Other Points of View

Cost Expansion versus Cost Control — Lessons from the Canadian System

Junlin Liao, Ph.D., M.H.A., and Kent Choi, M.D.

N Engl J Med 2009; 361:e107November 19, 2009

Article

The health care reform effort in the United States is driven by the desires for cost control and expanded coverage. However, as Daniel Callahan recently wrote, “cost controls that are likely to be politically acceptable will not be very effective, and what might be effective will not be acceptable.”1 Unlike cost savings, which are often elusive, cost increases resulting from coverage expansion are always a reality. Proponents of universal coverage tend to point to the health care systems of other industrialized countries, especially Canada's, as alternative models. We would argue that the adoption of an approach focused on expanded coverage will inevitably worsen the prospects for cost control.

Canada started to implement universal coverage in the late 1950s. The immediate effect was more rapid increases in health care expenses than those in the United States. Canada spent an estimated 2% of its gross domestic product (GDP) on health care in 1940,2 whereas the United States spent 4%. After Canadian health care reform, the gap quickly disappeared, and in 1960 Canada spent more of its GDP on health care than the United States did (see graphsHealth Care Expenditures as a Percentage of GDP in the United States and Canada.). Since Canada's per capita GDP was lower than that of the United States, the Canadians were spending nearly the same amount on health care as their southern neighbors in the 1960s. But in the 1970s, U.S. spending as a percentage of GDP began to surpass that of Canada, and the growth in expenditures in the two countries began to take different trajectories. The Canadian system could finally exert cost control after 20 years of expansion. By 2005, the United States was spending almost twice as much per capita on health care as Canada was.

Cost expansion and cost controls resulting from national programs affect traditional medical care services, including hospital and physician services, but do not affect nonmedical services or the commodity components of the system that must compete internationally (e.g., drug and equipment companies). Notwithstanding the general impression that medicines are cheaper in Canada than in the United States, Canadians consume about the same quantities of prescription drugs, and drug prices are on par with those for U.S. residents after adjustment for income differences.3

It seems clear to us that the latent cost-control effect in Canada is unlikely to be replicated in the United States, because a unified or universal insurance scheme that would create a national monopoly capable of achieving widespread cost control is not on the horizon. Without a single-payer system, this country may never achieve the cost-control effects enjoyed by other industrialized countries. Instead, every measure that expands coverage for underserved populations may lead only to further cost increases.

Junlin Liao, Ph.D., M.H.A.
Kent Choi, M.D.
University of Iowa, Iowa City, IA

This article (10.1056/NEJMopv0909476) was published on November 4, 2009, at NEJM.org.

References

References

1. 1

   Callahan D. Cost control -- time to get serious. N Engl J Med 2009;361:e10-e10
   Full Text | Web of Science | Medline

2. 2

   Brown MC. Caring for profit: economic dimensions of Canada's health industry. Vancouver, BC, Canada: The Fraser Institute, 1987.
   

3. 3

   Danzon PM, Furukawa MF. Prices and availability of pharmaceuticals: evidence from nine countries. Health Aff (Millwood)2003;W3-521
   Medline