© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the December 2005 edition of BENEFITS CANADA magazine.
An open door
The Chaoulli decision could pave the way to more private healthcare in Canada. With many services already being picked up by employers, the issue now is how much more will they have to pay for?
By Wade Harding and François Picard

The Supreme Court of Canada’s decision in the Chaoulli and Zeliotis vs Quebec case has shaken a healthcare system already in a state of flux. Not only has this case sparked a debate about the possibility of insurers providing coverage for services that were otherwise available only through the public system, it has also focused the attention of politicians and Canadians alike on the fact that something must be done about waiting times.

Over the last year, a lot of attention has been devoted to waiting times. However, the Chaoulli case has established a deadline for action: the Supreme Court of Canada granted Quebec a stay on the decision until June 2006. The Quebec government has already taken the position that the Notwithstanding clause (override power)will not be invoked and that its legislation will be reformed to permit private coverage. A committee will be formed before the end of the year to review alternatives. In the meantime, two other deadlines are looming. The First Ministers, under the Canada Health Accord, have set a December 2005 deadline for addressing wait times and a federal election is around the corner. For that reason, wait times and the decision about who pays for medical services will likely become a big part of the political debate in the months to come.

A recent Canadian Institute for Health Information(CIHI)study entitled Exploring the 70/30 Split compares Canadian private sector involvement in healthcare with other countries. It reveals that Canada’s issues are not unique. Many other countries are struggling with significant increases in healthcare costs, and as in Canada, many of these costs are being absorbed by the private sector, either through insurance plans or out-of-pocket.

In Canada, public sector funds paid 93% of hospital charges and 98% of physicians’ charges in 2002. By comparison, France’s public system paid 74% of physicians’ charges and in Germany the number was 85%. In the area of drug costs, the differences are even more dramatic. The Canadian public sector pays only 38% of drug costs while in France and Germany the numbers are 67% and 75%, respectively.

But there is confusion in Canada regarding private healthcare. Many Canadians do not understand the extent to which the private sector is already involved in paying for it. According to the CIHI report cited earlier, private sector percentages in other Organization for Economic Cooperation and Development(OECD) countries range between 25% and 33%. The 30% invested by Canada’s private sector fits within that range.

But of that 30%($9 billion)paid by the private sector, who really pays? The 30% is split almost evenly between private insurers and out-of-pocket expenses, which means taxpayers. Private sector dollars are spent primarily on drugs, vision care, healthcare practitioners(chiropractors, physiotherapists) and dental services. Certain medical procedures and diagnostic tests can already be obtained on a private basis. Also, various Workers Compensation Boards across Canada obtain services for injured workers outside the public system or through special arrangements within the public system.

Private coverage for physician and hospital services has not evolved in this country because it has not been possible to insure these services. It is probable that private care usage would be greatly increased if insurance coverage existed for it, because insuring it would permit the sharing of risk for major claims. In other words, few people can afford to pay $100,000 of their own money if seriously ill. However, many people may be able to pay an annual premium of $1,000 to insure against the cost of a potential claim.

The willingness of the Canadian public to purchase private health insurance will depend on the perceived quality of the public system. The challenge is, will it be possible to keep waiting times at an acceptable level? And who defines what is acceptable?

Another issue is whether projected cost increases for public plans will put more pressure on provincial budgets. In Quebec, for example, a committee of experts has projected that if nothing is done, the portion of the provincial budget used for health will increase from 43% in 2005 to about 67% in 2030. This will be caused primarily by two factors: the aging of the population and the cost of new medical technologies.

Quebec’s situation is probably worse than most of the other provinces because its capacity to pay is less(GDP in Quebec is 11% less than the Canadian average), and the provincial debt is the highest in Canada at 45% of its GDP. As well, the province’s low birth rate means the demographic shift will be more pronounced than elsewhere in Canada.

In this environment, and in light of the Chaoulli decision, the option of private health insurance could gain momentum to cover the deficiencies of public programs either on an individual or group insurance basis. Recognizing the growing demand, providers of care will organize themselves to offer medical services on a private basis.

This combined public-private approach already exists in Western Europe. Currently Quebec and Alberta are looking at these models to try to formulate their own solution.

However, a recent survey conducted by Morneau Sobeco indicates employers are not yet ready to embrace an expanded role for private health insurance. The 60 Second Survey conducted in late October was based on responses from 168 Canadian employers, 41% of which had 1,000 or more employees in their organization.

The survey found that 23% of employers reimburse annual medical exam expenses incurred at a private source. This percentage is unlikely to change much in the shortterm. Of the 77% that do not reimburse such expenses, only 1% indicated that they were planning to do so in the future.

The results suggest that Canadian employers do not rely heavily on private healthcare even in the management of disability claims and are taking a ‘wait and see’ approach.

On a short term basis, employers should review their insurance policies and plan documentation(including Web sites)to make sure that they cover only intended expenses. They should also communicate the objectives behind their group benefits plans to their employees and union groups.

With respect to absence and disability management issues, employers should pay for private expenses(exams and surgeries) where it makes sense financially to promote the earlier recovery of a disabled employee. If private facilities become more accessible, this strategy will likely become the norm rather than the exception.

Employers should also consider strategies to improve the overall health of their organizations. The strategy is simple: healthy employees will place a smaller burden on the healthcare system and their employer-sponsored plan. The foundation of this strategy is communication. Plan sponsors must educate their employees and union groups about the cost of providing benefits and the cost drivers, and then engage their plan members as active participants in controlling that cost.

Over the longer term, some employers may want to offer private coverage with some employee cost-sharing, as this will make them desired employers in highly competitive industries. This is already established in Great Britain, where about 10% of the working population has group insurance plans that provide faster access to health services than what is provided through the public plan.

Private healthcare is already a fact of life in Canada, with the private sector paying 30% of overall healthcare costs. The real debate is whether the private sector will be permitted to expand into the arena now monopolized by the public system. Compared with other OECD countries, the Canadian system is unique because the physician and hospital services have been carved out as the exclusive domain of the public system. The Chaoulli decision challenges this monopoly. The Supreme Court ruling essentially says that if the public system cannot provide adequate and timely access and care, Quebec residents— and potentially residents of other provinces—have the right to look outside that system for care.

Does this mean that a private insurance system will develop to fill the void? That very much depends on how provincial and federal governments respond to the challenge. Naturally, the private sector will only step in when there is a perceived demand for its services. However, if the federal and provincial governments don’t react in a quick and meaningful way, the road may be clear for a privately-funded second tier of healthcare.

Wade Harding is a partner in the Toronto office of Morneau Sobeco. François Picard is a partner in the firm’s Montreal office. wharding@ morneausobeco.com, fpicard@morneausobeco.com.