Handling the High Spenders: Implications of the Distribution of Health Expenditures for Financing Health Care

Abstract

Health financing policy involves determining how to distribute the costs of illness. Several paradigms contend. As Stone noted, one is the struggle between two visions of distributive justice - the solidarity principle which seeks to distribute these costs on the basis of ability to pay, vs. views based on actuarial fairness which seek to distribute these costs on the basis of the likelihood of incurring them. A related debate is whether health is a consumer good or a merit good, linked to questions about what should happen to those unable to pay for care. In the US, dialogue has tended to emphasize consumer sovereignty and suggest the risk of moral hazard should insurance coverage be too generous. In Canada, dialogue has stressed health care as a mutual responsibility, tempered by ongoing fears that overly generous coverage threatens the sustainability of the system. Our analysis of data related to the distribution of health expenditures, however, suggests that moral hazard is vastly overrated as a policy dilemma. We have analyzed expenditures on physician, hospital and pharmaceutical care for the entire population of Manitoba, Canada for the years 1997-2006. Our analysis notes that this spending is highly skewed, and that this skewing holds for all age-sex categories, as well as for major disease categories. Most people are healthy, and use few services. A focus on choice and actuarial fairness thus acts to increase total costs while decreasing coverage and patient outcomes for those with health problems. Internationally, the position of the US as an outlier - spending far more than do other developed countries to achieve less coverage - can in part be attributed to its continued reliance on an underlying model which ignores the distribution of health expenditures and foregoes many opportunities for cost containment associated with single payers.

Keywords: Health Policy, US, Canada, Financing, Reform