Alberta can’t afford any U-turns on restraint

Compensation in health, education needs to fall, writes Grant Bishop.

Alberta’s government will table its 2020-21 budget on Thursday. Its previous budget in October mapped out the government’s fiscal path to return to budget balance by 2022-23, including annual spending targets by program area. The government’s freeze on topline program spending translates into real per capita reductions in spending, particularly in health and education.

These targets are necessary to bring Alberta’s program spending in-line with nationwide benchmarks and to return Alberta to a sustainable fiscal path. However, while the government laid out its long-term plan in October, this budget must clearly specify measures for restructuring spending.

The challenge will be to implement spending reductions in the face of vocal opposition from those whose compensation will be affected by fiscal restraint. Various groups will call for a U-turn, but Alberta’s government should not be turning.

Prior to last October’s budget, the C.D. Howe Institute published a “shadow budget” for Alberta. This exhibited Alberta’s unsustainable fiscal course, pointing to the prospect of spiralling deficits without a fiscal correction. Our shadow budget recommended implementing a three-per-cent consumption tax and saving all resource royalties to sustain balanced budgets as Alberta’s population ages.

But our shadow budget stressed that Alberta needs to get its spending under control before looking to new revenues. Despite costs of living in Calgary and Edmonton that are at the national average (based on Statistics Canada’s intercity index), Alberta’s per capita spending exceeds other provinces in every program area — most notably in health and education.

Focusing on health, the most recent forecast of age-adjusted per capita spending by the Canadian Institute for Health Information (CIHI) shows Alberta outspending any other province and exceeding the national average by 30 per cent. Despite Alberta’s relatively younger population, CIHI forecasts Alberta’s government spent $5,167 per person on health in 2019 compared to $4,603 nationwide. The divergence is driven by hospitals and physician payments. Alberta spends roughly $300 per person more on hospitals and $150 per person more on physicians than the nationwide average.

CIHI’S National Physician Database includes each province’s total payments per full-time equivalent physician. The most recent data for 2017-18 show Alberta’s average payments to almost every medical and surgical specialty well overshooting those in almost every other province. Admittedly, such comparisons of total compensation aggregate doctors’ fee-for-service rates and the volume of services provided. They don’t take account of funding differences for certain specialties’ overhead across provinces.

However, CIHI also publishes a Physician Services Benefit Index that compares fees for service paid across provinces using a common basket of services. Based on the latest 2018 data, family doctors had fee-for-service rates 34 per cent above the nationwide average. Medical specialists were 17 per cent higher and surgeons were 21 per cent higher.

As well, Alternative Payment Plans, in which doctors are paid based on an enrolled population, are much less common in Alberta than other provinces. Other C.D. Howe Institute research has examined the experience with such “capitation” in Ontario and argued for expanding these experiments.

Alberta’s doctors may dislike such interprovincial comparisons. But benchmarking is commonplace in the private sector to set cost reduction targets. Indeed, many Alberta workers have lived through painful years of restructuring as our energy industry shaved costs to achieve cost competitiveness with producers in other jurisdictions.

Of course, other professionals like engineers, lawyers and welders are paid what their services are worth to employers or clients. For health, our single-payer model means that it is difficult to estimate what doctors or nurses might be paid in a competitive market.

Our shadow budget argued that Alberta should experiment with private health delivery to provide a “relief valve” for compensation.

For example, such a “dual practice” model could allow doctors to privately bill for up to 10 per cent of their time while still continuing to bill in the public system. Some may object to “queue-jumping” by those who can pay or the risk for flight of the most talented doctors to private practice. However, today in Alberta, private radiology clinics already deliver MRIS, and it is unclear why doctors should be prohibited from providing services outside the public system. No other profession faces such restraints.

Health and education are the elephants-in-the-room of provincial government spending. In this budget, Alberta’s government must begin to reduce public compensation to levels in line with other provinces. Alberta’s doctors, nurses and teachers are caring, diligent professionals. They do not deserve vilification for hard bargaining in their own self-interest. But, as Alberta undertakes difficult adjustments to achieve fiscal sustainability, they must be part of the solution.