To understand health insurance performance, measure the right outcomes - Appeared in the Halifax Chronicle-Herald, New Brunswick Telegraph Journal, and Fredericton Daily Gleaner

Are Canadians getting good value for money from their health insurance system? This question is often discussed among health economists and policymakers. And while it’s important to know whether citizens are getting the best ‘bang for their health buck,’ it’s imperative that the appropriate outcomes are measured in order to accurately assess the economic performance of a health insurance system.

The best way to gauge if citizens are getting value for the money spent through a health insurance system is to determine the availability of medical goods and services in relation to the associated level of national health spending. Unfortunately, some health researchers continue to measure broad population health statistics, which really doesn’t tell us how well a health insurance system is performing.  

For instance, last week the Conference Board of Canada released a report comparing Canada’s health spending and health outcomes to those in other developed countries. Although the report did compare the availability of a few medical resources, such as the number hospital beds and physicians, the report focused primarily on linking broad population health statistics such as life expectancy to health spending. This part of the Conference Board’s analysis is flawed because evaluating a country’s life expectancy, infant mortality, and potential years of life lost does not tell us how well a health insurance system is performing.

To measure value for money from health insurance systems, it is important to measure only the resources purchased by the system used to finance health care instead of the health outcomes produced by medical treatment. Conceptually, the output produced by medical goods and services is human health, but the output of health insurance is access to medical goods and services.

Health insurance is just a pre-funded payment system to make it more affordable for individuals to collectively cover the financial risks of unexpectedly needing access to catastrophically expensive medical care. Health insurance is no more responsible for the effectiveness of doctors, hospitals and prescription drugs than automobile insurance is responsible for the quality of motor vehicles. Therefore, it is not conceptually valid to use health outcomes as a measure of the performance of the health insurance system.

Further, research has shown that there is no statistical correlation between spending on medical care and population health outcomes. This is because only a very small percentage of the population actually receives medical treatment for serious life-shortening health conditions in any given year. Therefore, the particular effects of the medical system on this small percentage of the population are not apparent in broad population health statistics like life expectancy.

Differences in broad population health statistics like life expectancy are associated with factors that affect many people, and which are unrelated to the type of health insurance policy used by a country. For example, clean water, nutrition, the treatment of sanitary sewage and waste, environmental pollution, auto accident rates, rates of violent crime, poverty, mass vaccination programs, and so on have the most statistically significant impact on population-wide health statistics. Once these factors are controlled for, there tends to be little difference in life expectancy between countries.

If fact, the most significant increase in life expectancy over the last century has been due to technological innovations such as water chlorination, which has been used to eradicate numerous communicable diseases. Research shows that water purification alone is responsible for half of the mortality reduction that took place in the United States in the first third of the twentieth century.   

Last year the Fraser Institute published a paper titled Value for Money from Health Insurance Systems in Canada and the OECD. The study focused entirely on health spending and the things that health spending buys – the proper way to assess value for money from health insurance systems. It compared the level of Canada’s health spending with 27 other countries that are members of the Organization for Economic Co-operation and Development [OECD], as well as Canada’s rank among 18 indicators of the availability of medical goods and services. The data show that Canada ranked 6th highest for health spending, yet ranked between 7th and 21st in 16 out of 18 indicators measuring availability of medical resources and services. Therefore, relative to the 27 other countries observed in the study, Canadians do not get good value for money from their health insurance system.

Only by comparing the availability of the things health insurance actually pays for, can the economic performance of a country’s health insurance system be effectively measured. The Conference Board’s report is a welcome addition to a developing consensus on the poor performance of Canadian health insurance, but it incorrectly focuses on population health statistics.