The Millennium Paradox And Beyond

Dr. D. Wayne Taylor

Growing up in the 1960's and 1970's, baby-boomers developed great expectations of a long, healthy, prosperous life. It will not be long before the earliest of the boomers begin to retire. Yes, they will probably live longer than their parents but, to their surprise, many will be afflicted with the chronic diseases of aging at a time when Canadian society will not be able to afford to care for them.

What? No long-term care for the baby-boomers? That's absurd! No, - that will be the reality in twenty to thirty years.

The greatest country in the world in which to live - that is the title Canada has received seven out of the last eight years from the United Nations' Human Development Index programme. But as all sports enthusiasts know, when you are number one, there is only one way to go - down! Canada has been ranked number one by the United Nations largely because of its track record in the fields of health, education and welfare (we are actually deficient in some other areas).

For the past thirty years Canada and its provinces have spent at twice and three times the rate of inflation on healthcare, sometimes at the expense of other infrastructure items and, until recently, through deficit government financing. Government deficits are anachronisms today, so how does Canada sustain its healthcare system and stay number one in the world? This is especially challenging since the median age of Canadians has risen from twenty-one in 1970, shortly after the socialization of healthcare was completed, to forty today with all the accompanying increased demands that an aging population places on its health system. This challenge should be especially worrisome to those focused on long-term care since it accounts for only approximately 7% of the total spent on healthcare. Restraint is always placed first upon those at the margin.

And restraint there shall continue to be because increased government spending is not the answer. Several years ago ministers of finance learned what economists knew all along, that taxation can become "maxed out". As marginal tax rates rise, total tax revenue increases to the point where diminishing returns commence. From that threshold on, continued increases in tax rates actually derive less total revenue for government as companies go bankrupt or move south of the border to lower tax regimes, and as individuals become unemployed, enter the cash economy and/or avoid/evade tax else ways. Governments with balanced budgets can only spend more on healthcare at the expense of other priority items.

The government's supply of healthcare has real limits. That is why government only accounts for 69% of total healthcare expenditures today. On the other hand there is demand. In microeconomics the price paid is the point at which demand meets supply. As the perceived price to the consumer of healthcare neared zero in the 1970's and 1980's, demand (utilization) grew speedily. As the Canadian baby-boom bulge in the population ages, its utilization of acute care services, at first, and then long-term care services will rise even more dramatically.

Most Canadians just assumed that healthcare would be there when needed most. But when Otto Von Bismarck introduced the world's first state pension in 1889, which would commence at the age of sixty-five, the average life expectancy in Prussia then was forty-five. Today, Canada's pension age remains sixty-five even though the average life expectancy is seventy-eight. During the 1960's, the architects of medicare assumed that the health sector would remain non-unionized; that the Canadian dollar would continue to equal approximately the American dollar; and that the federal government would always pay fifty percent of the bill. Today, health is almost totally unionized; the Canadian dollar is two-thirds its United States counterpart; and Ottawa pays only eleven percent (of the 69% which is government funded, or 7.5% overall).

Canada ranks twelfth in the world in terms of healthy life expectancy. The morbidity amongst our seniors is escalating as is the acuity levels within our nursing homes, homes for the aged and home care programmes. Mental illness, dementia and depression will compound the situation. As supply is rationed and demand grows, satisfaction with the status quo will wane rapidly.

The most telling factor in Canada's immediate future is its "dependency ratio". The dependency ratio compares the percentage of Canadians age 0-14 combined with those age 65+ with the percentage of Canadians who work for a living, earn an income and pay taxes. Currently it is approximately 1:1. For every child 14 years of age and under and every senior 65 years of age and older, there is one Canadian working and paying taxes. By the year 2030, after the boomers have retired, this ratio becomes 2:1. For two children 0-14 and/or seniors 65+, there will be only one Canadian working and paying taxes. This means that just to maintain the current level of service (forgetting about increased demand) maximum personal income tax rates will climb from 48% to 85 %! But don't panic, this will not happen. Britain embarked upon a confiscatory tax regime several decades ago which required a Margaret Thatcher to redress and this scenario will not be re-run here.

The lesson is simple: a health care system big enough to give you everything you want, is a health care system big enough to take everything for which you and your parents worked so hard. Sterling and Waite (1998), although writing for an American audience about the same phenomenon, described the future thus: "(g)enerational warfare erupts as the baby boomers' children and grandchildren revolt against punitive tax increases needed to care for the elderly boomers. Inflation makes an insidious comeback as government deficits and debt explode … (y)oung investment strategists overseas discuss the United States along with other G7 nations (including Canada) as poorly run nursing homes in terminal decline." There is nothing to suggest that Canadians will react differently. And how ironic. The pre-boomers overspent, the baby boomers pay off the debt, and the post-boomers cannot/will not support the boomers.

Policy-makers also learned a lesson when building schools for the baby-boomers - many of which now lie idle, or have been razed. They overbuilt for the boomers once; they will not do it again. Governments are not inclined to build elder care institutions only to have them vacant twenty years later.

There is a paradox in all of this, however, which long-term care must recognize. Although the population as a whole is aging, today's seniors' market is actually growing slower than in the past. There is a bifurcation of the seniors' market: a rapidly growing market of those seventy-five years and older who, for the most part, live in "planned poverty", and a slower growing, more affluent aging population of those aged 50-75.

Further segmentation of the seniors' market reveals:

(As usual, the marginal long-term care populations of young disabled adults and technologically dependent children who will outlive their parents are neglected in all of this.)

The baby boomers are a demanding, knowledgeable, spoilt, impatient lot who have 75% more purchasing power than did their parents (and will their children). They are busy either de-urbanizing or re-urbanizing. Above all, they directly (through ownership) and indirectly (through purchasing power influence) control the mass media; and they who control the media today, to a large extent, control the political agenda - and will continue to do so as they age and require care.

Early baby boomers are entering their sixth decade but the retirement peak will not occur until 2026 (1961+65). There is a twenty year window in which to prepare for the baby-boom onslaught during which the market will actually tighten up temporarily.

In 1999 the World Health Organization concluded that " …competition subject to public regulation provides more efficient delivery of services benefiting the system as a whole". Canada, Cuba and North Korea are the only significant countries in the world which do not have a private health care system paralleling their government- funded ones. Canada is the only major country in the world which publicly funds a privatelyrun medical establishment and non-state-owned acute care/long-term care institutions as the lion's share of its healthcare system.

Canada needs a parallel healthcare system, including long-term care. It has it in education. Ten years ago, less than one percent of Canadian children attended private schools. This year's census is expected to show that up to ten percent of Canadian children today attend private schools - either boarding, day, religious or alternative independent schools. The parents pay private school tuition out of after-tax dollars as well as their full local school tax leaving more money left over at the end of the day for those remaining in the public education system.

Why not for healthcare including long-term care? In such a parallel model, those who choose to avail themselves of private health/long-term care could do so paying for it with after tax dollars and continuing to pay their full personal income and consumption taxes (a large percentage of which funds healthcare). There would be more money left over per person in the public system while those who choose to do so actually would have the choice of opting for private care. Countries which have both strong public and private healthcare systems also have technologically more advanced healthcare systems. It is a win-win-win. The public system remains fully funded; choice is reintroduced after a forty-year absence; and technology improves at a faster pace than at present.

A parallel system would be a real private-pay, private sector (not privatized government services nor government funded/subsidized privately-owned providers). It would provide our pressure-cooker of a system with a much needed pressure release valve. Governments are inclined not to plan rationally but to belatedly react to crises. We have twenty years in which to rationally evolve a parallel system before the crunch comes. Let us not wait too long.