New technologies and more services are behind rising health costs

The tsunami metaphor is more and more often used in commentaries about the effect of aging on health care spending in Canada. It musters up images of devastation and irresistible strength submersing any levees the system might try to mount to oppose it. It is a powerful but misleading metaphor.

There is a worrying rise in health care spending in Canada, but it doesn’t have much to do with population aging. To stay with the oceanographic metaphor, aging might be, at most, a modest tidal wave. The real tsunami of health spending is the result of changes in the way all patients are treated in the system, resulting from both price inflation (drugs and doctors cost more than ever) and technical progress (new diagnostic tests, surgeries and drugs).

The yearly increases in total health care spending in Canada  approximately 10 billion dollars per year nowadays  does not result from aging per se, but the costs of treatment, including diagnostic tests, drugs and doctors, for all patients, young and old. It’s not that we have too many seniors that will break the bank, but how those seniors, and others, are treated in the health system that affects the bottom line.

Put another way, aging on its own adds around two billion dollars to the annual health care bill while changes in the cost of treatment per average patient adds eight billion dollars.

How is it possible? To answer, let’s take a closer look at the age profile of health care spending: if age is on the horizontal axis and average spending per individual of a given age on the vertical axis, the profile resembles a valley. In other words, it costs a lot to be born, because it happens most often in a hospital; then, each year of age between one and 50 does not cost the health system much on average (the profile is flat and low)  but costs start picking up again at age 50 and the slope becomes steeper with age until plateauing around 80.

Contemplating such an age profile (drawn to illustrate a single year, say 2013), one might conclude that aging will increase spending dramatically. However, looking at two such annual profiles (one for 1993 and one for 2013), it is easy to see that the really striking change has been at the ground level: we spend much more today on anyone at any age than twenty years ago, and this is what really drives our health care costs.

This increase in costs for patient care has not been sudden, but has taken place over several decades and will likely continue apace. Costs have been driven by current investments in research and development (in industry and academia alike), insurance coverage for expensive, cutting edge treatments  whether truly beneficial or not  and our demand for longer and better quality lives.

We can’t really do anything about costs resulting from our aging population, but we can make choices about what services we provide patients of all ages. These choices might mean rationing care (and, as a result, longevity and quality of life) but also, and preferably, making sure all patients receive essential care, but not unnecessary care. The latter is about reducing “waste” in our health system, interventions that have not been proven to enhance length or quality of life.

So, how do we distinguish necessary from unnecessary care?

We need to build our health system on evidence; we need to know how many years of life and how much quality of life we buy through the increased volume of services and the flow of new technologies in the health care system. We also need to pay for services and innovation on the basis of what they add to quality and quantity of life (outcome-based payments). Instead we continue paying for technology on the basis of how much it costs to develop, not how much it delivers.

It’s time we stop throwing ever more money after the latest and greatest technologies in health services without knowing if we are getting a return on our investment. Our health care system suffers in the process.


This blog is republished on Healthy Debate with the kind permission of our friends at the EvidenceNetwork.ca.

The comments section is closed.

  • Sara Allin says:

    This is an excellent commentary, Michel.%featured% It’s rare to see this perspective – that aging is not the main driver of health care cost increases- in the media, %featured%though interestingly we do see it more often in Canada than in the US and UK when we look at print media (according to a recent study I published with Michael Gusmano this year in HEPL). One minor comment on the distribution of costs by age that you describe: Although it is true that most births take place in hospital, the bulk of these related costs would be allocated to the mom, hence the slight increase in costs we can see among women in their 20s and 30s. The high cost of being born is more to do with the costly and life saving technologies directed toward high risk, usually very small babies, is it not? So, while allowing more moms to choose home births is a pressing issue, this won’t reduce that spike in costs at birth you described.

  • Don Taylor says:

    Thanks for adding this perspective to the debate, Michel. The conventional wisdoms of our healthcare system needs more of these challenges if we are to speed up improvements, through more informed decision-making.


Michel Grignon


Michel Grignon is an associate professor with the departments of Economics and Health, Aging & Society at McMaster University and Director of the Centre for Health Economics and Policy Analysis (CHEPA).

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