It has been a week of immersion in health economics for me. Last Friday, we had Herb Emery from Calgary visiting Lakehead and he gave a seminar presentation on generational balance and public health care spending in Canada. I also just got back from a workshop on health expenditure forecasting and along with last Friday’s speaker’s presentation it has certainly provided me with much food for thought. There were a number of issues that came up at the health expenditure workshop I attended but the most intriguing ones dealt with the effect of an aging population on health spending.
If aging per se has not yet become a significant cost driver one has to wonder what might happen as the baby boom ages and enters its 80s given that a lot of health spending is in the last few years of life. The baby boom has always had an impact as it has moved through the life cycle. When it was young, it led to a building boom in schools and then universities which has left us with a lot of schools that now face declining enrollment. Will we be able to provide it with health care that does not saddle us with expensive new infrastructure and services? Will that infrastructure then be underutilized given the baby bust generation that follows? Are we doomed to repeat the mistakes of education with our health care?
Herb Emery’s talk focused on the financing of public health care as a pay-as-you-go system. While an aging population may be seen as a manageable cost-driver, Herb argued this perspective misses the fact that future health spending in an aging population is a lot like a pension and there is a large unfunded liability, which will be difficult to finance through pay-as-you go given the size of the baby-boom demographic bulge and the baby bust that follows. Possible solutions include increased fertility, lowering costs for elder health care or pre-funding the future liabilities with more taxes now. As can be imagined, none of these solutions is particularly easy or simple.
In many respects, the fiscal crisis of the 1990s was a lost opportunity given that despite the talk of health restructuring and moving to more community based care, and home care, the results have been underwhelming. Indeed, once budgets were balanced, the funding escalator resumed and in many respects it has been business as usual in the health care system not only with continually rising expenditures but also without any basic transformation of how we spend the money.
I suppose one has to wonder how we will deal with things like end-of-life costs. After all, for individuals, dying is not a repeated game and the instinct is to do and spend whatever it takes to postpone it. You only die once. For a society, death is a repeated game and there is greater incentive to deal with its resource costs but ultimately a society is still composed of individuals who will do whatever it takes to postpone death. Moreover, the baby boom is not really an isolated demographic but an alliance of overlapping generations including its parents and its children who all together will influence health spending for the next half century. The baby boom currently is dealing with health care for its elderly parents and what it obtains it will also expect for itself and its children. The effects of the baby boom go well beyond its own lifespan.