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June 1, 2010

Lurching Back to A Market Economy

While Democrats have proven themselves willing to sacrifice their political careers on the alter of public healthcare, Canada is inexorably moving back to a market-based health-care model as it finds itself unable to reconcile supply and demand using a command economy model.

Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.

British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.

And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.

It's likely just a start as the provinces, responsible for delivering healthcare, cope with the demands of a retiring baby-boom generation. Official figures show that senior citizens will make up 25 percent of the population by 2036.

"There's got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank.

"We can't continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.

"At some stage we're going to hit a breaking point."

In economic terms, this is all inevitable since the political act of severing the relationship between supply and demand, artificially lowers the perceived cost of medical care, so we use more of it, even wasting it because there is no consequence for doing so.

On the flip side, the only way to finally restore the balance, is to directly associate a cost with the good and/or service.

Governments are finding themselves pulled inexorably to this equilibrium, but lurching as they do so, trying hard to preserve the fantasy of government-as-deity even as they tacitly concede their powerlessness.

I expect it will take another generation before Canada abandons its pretense at universality. For the U.S., the prospects are actually much better. Not only is there a cultural resistance to the silly idea of government-as-deity, but our economic circumstances make repeal a politically palatable option.

Its frustrating to see our civilization making the same mistakes, over and over again.

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