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Executive Summary

Health Matters: An Economic Perspective

by The Conference Board of Canada

The health of Canadians is both a private matter and a public one. Canadians care about their own health and that of their families and friends. But the collective state of population health in Canada has implications for the health care system itself, and the economic performance of the country. These economic considerations, in turn, have consequences for Canadians’ health and the fiscal sustainability of the health care system. Adopting an economic perspective on population health can help inform the assessment and design of health and economic policies.

Trends in population health affect the demand for health care and health care costs. The broader economic impacts of illness have implications for the fiscal viability of the health care system and the capacity to supply health care. The primary driver of rising health costs is the health of the population. Chronic diseases are responsible for a significant amount of disease burden and costs, and many are on the rise. Direct costs—including drug, physician, and hospital costs—for a range of health conditions and chronic diseases are high and growing. For example, between 2000 and 2010 the direct costs of diabetes increased over twofold.

A range of population health determinants—modifiable, non-modifiable, and societal—factors into the prevalence and associated costs of health conditions and chronic diseases. As Canada’s population grows and ages, and the prevalence of chronic diseases rises, demands on the health care system and the total cost of delivering services increase. Modifiable lifestyle determinants (such as smoking, alcohol consumption, diet, and physical activity) are amenable to change and can be addressed through policy interventions. Obesity and physical inactivity—key risk factors for many chronic diseases—are growing in Canada and deserve attention. Societal conditions also influence health outcomes and provide another focus for policy interventions to control health care costs and the economic consequences of poor health.

As the demands on and costs of the health care system rise, Canada’s capacity to meet the demands and cover costs is also challenged. As the Canadian population ages, labour force and productivity growth slow and fewer healthy people are available to contribute their work effort to the economy. The tax base that funds health and social programs is weakened. Understanding these relationships is critical to the development of public health, education, and health care policies as well as workplace health and wellness programs.

Health impacts individual and household economic prospects. Poor health can negatively affect both labour force participation and productivity. For individuals, it can result in reduced income or unemployment; for businesses, it may mean productivity losses, and labour and skills shortages; for governments, it could result in a reduced tax base.

Modifiable, non-modifiable, and societal population health determinants factor into the prevalence and associated costs of health conditions and chronic diseases.

As Canada’s population ages, more workers exit the labour force than enter, and the proportion of the population that is of working age will decline. A higher proportion of elderly Canadians will depend on fewer workers to sustain the economy. The average retirement age has increased in Canada, which does have positive implications for labour supply. At the same time, an older workforce—with a potentially greater number of chronic conditions—has an impact on productivity.

There is a wide range of potential impacts of aging and poor and declining health on individuals and businesses. The indirect costs of poor health, including lower productivity due to short- and long-term disability and loss of future income due to mortality, provide some indication of the effects of poor health on productivity and, in turn, how well the economy can supply health care. For 10 selected health conditions and chronic diseases, the economic burden from indirect costs is estimated at $119 billion in 2010, up from $79 billion in 2000.

Poor health can be a drain on individual earnings and overall economic productivity, but it also has serious implications for health care system sustainability. Poor health that undermines economic potential also squeezes the tax base that funds the publicly funded health care system. Policies and strategies must provide sufficient funding to the health care system without compromising health or economic outcomes.

The collective health of Canadians has a significant impact on economic performance and the health care system. An aging population and increase in chronic diseases create enormous demands on, and higher costs for, the health care system. Concurrently, the capacity to fund health care is increasingly strained by the impact of these same demographic and health trends.

Although population aging is inevitable, there is a wide range of measures that can help manage and mitigate the impact of chronic diseases and conditions, and thereby limit demands on the health care system. Economic and social policies can improve labour force participation and productivity as well as contribute to health care system funding and sustainability. Finally, efforts to improve the productivity, efficiency, and the appropriate use of the health care services and resources system itself could help to mitigate the effects of growing demand and the strain on supply and funding.

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Health Matters report coverThe collective health of Canadians impacts the sustainability of the health care system as well as the country’s economic performance. Measures must be taken to mitigate the potentially negative effects of an aging Canadian population.