The COVID-19 pandemic may be distant in the rearview mirror, but healthcare costs in Canada are continuing to have an outsized impact on provincial finances, said CIBC.
At just over 40% of total expenses in aggregate, healthcare is always the single biggest line item, writes the bank in a note to clients. However, its recent impact has been even greater than that, as it has contributed more than half of the increases in spending seen in the past five years.
In addition, these cost increases haven't always been easy to predict, with healthcare also contributing more than 50% of recent spending overshoots relative to initial budget estimates, points out CIBC.
Increased health spending needs have often been blamed on inflation, including pay increases for medical staff and population growth. While concerns about inflationary pressures are resurfacing again due to the Middle East conflict, the sharp deceleration in population growth should, in theory, ease the strain on healthcare costs.
Unfortunately, however, there is another and potentially larger factor driving costs upwards, one that will get worse before it gets better. That's the increase in healthcare costs that comes from an aging population, as per capita health spending rises exponentially for age brackets above 65, states the bank.
If the population continues to age as expected, then healthcare costs could continue to rise more than provinces, on aggregate, are currently projecting, according to CIBC.