S&P may cut G20 nations as of 2015 on health costs

Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries as of 2015 if their gover nments fail to enact reforms to curb rising health-care spending and other costs related to aging populations.

D eve l o p e d n at i o n s in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as aging populations strain social safety nets, S&P said in a report published on Monday.

“Steadily rising health-care spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If gover nments do not change their social protection systems, they will likely become unsustainable.”

If no reforms are adopted, heal t h- c are - re l at e d c re di t downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Health care will likely be the fastest-growing expenditure for developed countries, which already have high social protections and rapidly worsening demographic profiles. For example, Japan’s population is expected to decline by 30 percent by 2060, with two out of every five people turning 65 or older, according to official data.

Emerging market countries, especially in Southeast Asia, have a little more room to maneuver due to more f av o r a b l e d e m o g r a p h i c d y n a mi c s a n d e c o n o mi c growth, S&P said.

De mo g r a p h i c s wi l l n o t be the only f actor driving up health-care costs. More e x p e n s ive n e w t e c h n o l o - gies and broader treatment coverage may account for as much as two-thirds of the projected increase in healthcare spending, according to a study by the Inter national Monetary Fund cited by S&P.

If legislation were enacted to contain future increases in age-related spending without also tackling healthcare spending, the results would be only slightly less severe than under a no-policy-change scenario.

“The probable increase in projected health-care costs alone is so substantial that the impact of these refor m efforts would not be enough to meaningfully reverse the resulting credit deterioration,” S&P said.

Refor ms to contain a g ere l at e d s p e ndi ng c o upl e d with efforts to balance budge t s by 2 0 1 6 , o n t he o t he r hand, would be enough to of fset rising health-care costs by 2050, according to S&P.

(Reuters)