How Canada passed universal healthcare

Tom Kent was the senior government policy person in Canada when the Medical Care Act was passed in 1966. Kent described the impetus to universal health care: “…many poorer people just did not get care when it was needed.”

A year earlier, U.S. legislation created Medicare and Medicaid, which did not constitute universal health care, but did represent a major intervention into the health care market. The two countries are economically and culturally similar, and neither offers evidence to support Kent’s claim that many poor people lacked access to health care.

A History Lesson

During the 19^th and early 20^th centuries, health care was offered in various ways, including through voluntary mutual-aid associations in Britain, Australia, and the United States. Roderick Long wrote about these fraternal societies, where members could subscribe to various services, including life insurance, disability insurance, and lodge practice. Lodge practice was an arrangement whereby a particular society or lodge would contract with a doctor to provide medical care to its members.

The doctor received a regular salary on a retainer basis, rather than charging per item; members would pay a yearly fee and then call on the doctor’s services as needed. If medical services were found unsatisfactory, the doctor would be penalized, and the contract might not be renewed. Lodge members reportedly enjoyed the degree of customer control this system afforded them. And the tendency to overuse the physician’s services was kept in check by the fraternal society’s own “self-policing”; lodge members who wanted to avoid future increases in premiums were motivated to make sure that their fellow members were not abusing the system.

The average cost of lodge practice for each member was between one and two dollars (a day’s wage) annually, whereas non-members paid the same price for each visit to the doctor. Doctors competed for lodge contracts, which kept costs low. The Canadian experience with lodge practice was similar, and, as in America and Britain, this infuriated the medical establishment.

The Medical Establishment

Most people (including rank and file doctors in the 19^th century) are content to pursue their goals through voluntary interactions with others, and do not claim the right to tell others what they can and cannot do. However, there is always a minority who detest voluntary exchange on the free market, preferring to outlaw this activity by using government legislation to enrich themselves by dictating the terms of trade. This describes the medical establishment in the 19^th century (and today). In Canadian Medicine, A Study In Restricted Entry (pp 195, 197), Ronald Hamowy wrote:

By the 1890s, lodge practice had reached sufficient proportions to become a common subject of condemnation in the medical journals. Of particular concern was the “cut-rate” fees for services charged by lodge practitioners, with a concomitant reduction in demand for full-priced medical services.

. . . the Canada Lancet, in commenting on the subject in 1905, noted: Just think for a moment how absurd it appears that a doctor should agree to attend a lodge of 200 men for $1.25 per year and supply the medicine! We do not hesitate to say that he would be better off by declining the $250 and take what he can get in the ordinary way.

What the Canada Lancet was really saying was “How absurd it is that a doctor should have the freedom to voluntarily negotiate fees with the riff raff. We do not hesitate to say that his selfish actions are preventing the superior medical establishment from raising their own incomes by dictating fees to the general public.”

The medical establishment wanted to raise their incomes by restricting the number of doctors (in part, by imposing irrelevant licensing criteria), but the public was not easily fooled. Hamowy (p 125) wrote:

Despite the actions of the College to suppress unregistered physicians, the public continued to firmly oppose prosecution of these practitioners throughout the nineteenth century. Nor did they believe the College and the medical journals when they insisted that their campaign against “quacks” was designed to separate out educated from unqualified physicians.

. . . many, especially poorer, Canadians persisted in consulting unlicensed physicians, whose fees were lower and who appeared no less competent in prescribing medications than did their registered brethren. The profession’s attempt to suppress these doctors was not motivated out of a selfless interest in improving the quality of medical care offered the public, but out of a desire to lessen competition, which would in turn increase their incomes.

Sadly, the medical establishment got its wish, as Hamowy (pp 129, 237) explains:

As early as 1869, one of the Council’s [Ontario Medical Council] representatives had remarked, to the delight of its other members, that “it would be a great boon to the country if not another student passed for ten years to come.”

. . . by the first decade of the twentieth century physicians throughout the Dominion had succeeded in gaining enactment of laws in each of the provinces limiting entry into the profession . . .

After many years of lobbying, the government gifted the medical establishment with legislation granting them monopoly powers over their industry, including licensing, under the pretense that only qualified physicians should be allowed to serve the public. (Government regulations always serve the interests of those who lobbied for the regulations.)

The medical establishment was highly incentivized to lobby and bribe politicians because the average monetary gain for each member of the establishment would be huge, compared to the average loss suffered by each member of the public. This dispersal of costs over a large number of citizens meant that they lacked an incentive to mount an effective opposition. Thus, the establishment gained at the expense of the public. That’s democracy!

A False Premise

At the behest of the medical establishment, their industry was already highly regulated by the government before the introduction of Medicare in the 1960’s. As we have seen, coercion was used to limit the number of physicians serving the public, thus forcing health care costs higher than they would have been in an unhampered market. However, the market continued to function in a limited way. People paid cash for routine doctor visits, prices were not outrageous, and affordable private insurance was widely available for more serious health problems. As William Gairdner wrote (p 288), when Tom Kent was actively promoting Medicare, “He intentionally ignored the ready, almost universal availability of a wide range of private insurance options . . .” Indeed, my in-laws had private insurance and were completely opposed to Canada’s universal health care legislation.

Despite the government’s complicity with the medical establishment to raise prices, the poor were notroutinely denied health care. During the emotionally charged ObamaCare debate in 2009, AJ Persohn wrote, in part:

I was born in Canada and reside in Australia . . . Here are my observations on socialized medicine for what it is worth. In the 60’s in Canada there were many small community hospitals. Every town of 50,000 had one. Doctors offered their services to under-privileged people at reduced or no cost . . . As socialized medicine took hold many of these hospitals closed and larger centralized facilities took over.

Consistent with the above anecdote, former U.S. Congressman Dr. Ron Paul wrote in The Revolution (pp 85 – 86):

Before those programs [Medicare, Medicaid] came into existence, every physician understood that he or she had a responsibility toward the less fortunate, and free medical care for the poor was the norm. Hardly anyone is aware of this today, since it doesn’t fit into the typical, by-the-script story of government rescuing us from a predatory private sector.

. . . thousands of privately funded charities provided health services for the poor. I worked in an emergency room where nobody was turned away for lack of funds.

In contrast to Dr. Paul, consider the policy of the medical establishment (Hamowy p 331): In September 1869, the Canada Medical Journal observed that one of the provisions of the code of the Canadian Medical Associationwas that “It is derogatory to the dignity of the Profession to . . . publicly offering advice and medicine to the poor gratis . . . ”

The fact that this elitist faction felt compelled to include such language in its code strongly suggests that many doctors were unable to resist the human urge to help the poor, gratis. And this was at a time when the general level of prosperity was much lower than it was a century later when the government instituted Medicare. Charity and kindness had supposedly vanished in an era of greater prosperity.

Tom Kent wanted us to believe there was a crisis whereby health care was being denied to many poor people, thus justifying the imposition of universal health care in Canada. The evidence does not support his story.

This was originally posted on Mises.org.