Author: Lennie Kaplan
The Alberta government must make comprehensive reform of the provincial health care system an urgent priority in 2027 to deal with the rapid growth of Alberta’s health spending, now projected to reach over $57 billion, or about 50% of total government spending within 10 years’ time, under a medium-cost scenario.
Health care continues to be the Alberta government’s largest and fastest-growing expense item, estimated at $34.6 billion, as of first quarter (1Q) 2026/27.
Between 2021/22 and 2026/27 (1Q estimate), Alberta health care program spending has grown by an average of 7.5 percent per year.
If that spending path does not appear unsustainable, provincial health care program spending now comprises about 42.5 percent of total Alberta government program expenses as of 1Q 2026/27.
This commentary projects health spending over the next decade (2026/27 to 2035/36) under low-, medium- and high-cost scenarios, built from key health care cost drivers.
We assess whether the current health care spending path is sustainable over the 10-year horizon and examine the impact of some ideas for transformational changes to the system.
In the modelling work, health care spending is divided into eight major categories: physician services and compensation; acute care hospitals and surgical services; continuing care, home care and assisted living; drugs and supplementary health benefits; primary care, public health, and community care; mental health and addictions; EMS, laboratory, and diagnostic imaging; and health care shared services and administration.
Three cost scenarios are presented, relying on five key health care drivers: population growth; aging and acuity; health wages and supplies; utilization and technology; and efficiency and productivity.
Health care cost growth rates for each scenario are as follows:
Low-cost growth: Average annual growth rate is 4.3% per year.
Medium-cost growth: Average annual growth rate is 5.6% per year.
High-cost growth: Average annual growth rate is 7.1% per year.
Based on these cost scenarios, health care expenses rise from $34.6 billion in 2026/27 to $50.4 billion in the low-cost scenario, $57.0 billion in the medium-cost scenario and $64.3 billion in the high-cost scenario by 2035/36.
Health care spending (estimated at between 4.3% and 7.1% growth per year) continues to grow faster than Alberta’s nominal GDP, estimated at about 4% a year after 2027, and faster than total revenue growth of 3.9% per year. Health expenses per Albertan increase from $6,734 in 2026/27 to $8,520 (low-cost), $9,643 (medium-cost) or $10,881 (high-cost) by 2035/36.
Continuing care, assisted living, and home care; physician services and compensation; drugs and supplementary health benefits; acute care hospitals and surgical services; and EMS, laboratory, and diagnostics are the spending areas that grow fastest as they are most impacted by aging and technology, in particular.
Health care spending in Alberta also continues the trend of crowding out the rest of government spending over the next decade.
Health care spending rises from 42.5% of program expense in 2026/27 to 46% (low-cost), 49% (medium-cost) and 52% (high-cost) in 2035/36, and from 36% to 51% of total revenue in the medium-cost scenario.
None of these health care cost scenarios are fiscally sustainable based on current policy.
The 2035/36 fiscal balance is an estimated deficit of $6.7 billion (low cost), an estimated deficit of $13.8 billion (medium-cost) and an estimated deficit of $21.6 billion (high-cost). The cumulative ten-year deficits are $35.6 billion in the low-cost case, $60.5 billion in the medium-cost case, and $87.0 billion in the high-cost case.
Net financial debt goes from $25.4 billion, or 4.7% of GDP, as of March 31, 2027, to $103 billion to $154 billion, or 14.1% to 21.2% of GDP, as of March 31, 2036.
The permanent health care spending adjustment needed from 2029/30 to stabilize net financial debt to GDP at its 2028/29 level is about $6.6 billion a year in the low-cost case, $9.9 billion in the medium-cost case and $13.4 billion in the high-cost case — or 1.0%, 1.5% and 2.1% of GDP, respectively.
Alberta’s health care system is affordable in 2026/27 only because of the presence of high resource revenues.
With health expenses growing at 5% a year through 2028/29, and then at 4.3% to 7.1% per year thereafter, the province faces persistent and widening deficits, more than a tripling of net financial debt and increasing the oil price needed to balance the books.
While the low-cost scenario of 4.3% is close to being manageable, the medium-cost (5.6%) and high-cost (7.1%) scenarios are not sustainable.
“Bending the curve” on the growth in health care spending has been a preoccupation for Alberta governments for decades, but containing the system’s long-term costs has been elusive largely due to a lack of political will.
While the Smith government has taken some initial steps over the past three years to slow down the rate of growth in health care spending, transformational changes are needed to achieve longer-term savings, improve efficiencies, and ensure the system’s overall sustainability.
A number of transformational changes to the health care system are outlined below:
Reinstate health care premiums: An income-tested health care premium — say $60 per month for singles and $120 per month for families, with exemptions for low-income households and seniors receiving the Alberta Seniors Benefit (ASB) and a phase-in above about $40,000 of taxable income — could raise between $1.3 billion and $1.5 billion in new revenues for the system per year.
Co-payments for selected health services. This would include a small co-payment by users for the income-tested seniors’ drug program, indexing continuing-care accommodation charges to CPI, increasing ground-ambulance and non-urgent inter-facility transport fees, increased fees for home support services and increased fees for supplementary health benefits. These measures could raise an estimated $250 to $400 million per year in revenues.
Delist non-medically necessary services from the Schedule of Medical Benefits (SOMB). Work with the Alberta Medical Association (AMA) to restrict services with little clinical benefit, such as routine annual physicals for low-risk adults, routine pre-operative testing for low-risk surgery, routine vitamin D and repeat lab panels and certain minor cosmetic procedures. The estimated savings could be $120 to $250 million per year.
Re-designate under-used rural hospitals. Alberta still operates a number of small rural acute sites with low occupancy and few admissions per day. Converting 15 to 20 of the least-used rural hospital sites into urgent-care centres, community health hubs with observation beds or continuing-care facilities, backed by virtual specialist support and retention of local primary care, could save about $150 million to $300 million a year in operating costs, and avoid $500 million to $1 billion in capital renewal costs over the next decade.
Reform physician compensation systems. With $7.7 billion budgeted in 2026/27, physician payment is one of the fastest-growing items of health spending. Options to reform physician compensation could include accelerating enrolment in the blended-capitation Primary Care Physician Compensation Models; move hospitalists, emergency and some specialist services to Alternative Relationship Plans (APPs); modernize fee codes for procedures whose wait time has fallen with technology, such as cataract surgery and diagnostic interpretation; and strengthen billing audits with claims analytics. Estimated savings are $230 million to $390 million per year, or about 3% to 5% of the total physician budget.
Expand scope of practice. Fund more nurse practitioner clinics, pharmacist prescribing and minor ailment assessment, community paramedicine and team-based primary care to move volume from physicians and emergency departments to lower-cost providers. Savings achieved are estimated at between $100 and $200 million a year.
Manage drug costs. Therapeutic reference pricing and tendering in high-volume classes, expansion of the biosimilars policy, evidence-based coverage for high-cost specialty drugs with managed-entry agreements and full participation in pan-Canadian (pCPA) negotiations. Savings are estimated at between $150 million and $300 million per year.
Hospital funding reform and better management of patient flow. Extend activity-based funding across the entire acute care system; expand chartered surgical facilities for high-volume, low-complexity procedures at lower unit cost while remaining publicly insured; and reduce alternate-level-of-care (ALC) days by moving patients awaiting placement into continuing and home care. Savings are estimated at between $250 and $450 million per year.
Increase workforce productivity. Reduce overtime and agency nursing, improve attendance management, optimize skill mix (RN/LPN/HCA) and use predictive scheduling. Savings are estimated at between $200 and $350 million per year.
Health Shared Services consolidation. Realize savings from centralizing procurement, IT, finance and HR across the four health care agencies. Target savings of 5% to 8% of the $2.3 billion base, or about $115 million to $185 million per year.
Digital and virtual care. Optimize Connect Care, deploy AI clinical documentation to free up clinician time, expand virtual triage (Health Link) and expand the use of remote monitoring. Estimated savings of between $60 and $150 million per year.
Health care prevention pricing. Targeted increases in tobacco taxes and alcohol taxes could raise $150 million to $250 million per year in revenue and lead to a long-run reduction in chronic illness and disease.
Legislate a health care spending anchor and requirements for an annual health care sustainability report: Health care spending per year should grow no faster than population growth (1.5%) + the Alberta Consumer Price Index (2%) + health care factor (0.5%), or 4.0% per year (measured over a period of five years). The Alberta government should also, by legislation, publish an annual health system sustainability report.
The health care reform package cited above could result in about $2.5 billion in annual expense savings and $1.7 billion in new revenues at full implementation by 2031/32, rising to $2.8 billion and $1.9 billion by 2035/36.
Applied to the medium-cost scenario, the 2035/36 government budget deficit would fall from $13 billion to $8 billion and the net financial debt-to-GDP ratio from 17.5% to 13.5%.
In conclusion, Alberta health care spending growing at 4.3% to 7.1% a year, as evidenced by the trends described above, cannot be financed through a volatile revenue base that is projected to grow at about 4% a year over the medium- to long-term.
Without structural change, health care in Alberta will absorb nearly half of all government spending within a decade, crowding out other spending areas, and result in structural budget deficits, adding up to $130 billion of net financial debt to the province’s books.
A sustainable path for Alberta health care spending requires a series of transformational changes to the system. The time for government action is now, while the conditions for fundamental reform are still in Alberta’s favour.
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 health care financing in Alberta. In 2019, Mr. Kaplan served as Executive Director to the MacKinnon Report on Alberta’s Finances.