Alberta will have to deal with a $580-billion health-care dilemma over the next half century as its population ages, according to a study released today.
The C.D. Howe Institute says the province needs to start setting aside money now for the care of future seniors or find ways to spend more efficiently if it is to avoid massive tax increases or slashing services in the coming decades.
“Alberta has been relatively immune to this issue due to its fast-growing economy and an influx of young people over the last decades,” said study co-author Colin Busby, “but it still faces some dramatic challenges.”
The influential think tank’s study says Alberta needs to seriously consider changes similar to those the federal government made a decade ago to the Canada Pension Plan when it increased premiums to cover a growing and unfunded liability to future retirees.
“It’s a way to cover the costs of long term care and drugs that are directly associated with aging, and that would help smooth out the future tax profile,” Busby said.
With its rapidly growing economy, the province has seen the cost of publicly-funded health care consume a decreasing share of gross domestic product in recent years.
But as Alberta’s demographic profile grows greyer, the study projects the share of GDP allocated to health will rise from the current level of 5.5 per cent to 8.1 per cent by 2035, and 13.3 per cent by 2064.
“Those incremental increases add up over time,” Busby said. “The pace may be glacial, but when the ice hits you, it can change the landscape.”
The study also notes that Alberta’s per capita spending on health care is more than 13 per cent higher than the national average, in part because it allocates many more dollars than most provinces to running hospitals and paying doctors.
“It’s not at all clear that the province is getting a bigger bang for its buck from this higher spending,” said Busby, “and if they can’t make a better evidence-based case, then maybe they need to consider getting them more in line with the national average.”
To quantify the looming liability, the study calculated how much money Alberta would need to invest in the bank today to cover the additional costs over the next 50 years of demographically-sensitive programs like health care, education and elderly benefits. The total was $704 billion, including $580 billion for health care.
“This is a huge amount — more than double the current GDP, or about $172,000 per Albertan,” the study said.
“Notwithstanding its relatively positive history, Alberta’s future will likely be marked by a demographic squeeze, as aging depresses growth in the province’s tax base while boosting its health care spending.”