Private health insurance in Canada deemed inefficient

Private health insurance should be better regulated in Canada, say researchers who found the gap between premiums and payouts in claims reached $6.8 billion in 2011.

People either pay higher private health insurance premiums or get lower wages due to claim gap

Private health insurance should be better regulated in Canada, say researchers who found the gap between premiums and payouts in claims reached $6.8 billion in 2011.

About 60 per cent of Canadians are covered by private health insurance for health-care services such as prescription drugs, health-care economists say. Most are insured through their employers, with for-profit firms dominating the industry, said study author Michael Law of the Centre for Health Services and Policy Research at the University of British Columbia in Vancouver.

"When we looked across the for-profit insurers in Canada over the past 20 years, for the plans that are typically bought by individuals and small- or medium-sized employers, there was a pretty dramatic change in the gap between the premiums people paid in and the benefits that got paid back to them," Law said in an interview.

"Whereas Canadians were paying in a dollar and getting 92 cents back in 1991, they were paying a dollar and getting 74 cents in 2011."

Canadians need to realize those costs are ultimately passed on to them directly in higher premiums or indirectly as lower wages, Law stressed.

Obamacare insurance model

While most health care in Canada is paid for publicly, Law’s team said private health insurance plays a major supporting role, particularly for prescription drugs, dental services and eye care. The expenditures totalled $22.7 billion in 2010 or about 12 per cent of health-care spending, according to the Canadian Institute for Health Information.

In the U.S., when a greater share of premium revenues goes toward administration and profits, under the Affordable Care Act, known as Obamacare, the excess has to be rebated to plan members to the tune of $1.1 billion in 2012. Canada has no such requirement, the study’s authors noted in a study published Monday’s in the Canadian Medical Association Journal, titled "The increasing inefficiency of private health insurance in Canada."

"We ought to consider regulating private insurance more effectively and I think the U.S. can provide a pretty good model because based on our numbers, Americans are now actually doing better than Canadians in terms of how much they're getting back out of their health insurance plan," Law said.

Options for better value

The study's authors said governments could take a couple of approaches to improving the situation: replace private insurance with more efficient public alternatives, or impose new regulations on the private insurance sector.

For prescription drugs, the authors said evidence supports savings from universal public coverage at a societal level. Regulation, such as provincial requirements for more transparency on non-medical spending from private insurance firms, would likely give Canadians better value, they said.

Law said when he started to see the findings, small business owners expressed frustrations to him about how their costs generally rose one or two per cent every year, benefits were going up five to 15 per cent every year.

When Jeff Chatterton of Kitchener, Ont., looked into health insurance coverage for his family, he decided the expense wasn’t worth it for himself, his wife and sons, aged four and six.

“We were around $200 a month, and $2,400 buys a whole lot of dental care and orthotics,” in a year, said Chatterton, owner of Checkmate Public Affairs, which specializes in crisis communications for the travel and tourism industry.

"The math didn't just not make sense. It didn't make any sense."

Chatterton said he'd like to have health insurance and he'd reconsider if the price went down or his family's needs change.

The researchers analyzed 20 years of reports from the Canadian Life and Health Insurance Association and adjusted for inflation.

The association said without private insurance coverage, pressures on scarce public resources would be greater.

The group called the study "misleading." In an email, a spokeswoman for the industry group said the researchers did not include data from the not-for-profit sector. As well, the group said that including income replacement benefits, such as disability and critical illness insurance that are not health-care expenses, "further skews the data."

Law countered that he wanted to look at for-profit insurance only for an apples-to-apples comparison. He said the association itself groups data such as critical illness insurance as related to health.

The research was funded by the Canadian Institutes of Health Research. Law has consulted for Health Canada on unrelated pharmaceutical policy research.

With files from CBC's Amina Zafar


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