Alberta faces a $2 billion “healthcare spending gap” if it doesn’t take decisive action now
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Alberta’s Budget 2024 laid out a plan to stabilize the province’s long-term finances, with a key focus on keeping operating spending increases below the combined rate of population and inflation growth. However, the reality, especially in the healthcare sector, is that achieving this will be a significant challenge.
According to my calculations, Alberta will need to limit operating spending to a two percent increase per year to reach its long-term fiscal goals. However, healthcare spending, which consistently overshot its budget from 2019/20 to 2023/24, is a key obstacle. In Budget 2024, healthcare spending is projected to increase by 5.1 percent in 2024-25, 2.2 percent in 2025-26, and 3.3 percent in 2026-27. Even if these increases hold, they remain too high to achieve the desired long-term financial stability.
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The Alberta government has taken steps to address these issues. In November 2023, it announced plans to re-organize patient care, and Premier Danielle Smith has suggested transferring management of some hospitals to independent operators to increase efficiency and reduce costs. While these initiatives are good first steps, they fall short of delivering the kind of long-term savings needed to rein in the province’s runaway healthcare costs.
The key challenge remains clear: Alberta must change the trajectory of its long-term healthcare spending. The “healthcare spending gap” – the difference between projected spending trends and a two percent annual spending increase target – is set to grow. By 2025/26, this gap will hit $700 million, climb to $1.4 billion in 2026/27, and reach $2 billion by 2027/28.
Closing this gap will require nothing short of a fundamental transformation in how Alberta delivers and funds healthcare. Think tanks like the Fraser Institute and the Montreal Economic Institute have offered several important recommendations, including overhauling hospital funding systems, moving physicians away from fee-for-service models, expanding the role of private chartered health facilities, and utilizing more nurse practitioners and licensed practical nurses.
Another area ripe for reform is the Alberta Health Care Insurance Plan (AHCIP), specifically the Schedule of Medical Benefits. Revisiting which procedures are deemed “medically necessary” could save costs. Additionally, under-used rural and small urban hospitals should be consolidated or repurposed to better match community needs.
But restructuring healthcare delivery is only part of the solution. Diversifying Alberta’s healthcare revenue streams also needs to be on the table. According to my estimates, reintroducing a progressive healthcare premium system tied to income levels could generate around $1.2 billion annually. Low-income Albertans would be exempt from these premiums, and the revenue could grow year-over-year with Alberta’s GDP, providing a predictable source of funding for the healthcare system.
In short, Alberta’s healthcare system is in urgent need of both structural reform and new revenue streams. Without addressing both sides of the equation, the province risks widening its healthcare spending gap and jeopardizing its long-term fiscal stability. The time for bold, transformative action is now.
Lennie Kaplan is a former senior manager in the Fiscal and Economic Policy Division of Alberta’s Ministry of Treasury Board and Finance (TB&F), where, among other duties, he examined trends in healthcare financing in Alberta. He also served as Executive Director to the MacKinnon Report on Alberta’s Finances in 2019.
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