Health Care

/

Overview of Canada's Unfunded Health Care Liability

Since Canada’s modern-day health care system was devised in the 1960s, a series of assumptions were made that needed to hold true for the system to remain sustainable. None of them did.

Canada’s rate of wage increases declined, birth rates slowed, and the mortality rate decreased. Put simply, people were living longer, having fewer kids and not making as much money as anticipated. Unfortunately, our politicians did not react to this change and have left us with a massive unfunded liability the size of our federal debt – and is footing future generations with the bill!

How Our System Works

Unlike an insurance scheme where younger, healthier individuals may pay premiums which are then invested by insurance companies and used to fund their health care further down the road, Canada operates on a “pay-as-you-go” model. This results in the working population paying taxes into the general revenue stream, which in turn funds the health care costs of those who are the greatest burden on the system (those 65 & older). The problem with this is that when our health care system was devised, the percentage of our population over 65 years of age was only 7.7% (Statistics Canada). That has since increased to 14.1% in 2010 and is projected to reach a whopping 25.4% by 2061. This presents a serious challenge to the sustainability of our health care system going forward.

Just How Big Is It?

So just how large is the unfunded liability of our health care system? According to calculations made by the Fraser Institute, the unfunded liability is now over $537 billion as of 2010, or $15,756 for each Canadian citizen. That’s over 33% of our GDP! This was calculated by examining the difference between the expected future revenue stream of government, and the future payment obligations required by our health care system.

Prefunding – A Partial Solution?

While there is no easy way to painlessly solve the problem posed by Canada’s demographic changes, there are steps we can take to “level” the generational burden to ensure fairness for all Canadians. In addition to reforms to make our health care system more efficient, governments can look to add elements of prefunding to balance the liability evenly across generations. In the same way money is set aside for CPP (Canada Pension Plan) and EI (Employment Insurance) benefits, governments should begin setting aside money today to pay for the daunting increase in health care costs in the future.

Why Should You Care?

Unless the federal and provincial governments makes changes soon, these pressures will undoubtedly lead to either dramatically higher tax rates or a devastating reduction in health care service quality and timeliness. It is up to people like you to take action, raise awareness and demand better from our politicians.

Additional Resources

Below we have compiled three tables for comparative purposes. Table 1 tracks the recent growth in Canada’s unfunded health care liability, while tables 2 and 3 analyze the relative health care costs for different age groups and the demographic trends in Canada respectively.

To find out more about unfunded liabilities in Canada check out the following pages:

 

Table 1: Summary of

Health Care’s Unfunded

Liability ($ billions)

Fiscal Year

 

2006

526.7

2007

532.4

2008

533.3

2009

533.4

2010

537.7

% change 2006–2010 2.1% Source: The Fraser Institute’s Unfunded Liabilities Model.

 

Table 2: Provincial Health Spending by Age, 2001

 

to 0–64

65+

65+ relative to 0-64

 

($)

($)

(Ratio)

Canada

1,418

7,546

5.3

Newfoundland

1,605

8,486

5.3

PEI

1,253

7,122

5.7

Nova Scotia

1,191

7,329

6.2

New Brunswick

1,355

7,481

5.5

Quebec

1,225

7,054

5.8

Ontario

1,412

7,493

5.3

Manitoba

1,529

7,671

5

Saskatchewan

1,493

6,683

4.5

Alberta

1,635

8,119

5

BC

1,565

8,325

5.3

Source: CIHI (2001); Author's Estimates.

 

 

Table 3: Provincial Population by Age, 2000-2040

Population 15-64 (000)

Population 65+ (000)

Population 65+ per 100 15-64

 

2000

2020

2040

2000

2020

2040

2000

2020

2040

Canada

21,040

23,891

23,615

3,854

6,579

9,955

18.3

27.5

42.2

Newfoundland

381

348

272

63

115

152

16.4

33

55.8

PEI

93

94

84

18

29

38

19.7

30.6

45.6

Nova Scotia

645

646

563

125

204

280

19.4

31.5

49.7

New Brunswick

521

502

413

98

161

219

18.8

32.1

53

Quebec

5,114

5,254

4,804

943

1,626

2,219

18.4

30.9

46.2

Ontario

7,942

9,768

10,256

1,467

2,507

4,039

18.5

25.7

39.4

Manitoba

750

828

834

155

221

317

20.7

26.7

38

Saskatchewan

653

701

703

148

189

261

22.7

26.9

37.1

Alberta

2,078

2,420

2,297

303

586

974

14.6

24.2

42.4

BC

2,795

3,257

3,310

530

932

1,439

18.9

28.6

43.5

Source: CANSIM; C.D. Howe Institute projections.