Canadians are aging, and their health-care system how it runs and how it is financed is not prepared.

Last year, the first of the baby boomers turned 65. For at least the next two decades, their departure from the work force and their greater health-care needs will strain the system as nothing has before.

Today, 14 per cent of the population is over 65 years of age. That 14 per cent consumes about 44 per cent of all health-care spending. In a decade, seniors will amount to 20 per cent of the population, and they will cost the health-care system more.

People under 55 on average consume about $3,000 of health care from the public purse each year. For those 65 to 69 years of age, the sum jumps to $6,223, according to a recent report from the Canadian Institute for Health Information. For those 70 to 74, spending rises to an average of $8,721; for those 75 to 79, spending averages $12,050; and for those over 80, the average is $20,113.

True, some seniors will be fitter than previous generations of seniors. But fit or otherwise, the largest sums for health care come in the last six months of life, and we all die sometime.

Aging, per se, is a manageable cost somewhat more than 1 per cent per year. Thats why some experts dismiss it as a serious problem. Stale analysis. Old stuff, they sniff.

And theyre right, if only the costs of aging are calculated. But whats neglected is the flip side of an aging population a smaller share of people working to earn money that governments will tax to get the revenue for the higher costs. This is what is called by economists the implicit liability of future costs.

Herb Emery, a health-care economist at the University of Calgary (and two colleagues, David Still and Tom Cottrell) has crunched numbers around the costs of health care for a population with sharply higher numbers of seniors and fewer people working to support them. They call whats coming a Ponzi scheme, because of the sizable intergenerational inequities.

Since its inception, public health care has been funded on a pay-as-you-go model. Governments have raised taxes and/or borrowed money to buy a certain amount of health care. It worked, in a creaky sort of way, while the age profile of the population had more people working for a smaller number of retirees than now. The pay-as-you-go model begins to fall apart once the population profile ages.

The bottom line is that when people leave the work force, they will have paid the bulk of their lifetimes taxes, which governments will have already spent. When they start getting older, they will earn less, but cost governments more. Since governments have already spent their tax money, they will have to find new money from those who have not yet retired.

The rest is here:

Health care is heading into Ponzi-scheme territory