06/01/2011 08:01 EDT | Updated 08/01/2011 05:12 EDT

Silver Tsunami to Break the Health System's Bank?

The Canadian population has been aging for the past 40 years, which means other costs drive the increase in health care spending -- those are the main culprits.

We hear over and over again that Canada's aging population threatens the financial sustainability of its health care 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: health care 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 10.5 in 2004. And fewer being born means fewer workers available to pay the income tax older Canadians rely on to meet healthcare costs.

One per cent annual increase in costs due to aging

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 health care 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 per cent of Canadians were 65 years or older. If this 13 per cent had increased by two per cent that year, that would translate into a very small 0.3 per cent increase in the number of elderly relative to the total number of Canadians using health services

Although the resulting one per cent increase in health care 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 2008, provincial and territorial governments spent an average of $18,160 per year on Canadians aged 80 and older, compared to $2,097 on those younger than 65. But the relationship between these numbers has always been true. We have always been paying more for the health care 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 health care costs and which we can use to extrapolate the future.

Other costs the main culprits

In fact, there are other costs that are driving the increase in health care 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. 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 health care 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.