NCPA - National Center for Policy Analysis


June 29, 2009

Canada's Medicare system is failing Canadians today -- delivering relatively poor access to health care services, despite its world class price tag.  Tomorrow appears even gloomier as the program's unfunded liabilities are projected to grow exponentially.  Without fundamental reform to Canada's health care system, today's young Canadians will be digging much deeper to pay future tax bills, say Milagros Palacios, an economic researcher, and Nadeem Esmail, a health economist, both with the Frasier Institute.

At its inception, Medicare was based on the assumption that the demographics prevailing in the 1960s would persist.  It was considered favorable social and economic policy to transfer a small amount of money from a large group of younger workers to benefit a small group of older and relatively less well-off retirees.  However:

  • In 1956, the proportion of the Canadian population that was under 20 years of age was 39.4 percent, while the proportion of those over 65 was 7.7 percent.
  • By 2007, the percentage of the population under 20 years old had decreased to 23.7 percent, while the ratio of those over 65 had increased to 13.4 percent.
  • Statistics Canada predicts that by 2040, those under 20 will account for 17.2 percent of the total population, while those 65 and over will account for 26.5 percent.

In 2007/2008, Medicare consumed 19.5 percent of total Canadian federal, provincial, and local government revenue.   Given that seniors (persons over 65 years old) account for approximately 44 percent of all health spending, and that the percentage of seniors will increase dramatically in the coming years, the portion of revenue currently used to fund Medicare will not be sufficient to pay for medical expenses in the future, say Palacios and Esmail.

This change in Canada's demographic makeup will continue to increase the amount of revenue needed to fund Medicare expenditures.  Palacios and Esmail estimate that the difference between the stream of promised benefits and the expected future stream of revenues -- the unfunded liability of Medicare --was $364 billion in 2004.  Medicare's unfunded liability grew by 20.7 percent between 2000 and 2004, from $301.5 billion to $364 billion.  Without reform, this discrepancy will only increase.

Source: Milagros Palacios and Nadeem Esmail, "Medicare's Unfunded Liabilities," Fraser Institute, June 2009.


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