What President Clinton Can Learn from Canada About Price Controls and Global Budgets

Policy Backgrounders | Health

No. 129
Tuesday, October 05, 1993
by Michael Walker & John C. Goodman


Failrue to Control Costs in Canada

Figure VI - Increase in Real Health Care Spending Per Capita in the United States and Canada

Despite global budgets, rationing by waiting and other strategies, Canada has not been any more successful in controlling costs than has the United States. In 1991, the United States spent $2,868 per person on health care, whereas Canada spent only $1,915 (in U.S. dollars).48 Some people argue that if the U.S. adopted Canada's health care system, it could cut health care spending by 25 percent. However, over the 20 years from 1967 to 1987, real increases in health care spending per capita were virtually the same in both countries. (The increase was 4.38 percent in the United States, 4.58 percent in Canada.)

Not only has Canada been no more successful than the United States in controlling increases in spending but, as Figure VI shows, until recently it has been less successful.49 As noted in this report, recent financial successes in Canada have been achieved largely by denying and delaying care.

Problems in Making Cost Comparisons. When comparing United States and Canadian health care spending, certain differences should be kept in mind:

  • First, the Canadian number doesn't include capital spending to the same extent as the U.S. number.
  • Second, the U.S. number includes research and development costs. Canada engages in very little such spending, while U.S. spending on research and development results in technological innovations that benefit Canada as well as the rest of the world.
  • Third, in both countries the costs of administering government health care spending are largely hidden. But since Canada's public sector is relatively larger than that of the United States, far more of Canada's costs are buried in bureaucratic budgets.

"For comparable types of spending, Canada's health costs are growing much faster than those in the United States."

More Precise Comparisons. In order to avoid these problems, one study measured international health care spending excluding costs of administration, hospital construction and research and development.50

  • Using this more precise measure, the study found that the United States spends more of its income on health care than Canada - but the difference is smaller (10.2 percent vs. 8.4 percent.)
  • During the 1980s, the real growth rate for health care spending was 85 percent higher in Canada than in the U.S.
  • In per capita terms, Canada had a real growth rate that was 163 percent of the U.S. rate.

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