Although a rapid decline in oil prices has negatively impacted the Canadian economy as a whole, the top oil-producing provinces, Alberta and Saskatchewan, have taken the biggest hits. Given its strong industrial presence, Alberta in particular has traditionally been a notable contributor to the economic growth of Canada as a whole. It is therefore not unexpected that the broader Canadian economy could similarly stumble. A June 2014 survey by the Department of Finance estimated that Canada’s Gross Domestic Product (GDP) would reach about CA$2.3 trillion (US$1.8 trillion) by the end of 2017. The collapse of oil prices, however, has seen this figure revised downward in 2016 by almost CA$150 billion (US$115 billion) or 7% of GDP. It is evident from these figures that the current oil glut presents fiscal challenges to both the federal and provincial governments, but how severely can we expect the healthcare sector to be impacted?
In Alberta, the province producing about 80% of Canada’s oil, revenues from non-renewable resources have dropped by more than CA$7 billion (US$5.4 billion) since 2014–2015, reaching a level not seen in over 40 years. Paid employment in the province has fallen by about 65,000 since October 2014, with the majority of positions lost in industries directly related to the petroleum sector. The spillover effects of low oil prices have also impacted other sectors such as the retail and housing industries. In neighboring Saskatchewan, projected revenues from non-renewable resources in 2016 are almost a billion dollars lower than the previous year due to the sharp drop in oil prices.
Despite reduced revenue from the oil industry, Alberta has maintained stable funding for healthcare services. For its 2016 budget, the province allocated CA$20.4 billion (US$15.7 billion) to healthcare, representing a 3% increase over the previous year. Of that amount, approximately CA$2 billion (US$1.54 billion) will be allocated to Drugs and Supplemental Health Benefits, including CA$548 million (US$422 million) for prescription drugs, CA$321 million (US$247 million) for outpatient cancer drugs and specialized high cost drugs, as well as CA$124 million (US$95 million) in dental, optical and other supplemental health benefits for seniors. Alberta is also expected to receive CA$4.2 billion (US$3.2 billion) from the federal government as a part of the Canada Health Transfer (CHT) in 2016 to bolster its healthcare system. Interestingly enough, an additional CA$251 million (US$193 million) allocation will be received as a part of the federal Fiscal Stabilization Program. This program, which provides protection to provinces in the event of extraordinary decline in revenues, shows signs of the federal government committing to mitigating the impact of low commodity prices on Alberta.
Generally speaking, no major cuts have been made to any of the health services in Alberta as a result of the oil revenue decline. Nevertheless, controlling expenses will involve balancing some restructuring of the healthcare system against attempts to maintain quality and levels of care. For example, increased funding will be provided to Alberta Health Services (AHS) to identify operational efficiencies and cost-saving opportunities. Such opportunities include shifting care from the expensive hospital environment to the less-costly community-based services. Hence, in the 2016 budget, we see increased funding for services provided by midwives as one example of this cost rationalization approach.
Saskatchewan has followed an approach similar to Alberta as its public healthcare system as a whole has not been subjected to severe cuts. Rather, a record-high health budget of CA$5.7 billion (US$4.4 billion) was tabulated in June 2016, representing a 1.5% increase over the previous year. The 2016 budget, however, presents a mixed stance toward drug coverage in the province. On the one hand, additional funding, amounting to approximately CA$25 million (US$19 million), has been allocated to finance the new cancer and hepatitis C drugs approved over the last year. On the other hand, the cost of prescription drugs obtained under the Children’s and Seniors’ Drug Plans is rising by CA$5 (US$3.8) to a maximum of CA$25 (US$19.2) per prescription. Such ambivalent approaches convey that Saskatchewan is striving to balance protection of health services with economic sustainability in times of decreased revenues. A restructuring of the healthcare system in terms of reducing costs of the 12 administrative health regions aims to provide some savings. The province might even begin a “transformational” overhaul by eliminating some or all of these health regions to adopt a “one health region” model similar to the one seen in Alberta. Nevertheless, these administrative savings will amount to approximately CA$7.5 million (US$5.8 million), a figure that is far too small to account for the billion dollar revenue loss resulting from the drop in oil prices.
What is coming next could be far more worrisome for the Canadian healthcare system generally and the oil-producing provinces in particular. Under the terms of the 2004 Health Accord, which expired in 2014, the Canada Health Transfer (CHT), supplied by the federal government to provide financial support to provincial healthcare systems, has grown at a rate of 6% annually. Starting in 2017, however, increases in the CHT will be linked to economic growth. In other words, the annual increase in CHT will be in line with nominal GDP growth (but not fall below 3% annually). Therefore, low GDP growth rates arising from economic challenges similar to the ones currently seen in Alberta and Saskatchewan could result in lower funding for the public healthcare system.
Although the new federal government has promised to negotiate a new Canada Health Accord, which could see the formula used to calculate the CHT altered, no tangible progress in this area has been made in recent months. With the CHT accounting for more than 20% of public healthcare spending, unless the federal government acts fast, healthcare in Canada can very well be on its way to becoming more directly influenced by commodity prices. Low oil prices would unfortunately translate into lower quality of care and an increase in wait-times as provincial governments crunch the numbers to reduce the cost burden during times of reduced revenues. Pressure will thus be on the federal government in the near future as the provincial health ministers have all the more reason to push for a new Canada Health Accord.