British Columbia’s Supreme Court Gets an F in Healthcare Economics

British Columbia’s supreme court recently upheld the province’s restrictions on privately funded healthcare, despite the pain and suffering inflicted on people who have been victimized by the government’s broken promise to provide universal healthcare. Justice John Steeves said his decision is supported by the economics of healthcare:

[T]he MPA [Medicare Protection Act] is inherently about the maximization of benefits to society at large in the context of the funding and delivery of necessary medical care. Its purpose is tied to the fair allocation of scarce healthcare resources over which there are competing claims. (para. 2890)

[A]ccess to necessary medical services is based on need and not the ability to pay. (para. 21)

Patients are frequently put on a waiting list for the treatment they need today, which means that the MPA has failed to meet its objective. Steeves acknowledges the failure (paras. 1367, 2925, 2938), then justifies it:

[H]ow ever the government designs the regulatory scheme, it will inevitably be to someone’s detriment. This is because decisions need to be made as to how to allocate resources. (para. 2932)

When universal healthcare began, the government did not say that the needs of Mary would be sacrificed to the needs of John, but Steeves unapologetically reveals the gruesome truth, then claims that the economics of healthcare is a suitable defense for the government’s cruel practice of choosing sacrificial lambs. According to him, the emergence of private healthcare would siphon resources away from the public system, thereby lengthening the wait times (paras. 2389, 2904) for vulnerable people who cannot afford to pay for private healthcare (paras. 2304, 2892, 2930, etc.). All of this is supposedly based on evidence and the consensus of experts (para. 2304).

However, the historical record offers compelling evidence that people of lower socioeconomic status were not excluded under a system of private healthcare.

Furthermore, there is a stark contrast in the way that humans respond to positive incentives versus the way we respond to negative incentives. And since every human action is affected by the prevailing incentives, we see that resources are developed and allocated more efficiently when the actual owners of the resources are doing the developing and allocating.

Access to Healthcare

Healthcare has always been available to those who could not afford it. Former US congressman Dr. Ron Paul wrote:

Before those programs [Medicare, Medicaid] came into existence, every physician understood that he or she had a responsibility toward the less fortunate, and free medical care for the poor was the norm. Hardly anyone is aware of this today, since it doesn’t fit into the typical, by-the-script story of government rescuing us from a predatory private sector…. thousands of privately funded charities provided health services for the poor. I worked in an emergency room where nobody was turned away for lack of funds.

These charitable impulses also prevailed in Canada as far back as the mid-nineteenth century, despite opposition from the elitist medical establishment, who were concerned that occupational incomes would be reduced as a result of rank-and-file doctors providing free service. In September 1869, the Canada Medical Journal observed that one of the provisions of the code of the Canadian Medical Association was that “[i]t is derogatory to the dignity of the Profession to … publicly [offer] advice and medicine to the poor gratis.”

The fact that this elitist faction felt compelled to include such language in its code strongly suggests that many doctors were unable to resist the human urge to help the poor, gratis. And this was at a time when the general level of prosperity was dramatically lower than it is today.

This puts the lie to claims made by Justice Steeves and the government’s expert witnesses that a system of private healthcare would exclude people of lower socioeconomic status. Their deception is insulting to millions of Canadians who donate billions of dollars to charitable causes every year.

Incentives Matter. A Lot.

Steeves wrote that public healthcare

is essentially free but it can suffer from long waits. On the other hand, in a private system, access is faster (often much faster) but there is a financial cost directly to the patient. (para. 2302, emphasis added)

Steeves fails to grasp an important economic lesson embedded in his own words.

Economics 101: when the price of something falls, demand rises. More Canadians demand healthcare when it is free, because they have no incentive to limit their demand. And hospitals have no incentive to deliver healthcare quickly, because their revenue (taxes) is predetermined by the government, which means that healthcare is delivered slowly, because patients are viewed as a cost, not a source of revenue. They may not consciously think about it in these terms, but those are nevertheless the perverse economic incentives under which hospitals operate, and that Steeves fails to grasp.

Conversely, private healthcare providers have an incentive to deliver healthcare quickly, because their revenues come directly from patients. And patients have an incentive to be more prudent with their healthcare demands when they must pay for healthcare directly.

Allocation of Scarce Resources

Justice Steeves says that private healthcare would siphon resources away from the public system (para. 2389). However, within this context, he ignores government restrictions on the development of new resources, an economic faux pas that casts considerable doubt on his claim to be conversant with healthcare economics.

Restrictions on the number of doctors and nurses being trained in Canada, as well as the excess demand created by free healthcare, explain (a) why millions of Canadians don’t have a family doctor and (b) the shortage of surgical capacity in the public system (para. 2927).

Family doctors receive a fee from the government for each patient visit, but the government limits these expenditures by restricting student enrollment in medical schools.

Canadian hospitals operate under fixed budgets dictated by the government. When this tax revenue is depleted before the end of the year, as often happens, new patients are put on a waiting list. Therefore, there is no point in adding more surgical capacity, because the government won’t pay for the resources.

In other words, beyond a certain point, the development of new resources is outlawed by the government because of the cost this imposes on their so-called universal healthcare system. So much for healthcare being based on need.

In the nineteenth century, to raise their incomes, the elitist medical establishment also attempted to restrict the development of new resources by lobbying the government to impose irrelevant licensing criteria on medical school graduates. However, as Ronald Hamowy wrote, our ancestors were not easily fooled:

Despite the actions of the College to suppress unregistered physicians, the public continued to firmly oppose prosecution of these practitioners throughout the nineteenth century. Nor did they believe the College and the medical journals when they insisted that their campaign against “quacks” was designed to separate out educated from unqualified physicians.

[M]any, especially poorer, Canadians persisted in consulting unlicensed physicians, whose fees were lower and who appeared no less competent in prescribing medications than did their registered brethren. The profession’s attempt to suppress these doctors was not motivated out of a selfless interest in improving the quality of medical care offered the public, but out of a desire to lessen competition, which would in turn increase their incomes.

Contrary to Justice Steeves, our ancestors believed that only the patient and the doctor had a right to make decisions about the allocation of resources—money and labor respectively—that belonged to them. They rejected any interference from third parties attempting to forcibly dictate the terms of their transactions (on licensing, see here, here, and here).

Conclusion

It defies human nature to claim that bureaucrats have an incentive to allocate resources more efficiently than the owners from whom those resources (taxes) were confiscated.

Government bureaucrats cannot efficiently organize the production of pencils, much less the funding and provision of healthcare, no matter how many experts they consult. Inefficiency is guaranteed, because they are subject to the perverse incentives inherent in all coercive government actions. Thus, any genuine resources they possess (knowledge, abilities, expertise) are largely ineffective. Misallocated. Wasted.

That is why increasingly higher levels of government healthcare spending in Canada have been accompanied by longer—not shorter—wait times for treatment, thus reflecting the government’s inability to allocate resources efficiently.

Moreover, we are now seeing temporary closures of healthcare facilities as a direct result of government restrictions on the development of new resources. This may be the beginning of a frightening new trend, but it is a predictable outcome of the political process whereby Canada’s healthcare bureaucracies were built on the graves of tens of thousands of sacrificial lambs.

Justice Steeves’s strange concept of resource allocation gets him an F in healthcare economics. And there is no historical basis for his holier-than-thou proclamation that people of lower socioeconomic status would suffer under a system of private healthcare. His lengthy ruling is nothing more than propaganda poorly disguised as economic analysis. But it is not surprising that a government court gives deference to the government (para. 21).

Canadian healthcare will continue to deteriorate until Canadians reclaim the freedom to allocate their own resources, thereby turning a deaf ear to the economic fabrications of Justice Steeves and those of his ilk.