Exploring Social Insurance: Can a Dose of Europe Cure Canadian Health Care Finance? Edited by COLLEEN FLOOD, MARK STABILE and CAROLYN HUGHES TUOHY
Year: 2009
Type: book-review
Abstract: Montreal and Kingston: School of Policy Studies at Queen's University and McGill-Queen's University Press , 2008 . Pp. xii, 290 , index . Why do many European states achieve universal health coverage without suffering long wait times? The answer is not private health insurance. Britain has a parallel private system but experiences the same issues on queuing that Canada does. States with social insurance systems, however, generally do not. Could it be that what the editors of this volume call the “holy grail” (p. 1) of health policy – attaining the perfect symmetry of sustainability, quality, and accessibility – is to be found in social insurance? Navigating the shoals of health reform in Canada is a tricky business. Flood, Stabile and Tuohy, however, have the intellectual background and heft of experience to guide an excursion into provocative ideas outside the comfort zone of many Canadians. This may not be a popular book with medicare warriors, but it is a thoughtful and useful exercise in considering where to go from here, if not towards the American model (which has always been a loose cannon within the OECD in health care). The problem with Canadian health care is its highly segregated sectoral insurance: primary and hospital care are universal and accessible, but other important aspects of health care (especially access to drugs and long-term care) are not. Canada is the OECD outlier here. How, then, can Canada provide accessible care in essential health-care sectors, which are increasing in importance (and cost) to an ageing demographic, when the economic – and political – sustainability of the existing system is already in question? This volume examines whether social insurance can solve this dilemma. There are, in fact, two separate issues here. Can social insurance replace the existing health-care system (inter alia, to eliminate wait lists); and can social insurance augment the current system (by funding the neglected sectors)? The conference paper structure of this book does not permit the clear differentiation of these questions, but the discrete essays are nonetheless very useful in presenting a wide array of competing observations and judgments about the nature and utility of social insurance models of health-care funding. There are four key points upon which the contributors agree. The first and most basic is that the social insurance model breaks the common public-private dichotomy that many Canadians view as encompassing the only options for funding health care. “Social insurance” covers a range of alternatives, but its common characteristics include the existence of a mandated payroll tax earmarked for special benefits and administered by an identifiable and responsible body. Canadian examples include Employment Insurance, Workers' Compensation, and the Canada/Quebec Pension Plan. A second point of agreement is that most instances of health care provided through social insurance systems are mixed, rather than pure, models. There is usually some funding provided through general taxation, as well as through private payment. Third, the progressive nature and the economic efficiency of a health-care system are not directly linked to its funding method (general taxation or social insurance). The crucial variable is how either system is structured (in practice, however, general taxation-based systems have tended to be slightly more progressive). A fourth, and more interesting, observation is that systems utilizing social insurance are probably just as good as those based on general taxation. There are different advantages and disadvantages to each system but on balance a social insurance system is not particularly superior to one based on general taxation. Why, then, should Canadians be interested in social insurance? The political issue is clearly whether the current health-care system could be expanded if the “orphan sectors” such as pharmaceuticals and long-term care were financed through social insurance. This is certainly within the realm of possibility. Quebec already has a mandated payroll tax directed towards drug coverage and supplemented by a public plan. Given this, it would have been highly pertinent to have a separate chapter on Quebec's experience: why, politically, was Quebec able to implement this plan? And how, a dozen years later, can it be evaluated? What is worth repeating, and what ought to be avoided? But there are drawbacks to social insurance. Payroll systems have a much smaller tax base than those dependent on general revenues, and therefore they cannot “spread the risk” as effectively. Several of the traditional advantages of payroll taxes are simply not applicable to health, as health expenditures are generally not work-related (Morley Gunderson and Douglas Hyatt, pp. 99, 109). Control over health-spending is “much more difficult to achieve” in social insurance regimes compared to general tax-funded systems (Timothy Stoltzfus Jost, p. 172). Social insurance schemes are generally found in “mixed” systems, and the administrative costs of mixed systems are usually higher (Gunderson and Hyatt, p. 100). And payroll systems are dependent on employment income alone, which is growing much more slowly than other forms of income such as interest, dividends and rent (Stephan Gress, Stephanie Mass, and Jûrgen Wasem, p. 129; Jost, p. 172). As several contributors point out, there is some irony in the fact that Germany, with its social insurance system, is considering a tax-based system like Canada's, just as we are exploring their health insurance model (Gress, Mass, and Wasem, p. 115). The overarching argument presented in this volume, however, is that if the social insurance model is not manifestly superior to a general revenue-based system, it certainly is better than one based on private insurance. To the extent that Canada's orphan sectors are largely dependent on private payment systems, then the debate regarding the relative superiority of tax-based and social insurance is irrelevant: either is better than a private system. And if a social insurance system is more politically saleable than one based on general revenues, then that should be the focus of health-care reform in Canada. This is a very different argument from that regarding economic or organizational superiority, and it is also much more conjectural. Yet it is probably the key to any attempt at reforming Canadian health care. The many contributors to this book, who are economists, bring valid perspectives to bear on the subject. Morley Gunderson and Douglas Hyatt, for example, point out that “a payroll tax would be like an income tax imposed only on the earnings base, and this would distort income-leisure choice decisions (leisure not being taxed) and hence have adverse effects on work incentives and hence efficiency effects” (p. 103). Any discussion of social insurance funding must involve considerations of the economic advantages and disadvantages of such a system. What remains is that the core issues are innately political. As Timothy Jost admits, “It is difficult for me to think of a principle other than political expediency for Canada to fund prescription drugs or long-term care through a social insurance program” (p. 178). “Political expendiency” is exactly what is required to implement these programs. The most interesting discussion in the book, then, concerns the political attractiveness of a social insurance program (chapters 8 to 11), compared to one based on general taxation. The editors take a clear position: “We therefore propose that a new contributory public program be established covering out-of-hospital pharmaceuticals. This new social insurance plan would sit alongside the private plans and thus accord with the existing institutional architecture of the system” (p. 267, emphasis in the original). Their reasoning is strong. Most Canadians already pay for drug coverage (unlike long-term care), either through private voluntary coverage, mandated payroll taxes, or public premiums. Thus, it is not a matter of taxing people more, merely of re-structuring already-existing payments. Private insurance companies are quite politically influential; therefore, it makes sense to get them on-side rather than antagonize them (as a fully public plan would do). A mandated system would expand the risk and the contribution pools, thereby making drug insurance more affordable to all. Costs could be kept down (and risk selection avoided) by having the fund heavily regulated and administered by an independent body. Drugs would be limited in scope (not all ailments would be covered) and in type (administrators would only select less expensive generics whenever possible, as is currently the practice in provincial drug formularies), but individuals would have the option of purchasing additional private coverage for drugs not covered. Bulk buying could also keep costs down. The evidence for the political allure of social insurance is speculative but interesting. What accounts for the political stability of social insurance regimes in other countries? It may well rest on the existence of dedicated funds: unlike current health payroll taxes in Canada (Quebec, Ontario, Manitoba, and Newfoundland), social insurance premiums go into earmarked funds that must be used for the purposes specified. As Ted Marmor argues, “Each individual's sense of earned entitlement or deservingness makes it politically costly to renege on promises in social insurance programs” (p. 196). Once set up, it is difficult to reduce spending in this area or attempt to push funding into the private sector. Yet one might counter that this is not really the problem in Canada: in fact, the opposite is true. There is so much political support for health care that other social systems are being cannibalized; it is not health care that is experiencing decreased funding. The issue is getting the social funding of auxiliary health sectors set up in the first place, and here evidence of success is less persuasive. First, because so many people already have drug coverage of some variety, there is little public appetite to push recalcitrant governments for it. From this angle, it actually makes more sense to lobby for a discrete social insurance scheme for long-term care (as there is in Germany). Second, both employers and employees will resist another payroll-based tax. To the extent that employers perceive that this is a provincially levied cost that they must bear, they will protest that this further undermines their interprovincial competitiveness. Even if pharmacare were coordinated nationally in a manner similar to the CPP/QPP, employers would argue that such a tax would diminish their international competitiveness, especially with reference to the U.S. To the extent that employees see that employers simply pass on the costs to them through lower wages, there would be considerable resistance from unions. The only possible solution would be to protect stable wages by lowering the number of individuals employed, but making employment numbers sticky during a recession is not particularly attractive to governments. Joseph White makes the case that the economic effects of payroll contributions are actually quite minimal (pp. 239–241), but in politics the optics trump the mathematics. There is hope. Steve Morgan argues that, as the population ages (and as drugs become increasingly expensive), governments with age-based plans will bear heavy costs, thereby making long-term payroll financing for pharmacare and long-term care much more attractive. This is hardly the attainment of a “holy grail” of health policy, but it may bring us closer to it than we are now. Exploring Social Insurance is an intelligent, thoughtful, and nuanced attempt to puzzle through what the best system for Canada might be. Our system is good, but it could be better. And holy grails, after all, exist only in Hollywood.
Source: Canadian Public Administration
Author: Katherine Fierlbeck
Institution: Dalhousie University
Language: English
Subfield: Finance
Domain: Social Sciences
SDG: Reduced inequalities
Open Access status: bronze
OpenAlex ID: W2049822362