Aging Populations and Rising Health Spending: It’s More Complicated Than You Think

  

Rising health expenditure and aging populations are linked in policy discussions of health spending. With the health expenditure to GDP ratio in Canada now up to 12.7 percent and per capita health care costs rising with age, the conventional wisdom is that the sustainability of provincial government health care systems is under threat from a grey tsunami as the last few cohorts of the baby boom generation turn 65.  While aging is a key factor in rising health care costs, it only accounts for about half of the increase over time with factors such as wage/cost inflation and rising utilization rates being other important factors in the growth.  More importantly, when it comes to aging, it is a little observed fact that per capita health expenditures in the over 75 age categories have been seeing moderation and declines.

Figure 1 plots real per capita provincial/territorial government health spending by age for three years – 1998, 2011 and 2023 using data from the CIHI National Health Expenditures.  As is expected, expenditures are approximately u-shaped with a decline up to the 1-4 age categories, relatively flat profiles until the mid to late 40s and increases that accelerate after age 65.  In 2023, the most recent year available, provincial-territorial governments spent $19,875 per capita (in 2025 dollars) for those aged less than one year which then dropped to $2,377 by the age 10-14 category. This rises very slowly to reach $3,651 by the age 40-44 category and then rises to reach $10,079 in the age 65-69 category and hits $32,483 for the 85-89 age category. This fits into the conventional view that health care costs rise with age and therefore aging populations will create a sustainability challenge for provincial government health systems.

 

 

However, if one looks more closely at the diagram, one can see that the orange line for 2011 is always above the blue line for 1998. This is to be expected.  As populations age, the health spending age profile rises with age but over time cost factors are also shifting the relationship upwards.  However, when one compares 2023 with 2011, note that there are segments of the green 2023 line that are below the 1998 line – namely in the late 20s and early 30s and in the 80 to 89 age categories.  That is between 2011 and 2023, real per capita provincial government health spending declined in these age categories.

 

 

Figure 2 looks at the percent change in real per capita provincial government health spending from 1998 to 2011 and 2011 to 2023.  Except for the <1 age category, growth rates declined in all age categories over time and sometimes by quite a bit.  For example, between 1998 and 2011, real per capita provincial/territorial government health spending grew by 46 percent for those aged 35-39 but from 2011 to 2023 it only grew 8.9 percent.  However, over the same two periods, for those aged 25-29, and 30-34, real per capita expenditure growth went from 33.3 percent to -4.5 percent and 41.9 percent to -5.5 percent respectively.  Even more interesting, for those aged 75-79, the respective growth rates were 26.7 percent for 1998 to 2011 and 1.4 percent from 2011 to 2023.  However, for those aged 80-84, the growth rate went from 24.1 percent to -2.9 percent and for 85–89-year-olds from 11.3 to -4.6 percent.

Despite the talk of unsustainable health spending, the growth rates in health spending have fallen dramatically over time and for some age categories there have been declines.  What is of more interest is why there are drops in real per capita spending for the 25-34 age groups and the 80 to 89 groups?  Are these demographic groups becoming more healthy over time and require fewer health services?  Have provincial government restraint measures been borne disproportionately by these age groups? Is the falling birth rate the reason meaning that there are fewer women of child bearing age facing complications from birth a factor in the 25-34 age group decline?  Is the onset of Medically Assisted Death (MAID) in Canada in 2016 a factor in the decline for 80–90-year-olds? Or is there simply a problem accessing primary care that is more prevalent in these age groups?

These are all important questions.  While seeing per capita health spending fall and generating potential sustainability improvements for provincial health systems are welcome, it is important to know the reasons why this is happening.

The Economic Agenda for the Next City Council

 

By late Monday evening, we will have in place the Thunder Bay City Council for the next four years and they will need to grapple with an assortment of issues not least of which will be trying to promote the City’s economic development.  As was noted in a report released last week, Thunder Bay’s economy has rebounded from the pandemic but still faces strong headwinds.  As the accompanying figure shows, while the employment declines of the COVID-19 pandemic were the steepest in over a decade, the recovery appears to have settled us at employment totals that are pretty much close to the long-term trend of flat long-term performance.  

 

 

 

Indeed, Thunder Bay’s rebound in both employment and income has lagged that of the rest of the province.   Moreover, given that the economy as a whole is facing higher interest rates and the probability of a recession, the New Year may not be exceptionally buoyant.  Economic growth and expansion of the city’s tax base is crucial if Thunder Bay is to avoid large tax increases as it seeks to deal with an assortment of social issues - not least of which is policing - that may indeed prove costly to the city’s budget.

 

As a result, it is surprising that there was relatively little discussion of the economy in this election campaign but perhaps that is because the local economy is still rather flush with stimulus money from assorted government initiatives while the City of Thunder Bay enjoyed substantial government grant revenues and pandemic savings.  This will not last forever especially given that the economy may be moving into recession.   While much of what happens economically is due to external forces and beyond the direct purview of the City of Thunder Bay, there are steps City Council can take to prepare the city to take advantage of opportunity when it presents itself to help foster economic development and strengthen the local economy.

 

First, City Council needs to ensure the City of Thunder Bay develops a reputation for efficient and effective delivery of public services and infrastructure projects based on outcomes rather than  wishful thinking.  While a problem before the pandemic, at present projects are taking even longer to complete than necessary and are very disruptive to local businesses and residents.  For any businesses considering coming to Thunder Bay, nimbleness on the part of City projects and services is a positive feature.

 

Second, City Council will need to be more competitive on the tax front and that will require providing its existing basket of services with fewer employees in order to hold the line on taxes. This may indeed prove to be the most serious immediate challenge the new council faces given that inflation is high, and wage and cost pressures are immense.  Nevertheless, the temptation to simply pass these costs onto local business and residential ratepayers should be resisted.  As part of the process of becoming more competitive, City Council also needs to cut red tape and facilitate quicker approval for building and business projects.

 

Third, the social challenges facing Thunder Bay are an economic as well as a social issue given that they create an environment that does not put the City’s best face forward when trying to attract new economic activity.  City Council with the help of Federal, Provincial, and Indigenous governments needs to effectively tackle issues that are currently not conducive to attracting business to the City and these issues include poverty, homelessness, and crime.  Despite some of the rhetoric that has been going on in this election campaign, there is no easy solution to these problems, but the first step is to recognize that the problem requires a team effort by all levels of government.

 

Fourth, there are some bright spots in the City’s economy that go beyond the stabilization provided by a broader public sector that employs over 30 percent of workers in Thunder Bay mainly in health and education.  City economic development marketing strategies should focus on sectors with the most growth potential and these include tourism, mining, and transportation.  The recent success of cruise ship visits to the city while not a panacea is nevertheless an optimistic development.  Mining support and supply is also a source of future opportunities and with the trend towards "own-shoring" more economic activity domestically, our transportation sector – in particular the Port – stands to benefit from increased activity. As a start, this fall is expected to see a bumper crop of wheat on the Prairies and given the disruption in global grain markets, Thunder Bay’s Port should see increased activity. 

 

And finally, looking ahead towards the future, another looming economic iceberg is the potential for a new out migration wave which may not be the young but the senior population.  People in the 50 to 65 age range are currently thinking about where and when they will retire and looking forward many may indeed decide that Thunder Bay is not the place to live out their golden years.  There are many in this age range whose children have moved away to southern Ontario or further afield, and they thus face the choice of remaining here in retirement or relocating closer to children.  While much is made of the fact that housing costs a lot in other cities, it is likely going to become more affordable as prices decline over the next 6 to 12 months. 

 

Wealth and income rise with age and the loss of the purchasing power of people with substantial assets will not help the local economy.  Weighing in on decisions to stay or go are the need to downsize accommodation but there is a lack of affordable and quality apartment and condo housing in Thunder Bay.  Cheap and poor design is indeed an issue given Thunder Bay’s winter climate as there is a surprising lack of indoor parking in many existing condos in Thunder Bay.  Then, there are the types of services that become more important as one ages especially if you choose to remain in your own home and here there is relatively poor performance on things like municipal snow removal. 

 

Massive municipal windrows in your driveway after a storm aside, the oft-heard mantra that you can retire and stay in your home and get affordable services as you age is aspirational in Thunder Bay given that residential services take second place to government contracts and large business projects for many providers resulting in relatively high-cost services.  No one likes a small residential contract when there are bountiful government and institutional contracts available.  This has only grown worse in the post pandemic labour shortage/inflationary world – for example, the average quote for getting the exterior of your house painted has literally tripled over the last ten years.   This  is well above and beyond where inflation has been over the last decade even with the pandemic.

 

As expensive as some think life in other cities in the rest of Canada is compared to Thunder Bay, there is still a lot more competition elsewhere that keeps prices and quotes for services in check as well as a better stock of well-designed housing options for all demographic groups.  True, City Council cannot be expected to single-handedly address Thunder Bay’s business culture and less competitive monopoly environment.  After all, Thunder Bay has always been a sort of monopoly company town with large employers such as pulp mills or railways and their economic spinoffs serving as milch cows for local business - not to mention municipal taxes.  We are now a government town, but City Council can stop adding fuel to the fire by insisting on better value for money when it comes to the services it purchases. 

Rising Health Spending Is Not Just About Seniors

The Canadian Institute for Health Information (CIHI) has released its 23^rd annual report on health spending in Canada - National Health Expenditure Trends, 1975 to 2019.  As a member of the CIHI National Health Expenditures advisory panel, it is always great to see the wealth of data on trends in health spending across Canada.   Total health spending in Canada in 2019 is expected to reach $264.4 billion which represents an increase of 3.9 percent over last year and accounts for 11.6 percent of Canada’s GDP – a figure also up slightly from last year.  After a period of zero average annual growth in real per capita total health spending from 2010 to 2014, the period since 2014 has averaged about 1.4 percent a year.  This, however is lower than the average annual growth rate from 1996 to 2010 which was at 3.3 percent.  Health spending growth has resumed but on what currently seems like a more sustainable trajectory given that real per capita GDP growth is closer to 2 percent.

Much of the concern about rising health spending has focused on the effects of population aging.  Health spending does rise with age as Figure 1 below shows rather dramatically.  Aside from those aged less than 1-year, per capita provincial/territorial government health spending is well  below $5,000 until the 60-64 age group when it starts to rise above that threshold reaching over $30,000 for those aged over 90 years.  Yet, despite this surge after age 60, what is also interesting is that when the drivers of rising health spending are broken down, in 2019, aging per se only contributes 0.8 percentage points out of the 3.8 percent growth in public sector health spending – about 21 percent – with general inflation, population growth and other factors (eg. Technology and utilization) accounting for the rest.  It does lead one to wonder whether this is because today’s seniors are generally quite healthy compared to the past or perhaps whether there are unmet needs.


What is also interesting and seldom noted is that while provincial and territorial government per capita health spending is highest among seniors, over the last two decades, the rates of growth in per capita spending have not been for seniors.  Indeed, between 2000 and 2017, the highest average annual growth rates have been for children and youth aged 5 to 19, followed by children under age 1-year and adults aged 35-39 as shown in Figure 2.


Indeed, per capita spending for adults between the ages of 35 and 64 has been growing at a faster rate than those aged 65 to 89.  While, it is true that much lower per capita amounts are being spent on those below age 65, spending for this demographic has been growing much faster.  Again, this leads one to wonder given scarce resources whether there is an implicit transfer of resources underway away from seniors when it comes to new growth or whether younger people today have more health problems or utilize health care more than similarly aged groups in the past.  Given the epidemic of obesity and mental health issues among the young, perhaps this is having an impact on health spending needs and expenditures.

If a significant cohort shift in health care needs and utilization is underway is an interesting question. I suppose fully knowing if this is a recent development or has been underway for the last 50 years requires per capita age spending data going back quite a ways - I am only aware of the CIHI data going back to the mid 1990s or so.  This is an important issue.  While an aging population may only be contributing 21 percent of the increase in health spending now, if younger cohorts today have deteriorating health status or more health issues than in the past, they may be poised to be a more important driver of health spending both now and in the future.