Medical care in the USA:
A case of terminal disease
By Haresh Kirpalani and Gordon Guyatt
The high cost of health care in the USA has fuelled urgent talk
of reform. These high costs are troublesome not
only to the consumer, but also to American business. In the debate
concerning health care reform, Canada has been cited, by both proponents
and opponents of reform, as an alternative system. As Lee Iacocca
has pointedly stated, American business interests consider themselves
at a disadvantage relative to Canadian business. This is because
they have to bear the cost of health care insurance -- inadequate
though that might be for workers in the USA -- themselves. Canadian
business pays only to the extent that they contribute to general
income tax from which health care in Canada is paid. It has been
estimated that the penalty
for American automakers amounts to an additional $500 per car.
The Medical Reform Group believes that the underlying values of
the society will be the major determinant of the choices ultimately
made. A careful examination of the evidence regarding the effects
of alternate funding and health care delivery systems on quality,
equity, and efficiency remains crucial for making rational decisions.
The key decision to be made is between tinkering with the current
American patchwork private system of care, and a major overhaul
which will result in a universal single-payer system. The latter
is advocated by, among other groups, the Physicians for a National
Health Care System.
The following issues are crucial when considering the system of
health care to be adopted:
1. Health care services should be of the highest quality.
2. They should be delivered in an equitable fashion to all members
3. They should be delivered as efficiently as possible. Any private
system where access to services is
dependent on ability to pay, threatens the goal of equitable delivery
of services. Those who favour a private health care administered
by private institutions argue that problems with equity can be minimized,
and that advantages in quality, and particularly in efficiency,
more than compensate for any losses in equity. To substantiate their
argument, those favouring remodelling of the current patchwork private
system have made many statements about the Canadian -- and other
universal -- systems. We will present data which demonstrates these
statements to be, at best, distortions.
Perhaps the most notorious distortion is the contention that universal-access
systems of care have failed. One such system is the British. We
will begin by dealing with the issue of medicine in U.K.
The problem of the UK
Great Britain has adopted a peculiar mix of policies. The pressures
responsible for this include the same features encountered in other
countries, of course combined in a unique mix. The combination of
a crumbling patchwork system, coupled with militant pressure from
the population worked towards a State system. Resistance from the
most reactionary of the medical profession and the private companies
both to delay the inevitable, and to allow some flaws that would
later prove fatal. But the importance of history here is that militant
pressure from below was crucial in forcing the change.
Britain is often painted as having chosen a "socialistic"
approach. But Britain never enacted legislation forbidding competing
private health insurance plans for publicly insured services. In
addition, Britain never prevented physicians from continuing with
private practices outside of the National Health Service, and from
charging whatever they liked to patients seen in these private practices.
In practice this never led to problems of access to quality of care
while the system was relatively well funded. A very small minority
of the population ever sought out private advice.
But the Thatcher government's extreme tight-fistedness with respect
to the National Health Service has been
responsible for a resurgence of private medicine in Great Britain.
The financial starvation of the National Health Service was geared
to have this effect. Indeed the private medical companies jumped
into the developing breaches in a disintegrating health care system.
As the managing director of Medical International said of the openings
in the UK: "There is more profit to be made out of health than
in selling Kentucky Fried Chicken"1. Thus, while advocates
of private medicine point to Britain's problems as an example of
the detrimental effect of "socialized" medicine, an alternative
interpretation is much more likely. We argue that we are seeing
the effect of a system in which medicine is not "socialized"
enough. If on top of an ill funded system, one allows physicians
to charge whatever they like to private patients; and if one allows
private insurance for publicly insured services; the public system
will be emasculated. The quality of services then declines, and
the well off will turn to private alternatives. The result is a
two-tiered system of medical care in which the poor receive inferior
quality care. In this context, proposals for the reform of the system
in the USA that involve merely expansion of the public without eliminating
the private, involve a similar "fatal flaw". There are
other reasons why they are unlikely to help in the long term (see
below). Turning to the direct comparison between Canada and the
United States there are some obvious differences. Canada has consistently
opted for a system in which private enterprise is minimized and
public control maximized; the United States has consistently chosen
a system with a much larger role for the private sector, and much
less influence for the government.
Some of the historical features that allows this can be briefly
In effect, a natural experiment has occurred in North America.
Two large and wealthy countries, the United States and Canada, exist
side by side. Although the United States is in population much larger,
the two countries are similar in their cultural heritage, wealth,
and the aspirations of the populace. They have gone two quite different
ways with respect to administering their health care systems. Canada
has opted for what is essentially a government run system. The provincial
governments administer the health plan, are responsible for the
hospitals, and are the sole insurers. People pay for their health
care through general taxation and, in some provinces health premiums.
Health care is free for the sick; the cost of health care is shared
by the whole population. There are virtually no charges at the point
of delivery of services. Seeing a physician and being
admitted to hospital entails no payment of extra fees.
In the United States, in contrast, the government role is restricted
to being the third party payer for some of the
indigent and for a proportion of the costs of those over 65. Private
health insurance is big business, and a large
proportion of the hospitals are privately owned. Patients pay a
substantial proportion of their medical costs as out-of-pocket expenses,
or through private health insurance.
If the free-enterprise dogma regarding the greater efficiency of
a privately run health care system were true,
the following predictions would also be true. First, given the unwieldy
bureaucracy that runs the system, administrative costs of health
care would be higher in Canada. Secondly, private for-profit hospitals
would run more efficiently than their public counterparts. Finally,
given all the incentives to be efficient and avoid going for unnecessary
care, the American medical system would be less expensive. Is this
An overall comparison of health care in Canada and the U.S.A.
The immediate answer is no. To demonstrate this, let us examine
total health care costs in Canada versus the United States.
In the early 1960s, before the introduction of nationwide universal
health insurance in Canada, the proportion of the gross national
product devoted to health care was the same in both countries. Since
health costs have accelerated at a considerably greater rate in
the United States than they have in Canada. Presently, just over
8% of Canada's gross national product is spent on health, where
the comparable figure in the United States is almost 11% The difference
is even greater when one considers that the per capita GNP is larger
in the U.S. than in Canada. (See graph 1 below from Barer et Evans
- reference 2).
Graph 1, Hospital and Physician Expenditure as % of GNP, Canada
and US; 1948-1983.
The conclusion is inescapable: planning at a provincial level has
been more effective in controlling health costs
than the market forces at play in the United States. The reasons
for this difference are detailed below.
To begin with, the administrative costs of private and public health
insurance plans can be compared. The
administrative costs of administering health insurance in Canada
constitute 2.5% of total health care costs and only 1.5% of these
costs are accounted for by public plans. Similar costs in the United
States for private and public plans combined represent 8.3% of total
health care costs,and rise to 12% for only private plans3.
The reduction in costs is not restricted to administration of health
insurance, but extends to hospital
administration, and even to administrative costs of physicians in
private practice. In an estimate that included
hospital administration, nursing-home administration, and physicians'
overhead, American administrative spending was calculated as consuming
22% of all health care expenditures4. These same authors estimated
that thecomparable figure in Canada is 13.8%.
The case of nursing home administrative costs is interesting. In
Canada, nursing home care is reimbursed
through payments by private insurance or direct payments by residents:
a system similar to that of the United States.
The result is that administrative costs are comparable to those
in the United States (10.5%) and greater than those in Canada's
acute care hospitals4. In Britain, where nursing homes are part
of the National Health Service, administrative costs are 5.7% of
total spending. This suggests that bringing nursing homes within
the provincial health service would save appreciably on administrative
These results are not surprising when one examines the administrative
systems. In Canada there are a total of 10 administrative bodies
-- one in each province. These are charged with all the paperwork
associated with health insurance in the province -- and that is
their sole responsibility. In the United States there are literally
hundreds of insurers. Thus, one disadvantage for the USA system
is that economies of scale are lost. The disadvantage for the US
consumer is a bewildering confusion of clauses and rules. This was
demonstrated in an issue of the Consumer Report of the Consumers'
There are, however, other major disadvantages of the American approach.
In addition to administering health
insurance the insurers have another job -- getting as much business
as possible. This requires advertising, and hiring sales people
-- an expensive proposition. In addition, they have to compete for
senior executives who command extremely high salaries.
The waste of the American system extends into the hospitals. American
hospitals require a sophisticated
billing department with an extensive internal accounting structure
that is necessary to attribute all costs and
charges to individual patients and physicians. This is unnecessary
in Canadian hospitals. In addition, physician
billing is simplified by universal health insurance, reducing the
overhead of individual physicians.
When one considers all these factors together, it is no wonder
public programs are so much cheaper to administer.
The American system forces higher American administrative costs
to ensure that those who cannot pay don't get the same access to
services as those who can pay. Thus the American administrative
costs are spent enforcing the restrictions that limit access to
health care by the poor.
Public versus private hospitals
Those who believe in the private patchwork health system argue
that for-profit hospitals must be more
efficient because they have the appropriate incentives to be responsive
to market forces. Although there are no data directly comparing
Canadian and American institutions, there are data examining public
and private hospitals in the U.S. Information is available from
a number of studies; the results are consistent and convincing.
We shall briefly review three representative studies.
In the first study, 53 investor-owned hospitals in California,
Florida, and Texas were compared with 53 closely matched nonprofit
hospitals in the same states6. Total operating expenses per admission
were 4% higher in the investor-owned hospitals, which nevertheless
managed to generate a greater net income by virtue of their higher
A second source of information is data from the Florida Hospital
Cost Containment Board comparing all proprietary and not-for-profit
hospitals in that state for the years 1980 and 19817. Again, the
private hospitals had operating expenses that were 4% higher.
A third study examined voluntary non-profit hospitals, public hospitals,
and investor-owned chain and independent hospitals in California8.
Total operating expenses per admission were 2% higher in the investor-owned
chains than in the voluntary hospitals. Interestingly, this study
demonstrated that one problem for the for-profit chains was administrative
costs, which included each hospital's share of the costs of corporate
headquarters. In addition, the for-profits conducted more tests
and used more supplies per admission as well as charging a higher
price per test or unit supply.
These figures are an underestimate of the differences because of
a cynical strategy used by private hospitals to
improve profits. There are groups of patients, generally the sicker
and more complicated, who are more expensive to take care of, and
who thus threaten the profit margin. Private hospitals have often
been successful in shunting such patients to the public system.
This is called "dumping" and has been shown to result
in deaths9. This process, while making the private hospitals, in
isolation, look better, increases transportation costs and therefore
actually makes the total system -- i.e. private and non-profit together
-- more costly.
The success of investor-owned hospitals in the United States has
been a function of their marketing of services
and manipulation of prices and NOT their ability to control costs.
Not-for-profit hospitals are actually more efficient and less costly
than their for-profit counterparts.
Up to now, we have focused primarily on the issue of cost. The
private system is unlikely to provide advantages in terms of quality.
Since at the same time it undermines equity, and if costs are equal
or greater than public funding -- the private option need be given
no further consideration. However, it is worthwhile looking at the
Is health care quality better in the USA than in Canada? Could
it be that American health costs are higher
because the Americans deliver higher quality health cares? The answer
Despite the lower expenditures on health care, all the conventional
indices of health, including life expectancy
and infant mortality, are actually better in Canada than in the
U.S.10. To provide specific numbers: life span in 1986 was 77.1
years in Canada versus 75.3 years in the United States; infant mortality
was 7.9 deaths per thousand live births in Canada versus 10.4 deaths
per 1,000 births in the United States (See Graph 2 below from CCAW
Manual Reference 10).
Further, it is worth noting that before the introduction of universal
free access to care in Canada and Great Britain, both countries
had age-adjusted mortality rates that were higher than those in
the United States.
Within a decade of the introduction of free access, a sharp decline
in mortality occurred, so that the levels in both Canada and Great
Britain are now lower than in the United States4.
Access to care
A final irony of the relative administrative costs of Canada and
the Untied States has been pointed out by
Himmelstein and Woolhandler4. Overall, health status is better in
Canada than in the United States, and this is not surprising when
one considers that the barriers to high quality health care for
the poor (who have higher morbidity and mortality than do the more
affluent) are far more formidable in the United States than in Canada.
What is worse, these barriers, as measured by the numbers of the
population that are not covered by health
insurance in the USA is, as Graph 3 below shows, actually growing11.
The burden of costs on the elderly affects all races. This acts
as a major barrier to care and is rising rapidly,
as the accompanying figure from the New York Times details.
See Graph 4 from New York Times on next page.12.
From the physician's point of view, an ethical practice of medicine
is difficult, if not impossible, in the American
private system of health care delivery. A publicly funded and publicly
administered system allows patient needs to remain the sole consideration
in physicians' decisions concerning the nature of the services an
individual patient should receive. There is no comparable restriction
of access to care in Canada.
It is not surprising that the Canadian population is very happy
about their health service in contrast to the
American population. The following survey statistics make this point
Proportion of Americans Preferring Canadian Health System,
1988 and 1990
Prefer Canadian system 61% 66%
Low income 58% 63%
Middle income 68% 68%
High income 56% 65%
White 64% 68%
Black 61% 54%
Hispanic 62% 57%
Role of physicians
The American Medical Association has long argued that universal-care
systems restrict free choice. They argue that they cannot deliver
ethical care under a universal-access system, as the system will
constrain costs to the point where legitimate needs cannot be fulfilled.
Fortunately, studies are at hand demonstrating that on the whole
physicians in Canada support the universal-access system. Thus the
following table comes from a survey of physician satisfaction under
the Ontario Health Insurance Plan.
Canadian physicians are on the whole happy with the system and
feel that they can deliver quality care. The very few that make
the noise as they emigrate to the South are after very big bucks
and their gloom about the Canadian system should be discounted.
Will a private - public mix solve the USA health care crisis?
From what we have argued, it is clear that patchwork reform will
not solve the American health care crisis. If
government health insurance schemes can be extended, access to care
will improve. But this will not prevent
administrative confusion and waste. The opportunity to radically
eliminate the waste in the system by simplifying to a single payer
scheme (i.e. the government) will be lost.
The ability to perform quality of care assessments will also be
compromised where there is no single payer system. In addition,
programs targeted for the disadvantaged are easily attacked in times
of financial stringency, as the poor and indigent are not perceived
as politically important. Furthermore, simply extending the present
government schemes will not address the issue of the under-insured.
This includes all those with high co-payment schemes and deductibles
who are still spending high amounts (on average 18% of their income)
upon medical bills. Finally, we have pointed out the effects of
private-public mixes in both the UK and in Canada. Where there was
a loophole for profit to be made out of health care, this distorted
the actual delivery of care. To not deal with this in any reform
will effectively hostage the future.
Are there no problems in the Canadian system?
Of course Canada is not Utopia. But in comparing the health care
delivery to that in the USA, it could be argued that it is close!
The problems that exist in Canada have been exploited by the American
Medical Association, and generally have been vastly exaggerated.
Thus the perennial issue comes up about rationing and waiting lists.
It seems forgotten that there are waiting lists in the USA!
There is doubt that there is rationing of health care. However,
this does not translate into a poorer health
outcome for the population. Rationing in Canada is largely geographical.
Small towns, for instance, do not have large numbers of sophisticated
machines, such as computerized tomography scanners. This relates
to the ability of the Canadian system to plan in a manner which
is impossible in the USA. Though planning of the system may be incomplete
in Canada, it is certainly far more effective than in the USA. This
is primarily due to the absence of the profit motive.
Where restricted service becomes a problem, the government is forced
to respond quickly. One recent example concerned the availability
of cardiac bypass surgery. After a public outcry about waiting lists
for open-heart surgery, additional money was targeted specifically
for cardiac surgery facilities. In addition, through a concerted
effort that involved government and physicians, guidelines were
evolved that allowed those most at medical need, and most likely
to respond, to obtain treatment ("Waiting list for surgery
cut by third". Globe and Mail, 23.3.91). As one cardiac
surgeon said about the government response to the
problem: "Before we had to off-load a lot of patients.... now
we are able to service our entire region, a population of 1.2 million,
and it's because the ministry has been putting a substantial amount
of money into the expansion of regional services.." Dr. Shragge,
Surgeon, Hamilton Civic Hospital. (Cited Globe and Mail, 23.3.91)
It is crucial to note that where it is demonstrated that there
are defects in the health care system, the
population of Canada do not hold back their anger. Canadians feel
they have a right to high quality health care.
The future for medical care in Canada
Perhaps the biggest problem for the Canadian system are threats
to universal access. These are a result the
financial deficits prompted by the international recession. Despite
the popularity of the system, politicians have begun to cut back
and restrict care.
Ultimately, discussion about being able or unable to afford a societal
health care system revolve around notions of a progressive tax system.
It has been argued that there is still a lot of room for improvement
in this regard in Canada. For instance, at a time of national deficit
and talk about cutbacks, the federal government has introduced a
tax windfall for the wealthy -Release No. 91-018. This potentially
amounts to billions16.
These are issues that will have to be fought. It is a battle that
requires progressives of all stripes to come
together. The Canadian Health Coalition, of which the Medical Reform
Group is a part, has recently announced its' vocal opposition to
any move to restrict the "jewel in crown of social programs
in Canada", the health care system (Globe and Mail, 20.12.90)
A successful conclusion for a universal health care single payer
system in the USA will help the Canadian
advocates of universal care, as well as the American population.
It is clear from the data that the oft-quoted relative efficiency
of free market, free enterprise, capitalist
methods is a myth when it comes to health care in North America.
Universal-access medicine in Canada has produced a superior product,
and a healthier populace, at a lower cost, than the free enterprise
American system. Further, the quality of health care delivered to
the entire populace is better, and the gross inequities of the American
system have been avoided. A broad alliance of Americans is fighting
for a comprehensive single payer system. If they are successful,
health care in America will improve in quality, efficiency, and
1. "Banking on illness." Commercial medicine in Britain
and the USA. Griffith B., Illiffe S., and Raynor G. Lawrence and
Wishart, London, 1987.
2. Evans R. et al. Cited in "Controlling health expenditures
-- The Canadian reality." New England J. Med. 1988; 319:787-
3. Stoddart GL, Labelle RJ. Privatization in the Canadian Health
Care System: Assertions, Evidence, Ideology, and Options. National
Health and Welfare, 1985.
4. Himmelstein DU, Woolhandler S. Cost without benefit. New England
J. Med. 1986; 314:441-444.
5. Consumer Reports. "The crisis in health insurance."August
1990; 55(8): 533-550.
6. Lewin LS, Derzon RA, Marguiles R. Investor-owned and nonprofits
differ in economic performance. Hospitals. 1981; 55:52-59.
7. Pattison RV, Katz HM. Investor-owned and not-for-profit hospitals:
A comparison based on California data. New England J. Med. 1983;
8. Relman AS. Investor-owned hospitals and Health-care costs. New
England J. Med. 1983; 309:370-372.
9. Schiff RL, Ansell DA, Schlosser JE, et al. Transfers to a public
hospital -- a prospective study of 467 patients. New England J.
Med. 1986; 314:532-557.
10. CCAW information manual. Oil, Chemical and Atomic Workers International,
AFL-CIO. P.O. Box 2812, Denver, Colorado, 80201 USA.
11. Comparison of coverage 1977 and 1987. From Farley Short P, Cornelius
LJ, Goldstone DE. "Health insurance of minorities in the USA."
Journal of Health Care for the Poor and Underserved. Vol 1 Summer
12. New York Times, New York, 10.03.91.
13. Blendon RJ, Leitman R, Morrison I, Donelan K. "Satisfaction
with health systems in ten nations."
Datawatch, In Health Affairs, Summer 1990; 185-193.
14. Kravitz RL, Linn LS, Shapiro MF. Physician Satisfaction Under
the Ontario Health Insurance System. Medical Care, June 1990; 28:502-512.
15. Brooks N, McQuaig L. Globe and Mail, Toronto, 13.3.91.
This article was first published in the May 1992 issue (Volume
12, Number 2) of Medical Reform, published by the Medical
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