Assessing Alternative Financing Methods for the Canadian Health Care System in View of Population Aging

The cost of the Canadian health care system is approximately 10% of Gross Domestic Product (GDP). Survey-evidence suggests that Canadians do not wish to have additional funds spent on health care but believe that the system should be able to deliver better quality care. Due to low fertility rates and increasing life expectancy, the Canadian population is aging. Over the next 25 years, the dependency ratio will increase, primarily due to the aging of the “baby boom generation” 2. This will place twofold cost pressures on governments responsible for maintaining the health care system: 1) As a consequence of increased life expectancy, on average, Canadians will have a longer period of health care consumption. Although age-specific cost may not increase, with an aging population aggregate annual health care expenditures are expected to increase. 2) The dependency ratio is a proxy for the ability of the population to support itself. The increasing dependency rate may result in a slowdown in GDP growth, given constant technology. In Section I, this paper attempts to quantify these factors. A single measure combining cost and quality is developed to demonstrate the magnitude of the challenge. In Section II, this paper examines a number of different approaches to health care financing including user fees and alternative compensation methods for physicians. The paper highlights documented information from Canada and international experience on the implementation issues involved. The paper evaluates the desirability of implementing these approaches in Canada.