Health Law Blog

The Canadian Health Care System and the Principle of Supply and Demand

August 5, 2015

One of the basic tenets of economics in a free market system is the concept of supply and demand. Generally speaking, supply and demand reach equilibrium over time.  If supply is “low” or demand is “high”, the result will be higher prices, thereby “balancing” supply and demand. This is the “equilibrium point”. Similarly, if supply is “high” or demand “low”, prices will fall until the equilibrium point is reached.

Over time, the market system results in a more efficient, productive allocation of scarce societal economic resources. For instance, if the supply of a given good or service is low and the price high, producers will be enticed to increase production, thereby increasing supply and reducing the price, until the equilibrium point is reached. On the other hand, if there is ample supply and a low price, producers will reduce production, thereby reducing supply and ultimately increasing the price, again until the equilibrium point is reached. In each case, scarce economic resources are either brought into the industry, generally from less productive applications, or they leave the industry, generally to more productive applications. In this way, the optimal level of production is reached utilizing the least economic resources. This system applies to the free market, but not to Canada’s socialized health care system.

In an article published recently in the National Post, health-care reporter Tom Blackwell described a situation that defies rational economic theory. Despite strong demand for medical services, evidenced by lengthy wait times and frustrated patients, large numbers of qualified and eager medical school graduates are unable to find jobs. For example, of ENT specialists who graduated last year, 78% failed to find positions. Yet, despite the availability of these highly skilled physicians, Ontarians still wait, on average, 164 days, or more than five months, for ENT-related surgery.

This situation begs the question as to why the supply of available medical school graduates is not matching patient demand. The primary reason is that this is yet another unfortunate example of market dysfunction in Canada’s largely socialized health care “industry”. Government funded health care is not paid for directly by consumers.  Hence, there is no price mechanism.  Instead, provincial governments call the shots, by determining the level of supply, in a Soviet-style planned system. The result is long wait times and unmet demand, just like the market for consumer goods in the defunct Soviet Union.

The costs associated with Canada’s current dysfunctional health care system are significant. Medical school graduates remain unemployed and unable to service the debt they incurred during their training. Without the opportunity to practice, they risk seeing their hard-earned skills deteriorate. Patients bear a cost as they live in discomfort, while their conditions worsen, waiting for government gatekeepers to grant them access to treatment. Many of them are unable to work or to work productively. In this regard, according to a 2012 study published by the Fraser Institute, wait times in Canada cost Canadians as much as $3 billion in lost time and productivity. In addition, Canadian taxpayers, who have subsidized doctors’ education costs, lose out on this investment as these people sit idle.

Until Canada, the only free market jurisdiction in the world that prevents the provision of and payment for private health care, allows some form of market-based health care to co-exist, serious problems will continue to occur. Contrary to what its opponents assert, private health care will not imperil universal health care. Rather, allowing a parallel free market system, similar to what is currently permitted in many other countries, including Belgium, France, Germany, Japan, Korea, Luxembourg, Switzerland and the Netherlands, would, in the public system, reduce wait times, improve access to resources and raise the quality of care.  And those who access the private system will have their health care needs met in a timely fashion.

The health care landscape has changed dramatically since socialized health care was first introduced in Canada, making some sort of reform inevitable and unavoidable and indeed we are already beginning to see the seeds of change. There are, for example, potential opportunities for physicians in the limited private space that is available in Ontario, such as free standing surgical units and niche treatments that are not covered by the public system. These forays into market-based alternatives will grow over time, because the current socialized system is unsustainable.


Several years ago I was fortunate enough to have been selected as a Tremayne-Lloyd Fellow here at Western Law. I used the funds to finish a book and to begin work on a new one. It dawned on me far too late that I had never thanked you for that splendid gift. The new book is to be published by Harvard Press in 2010. The TTL Fellowships provided ritual seed capital for this project, which required me to spend a good deal of time and money at The National Archive in Washington. Again, with many thanks.

R. W. Kostal Professor of Law and History

Tracey Tremayne-Lloyd Health Law