Eric Koch is spending two weeks in Europe. A number of his regular readers have generously volunteered to compose guest-postings – this is the second of two from Carol Kushner.
Two indisputable facts underlie the persistent myth that a silver tsunami will soon swamp Canada’s health care system and render it unsustainable.
The first is the straightforward observation that older people use more health services than younger people. In fact, at 14% of the population, seniors account for almost 44% of all provincial and territorial government spending on health care. (Notice, however, that the level of government spending on their health barely budged in the decade ending in 2008, despite an increase in proportion of seniors in the population from 12% to 14% over the same period.)
Chart 1: Provincial/Territorial Government Expenditures on Health by Age Group, 1998 versus 2008
The second undeniable fact is our impending demographic reality: aging baby boomers (those born between 1946 and 1965 – the bulge in the chart below) will increase the proportion of seniors in Canada from just over 14% in 2010 to 24% in 2041.
Chart 2: Population by Age and Sex, Canada, 2001 and 2041
Tying these two concepts together has made it easy for the sustainability deniers to suggest a looming explosion in health costs that will render our mainly publicly-funded system unaffordable. Sources as credible as Don Drummond, Chief Economist of the Toronto-Dominion Bank, and now heading a commission to advise the Ontario government on how to rein-in public spending, and the Conference Board of Canada have expressed concerns about the sustainability of Canada’s health care system and point the finger of blame at our aging population.
Professor Robert Evans, one of the world’s pre-eminent health economists, says this is nonsense. He reminds us that we are all aging, but only one year at a time, a pace more consistent with a silver glacier than a tsunami. As a result, while older people as a rule consume more health care than younger people, on an annual basis the increase in health costs due to aging is actually very small, only about 0.8 percent a year, a rise easily affordable in a modestly growing economy. This cost increase is actually less than Canada’s population growth (1% per year) and less than inflation (2.5% per year).
The experience of other countries with larger populations of seniors offers more reassurance that aging is not, of itself, such a threat to health care spending. Japan, for example, has the oldest population among wealthy industrial countries, with 22.1% 65 years of age and over; Japan also boasts the longest life expectancy internationally. And yet, Japanese total health spending as a proportion of GDP (8.1%) is among the lowest in the OECD. In a decade from now (2021), Canadian seniors will make up 18.5% of our population, a level already reached in Sweden, where total health costs are $3,470 [USD] versus $4,079 [USD] in Canada.
Helpful in understanding what really drives health care costs is the analysis provided by the Health Council of Canada in their publication Value for Money, 2009.
Chart 3: Cost Drivers in Canada’s Health Care System 1998–2007
The obvious lesson from the breakdown above is that utilization (not aging) is the major cost driver in our system, accounting for almost half of the increase in spending. In other words, Canadians have been consuming more and more services, and more costly services, whatever their age. Some of these services have been very useful, others, however, are of questionable value. The next debates about health care should abandon the myth of aging as a major cost contributor and instead look at how we might deliver more appropriate care – care that actually benefits patients.
Sources:
For the population 65 and over in Canada (accessed May 23, 2011).
For Chart 1: National Health Expenditures Database, Canadian Institute of Health Information; Statistics Canada (accessed May 24, 2011).
For Chart 2: Public Health Agency of Canada (accessed May 22, 2011).
Don Drummond and Derek Burelton, Toronto-Dominion Bank, “Health care needs a check-up”, Toronto Star, May 27, 2010 (accessed May 24, 2011).
Conference Board of Canada re: health care sustainability and aging: Shirley Won, “Canada faces boomer conundrum,” The Globe and Mail (pdf).
Robert Evans’ analysis on the impact of aging on health care costs.
International population data on proportion age 65 and over (accessed May 24, 2011).
Life expectancy in Japan (accessed May 27, 2011).
Health spending and health outcomes in Japan.
Life expectancy in Canada. Source: Statistics Canada.
International health spending data: OECD Health Data: 2010, October, 2010.
For Chart 3 (pdf): Health Council of Canada, Value for Money, 2009, p. 27 (accessed May 24, 2011).
Eric Koch’s book, The Weimar Triangle, is available at Indigo-Chapters and in your local bookstore. 
I love icy truths. Chipping away at them contributes to much pleasanter drinks than holding out a glass to a tsunami.
Excellent use of statistics and interpretation leading to a clear usable conclusion. Why isn’t there more of this around?
Why isn’t there more of this information around? What a great question! I could go on and on but an insufficiently skeptical media is certainly part of the problem – they give lots of inches and air time to organizations (like the Fraser Institute, the Atlantic Institute, for example) that argue the “doom and gloom” side as though it were in the public interest to do so. Media are far too accepting of the “easy” answer — the one that is neat, plausible, and wrong, without really doing their homework. Looking at who funds such organizations (follow the money) is a starting point to understanding the motives behind their analysis and recommendations.
In this case the groups promoting the idea of a silver tsunami are funded by the corporate sector which clearly has an interest (read business opportunity) in turning more and more of the services sector into private, for-profit hands on both the financing side (insurance) and the care delivery side. Canadian Banks are on board with this, now that they too can sell insurance. By frightening the public and governments into thinking that they have no choice, they can potentially capitalize on the shrinking public side to expand the private one.
The general agenda is “smaller government” meaning lower levels of public finance, less regulation and oversight, and enormous profit potential for the private sector. But of course, the facts belie that this is a real solution to anything. Costs go up not down when services are privately financed as opposed to publicly. Access based on ability to pay versus need, which is fundamental to private finance and privately-financed for-profit delivery, produces gross inequities where the healthy and wealthy get care and those without means, must do without. And the evidence appears to demonstrate that quality suffers too because profits are always taken out first — and one way to do that is to hire fewer staff or staff with lower qualifications, skimp on food and food quality, supplies (diapers changed only when they are 75 percent full — yuck). I better stop but if you’d like more I recently gave a speech on the Sustainability of Health Care in Canada — I can send you my power point on it if you would like.
I really agree with Professor Robert Evans that increase in health costs in a year is very small. Aging is not only the reason for the increase in health care cost. Since the chart shows that health cost is due to the consumption of costly services and not due to aging. Thus the health cost in canada can be reuduced by avoiding costly services. However, the report haven’t mentioned anything about the health spending account in Canada.
Thank you for your comment. Utilization costs, as you point out, are exactly where we should direct our attention. However, the most costly services are generally consumed by those who are very sick — lengthy hospital stays, complicated surgeries, cancer treatments, etc. It is true that some very costly services are over-used, but it is quite difficult to design systems that identify in advance those which are likely to be of no benefit to a given patient.
As for health spending (do you perhaps mean savings?) accounts, Robert Evans has dismissed them as a gimmick and provided an analysis of the experience with them in Singapore in an article for the Nuffield Trust in the UK called “Going for Gold”. He and other health economists and polcy experts (Raisa Deber, Evelyn Forget and Les Roos) have demonstrated that they tend to increase overall spending on health and shift the burden of costs from the wealthy and the healthy to the poor and the sick. In other words, a prescription that works in the opposite direction of where the need for care really is. The underlying assumption of a health savings account is that the burden of illness in a society is evenly distributed across the population — however, this is an incorrect assumption. The likelihood of illness (especially chronic conditions) is disproportionately found among those with lower incomes. Il health and health spending are highly skewed –in any age group, the majority are healthy and use few services. The sickest in any age group use the most and the most expensive services. Here is a link to the Deber paper if you want more about medical savings accounts and their impact on health system costs: http://www.cmaj.ca/content/167/2/143.full