Grow the economy by liberating healthcare

Brett J Skinner, Financial Post – June 6, 2012. care

Federal and provincial governments face serious fiscal and political challenges as a result of slow economic growth. Budget deficits, rising debt, high unemployment and pressures for austerity policies would all be eased if there was more robust growth in Canada’s economy. So, it is ironic that governments continue to prevent economic growth in one of our most important industries: health care. Liberating the health care industry could generate an economic boom.

Health care accounts for a large share of national economic activity. According to the Canadian Institute for Health Information (CIHI), Canadians spent almost $200-billion on health care in 2010, equal to about 12% of GDP. By comparison, data from the Canadian Association of Petroleum Producers indicates that in the same year the value of producers’ sales in the Canadian petroleum industry was about $100-billion, or just over 6% of GDP. Industry Canada data shows that the automotive industry had revenues of nearly $70-billion, or just over 4% of GDP.

The health care industry is also a job-creation machine. According to CIHI data, in 2010 the health care industry directly employed 673,000 as regulated health professionals. This doesn’t even include additional employment in support roles and management. Industry Canada estimates another 29,000 people are directly employed in the biopharmaceutical industry and 26,000 people in the medical devices industry. By way of comparison, according to Industry Canada figures, the oil and gas sector directly employed about 230,000 and the automotive industry directly employed 109,000 people in 2010.

Despite its already large share of the economy, the health care industry still has lots of potential for growth. The evidence strongly suggests that current market demand for health care exceeds the current market supply of health care in Canada. Long wait times for access to necessary medical goods and services are commonplace; shortages of medical professionals, technologies and innovative medicines are well known; and future demand for health care is expected to increase as the population ages. But the supply of medical goods and services, and consequently economic growth in the industry, is artificially constrained by limited government resources and policy barriers to private-sector funding and delivery.

If governments allowed it, private-sector investment would flow into the health care system, creating new capacity and expanding and modernizing our stock of medical facilities and equipment. New capacity would increase demand for health professionals, potentially creating thousands of additional high-paying jobs. New economic opportunities in health care coupled with solid protection of intellectual property rights would encourage home-grown research and development of innovative medical technologies, which could expand high-value exports. Canada could even become a leader in the global market for health care services, potentially attracting an inflow of high-end medical tourism from other countries, which would effectively subsidize the domestic cost of health care for Canadians.

Private-sector competition would also encourage efficiency in the delivery of health care, resulting in more output relative to costs. This would free up resources for alternative uses, growing the economic pie in the process. The tendency of markets to reward improvements in quality could result in better health outcomes for patients and potentially generate societal economic gains due to productivity increases from a healthier workforce.

There are many distortions, disincentives and barriers to productive economic activity in health care. Supply and demand are distorted by excessive public subsidization of consumption. Private-sector competition for the delivery of publicly funded health care services is generally not permitted. Private spending and private sector provision of financial services like health insurance for hospital and physician services is effectively prohibited.

Governments also practically block supplier access to the health care market by virtually monopolizing health insurance while denying coverage for many new medical goods and technologies. Prices for biopharmaceuticals and fees for professional services are regulated. Drug-makers are prohibited from advertising the value of their products directly to consumers and their interactions with the professionals who prescribe their products are increasingly regulated. Incentives for investing in medical technology innovation are being eroded by an uncertain intellectual property and public reimbursement environment. Central planning overrides consumer choice.

Such restriction on private-sector economic activity would be absurd outside the health care industry. No one doubts that private sector capital, technology, innovation, entrepreneurship, property rights, consumer choice and competition create economic success in other industrial sectors. Private-sector resources and ingenuity could just as well be put to use improving productivity and generating economic growth in health care.

Federal and provincial governments must start to view health care as a potential economic engine. Policymakers should identify and remove policy distortions, disincentives and barriers to productive economic activity in the health care industry, while socially guaranteeing that every Canadian can get access to high quality, financially sustainable medical care when they need it.

Brett J. Skinner is founder and CEO of the Canadian Health Policy Institute.

Brett J Skinner, Financial Post - June 6, 2012

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