Published in the Laissez Faire Electronic Times, March 11, 2002
The Canadian health industry is dominated by federally directed public health insurance plans administered by provincial governments. "Insured services" cover most ordinary health care, which is provided free of charge — except to the taxpayer. The only exceptions to universal coverage are extras like private hospital rooms, which may be covered by complementary private insurance.
Each provincial health plan is a monopoly, as private insurance for "insured services" is illegal. Canadians are rationally ignorant of the law, and often don't believe this, so it is necessary to quote the provincial laws adopted in the late 60s or early 70s — for example:
It will come to no surprise to any economist — or to any shrewd observer of human affairs — that such a socialized system cannot work efficiently. This was already observable two decades ago,[1] and has only become more obvious with time. Queues have become commonplace: people wait for hours in hospital emergency rooms, sometimes spend days in emergency beds parked in corridors, and typically wait weeks or even months before getting an appointment with a specialized doctor or obtaining surgery.
A Canadian company, PPI Financial Group, just announced that it is offering "waiting list health insurance," i.e., insurance to jump the queues in Canada, and get treatment in the U.S. or elsewhere in the world. This product is probably illegal, but illustrates the dire condition of the public health system.
The fact that there is a demand for this kind of insurance is a reminder of a more general phenomenon: regulation imposes disproportionate cost on the rich because the opportunity cost of their time is higher. Therefore, they also have higher incentives to circumvent the prohibitions, legally or not.
Value of Time
Consider two bachelors living in the province of Québec. One is (say) a civil servant who gets a salary of $50,000 a year, or $35,860 after federal and provincial income taxes (all amounts in Canadian dollars). The other one is a businessman earning $1,000,000, which leaves him with $524,809 after taxes. In Québec, the marginal income tax rate reaches its maximum of 49% around $100,000 of taxable income. Income tax rates are somewhat lower in other provinces, the lowest top marginal rate being 39% (in Alberta). In Québec, then, our taxpayer earning $50,000 has an (after tax) opportunity cost of his time of roughly $100 per day — which is what he has to forego if he spends one day on something else. The $1,000,000 earner faces an opportunity cost of his time of $1,400.
These opportunity costs also apply to leisure time, since one will adjust his schedule so that his marginal day of leisure is not worth less to him than the earnings he loses during a day off. If our businessman's marginal leisure day was worth for him, say, $1,000, he would take less leisure until he attaches the same value to his marginal day of leisure as to his marginal day of work. The civil servant does not have as much flexibility, although he can sometimes get overtime pay, and he can do some moonlighting.
Now, suppose you set up a public health insurance system where getting an appointment with a specialist, obtaining a diagnosis, and getting a treatment requires a three-month waiting period, during which the patient (the term is well chosen!) spoils the equivalent of one day because of actually waiting in line, or because of anguish, or both. Socialist systems are especially inept at taking into account the cost of anguish or discomfort: all their rhetoric about "quality of life" depends on arbitrary evaluations by bureaucrats. Therefore the wait costs the equivalent of $100 to our civil servant, and $1,400 to our businessman.
Not only did the businessman pay more in income taxes to finance the public health system (and state operations, in general), but regulation also imposes a supplementary differential cost to him. Regulation that requires the use of personal time for compliance (or non-compliance) is like a proportional tax system. No wonder that the businessman is willing to pay more — up to $1,400 in this case — to jump the queue. No wonder that entrepreneurs respond to this demand.
Time Trading
Take another example. I knew of a very senior Montréal business executive whose time must be worth $10,000 per day. He has been an avid hunter for his whole life but, since the 1991 federal gun-control legislation, he cannot acquire a firearm without filling in complicated forms, and spending one day in the federally mandated Canadian Firearms Safety Course, at a cost of $10,000 to him. What did he do? He hired a hunting guide to purchase the weapons for him. He obviously had figured out that using this loophole cost him less than $10,000 (plus perhaps his cost in dignity if he enrolled in a government reeducation camp).
Now, since the new 1998 firearm controls, this senior executive cannot be the legal owner of his weapons and, when in possession of them, must remain "under the direct and immediate supervision" of his minion (according to Section 33 of the so-called "law"). I don't know whether he has now decided to take the course at a cost of $10,000 to him, or to give up hunting, or to risk a 10-year jail penalty (and a criminal record, in any case) if he is caught hunting more than a few feet away from his guide.
Regulation of personal consumption and behaviour imposes higher cost to the more productive. Reducing this cost is, of course, the reason why the rich use lawyers, and spend money on friends in high places, or move to preferred countries. They will still get ahead of the poor (or the poorer), but at the cost of being charged higher implicit taxes in the form of regulation.
The problem of this system of differential regulation is two-fold. First, there is an economic problem: resources spent on complying with, or circumventing, regulation are wasted, and everybody would be better off if these resources were used on producing goods and services. Second, there is a moral problem in making it more expensive for the more productive to go hunting, to get health care, or to engage in any regulated activity.
[1] See my "Socialized Medicine: The Canadian Experience," The Freeman, March 1989, pp. 96- 100, reproduced at www.pierrelemieux.org/arthealthfreeman.html.