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U.S. vs. Canada: Health outcomes and heart disease

April 12, 2010 in International Health Care Systems | No comments

This blog has posted frequently on comparisons between the U.S. and Canadian healthcare systems (see here, here, here and here).  Although there are many points of contention, it is clear that the Canadian system is less expensive than the American.  According to the OECD, in 2006 Canada spent $3,678 per person on health care and the U.S. spent $6,714.  From this additional expense, do Americans receive better health outcomes?

A paper by Pozen and Cutler (2010) examines this question for individuals with heart disease.  Using data from the Joint Canada-U.S. Survey of Health between 2002 and 2003, the authors compare health outcomes between Americans and Canadians who are aged aged 45 and older and who have heart disease.  “Past analyses using these data have found that wealthier Americans and Canadians report similar overall health status, while poorer Americans report worse health status than poorer Canadians.”

The results of the study are as follows:

“Being Canadian was positively associated with fair or poor health, but negatively associated with disability and functional impairment. None of these coefficients, however, was statistically significant from zero at the 5 percent level (though the coefficient on disability was significant at the 10 percent level). Results that were significant in some cases were income, education, and risk factors such as hypertension and smoking status.”

One problem with this simple analysis is that Canadians may simply be more or less optimistic about their health state than Americans.  If could be the case that Canadians report poor health even though–based on objective measures—they may have the same quality health.  A difference in difference estimate would be useful where one could compare the health self-reports of clinically healthy Canadians and clinically healthy Americans and see if the health self-report difference is higher or lower for cohorts in each country with heart disease.

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Costing Methods

April 1, 2009 in Hospitals, International Health Care Systems, Medicaid/Medicare | No comments

How do hospitals estimate the cost of different inpatient stays?  A paper by Clement et al. (2009) reviews 3 techniques:

Microcosting. “With microcosting, a detailed list of each component of a patient’s care is created and costed separately for each facet of a patient’s hospitalization. Given the level of detail, microcosting is generally considered the ‘gold standard’ for costing inpatient stays.”  Direct and indirect (overhead) costs are allocated over the patient’s entire hospital stay. “…nursing hours, the electricity required to light the recovery room, the catheter implanted, the operator’s time, food costs, etc. are captured and detailed. Given its labor-intensive nature, microcosting is not implemented in many hospitals.”


Refined-grouper number. Canada implemented the first DRGs in 1967.  “The system classifies patients into categories capturing cases of similar clinical, utilization, and length of stay characteristics. The categories were then further subdivided based on secondary diagnoses, sex, age, and discharge status creating DRGs.”

In 1983, Medicare adopted the the DRG system as a prospective payment instrument.  Later the rDRG was created.  The rDRG “applies a complication and comorbidity overlay to the DRG. Thus, the principal diagnoses group similar cases, as in the original DRG system, and the secondary diagnoses are used to subsequently classify cases into rDRG. In Alberta, a system based on rDRGs was used to group cases into groups comprising similar cases … The groupers are developed using a two-step process. First, based on the principal diagnosis or procedure code, cases are grouped together. Subsequently, cases are further grouped within the principal diagnosis group, based on secondary diagnoses and procedural codes. The two-step grouping process classifies cases into RGN that correspond to the rDRG grouping system.

A cost is developed by Alberta Health and Wellness (AHW) for each RGN using the microcosting data. A weighted average of each RGN cost across hospitals in Alberta is calculated and subsequently adjusted for the severity of case mixes within hospitals.”

Case-mix-groupers. Introduced in Canada in 1983, CMGs constitute a Canadian grouping system that is analogous to, but different from the DRG system developed in the United States…Cases are classified into CMGs based on the most responsible diagnosis as opposed to the principal diagnosis used in the DRG methodology…Thus, CMGs attempt to capture the diagnosis responsible for the greatest proportion of the hospitalization instead of the admitting diagnosis. An ‘average patient cost’ is calculated from all the microcosting data…Each CMG is assigned a relative index weight (RIW) that represents the complexity of the case in comparison to the average patient. The average annual cost per admission can then be determined for specific CMGs…A cost for each hospitalization can then be estimated by multiplying the CMG-specific RIW by the average Canadian cost per case ($3,103 per case).”

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Canadian Social Security and Well-Being

March 3, 2009 in Public Policy, Social Security, Taxes | 1 comment

Does Social Security work?  By that, I mean does giving elderly individuals a government pension increase their level of income, the amount of goods the can consume, or even their happiness?

An NBER working paper by Baker, Gruber and Milligan (2009) tries to answer this question in the Canadian setting.

Background

Currently, Canadian income transfer programs to seniors make up 2.3% of GDP, but this figure is expect to rise to 3.2% of GDP by 2030.  Unlike Social Security in the U.S., the pay-as-you-go (PAYGO) component of the Canadian Social Security System if fairly small.  Further, population growth in Canada is higher than in Europe making the old-age income transfer programs more solvent.

The Old Age Security (OAS) program is the oldest elderly income transfer program in Canada.  It was enacted in 1952.  Currently, “the monthly benefit paid to individuals who fully satisfied the residency requirement was $479.83.   This benefit is clawed back from higher income pensioners at a 15 percent rate, starting at incomes of $60,806 (2005).  Benefits are full indexed to the CPI and fully taxable under the Income Tax Act.”

The Guaranteed Income Supplement (GIS) is a means-tested income supplement for elderly individuals with low income.  Benefits are taxed back at a 50% rate.  The current enefit is between $370 and $570.  

The Canadian Pension Plan (CPP) and Quebec Pension Plan (QPP) are finance by contributions from employers and employees.  Individuals pay a 4.95% tax on earnings from $35,00 to $41,100 and benefits are based on a measure of average earnings over the individual’s working life.  Participants can claim benefits at age 60, but the benefit level is increased by 0.5% per month if the benefits are claimed at an older age.

Data

 The authors aim to investigate how changes in the programs described above affect the income, consumption and happiness level of individuals in different birth cohorts. These measures are taken from survey data from Statistics Canada.  Income data comes from the Survey of Consumer Finances (1971-1997) and the Survey of Labor and Income Dynamics (1998-2002).  Consumption data comes from the Family Expenditure Survey (1969-1996) and the Survey of Household Spending (1997-2002).  Happiness is measured by the General Social Survey.

  • For more details on the Canadian Social Security System, see my post from 4 July 2006.

Methodology

If there are time trends in elderly income and consumption, how does one identify the impact of the Canadian Social Security?  The authors use changes in Canadian Social Security legislation to identify this impact.  The regression methodology has 3 specifications:

  1. Regress actual retirement benefits on the dependent variables (income, consumption and happiness).
  2. Partial Simulation. In this approach, the authors hold constant the earnings, capital income, and family status of the individual, but allow the retirement age to vary.  Benefits are based on a fixed earnings histories across all birth cohorts, not actual earnings.
  3. Full Simulation.  In this case, earnings, capital income, family status, and retirement age are held constant and the authors calculate simulated benefits levels based on an average earnings histories and retirement ages across all cohorts.

Results

In general, the authors find that a higher Social Security benefit increases elderly income.  In the full simulation and when simulated benefits are used as an instrument for actual benefits, Social Security income benefits increase elderly income benefits dollar-for-dollar.  Further, elderly income poverty decreased significantly when more generous benefits were enacted; the authors claim that 96% of the reduction in elderly poverty is due to these added benefits.  However, in the partial simulation methodology, the authors find that a $1 increase in benefits leads to only a $0.55 cent increase in elderly income, thus indicating significant crowd-out.  

For consumption, the authors also find that more generous income benefits increase elderly consumption levels, but not dollar for dollar.  A $1 increase in benefits leads to a $0.66-$0.80 increase in consumption, thus indicating some crowd-out.  Unlike for the case of elderly income poverty, more generous Social Security benefits did not affect consumption poverty.  Thus, it may be the case that poor elderly individuals have other sources of consumption (e.g., purchase by family members, unreported income gifts from family members, unreported labor income) that may offset lower government supplied income benefits. 

“For the very happy question, we see no sign of a statistically significant relationship between benefits and being very happy.  On the other hand, there is some evidence of a decrease in reports of being unhappy or very unhappy with higher benefits in the reduced form results, but not in the IV results.”

Healthcare Economist’s Take

This paper indicates that more generous income benefits do increase income and consumption for the elderly.  Social Security benefits create more crowd-out in the case of consumption than income.  It is likely that consumption is a better indicator of well-being, especially since elderly savings is very low (i.e., the elderly are generally spending down their assets than building them up).  While income poverty declined due to these income benefits, consumption poverty did not.  Overall, I would say that these program do help increase elderly well-being, but likely not dollar for dollar.  As the authors note, this paper only looks at the benefits of Social Security without taking into account the costs of raising a significant amount of revenue to pay for these government program.

I will not comment on the happiness measure.  Although many people may think it is the government’s job to make individuals happier, I believe that happiness is determined on an individual level and often based on things the government can’t control (e.g., do you get along with your spouse, has their been a death in the family).  Further, happiness is often measured by comparing your emotional feelings against some status quo.  Thus, a poor family would be very happy to have their income increased to $80,000, but a millionaire would be very disappointed.  

I think this paper makes an important contribution showing that government old age income benefits do increase income and consumption, even if there is some crowd out on the consumption side.  The question for me is less whether or not there should be some government benefit, but more about how generous it should be and whether it should serve only the poor or all elderly.

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Financial Risk and Medical care: U.S. vs. Canada

November 26, 2008 in International Health Care Systems | No comments

In the U.S. a much higher percentage of medical is paid for out of pocket.  Further, there are about 45 million uninsured.  In Canada, the government pays for almost all health care.  The benefits and costs of a centralized, universal health care system have been discussed previously on this blog (see Oct 2, 2007 and Apr 25, 2008).  One benefit of a government-run program is that there are no uninsured; financial risk for medical expenditures is transferred entirely away from the individual in the Canadian system.  

Two blog posts highlight the stark contrast of the two systems:

  • WSJ Health Blog: As more and more people lose their jobs with the economic downturn, the number of uninsured is increasing.  This post from the WSJ Health Blog focuses on that in the U.S. there is a “growing number of patients behind on their mortgages because they are swamped with medical debts.”
  • Health Business Blog: “A Canadian relative of mine went to the hospital for ‘minor’ surgery and ended up in the ICU …He was pretty agitated while intubated…A few days later when the tubes were out and he could speak, he said that when he saw so many doctors and American relatives around he was convinced he was in the US, running up a huge bill that he wouldn’t be able to pay.  That’s what was agitating him more than anything else.  Luckily for him he was actually in Canada.”

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Physician Compensation in Canada

October 17, 2008 in Physician Compensation | Permalink

Does physician compensation affect the quantity of medical care provided?  My paper “Operating on Commission” claims that the answer is yes.  I find that surgery rates increase 78% when patients switch from capitation to fee-for-service (FFS) specialists.

A paper by Devlin and Sarma (2008) examines a similar question for Canadian family physicians.  Since the inception of Canadian Medicare, 89% of family physicians have been paid on a fee-for-service basis.  The authors aim to estimate how fee-for-service compensation affects the quantity of medical care controlling for the fact that physicians who favor more aggressive treatments likely will sort into fee-for-service compensation schemes.  

The authors control for the endogeneity problem with using 2 econometric specifications.  The first uses an instrumental variables (IV) specification with 4 instruments.  The first three instruments are physician preferences for research, teaching, and non-work interests.  Physicians who enjoy teaching and research are more likely to prefer salaried compensation schemes.  The final instrument is the physician’s response to the compensation scheme they prefer.  Each of these four instruments is likely correlated with the actual way the physician is compensated, but the instrument must be uncorrelated with unobserved factors which effect physician quality.  

The second econometric specification is the treatment effects estimator (the restricted control function approach).  The treatment effects estimator assumes the following econometric structure:

  • ln(qi) = Xiα + βRi + εi
  • ΔVi = Ziγ + ui

The first equation shows how the physician remuneration scheme (Ri) affects the log quantity of medical care [ln(qi)] after controlling for covariates (Xi).  The second equation gives physician’s latent utility (ΔVi) of choosing one remuneration scheme over another.  The treatment effects specification estimates the coefficients based on functional form; the first equation is estimated with OLS and the second equation is estimated with a probit model.

With these two specifications, the authors find strong evidence that physicians select into different compensation schemes based on their practice styles.  ”…those who choose a non-FFS environment engaged in more patient visits per week than those who choose the FFS scheme.”  After controlling for the selection effect, the authors found that that the direct incentive effect of physician compensation was strong.  ”FFS schemes appear to strongly encourage physicians to see many more patients relative to alternative remuneration schemes.”

As I find in my “Operation on Commission” paper, financial incentives do matter.

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Health Care Around the World: Canada

April 25, 2008 in Health Care Around the World, International Health Care Systems | 4 comments

Canada has a single payer system but the provinces have the bulk of the responsibility of running the health care system for their own residents. In order to qualify for federal funding, each province must meet the following criteria.

  1. Universality. Available to all provincial residents on uniform terms and conditions;
  2. Comprehensiveness. Covering all medically necessary hospital and physician services;
  3. Portability. Allowing residents to remain covered when moving from province to province;
  4. Accessibility. Having no financial barriers to access such as deductibles or copayments; and
  5. Public administration. Administered by a nonprofit authority accountable to the provincial government.

Nevertheless, the 2005 Canadian Supreme Court ruling striking down Quebec’s prohibition on private insurance contracting may foreshadow significant changes in Canada’s health care system. 

Percent Insured. ~100%

Funding. Funding is provided jointly by the federal and state governments. The federal government uses funds from general revenue to provide a block grant to each of the provinces. The block grant finances only about 16% of each province’s health care expenditures. The remainder is funded by provincial taxes: mostly personal and corporate income tax. Health care spending makes up between one-third to one-half of provincial social welfare spending. For the nation as a whole, health care costs only 9% of GDP.

Private Ins. “At one time, all provinces prohibited private insurance from covering any service or procedure provided under the government program. But in 2005, the Canadian Supreme Court struck down Quebec’s prohibition on private insurance contracting.” Private clinics are barred from offering medical services which are covered by the Canada Health Act, but many begun to offer services in the black market.

Physician Compensation. Physicians work in private practice and are paid on a fee-for-service basis. Since these fees are set by a centralized agency, wages are fairly low which has lead to a physician shortage. There are only 2.1 physicians per 1,000 people. This is far less than the OECD average of 3.0 physicians per 1,000. Hospitals are funded on a global budget basis. Capital expenditures are reviewed and approved on a case-by-case basis.

Physician Choice. Referrals are required for all specialist services except the ED.

Copayment/Deductibles. There are generally no copayments or deductibles for services. However, British Columbia, Alberta and Ontario charge insurance premiums (although health services cannot be denied because of inability to pay).

Technology. The U.S. has five times as many MRI machines per capita as Canada and three times as many CT scanners. However, because of Canada’s proximity to the U.S., many Canadians do have the option of coming to the U.S. for treatment.

Waiting Times. In a 2005 decision striking down part of Quebec’s universal care law, Canadian Supreme Court Chief Justice Beverly McLachlin wrote that it was undisputed that many Canadians waiting for treatment suffer chronic pain and that “patients die while on the waiting list.” For instance, the Fraser Institute finds that 800,000 Canadians are waiting for treatment at any given time. “According to [the Fraser] survey, treatment time from initial referral by a GP through consultation with a specialist, to final treatment, across all specialties and all procedures (emergency, nonurgent, and elective), averaged 17.7 weeks in 2005.”

If you are interested on more information about the Canadian health care system, see my October 2, 2007 post.

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