care policy debates.
The first is that every dollar of expenditure is simultaneously
and necessarily a dollar of income for someone. The second is that
while the residents of a country must collectively pay for their
health-care system, the share contributed by each can vary widely
depending on the way revenues are raised.
Weaker cost controls imply greater sales opportunities for providers
and financiers of care. High administration costs are the sales
of the private insurance industry. The monumentally expensive and
inefficient American system is far and away the most effective generator
of incomes on the planet, and the recipients of those incomes stand
four-square against any real reform.
As citizens we may want effective health care, efficiently provided
to those who need it. But the hard accounting reality is that all
expenditure -- essential, useful, useless, or harmful -- is equally
effective in generating income.
And that is why, no matter what the problem, the solution that
emerges from the health-care sector always begins with "More money
is needed to..."
Money contributed by whom?
Tax finance requires people to contribute roughly in proportion
to their incomes, independent of their use of care. Private financing
detaches contributions from income and attaches them to use.
The healthy and wealthy win and the unhealthy and unwealthy lose.
Insofar as ability to pay becomes a condition of access to higher
quality or more timely care, private financing also permits the
better-off to enjoy a higher standard without having to support,
via taxation, a similar standard for others.
The conflict of interest is real and unavoidable. There is no
mystery as to why the issue never dies.
The need to present private interests as public benefits gives
rise to "zombies" -- ideas or claims that are intellectually dead
but will not stay buried, no matter how many times they are refuted.
They have just enough superficial plausibility to attract attention
from those unfamiliar with the logic or the counter-evidence. Private
payment will discourage unnecessary care-seeking, for example, or
encourage healthy lifestyles, or "supplement" rather than substitute
Stuff and nonsense, but often an effective distraction from the
The real issues are not how best to raise the money, but how much
and for what? And that's a much tougher question.
Private capital markets demand "compounding earnings," mathematically
irreconcilable with global cost containment (see iron law number
Managing for effective health care is very difficult; firms have
found it more profitable to concentrate on patient selection, to
offload costs onto the public sector ("privatize the profits, socialize
the losses"), and to seek out opportunities to expand private charges.
Competitive pressures have also led to some spectacular fraud cases.
In the United States, where prescription drugs are now advertised
directly to the public, the industry spends twice as much on advertising
as on research.
Everywhere, new, high cost drugs replace older cheaper ones; sometimes
they are better but for many patients they provide the same therapeutic
effect at higher prices -- and profits.
To the extent that "public expectations" are being created (at
considerable expense) within the health-care sector itself, budgeting
to meet them is chasing a will o' the wisp into a fiscal marsh.
Don't go there.
A professor of Economics and faculty member at the UBC Centre
for Health Services and Policy Research, Robert Evans is widely
regarded as the single most influential academic in Canadian health-care