THE AUTHORS

This working paper examines from a macroeconomic perspective the trajectory of total (public and private) healthcare spending in Canada over the next two decades. Our purpose is to estimate the extent to which healthcare spending is going to absorb a greater fraction of income than we have experienced to date, under two scenarios: a “baseline ” one calculated from parameters estimated from historical experience and an “optimistic ” one calculated from parameters which assume an unprecedented improvement in the efficiency and effectiveness of the healthcare system and large improvement in real potential output growth. In the base case, where total healthcare spending rises from nearly 12 percent to 18 percent of GDP over the two-decade period, governments would have to find revenue increases or expenditure reductions, or both, equivalent to about 4 percentage points of GDP if they continue to finance about 70 percent of total healthcare spending. Even in the optimistic case, they will have to find revenue increases or expenditure reductions of about 2 percentage points of GDP. Even if we in Canada are collectively incredibly successful in taking the difficult actions to improve the productivity, efficiency and effectiveness of the healthcare system (our optimistic case), we face difficult but necessary choices as to how both governments and individuals finance the rising costs of healthcare