Healthcare costs could weigh on G-20 creditworthiness: S&P

Mounting government spending on healthcare is likely to harm the sovereign creditworthiness of G-20 countries from the middle of the decade, if not kept in check by new policy measures, says a report by Standard & Poor's.

The report contains hypothetical scenario analysis, which covers the period from 2010-2050.

It said that governments' fiscal burdens will increase significantly over the coming decade, with the highest deterioration in public finances likely to occur in Europe and other advanced G-20 economies, such as Japan and the US.

These countries’ high existing social protections and rapidly worsening demographic profiles leave them with little room to maneuver in managing their health care spending compared with emerging economies, where demographics and economic growth are still slightly more favorable, S&P said.

"We project that health care costs for a typical advanced economy will stand at 11.1 per cent of GDP by 2050, up from 6.3 per cent of GDP in 2010," it said.

The projected growth in health care costs as a percentage of the total increase in age-related spending in the coming decades illustrates the challenging upward trend in health care spending, it added.

"It represents the majority of the total increase in age-related spending in more than half of the G-20 advanced economies.

"It exceeds 60 per cent in a large number of countries, including Germany, the UK, the US, France, Japan, Canada, Italy, and others. Nondemographic factors such as the costs of evolving technology and treatment coverage are the main drivers of future rises in health care spending," the report said.

While pensions look set to remain the biggest expense item in the budgets of advanced G-20 economies, health care will likely be the fastest growing expenditure in the coming decades.

Without policy changes, health care spending in a number of advanced economies, such as Germany, the US, the UK, France and Japan will increase by around 6 per cent of GDP by 2050. the report said.