When B.C. Premier Christy Clark made debt reduction an early priority of her government, it was understood the job would be all but impossible unless health-care costs – escalating at alarming and unsustainable rates – could be contained.
On Tuesday, Ms. Clark's government tabled its 2015-16 budget, where the increase in the Ministry of Health was again kept under 3 per cent – not that much greater than the rate of inflation. It is the fourth consecutive budget in which the B.C. government has been able to achieve this goal, which has helped put it in a position to not only balance its books – for the third straight year – but also begin paying down overall debt.
Nationally, B.C. has put itself in an enviable position. The estimated surplus for the current fiscal year ending March 31 is nearly $1-billion. The government is projecting surpluses in the next two budgets cycles as well.
The province's debt to gross domestic product ratio – the number credit rating agencies really keep an eye on – will hit 17.4 per cent this fiscal year and is forecast to decline to 16.6 per cent by 2017-18. This compares to a debt-to-GDP ratio of 54.3 per cent for Quebec and 39 per cent for Ontario. It would appear there are no immediate threats to B.C.'s plum Triple-A credit rating.
Meantime, other important measurements of debt are also in retreat, including debt to revenue, direct operating debt and overall growth of debt.
When you talk to people in the Clark administration, there is near-unanimous agreement that one of the key factors in the government's ability to begin getting its fiscal house in order was its single-minded focus on health care.
"Addressing health-care costs is one essential prerequisite [to balancing budgets]," Finance Minister Mike de Jong said. "And I think the other is addressing costs around your overall labour costs. They both accumulate and aggregate and continue to build year over year."
From 2001-02 to 2011-12, Health Ministry costs grew at an average of just over 5 per cent annually. But the last three years of that period – from 2009 to 2012 – department accounts grew at rates of 5.7, 4.9 and 6.3 per cent respectively. When Ms. Clark became premier in 2011 and made balanced budgets a priority, pressure built inside government to find ways to start containing those costs.
Government bargained tough new agreements with nurses and doctors and also drove better deals with medical laboratories throughout the province. It urged greater collaboration among health authorities in an effort to find efficiencies that would save cash. It introduced patient-focused health care, a change from the block-funding model in which hospitals were given a set amount of money each year.
Under the new formula, the funding moved with patients; consequently, the more patients a hospital handled, the more money it received. This set up a competition among hospitals for customers, which helped drive further cost savings. The other major price escalator was Pharmacare – drugs are expensive.
Again, B.C. began driving harder bargains with drug manufacturers. It joined with other Western provinces to make bulk buys, which also helped lower costs. It looked more often at generics. Between 2007-08 and 2010-11, Pharmacare costs increased an average of 5.6 per cent annually. From 2011-12 to 2013-14, that number fell to an average of just 1 per cent, according to the Ministry of Finance.
Mr. de Jong believes that containing health-care costs is getting harder, with the province set to receive less in health transfer payments from Ottawa in 2017-18, under a new funding model linked to nominal GDP and population.
"To the extent there was ever low-hanging fruit – generic drugs, laboratory costs, etc. – I think we've dealt with most of those," Mr. de Jong said. "But with a [Health Ministry] budget of $18-billion, I'd like to think there are other efficiencies that can be found."
He believes rate increases that hover near or slightly above the rate of inflation could become the new normal.
"I believe it is sustainable," he said, "and when you look around the country, more and more jurisdictions are coming to the same conclusion, mostly out of necessity."