Prepared for EvidenceNetwork.ca by Alex Peden
The most basic way of categorizing healthcare financing is to separate public and private healthcare costs. Public financing includes expenditures from any level of government (financed through taxation) as well as social insurance funds (these are much more widespread in European healthcare systems, although Workers’ Compensation Boards would be included here). Private sector financing, on the other hand, includes private insurance (financed through insurance premiums) and out-of-pocket costs (paid directly by patients). This last category, out-of-pocket payments, is often referred to as patient user fees. Different healthcare systems use different combinations of these three options to different effects.
What form can user fees take?
Looking more closely at Canada in particular, many observers mistakenly refer to the Canadian healthcare system as entirely government-funded. In fact, approximately 70% of health services are financed by the government, which although substantial still leaves a significant portion to be covered by other sources. Of the remaining revenue, 14.7% or $29 billion is raised through out-of-pocket payments by patients. These payments generally involve paying for all, or a portion (if the patient has insurance), of healthcare services not usually covered by provincial and territorial governments. In Canada, this includes dental care, eye care, prescription drugs, as well as other professional health services such as physiotherapy. It should be noted, however, that most provinces and territories offer additional programs to cover some of these costs for various at-risk groups, such as low-income families or children.
Often, even when someone has private health insurance, they will still be required to cover the deductible and/or co-payments for their healthcare, two common types of user fees. A deductible is a flat minimum fee which must be paid by the patient before insurance coverage begins. A co-payment occurs when the patient must pay a certain percentage of the total cost of their treatment. Another example of user fees would be the dispensing fees paid by patients when prescriptions are purchased at pharmacies.
Currently in the Canadian system, patients are not charged user fees for acute care in hospitals or physician services, although this has been suggested as a possible policy change by many in the past and present. These proposals generally suggest a relatively small fee ($10-$30) be charged to all patients for using family medicine services and/or the emergency room. Healthcare systems in other countries, such as Sweden, France and New Zealand to varying extents, sometimes do use user fees for these services as a method of healthcare finance.
What is the case for user fees?
The arguments in favour of introducing user fees are generally two-fold. The most straight-forward argument is that it would be another source of revenue helping to fund our system. This reason has become increasingly used as concerns are raised regarding our ability to pay for the healthcare of an aging population. The alternatives for raising additional money such as raising taxes or cutting other public programs are not politically attractive options, and neither is making the healthcare sector make do with less funding.
Secondly, proponents argue that offering patients health services for free encourages ‘moral hazard.’ Moral hazard occurs when patients seek unnecessary healthcare, that is, healthcare which provides little benefit and which results in unnecessary costs to the system. Instead, those favoring user fees suggest that patients should pay for even a small portion of their care, which they hope will discourage unnecessary care, as patients will need to consider if seeing their physician or going to the ER is worth the cost of the user fee to them. Thus, it is argued, charging user fees will free up healthcare resources to be devoted to other sick patients instead of being used for unnecessary care.
What is the case against user fees?
Opponents of user fees generally point to evidence that user fees do not work in practice, at least not as well as proponents would suggest. Moreover, it affects patients in a very inequitable manner, damaging the fairness of our system.
While introducing user fees would raise more money, at least in the short-term, it is also important to consider who this money would come from. It has been well established that poverty and health are very closely related, and that poverty is one of the drivers of poor health outcomes. As a result, this would shift some of the burden of paying for Canadian’s healthcare from the rich and healthy to the poor and sick.
Furthermore, while user fees would discourage some of the unnecessary care that takes place in our system, user fees have been shown in several cases to discourage necessary care as well, especially among the poor. Canada’s recent experience with user fees was in the pharmaceutical sector, and there is evidence that these user fees had harmful effects. After a cost-sharing plan for prescription drugs was implemented in Quebec, there was a reduction in the use of less essential as well as essential drugs, and resulted in increased rates of serious adverse effects and ER use. More recently, Law et al (2012) found that nearly 10% of Canadians who received prescriptions did not follow their treatment due to user fees; among those with low income and no insurance, this figure rose to over 35%. Moreover, as a result of discouraging some of patients’ necessary care, there is evidence that in certain cases, introducing user fees can actually increase costs in the long-run by necessitating expensive treatment for serious conditions which could have been diagnosed and treated earlier.
While user fees sound like they make sense, they have several “side effects” including discouraging necessary care and penalizing the poor and sick which must be recognized. After all who wants to sit in a doctor’s office or ER for hours, if the individual really doesn’t need to be there?