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  • Cam Anderson

What it takes: to cover health care costs as Canadian baby boomers age from 75 years onward

Problem:

Seniors over age 75 account for nearly half of the country's health spending today. As the baby boomer generation first reaches age 75 in 2020, the next 25 years will raise total health spending dramatically.


Per Capita Health Care Funding

Why it matters:

The strain on Canada's health-care system will be two-fold; both in the size of funds required and in the sources of the funding.


The annual health funding above normal budget levels the boomer generation will require starts at $12B per year in 2020 and grows to a max of $69B per year by 2035 before tapering slowly downward to 2050.


Currently, two-thirds of health care funding is coming from general government revenues. Worse still, after boomers leave the workforce, they pay less tax, resulting in lower government revenues from which to pay for health care costs.


Thus either the level of health care must be dramatically cut per senior, or deficit budgets will balloon. Assuming no substantive cuts, the deficit to provide boomers health care to boomers above the level in 2019 will accumulate to $338B by 2030, $983B by 2040 and $1,409B by 2050.


The current net debt of Canada is $659B in 2019. By inference, added costs health care costs to support the Baby Boomers may triple Canada's deficit by 2050.

Solution:

First, as a baby boomer myself, I would like to pay my way and not saddle future generations with debts dues to my generations health costs.


Secondly, I don't want everyone to have to pay more taxes.


Using the principle of SAVE BEFORE SPENDING, a better solution is possible. However, as we need health care spending now, we’ll modify ‘Save before spending’ to be ‘Save while spending.’ The trick is to build a savings account that eventually pays back all the expenditure.


Here is how: The government of Canada borrows $1.5 Trillion. This is a way of getting a bankroll to invest. This is not to add to the deficit, as these funds are invested in stocks and the financial markets; they are not spent to finance general annual expenditures.


The interest payments for these borrowed funds at the GoC rate of 2.3% equals $35B a year will come from earnings, so no new debt will be added by borrowing these funds.


The expected return from investing averages 7.2% less the interest rate, 2.3% equals a net return of 4.9% At a growth rate of 4.9% over a period of 17 years, an additional $1.7 Trillion will become available as savings. The borrowed $1.5T is paid back.


Now that 'SAVE' part of the SAVE BEFORE SPENDING rule has been accomplished, the $1.7T funds become the principle we are now able to spend. The rule is that if we spend just 4% per year of the principle, the spend can continue indefinitely. This percentage will generate $75B each year towards health care costs incurred.


Looking at the graph, we can see that by the year 2054, the cumulative savings exceed the funds spent on health care costs.

Cost Deficit vs Payback over time

No new taxes have been paid. All the baby boomers elderly health care costs have been covered. Problem solved!


Bonus: The annual contribution continues forever. So $75B will contribute every year to keep taxes down, even after the boomers' elderly health costs are paid.

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