The Fiscal Sustainability of Alberta's Public Health Care System

Abstract

From 1975 to 2007, Alberta’s real per capita government health expenditures grew from $1,679 to $3,696 (in 2007 dollars), at a median annual growth rate of 3.5%. Over the same period, Alberta’s real per capita gross domestic product and real per capita total government revenues grew at median annual rates of 2.2% and 1.7%, respectively. This difference between the growth rates of health care spending on the one hand and government revenues and the economy on the other gives rise to concern about the fiscal sustainability of the province’s public health care system. This study presents projections of real per capita spending on public health care in Alberta over the medium term out to 2030. They suggest that, by then, real per capita spending could reach anywhere between $5,339 and $14,215, soaking up between 32% and 87% of total government revenues; more worrying, the high end of these ranges reflects a continuation of the policy settings that guide current provincial public health spending. Alberta is fortunate to have a wealthy economy that can support a high level of public health spending. But that support is precarious given the cyclical nature of non-renewable natural resource revenues and Alberta’s past tendency to experience periods of boom and bust. Basing the financing of key spending programs such as health care on a volatile revenue base is not advisable, for it puts them at risk should economic conditions turn unfavourable, as they have recently. Indeed, adjusting government revenues in our projections to match a more reasonable measure of what might be relied upon with a degree of certainty simply enhances the precariousness of the fiscal sustainability of the public health care system. Not all categories of provincial government health care spending — in particular, the traditional core medicare areas of physician services and hospitals — are growing faster than either the revenue base or the economy. The growth of spending on non-medicare categories such as drugs, capital, and all other health expenditures, however, is a particular source of concern. Options for sustaining provincial government health expenditures include choosing what other government programs could be allowed to grow more slowly over time, what tax rates could be increased to cause the revenue base to grow more quickly, and what health programs currently provided by the public sector instead could be provided privately. These approaches need not exist in watertight compartments, however, and a portfolio of policies that combines these solutions likely would be a pragmatic policy outcome. Such a strategy would help to ensure the fiscal sustainability of Alberta’s public health care system and responsibly provide for the future welfare of its citizens.