Health-care costs could downgrade Canada's credit

Standard & Poor's is warning that Canada and other G20 countries could face credit downgrades if they don't control expected increases in health-care costs as the average age of their population rises.

The ratings agency, in a report issued Thursday, says governments in advanced economies have missed the importance of health-care cost increases linked to aging populations.

"In general, policymakers have focused more on other areas of age-related spending particularly pensionsat the expense of health-care costs, to improve the long-term sustainability of social protection systems," the report says.

"Steadily rising health-care spending will pull heavily on public purse strings in the coming decades."

"If governments do not change their social protection systems, they will likely become unsustainable," it says.

The report says possible reforms include adopting technology that reduces the costs of providing care, controlling prescription costs and abuse of health-care systems, increasing the role of private sector health care providers and reducing coverage.

The study modelled likely increases in health-care costs out to 2050, if governments did nothing more to manage costs and just kept borrowing to meet increases.

Canada's debt would soar

That model suggests age-related costs pensions, health care, unemployment insurance and long-term care would push Canadas net debt to grow by 260 per cent from 2030 to 2050.

Health-care costs, already among the biggest government spending categories, would rise not only because of increases in the proportion of older citizens, but also with advances in expensive medical technology.

Maintaining pensions may remain the biggest age-related cost, but health care will see the fastest growth, S&P predicts.

"We project that health-care costs for a typical advanced economy will stand at 11.1 per cent of GDP by 2050, up from 6.3 per cent of GDP in 2010."

It predicts that these costs in Canada would rise from under eight per cent of GDP in 2010 to more than 13 per cent by 2050.

S&P forecasts that health-care spending as a share of total age-related spending in Canada would increase by more than 70 per cent by 2050.

Emerging economies, especially in Southeast Asia, it says, may have more time to respond to the challenges of increases in health-care spending because of the lower proportion of elderly and their expected higher economic growth rates.