Profits in Health Care Aren't Evil

Last week’s article by John Kneeland (“Beware the right in health-care fight”) was riddled with more factual and logical errors than can possibly be corrected in this space, but let me address the most prominent ones.

Kneeland dismisses Shona Holmes’ condition as a mere “benign cyst” which “can cause blindness in rare cases.” By the time Shona was assigned to a four-month waiting list to see a Canadian endocrinologist, she had already lost a significant percentage of her eyesight. An MRI scan revealed an unidentifiable growth just below her brain. A malignant tumour was one of several possibilities.

Medical experts have confirmed that if Shona had waited for care in Canada—first for specialists’ consultations and then for surgery—she would be permanently blind today, and serious endocrinal problems could have worsened. Instead, she obtained prompt surgery in the U.S. which fully restored her eyesight and reduced certain endocrinal risks.

Kneeland repeats the widespread myth that more than 50 percent of U.S. bankruptcies are due to medical expenses. This statistic has been thoroughly discredited upon careful re-examination of the original data. Canadian researcher Brett Skinner, for instance, reports that in fact only 17 percent of U.S. personal bankruptcies included medical spending as a contributing factor. Furthermore, “medical debts accounted for only 12 percent to 13 percent of the total debts among American bankruptcy filers who cited medical debt as one of their reasons for bankruptcy”. Meanwhile, despite Canada’s supposedly comprehensive health insurance, Canadians actually have slightly higher rates of personal bankruptcy than Americans.

The biggest bogeyman for Kneeland, however, is his knee-jerk abhorrence of privately funded health care. Like all too many, he equates “non-profit” with “good” and “private” with “bad”.

The truth is that every person working in our health care system is there for his own profit. Every doctor needs his billings to exceed his office expenses so he and his family can live on the excess—the profits. Every nurse, every orderly, every janitor employed by a hospital demands to be paid more than the cost of the necessities that enable them to work—food, uniforms, tools, transportation—so they can use what’s left over (the profit) to buy houses, recreation, vacations, etc. Profits are neither evil nor shameful.

In a government-funded industry, the profit that would otherwise go to an entrepreneur if the industry were private doesn’t simply vaporize. Rather, it gets spread among industry employees in the form of higher wages than they would have earned in the private sector.

A 2002 study of non-medical workers employed in B.C. hospitals (payroll clerks, cleaners, dishwashers, etc.) and workers at B.C. hotels (where both comparison groups were unionized) showed that the public sector employees earned between 9 percent and 39 percent higher wages—“profits”—than their private sector counterparts performing identical jobs. (See table below.)

Worker Type	Hospital Hourly Wage	Average Hotel Hourly Wage	Premium (%)
Housekeeping Aide	$17.88	$14.97	17%
Cleaner	17.58	15.09	17%
Payroll Clerk	21.53	15.52	39%
Storekeeper	18.04	15.77	14%
Food Service Worker	17.16	15.07	14%
Dishwasher	17.46	15.01	16%
Cashier	17.46	15.20	15%
Cook 1	21.56	16.45	31%
Cook (baker)	21.56	16.45	31%
Maintenance worker	19.00	17.39	9%
Painter	22.83	17.39	31%
Switchboard operator	18.44	14.98	23%
Booking clerk	19.77	15.01	32%

(source: The Fraser Institute, Fraser Forum, January 2002, page 32)

This, incidentally, is one reason why public employees generally oppose privatization—it reduces their profits.

Organizations funded by government (hospitals, for instance) have no incentive to control costs because there is no entrepreneur whose personal rewards depends on doing so.

In a private business, by contrast, the entrepreneur’s desire for profits provides an incentive to look for efficiencies. If the owner can keep expenses down by finding cheaper sources of inputs, or by inventing an entirely new and more economical method of producing the same finished product, he gets to pocket the difference. This is a benefit not only to him, but also to society at large. The fewer resources that are consumed in making one product, the more resources are available for use elsewhere.

Critics contend that the profit motive leads to corner-cutting and shoddy output. They forget that where competition is permitted, entrepreneurs can’t get rich by cutting costs alone. They also have to fight for market share, which means they have to make the best possible product.

Kneeland’s final salvo targeted the Canadian Constitution Foundation (CCF), a registered charity, alleging that taxpayers are “subsidizing” its efforts to de-monopolize Canada’s health care system. News flash: the government doesn’t own all of taxpayers’ incomes. When taxpayers get to pay lower taxes via lawful tax creditable donations, they are simply directing their own money—not someone else’s—to uses they prefer. This is not a subsidy.

Like other charitable organizations (eg. the Women’s Legal Education and Action Fund), the CCF provides pro bono assistance to help Canadians like Shona Holmes assert their constitutional rights and freedoms. In its 2005 Chaoulli decision, the Supreme Court of Canada ruled that access to a waiting list is not access to health care; citizens have a right to seek and obtain essential health care outside of the government’s monopoly system and waiting lists. The CCF is assisting Shona Holmes to extend the Chaoulli precedent into Ontario, with the goal of making better and faster health care available for all.