Cost Control in a Parallel Universe: Medicare Spending in the United States and Canada

[eridani]

Archives of Internal Medicine
By David U. Himmelstein, MD; Steffie Woolhandler, MD, MPH
http://archinte.jamanetwork.com/article.aspx?articleid=1387588

As the United States was implementing Medicare in 1966, Canada was phasing in its own Medicare program, which covered all Canadians under provincially administered plans. While these provincial plans varied, all incorporated significant payment reforms?global budgeting of hospitals and stringent capital expenditure controls?and banned copayments and deductibles.

Before the mid-1960s, the 2 nations' health care financing systems were similar, and health care costs were comparable. Since then, overall US costs have grown more rapidly, but no study has compared spending for the elderly?the populations covered by Medicare in both nations.

Results

US Medicare spending per elderly enrollee rose from $1215 in 1980 to $9446 in 2009 (an inflation-adjusted 198.7% increase). The comparable increase for Canada was 73.0% (from $2141 to $9292). Canada's higher base-year spending reflects its more comprehensive benefits, covering about 80% of seniors' total health costs, vs about 50% in US Medicare.

The Table lists actual US Medicare spending from 1980 through 2009 and projected spending and savings had US costs risen at the lower Canadian rate. Projected savings totaled $154.2 billion in 2009 and $2.156 trillion for 1980 through 2009.

For the 1971-2009 period, US costs rose 374.1% vs 126.3% for Canada, and estimated foregone savings were $2.9024 trillion.

Comment by Don McCanne of PNHP: Medicare spending has grown nearly 3 times faster in the United States than in Canada since 1980. Had US Medicare costs risen at Canadian rates, rather than a deficit of $17.1 billion in 2009, the Medicare Hospital Trust Fund would have realized a $32.3 billion surplus. Savings on Medicare Part B would have been even larger. By 2009, the $2.156 trillion in excess spending attributable to US Medicare's faster growth was equivalent to more than one-sixth of the national debt.

Several features of Canada's program help constrain costs. First, the single-payer system has simplified administration, holding administrative costs to 16.7% of overall spending vs 31.0% in the United States. Although US Medicare's internal overhead costs are low, it remains one among many payers. Hence providers' administrative costs are inflated by having to deal with a multitude of payers and track eligibility, attribute costs, and bill for individual patients and services.

Second, Canadian hospitals receive prospectively determined global operating budgets, removing incentives to provide unnecessary care while simplifying billing and administration. However, unlike accountable care organization payment schemes in the United States, capital costs are not folded into the global budgets but distributed separately through an explicit health-planning process. Canadian hospitals cannot use operating surpluses to fund new buildings or equipment but must request separate capital appropriations. Hence, they cannot expand by overproviding lucrative services, gaming the payment system through upcoding, avoiding unprofitable patients, or cost shifting.

Third, 51% of Canada's physicians are primary care practitioners vs 32% in the United States. Primary care-centered health systems are generally thriftier. Canada's outpatient fee schedules are also less technology skewed than in the United States.

Fourth, Canada's provincial plans have used their concentrated purchasing power to limit drug and device prices.

Finally, litigation and malpractice costs have remained relatively low in Canada.

Life expectancy at age 65 years is longer and has grown faster in Canada than in the United States since 1980 (and 1971), offering reassurance that cost control has not compromised quality. A meta-analysis suggests that clinical outcomes are, if anything, better for Canadians than for insured Americans.

To some, US Medicare's grim financial health suggests an even grimmer conclusion: it can no longer keep its promise of all needed care for the elderly population. Some would replace it with vouchers that seniors could use to purchase private coverage. Others suggest upending the current payment system by inverting volume-based incentives, offering instead profits to organizations that limit utilization. Yet the efficacy of these drastic solutions remains unproven. Canada's road-tested cost-containment methods offer an alternative.

My comment: Malpractice suits are comparatively rare in the rest of the developed world precisely BECAUSE health care is a guaranteed right. Because of that, people with unfavorable outcomes (regardless of wheter malpractice was involved or not) are not motiviate to sue anyone just to pay for the ensuing additional health care costs.

PNHP Press Release:
http://www.pnhp.org/news/2012/october/canada
?s-health-costs-for-seniors-rising-slowly-points-way-to-medicare-solvency-ar

Comment by Don McCanne of PHNP: This study is particularly important because it compares spending in our Medicare program for beneficiaries 65 and older with Canadian Medicare spending for the same age population during the same decades studied. This apples to apples comparison reveals that there is no contest. Since 1971, we've spent almost $3 trillion more than we would have had we used Canada's payment reforms. The Medicare Hospital Trust Fund would have had a huge surplus by now, and nobody would be claiming that Medicare is "going broke."

The difference is due to economic policies that really do work. Single payer advocates already know what these are, but for those who need a reminder, they are listed in the Comment in the above article.

Not only did Canadians more effectively control their health care cost increases, their life expectancy grew more rapidly during the same time period. They benefited more under their cost efficient Medicare model.

We have enough understanding of health policy science to predict that the current proposals to control spending in the United States will either have very little impact, or, much worse, will reduce spending by making health care access even more unaffordable.

Comparing the two Medicare programs, the Canadian system pays about 80 percent of health care costs, whereas our Medicare program pays only about half. Also, Canada has banned copayments and deductibles for physician and hospital services - a mainstay of the perverse, misguided efforts to control health spending in the United States. We can control spending without imposing financial penalties on people accessing health care that we want them to have.

It is time for all of us to express our OUTRAGE! We can no longer accept inaction by our politicians because they fear the political consequences. We have to make them understand that they face dire political consequences if they don't act. As FDR said, "Make me do it."

[postulater]

1. Yes, it can work.

[harmonicon]

2. Yeah... and?

What do you suggest is done about it? Single-payer is the only solution. It's what every first world country has. No one in congress would even seriously consider suggesting it when debating sweeping healthcare reforms.

I'm beginning to think at this point that there's really no issue worth fighting for other than election reforms. We need fair elections, and that also means we need to get money out of politics. How will we get people who will do that? I have no fucking idea.

[RC]

3. PNHP Press Release: Page not found.

http://www.pnhp.org/news/2012/october/canada
404 – Page not found
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[hr]
Anyway there is this:
"Health care in other countries is a social service," he said. "In the United States, it's big business."
http://www.pnhp.org/news/2012/october/using-canadas-health-system-as-model-might-cut-us-costs-study

In this country it is "Your Money or Your Life". No money? Die and get out of the way of someone that still has some.
In other countries it is in the government's best interest to have a healthy population. Why not here, also?
Our military has socialized medicine. Why isn't that good enough for the civilian population too?

[Scuba]

4. Complete list of countries that have rescinded their nat'l health plan after enacting one:

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[Festivito]

5. 30 years shows: US Market system COSTS MORE and gives WORSE OUTCOMES.

And, this IS NOT because we have so many uninsured.

"...clinical outcomes are, if anything, better for Canadians than for insured Americans."

Will Republicans ?

[ThoughtCriminal]

6. Better healthcare coverage for young and middle age adults

lowers the cost of medical care for seniors. How many uninsured and under insured U.S. citizens over age 55 are putting off treatment and regular check-ups?

[eridani]

7. Quite a few. Many die while waiting to get on Medicare n/t