Silver tsunami to break the health system’s bank?

By Noralou Roos and Nicholas Hirst

A version of this commentary appeared in The Huffington Post, Windsor Star and the Epoch Times

We hear over and over again that Canada’s aging population threatens the financial sustainability of its healthcare system. And there’s no denying that Canada’s population is getting older — in fact, the proportion of the population aged 65 and older will almost double during the next 20 years.

The assumption is based on several key facts: healthcare costs increase with age; an aging population increases demand for (potentially expensive) health services such as long-term care; income tends to decline as people get older, reducing the relative amount of available revenue from income tax; and finally from the simple fact that we are not making as many babies as we used to.

The number of children being born per 1,000 people dropped from 28 during the baby boom years to 11.2 in 2010. And fewer being born means fewer workers available to pay the income tax older Canadians rely on to meet healthcare costs.

1 Percent Annual Cost Increase

Still, will an aging population break the health system’s bank? The answer may surprise you.

Research indicates that aging does not pose a major threat to the financial sustainability of Canada’s healthcare system. In fact, recent projections estimate population aging will increase healthcare costs in Canada by about one per cent annually from 2010 to 2036.

How could this be? In part, it’s a question of numbers. The aged are still only a relatively small part of the Canadian population: in 2006 only 13 percent of Canadians were 65 years or older. If this 13 percent had increased by 2 percent that year, that would translate into a very small 0.3 percent increase in the number of elderly relative to the total number of Canadians using health services.

Although the resulting 1 percent increase in healthcare costs is still significant, it is somewhat offset by revenues the government receives. Seniors pay taxes on their pensions and on withdrawals of RRSPs. At the same time, as the overall population ages, some costs that government covers should fall slightly. There will be fewer people going to school and a reduced need for workers compensation.

Of course, if Canada increases immigration and/or extends the retirement age, that, in turn will affect how fast the population as a whole ages and will provide increased tax revenues from a larger working population.

How much do healthcare costs increase as we get older? In 2009, provincial and territorial governments spent an average of $18,906 per year on Canadians aged 80 and older, compared to $2,398 on those between 15 and 65. But the relationship between these numbers has always been true. We have always been paying more for the healthcare costs of older people. It is only the increase in their numbers that we need to worry about. And that, as we have shown, is relatively small.

Is there a danger that we are underestimating the impact of the effects of an aging population? No. The aging of the population is not something new; the Canadian population has been aging for the past 40 years, providing good evidence on how much the trend has so far affected healthcare costs and which we can use to extrapolate the future.

In fact, there are other costs that are driving the increase in healthcare spending at least as much as the aging population.

Canadians are using more services — many of them only marginally effective — more often. We are getting more tests, more treatments, and more drugs, some of which may have a positive influence on health while others do very little but increase costs.

A recent study on cost increases in the British Columbia prescription drug plan showed that 90 percent of the increase in provincial drug costs was driven by changes in the choice of drug and how many drugs were prescribed — only 10 percent of the increase could be explained by an aging population. These are the issues that healthcare professionals and the public who pays for the system need to concentrate on.

A silver tsunami does not threaten the sustainability of the Canadian healthcare system. It increases costs, yes, but not by so much that it will overwhelm what Canadians can afford or what they are likely to be willing to pay for.

Noralou Roos is a Professor in the Department of Community Health Sciences, Faculty of Medicine, University of Manitoba and the co-founder of EvidenceNetwork.ca. Nicholas Hirst is CEO of Original Pictures Inc.

April 2011

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This Commentary is from Commentaries, Aging Population & Its Potential Impact.

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