Canada's Health-Care Woes

JUST one year ago, Canadian health care was being held up as a model, of sorts, for what many believed the American system should look like.

Now, as Congress gets set to slim down Medicare spending, it's useful to take a look at just what has happened in Canada.

In Alberta, Premier Ralph Klein and his Liberal Party are seeking to sell to the private sector many of the government-run hospitals that are closing because of budget cuts. A number of doctor groups have stepped forward to buy hospitals in order to provide surgical services, not to Canadians, but to Americans.

In Saskatoon, meanwhile, Reform Party leader Preston Manning called for a national debate on his party's proposal to split health-care services into two components: Essential services would still be funded by the federal government ''up to some minimal national standard.'' All other ''non-core'' services -- which Manning does not define -- would be paid by individuals through, what else, private health insurance.

Sure, the Canadian system seemed to work for a while, but it bled money and used up as much as 10 percent of Canada's bloated federal budget. Now provinces have amassed huge deficits and the government is vowing to cut the GDP by 3 percent next year, in part to combat rising tax rates. More than 50,000 public employees are slated to lose their jobs.

Back in the United States, Medicare, which provides taxpayer-financed health insurance to the nation's elderly, is growing at 10 percent a year even as more and more doctors refuse new Medicare patients. The Republicans in Congress want to slow growth by as much as 5 percent per year, eliminating up to $300 billion of projected spending over the next seven years.

Like Canada's problems, the roots of our Medicare crisis go back to its creation in the 1960s as an open-ended federal entitlement. With Uncle Sam paying all bills, the private market in medical care for the elderly was destroyed. Absent incentives to restrain the use of services, taxpayer costs have risen relentlessly.

This was obvious in the early 1980s. But addressing the problem at its roots has always been politically difficult. When Medicare spending grew sharply during the Reagan administration, the White House skirted the problem by imposing price controls. These caps, never more than a short-term fix, were tightened under the Bush administration. The result? According to the Congressional Budget Office, Medicare now pays doctors and hospitals only 70 percent or so of the real costs of services. Providers were able to tolerate this for a while by charging more to private-insurance patients to make up for what Medicare didn't reimburse. But as the private market has become more competitive and has begun to restrain its own costs, such cost shifting has become more difficult.

Back in Canada, this kind of government control is driving doctors in record numbers out of the country. Almost 700 doctors left Canada last year, the highest migration in Canada's history. Most sought work in the US.

Canadian doctors say it's not so much that they're being enticed to leave, it's that they're being driven out -- by increased government intervention, cuts to their incomes and restrictions on where and how they practice.

The president of the Ottawa Academy of Medicine says that in many provinces, doctors' disillusionment has never been stronger, especially because many physicians have seen their billings capped.

Why the woes? Because health care is subject to the same laws of economics as any other product or service, and under those laws there are only two ways to ration a scarce resource: through market pricing or political muscle. Canada's entire health-care system and our Medicare system are controlled by the bureaucrats.

One popular market alternative is Medicare vouchers, which would let patients shop around for better insurance options.

Under this program, dubbed medical savings accounts, instead of providing employees with a low-deductible, comprehensive health policy, an employer buys a catastrophic policy with a high deductible -- $2,000 to $3,000. The money the company saves on premiums goes into a tax-exempt medical savings account that employees can save for the future or tap to pay for day-to-day medical expenses.

Proponents say the accounts would restrain health-care spending by empowering consumers and making them more cost-conscious.

Moreover, the physician-patient relationship would be freed from the intrusion of third-party payers.

Yet even now, as we watch the Canadian government peddle parts of its cash-starved hospital system and Canadian doctors stream across our border, the US Congress is still confused about how to heal Medicare.

After all the hyperbole over its single-payer system, Canada finds it has health-care problems. But in the US, there are, unbelievably, still some who would shore up the Medicare trust fund by imposing more price controls.

It's the same old short-term fix and it will not resolve Medicare's structural flaws.