03/24/2014 12:00 EDT | Updated 05/24/2014 05:59 EDT

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.

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.

"The gap between what insurers collect in premiums and what they pay out in benefits is essentially their money," Law said in a news release.

"People are either directly paying higher premiums or receiving reduced wages from their employers who have to pay for these changes."

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, 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."

The study’s authors said the available evidence suggests that Canadians are not getting as much as they could for each dollar spent on for-profit private health insurance. They 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.

The researchers analyzed reports from the Canadian Life and Health Insurance Association. The association did not immediately respond to a request for comment from CBC News.

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