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.

What is a Provincial Government to Do?

 

Ontario is coming up to Budget Day next week on March 26^th and it will be interesting to see what the provincial government does on a number of issues because quite frankly the provincial government is in a bit of a pickle when it comes to economic and fiscal policy.  Over the last decade, Ontario has been hit by a productivity decline that has translated into slower economic growth.  Since the pandemic, this has been combined with a bout of inflation and a surge in population growth.  When you start looking at Ontario fiscal and economic indicators in real per capita terms, there are going forward disturbing implications for our standard of living.

 

If one compares the 2023-24 fiscal year forecast from the Fall Economic Update with the 2018-19 fiscal year, total provincial government revenues and expenditures are up approximately 30 percent respectively.  Health expenditure is up 33 percent.  The size of the provincial economy is up 22 percent.  On the surface, this is seemingly good news in the wake of the pandemic.  The problem is that over the same period, population in Ontario has grown by an estimated 12 percent while prices have risen nearly 19 percent.  Put another way, the combination of population and inflation at nearly 30 percent has outstripped nominal GDP growth while essentially matching the growth of government revenues and expenditures and in particular health spending.

 

The best way to visually illustrate these effects is to create an index.  Figure 1 uses data from Statistics Canada, the Fiscal Reference Tables and the 2023 Ontario Fall Economic Outlook and Fiscal Review to create real per person indices of economic and fiscal performance setting 2013/14 as 100.  Figure 1 plots real per capita (deflated using the CPI-All Items Index) Ontario provincial government Own Source Revenue, Federal Transfers, Total Revenue, Program Expenditure, Debt Service Costs and Total Expenditures.  Note that 2023-24 is an estimate.

 

 

 

In real per capita terms, debt service costs have been a bright spot in that despite the continuing rise in both the provincial net debt and interest rates, inflation and population growth have served to reduce the real per capita burden of servicing Ontario’s debt.  Indeed, the drop-in debt service has probably been able to free up resources for program spending. On the other hand, compared to 2018/19, real per capita revenues and expenditures are now below where they were.  In other words, provincial government revenue and spending have not kept up with inflation and more importantly population growth.

 

 

 

Figure 2 illustrates the decline in the Ontario way of life a bit more succinctly.  Does the health care system feel strained?  Real per capita provincial government health care spending after the surge of the pandemic is back to where it was in 2018/19.  Indeed, it has not changed much since 2013/14.  During that time, one imagines that labor costs for health care have gone up pretty dramatically which means there are indeed fewer doctors and nurses available to service a growing population. And to top it all off, real per capita output in Ontario has not kept pace with either inflation or population growth.  While real per capita GDP in Ontario grew somewhat from 2013/14 to the pandemic, it has since declined.

 

Looking at Figure 2, if the average Ontario had to ask themselves am I better off than a decade ago when it comes to my real per capita income and health spending, the answer is one that should concern the provincial government.