ARCHIVED - Expenditure Review of Federal Public Sector - Volume Two - Compensation Snapshop and Historical Perspective, 1990 to 2003

• Previous Page
• Table of Contents
• Next Page

This page has been archived.

8. Insurance and Other Employee Benefits

This chapter summarizes insurance programs for employees in the areas of life insurance, disability insurance, workers' compensation, dental and supplementary health care, and non-pension benefits for pensioners.

Supplementary Death Benefit and Life Insurance

The Supplementary Death Benefit Plan provides term life insurance equal to two times an employee's annual salary for all contributors under the Public Service Superannuation Act. The plan complements the pension scheme in that it protects survivors during the period when an employee is accumulating pension credits. After retirement, former employees may continue to contribute to the Plan. At age 66, the amount insured reduces by 10% per year, until age 75 when the benefit reaches the minimum level of $10,000.^[79] The Plan is administered by the Superannuation, Pension Transition and Client Services Directorate of Public Works and Government Services Canada.

Employees contribute $0.15 per $1,000 of salary. Total employee contributions (for those in the core public service and separate employer domains and other participants under the Public Service Superannuation Act, including participating pensioners) in 2002–03 amounted to about $58.5 million. The employer pays one twelfth of the approximately $80.2 million in general benefits paid each year, and pre-funds the full cost of the $10,000 minimum benefit when the member reaches 65. In 2002–03 the government contributed about $8.6 million toward general benefits and the minimum $10,000 benefit, about 15% of total Plan expenditures.

The Public Service Death Benefit Account has a very substantial accumulated actuarial surplus (in relation to costs), amounting at the end of March 2003 to $2 billion. Interest credited to the account over the year totalled $159.2 million. The total of general benefits and the minimum $10,000 benefit paid was $125.3 million.

Figure 2060
Overview of Income and Expenditures for the Public Service Death Benefit Account, 2002–03

Display full size graphic

Employees generally have access to additional term life insurance relating to their employment in the federal government. For union members, most unions sponsor such plans for their members, at the member's expense.

For executives (about 9,000 active and retired EXs), as well as excluded and unrepresented employees (numbering about 21,000), the Public Service Management Insurance Plan (PSMIP) includes a life insurance component. This plan applies to the core public service domain, to most separate employers, and to about 25 other agencies.

PSMIP benefits include:

• life insurance equal to approximately one or two times a member's annual salary,
• up to $250,000 for accidental death and dismemberment insurance, and
• modest life and accidental death and dismemberment coverage for the member's spouse and dependant children.

Member-paid life insurance coverage reduces by 10% per year from age 61 to termination of employment.

For non-executive members the maximum coverage available is two times annual salary. Non-executive members pay the full cost of PSMIP life insurance according to rates established for the various components by the National Life Assurance Company, the Plan underwriter. For example, under the Supplementary Plan, a male employee aged 51 to 55 pays a monthly premium rate of $0.18 per $1,000 of insured salary; a female pays $0.13. Premiums paid by employees in the main plan amounted to about $6 million.

For executives, basic life insurance is equal to twice the annual salary of the insured person. There is the option of purchasing additional insurance equal to a further one times annual salary, for a maximum of three times salary. Executives retain their insurance after retirement, with coverage declining over four years, from one times final salary in the first year of retirement to 25% in the fourth and subsequent years. The employer pays the cost for all executive coverage, except for the optional supplementary coverage. Employer premiums paid on behalf of active and retired executives in 2002–03 totalled about $6.2 million. This is a taxable benefit.

All coverage for non-executives ceases when employment ends, unless the member is totally disabled and receiving long-term disability benefits. When coverage under the Plan reduces or terminates, all members have the option of converting their coverage to an individual policy with the plan insurer. The government pays the conversion cost so that such coverage can continue without a medical examination, at regular rates.

Retrospective—Supplementary Death Benefit and Life insurance

Supplementary Death Benefit

On January 1, 1955 when the SDB was introduced, the benefit was one times salary to a maximum of $5,000. The employee contribution rate was $0.20 per $1,000 of salary. Since 1960, benefit reductions of 10% per year have kicked in at age 61, leaving a minimum benefit of $500 at age 70. The eligible salary cap was also removed during the 1960s. In 1992, the coverage was increased from one to two times salary, and the minimum benefit was raised from $500 to $5,000. Effective September 1999, this amount was doubled to $10,000, and the starting age for benefit reductions was raised to age 65. At the same time, the contribution rate was lowered to the current monthly level of $0.15 per $1,000 of salary. Employee contributions (for those in the core public service and separate employer domains, as well as related pensioners) totalled in the order of $60 million per year through the whole period from 1990–91 to 2002–03. Government contributions ranged from $8.4 million in 2001–02 to $9.9 million in 1999–2000 and 2000–01.^[80]

Table 2061 Summary of contributions, benefits, interest and accumulated account balances in the Public Service Death Benefit Account, 1990–91 to 2002–03 ($ millions)
Year	Opening balance		Contributions		Interest credited			Benefits paid
			Employees/ Pensioners	Government/ PS Corporations
1990‑91	616	59.3		9.7		69.0	36.2
1991‑92	718	60.7		9.6		79.9	37.8
1992‑93	831	62.8		8.9		91.2	54.6
1993‑94	939	64.1		9.3		99.7	84.1
1994‑95	1,027	63.8		9.1		106.9	84.5
1995‑96	1,123	63.0		9.0		116.4	80.1
1996‑97	1,232	61.6		9.3		124.8	83.8
1997‑98	1,343	61.0		9.1		132.9	87.3
1998‑99	1,459	62.6		9.3		140.1	77.0
1999‑00	1,493	60.5		9.9		147.3	103.7
2000‑01	1,707	53.3		9.9		151.4	122.4
2001‑02	1,799	53.1		8.4		155.5	119.0
2002‑03	1,897	53.5		8.6		159.2	125.3

The accumulated actuarial surplus of the Public Service Death Benefit Account has been growing steadily through the years under review. It stood at $616 million in 1990–91, and reached about $2 billion by March 2003. Interest credited to the Account has exceeded benefits paid each year. For example, in 1990–91 benefits were $36.2 million, while interest credited was over $69 million; by 2002–03 the corresponding figures were $125.3 million for benefits and $159.2 million for interest. Table 2061 gives the relevant figures for each year from 1990–91 to 2002–03, as reported in the Public Accounts.

Life insurance for executives and unrepresented employees

PSMIP coverage for executives was established in 1971 in two lines: basic life insurance equal to one year's salary, and accidental death and dismemberment (initially $50,000 coverage).

In 1975, the plan was extended to unrepresented employees in positions considered equivalent to executives. In 1979, basic life increased to 1.5 times salary, and in 1981 to the current level of two times coverage. Dependants' life and accidental death and dismemberment insurance was implemented in 1979. In the late 1980s, post-retirement life insurance for executives was introduced equal to one times salary at the termination of employment, then reducing 25% per year, stabilizing at 25% for life.

Life insurance financing

All these programs are entirely financed by the employer for executives. For non-executive members, coverage is available at the employee's own expense. Employer premiums for the PSMIP life and accidental death and dismemberment insurance covering executives rose from about $4.6 million in 1993–94 to about $6.2 million in 2002–03.^[81] Included in these amounts is about $1 million in 1993–94 rising to around $1.6 million in 2002–03 for coverage relating to retired executives.

Disability Insurance

Employees may also apply to one of two similar plans that provide income protection for full-time and part-time federal public servants who are unable to work for a lengthy period of time because of disabling illness or injury, whatever its cause. Those receiving workers' compensation may be eligible for a top-up from one of the plans.

The first plan is the Federal Government Disability Insurance (DI) Plan. It covers unionized employees of the core public service domain, most separate employers, and several other agencies and Crown corporations. The second plan is the Long-Term Disability (LTD) Benefit Line of the Public Service Management Insurance Plan (PSMIP), which covers executives and excluded/unrepresented employees of essentially the same set of federal government employers. Unlike other benefits where the federal government in effect pays the costs incurred, these plans are classic insurance schemes, with the risk largely borne by the insurance companies, subject to periodic premium adjustments based on claims experience. The DI plan is underwritten by Sun Life; the LTD plan by National Life.

The two plans provide an employee with a benefit equivalent to 70% of insured salary, which is available after all sick leave is used up or after a minimum three-month waiting period. Any other disability income from CPP/QPP, the pension plan, or workers' compensation is deducted from the benefit payable. Benefits are indexed annually to reflect increases in the cost of living on the same basis as the pension, but subject to a maximum of 3%. If an employee remains eligible, benefits may be paid until age 65.

Disability Insurance plan

Total claims paid through the DI plan in 2002 were $171.8 million, with about 8,500 claimants receiving an average benefit of $20,225. In 2002, the government paid a monthly premium of $0.918 per $1,000 of insured salary. Total DI plan employer premiums were about $109.3 million,^[82] 85% of the entire premium cost. Employees paid the remaining 15%: a monthly charge of $0.162 per $1,000 of salary, for a total of $19.3 million in employee premiums paid.

Note that annual deficits in 2000, 2001 and 2002 led the Treasury Board to authorize a 49% increase in the premium rate for both the employer and employees, beginning January 2003. Reserves accumulated in the plan as of the end of 2002 reached $1.04 billion, the amount estimated in 2002 as necessary in the future to pay for current claims.

Figure 2062 summarizes transactions affecting the DI plan in 2002.

Figure 2062
Overview of income and expenditures relating to the Disability Insurance Plan, 2002

Display full size graphic

The disability rate among the almost 200,000 employees covered by the DI plan was about 4.3% in 2002.^[83] The incidence rate (i.e. the likelihood that a member would become disabled during the year) was 0.96% in 2002. Slightly more new claims were accepted during the year (just over 1,900), than were terminated (about 1,830). The causes of new claims accepted in 2002 are given as per Table 2063. Nearly half (44.3%) related to depression/anxiety.

Table 2063 New claims accepted by the Disability Insurance Plan in 2002
Causes of Disability	No. of claims	Percentage
Depression / Anxiety	846	44.3%
Neoplasms (cancer)	272	14.2%
Spine-Sacro-Illiac	160	8.4%
Other	158	8.3%
Accidents	121	6.3%
Cardiovascular	107	5.6%
Arthritis-Rheumatism	105	5.5%
Neurological	92	4.8%
Gastro-intestinal	50	2.6%
Total	1,911	100%

Figure 2064
Income and expenditures relating to the Long-Term Disability benefit line of the Public Service Management Insurance Plan, 2002

Display full size graphic

Long-Term Disability plan

The Long-Term Disability plan (LTD) is part of the Public Service Management Insurance Plan. Claims paid in 2002 amounted to $28.8 million. The 1,126 beneficiaries received an average of about $25,600. As for the DI plan, the employer paid 85% of the premium ($0.595 per $1,000 of insured salary) for excluded and unrepresented employees.

The government paid the whole $0.70 premium for Executives. Total LTD employer premiums amounted to $21.1 million. Employees paid $0.105 per $1,000 of insured earnings (15% of the cost), yielding a total of $3.6 million in employee premiums for the year.

Deteriorating plan experience (a growing gap between plan income and plan expenses) consumed the accumulated surplus from 2000 to 2002, leaving a net deficit by the end of 2002. This trend led to a 60% increase in employee and employer premiums, effective January 2003. Plan assets at the end of 2002 were about $160 million.

The disability rate among the nearly 40,000 LTD plan members was about 2.8% in 2002. The incidence rate for new claims during the year was 0.84%. Substantially more new claims were approved (332) than were terminated (279). The profile of the reasons for new LTD claims in 2002 was very similar to that experienced in the DI plan. If anything, the main category (referred to as "mental/nervous" by the underwriter) is more prominent, providing the rationale for about 58% of cases.

Retrospective—Disability Insurance

With respect to employees who are unable to work for lengthy periods because of disabling illness or injury, here we summarize the evolution of these programs and their costs.

Disability Insurance plan

The Federal Government Disability Insurance (DI) Plan was put into place for unionized employees in 1970 to supplement disabled benefits from existing sources such as the Public Service Superannuation Act and the Canada/Quebec Pension Plans.

The number of year-end active claims under the DI Plan more or less doubled from 4,118 in 1981 to 7,920 in 1992. Since then, that number has remained generally in the low- to mid- 8,000 range. However, a marked decline in the number of members covered in the early and mid 1990s, with the departure of Canada Post from the Plan, and the impact of Program Review, means that the proportion of members supported under the Plan increased substantially during the 1990s.

The total value of claims paid rose from about $30 million in current dollars in 1981, to $85.2 million in 1990, to $126 million in 2000, to $171.8 million in 2002. The average amount paid per claimant (after the various off-setting programs) in each of these years was $6,303, $11,957, $15,022 and $20,225 respectively. Table 2065 summarizes the data on claims experience for selected years between 1981 and 2002.

Table 2065 Claims experience for the federal government Disability Insurance (DI) plan for selected years, 1981–2002
Year	Active claims at year end	Claims Paid ($ M)	Members	Proportion on Disability (%)	Average Benefit ($)
1981	4,118	26.0	238,514	1.73	6,303
1985	5,314	53.9	246,105	2.16	10,139
1990	7,125	85.2	247,206	2.88	11,957
1991	7,542	95.8	242,239	3.11	12,708
1992	7,920	104.0	251,177	3.15	13,137
1993	8,460	115.0	252,056	3.36	13,588
1994	8,637	119.4	211,960	4.07	13,829
1995	8,586	118.8	202,178	4.25	13,840
1996	8,472	122.1	189,651	4.47	14,408
1997	8,358	122.6	176,976	4.72	14,666
1998	8,210	120.4	173,944	4.72	14,666
1999	8,134	122.2	173,766	4.68	15,022
2000	8,204	126.6	179,123	4.58	15,429
2001	8,412	152.1	190,325	4.42	18,075
2002	8,496	171.8	198,384	4.28	20,225

From Table 2065 it is evident that the "disability rate" (i.e. the proportion of Plan members with an active disability claim) rose from about 1.7% in 1981 to about 2.9% in 1990, and has remained in the zone of 4.3% to 4.7% since 1995. Newly accepted claims within the year were consistently equal to about 1% of the population, with a somewhat smaller proportion terminating their claims each year. The principal causes of disability have shifted as well, with depression and anxiety growing significantly as a reason for approved claims, from 23.7% of cases in 1991 to over 44% in 2002.

At the Plan's outset in 1970, the employer and the employees each paid 50% of the premiums. In 1989, the ratio of employer to employee premiums shifted to 67%/33%. This moved to 75%/25% in 1990, and the present cost-sharing formula of 85%/15% was adopted in 1993.

The combined premium started in 1970 at $0.40 per $1,000 of salary per month. This estimate proved to be too low, since the Plan quickly went into deficit. In 1973 the total employer/employee premium rose to $0.54 and the following year to $0.80. This last rate generated surpluses, permitting a premium holiday for several months in 1979–1980. There was minor fluctuation in the rate until 1989 when it was increased to $1.20. Through the 1990s the plan ran surpluses, which permitted a rate reduction to $1.08 in 1993. By 2000, however, the Plan began to run increasing deficits that precipitated an increase in the premium rate to $1.61 beginning in 2003. The increasing pressure on the Plan is evident from Table 2065, which shows the rapid increase in claims paid after 2000. About $20 million of the $59 million deficit in 2001 was a result of increased payments arising from salary adjustments because of the pay equity settlement with the Public Service Alliance of Canada.

The employer premiums paid to the DI Plan were about $108.3 million in 1991, remained about $110 million for the next two years, then fell to about $77 million in 1997 and 1998 (due to Program Review downsizing). The employer share of premiums then rose year by year, to reach $109.3 million in 2002. Employee premiums totalled between $13.5 million (1998) and $20.2 million (1992) during the period.^[84]

Long-Term Disability

The second disability insurance program is the Long-Term Disability (LTD) component of the Public Service Management Insurance Plan. This Plan, which covers public servants who are not part of a union bargaining unit, came into force in 1968. Benefits are the same as for the DI plan for unionized employees. Table 2066 sets out the basic data on claims under the LTD plan.

Table 2066 Claims experience for the Long-Term Disability (LTD) component of the Public Service Management Insurance Plan, 1985 to 2002
Year	Active claims at year end	Claims paid ($ M)	Members	Proportion on Disability (%)	Average benefit ($)
1985	601	7.6	34,548	1.74	12,705
1990	692	12.4	41,280	1.68	17,896
1991	750	13.6	37,859	1.98	18,094
1992	800	15.2	39,081	2.05	19,042
1993	830	16.7	40,074	2.07	20,100
1994	881	17.9	40,221	2.19	20,361
1995	913	20.3	39,039	2.34	22,187
1996	937	19.2	38,004	2.47	20,501
1997	959	19.5	35,469	2.70	20,347
1998	950	21.0	34,052	2.79	22,075
1999	961	19.5	35,044	2.74	20,342
2000	975	21.2	36,132	2.70	21,699
2001	1,073	25.2	38,749	2.77	23,484
2002	1,126	28.8	39,603	2.84	25,590

Growth in the number of active cases in the LTD Plan was much more gradual than for the DI Plan, increasing by one third from 601 in 1985 to 800 in 1992, then rising to the mid-900 area for the late 1990s, and growing again to 1,126 by 2002. Since the number of members has remained mainly between about 34,000 and 40,000, the proportion of Plan members with an active claim has grown relatively slowly. It stayed below 2% until 1992, reaching the level of about 2.7% by 1997 where it essentially remained until 2002. Newly accepted cases have generally remained in the area of 0.7% to 0.8% of the population throughout the period reviewed. The proportion of cases described by the underwriter as "mental/nervous" has been fairly comparable over time with 44% of new cases in 1992, versus about 58% in 2002.

The total value of claims paid grew from about $7.6 million in 1985 to $12.4 million in 1990, $20.3 million in 1995, and $28.8 million in 2002. The average benefit per claimant (after taking account of off-setting payments) for these years was $12,700 in 1985, $17,900 in 1990, $22,200 in 1995 and $25,600 in 2002.

Initially in 1968, the employees paid the full LTD premium. With the advent of the DI Plan in 1970, the employer/employee premium shares for the LTD Plan tracked closely the ratios applied to the plan for unionized employees. Starting in 1970 at 50%/50%, the employer/employee ratio hit 75%/25% in 1991 and 85%/15% in 1993. The Government assumed full responsibility for premiums for members of the Executive (EX) classification group in 1990.

In the early years the combined employer/employee premium matched the rate set for the DI Plan. From 1975 until 1984, based on experience with the plan, the LTD rate was higher than that applying to unionized employees, reaching $0.96 monthly per $1,000 of salary in 1975, and remaining at $0.88 in 1979 and $0.84 in 1981. By 1984, however, the lower incidence of disability in the LTD Plan was reflected in premiums appreciably lower than for the DI Plan. The rate fell to $0.64 in 1984 and to $0.52 in 1986. The rate went to $0.55 in 1990, $0.83 in 1993, $1.04 in 1998, $0.70 in 2001 and finally $1.12 in 2003.

Employer premiums amounted to about $12.1 million in 1991 and rose rapidly due to the rate increase to about $19.8 million in 1994. After dipping for the next two years, premiums grew again to $26.4 million in 1999, and subsequently declined again to about $21.1 million in 2002. Employees have generally paid a total of around $2 to $3 million in premiums each year.

Workers' compensation

Employees who are unable to work because of an accidental injury on the job, or as a result of an illness or disease arising from the workplace, use sick leave until their eligibility for workers' compensation is determined, after which injury-on-duty leave may be approved to restore any sick leave they have used to bridge the waiting period. For 2002–03, the value of such leave is estimated at $10.4 million.^[85]

Under the Government Employees Compensation Act, federal employees are assessed by the Workers' Compensation agency in the province where they usually work. If eligible for compensation or treatment/rehabilitation, they receive it directly from that agency. Benefits vary according to the province, as well as the nature and severity of the injury or illness.

Compensation paid and medical and administrative costs incurred by the provincial agency are billed to the Labour Program of Human Resources and Social Development Canada (HRSDC).^[86] Costs relating to claims prior to April 1998 are paid by HRSDC on behalf of the whole federal government. Such costs in 2002–03 totalled about $42 million.

For costs relating to claims after April 1998, HRSDC bills the home department. In 2002–03, the total departmental billings amounted to about $18.4 million, Thus in 2002–03, total costs to the federal government for Workers' Compensation were just over $60 million, of which about $55 million is attributable to the core public service domain, or could not reliably be otherwise attributed. About 15% to 20% of these costs were administrative charges by the provincial agencies delivering the benefits.

Although our approach focuses on current expenditures, it is pertinent to note the actuarial liability incurred by the federal government for workers' compensation. For the government as a whole, the Public Accounts estimate the 2002–03 total benefit liability at about $567 million. This represents the estimated net present value of all future payments to be made as a result of incidents reported up to that date.

As might be expected, more operationally focused departments have the highest costs. Combining pre- and post-1998 costs, the top departments in this area in 2002–03 were:

• National Defence civilians (about $14.4 million),
• Correctional Services (around $11.5 million),
• the Canada Customs and Revenue Agency (approximately $5 million),
• Transport Canada (about $4.3 million, although all but $200,000 related to the pre-1998 period before Transport divested itself of major operations), and
• Fisheries and Oceans (around $3.4 million).

These departments alone accounted for over 60% of total workers' compensation costs for the federal government.

Separate employers

Workers' Compensation costs billed to separate employers in 2002–03 were $6.9 million.

Retrospective—Workers' compensation

Expenditures on Workers' Compensation in relation to federal departments and agencies (excluding Crown corporations) were as follows:

Year	Government Employees Compensation Act costs for federal departments and agencies ($M)
1991–92	$62.3
1992–93	$46.9
1993–94	$47.5
1994–95	$60.2
1995–96	$62.0
1996–97	$58.2
1997–98	$69.2
1998–99	$50.8
1999–00	$49.3
2000–01	$58.1
2001–02	$60.3
2002–03	$61.9

With the exception of five years only, expenditures in this area have been consistently in the zone of about $60 million. Given the element of uncertainty around the incidence of accidents, and the fact that charges and payments are attributed to the year they are received, we conclude that $60 million has in fact been a good average annual estimate of expenditures in this area, although costs may be rising more recently. Administrative charges by the provincial agencies have generally run in the area of 16% of the total. New claims^[87] in recent years rose from just over 7,000 in 1998 and 1999, to 8,400 in 2003.

Health and dental plans

The health and dental plans for the federal public service differ from the programs described in the previous section in that they are not externally insured plans. Private insurance companies manage them on behalf of the government, which pays (less member contributions) the benefit costs, plus an administrative fee and applicable taxes.

The Quebec government levies Quebec Sales Tax (9% on insurance premiums, and 7.5% on administration fees) on insurance plans, including those managed by insurance companies on the basis of "administrative services only." Great-West Life, the dental plan administrator, pays these charges themselves, so they are accounted for in what is described below. For the other plans, however, the Treasury Board pays the tax directly. In 2002–03, the total paid by the Treasury Board for this purpose was about $11.2 million.

Public Service Health Care Plan

The Public Service Health Care Plan (PSHCP) supplements health care coverage under a provincial or territorial health insurance plan.

It is the most widely available benefit offered by the federal government, covering employees who choose to join from the core public service domain, most separate employers, some Crown corporations and various other groups such as employees of Parliament, parliamentarians, judges and public service pensioners, as well as the dependants of these members. The plan also covers the dependants of members of the Armed Forces and the Royal Canadian Mounted Police. In 2002, members numbered about 505,000 in total, including about 227,200 pensioners.

The plan is managed through a Trust established in 2000, composed of the bargaining agents (unions) of the National Joint Council, the Federal Superannuates National Association (representing pensioners), and the Treasury Board. Sun Life administers the plan on behalf of the Trust. The Treasury Board provides necessary funds to the Trust, which in turn pays the Administrator's costs for reimbursing eligible claims (including administration fees and taxes).

Extended Health Provision

The main component is the Extended Health Provision which can, in turn, be subdivided in the following manner:

Drug benefit

Essentially this covers 80% of the cost of approved drugs prescribed by a physician or dentist (subject to an annual deductible).

Vision care

The major benefit is up to $200 every two calendar years for eyeglasses or contact lenses.

Medical practitioners benefit

Covers prescribed services by such practitioners as physiotherapists, psychologists, or massage therapists, as well as treatment by a chiropractor or naturopath, for example. Medically necessary private duty and visiting nursing services are also included.

Miscellaneous expense benefit

This provides for medical devices such as hearing aids, wheelchairs, for medically necessary ambulance or air ambulance services, and for other necessary supplies or equipment.

Out-of-province benefit

Covers expenses (up to a limit of $100,000) incurred as a result of an emergency outside the member's home province that are not covered by that province's health insurance plan.

Hospital Provision

The second component is the Hospital Provision. This is available at three levels of reimbursement for hospital charges. The first level is provided to all members (including pensioners), and the two higher levels are available at the member's expense.

Other Features

There is also a comprehensive coverage plan that funds physician and hospital charges normally covered under provincial health insurance plans for members (and their dependants) who are serving outside Canada. Additional coverage is provided under the Foreign Service Directives for employees serving abroad. In certain cases, pensioners living outside Canada may obtain some coverage under this element of the PSHCP.

Members are reimbursed 80% of eligible expenses, with an annual deductible of $60 for the member or $100 for a family. Some services have annual or lifetime limits on eligible charges, although there is no overall annual or lifetime maximum amount that may be claimed.

Plan income and expenditures

PSHCP claims paid in 2002^[88] totalled about $424.8 million. Including the charges for administrative expenses and plan taxes, the total cost that year was about $446.3 million. The portion of the total cost attributable to the core public service domain is estimated at about $121.9 million.

Figure 2067
Public Service Health Care Plan Income and expenditures, 2002

Display full size graphic

In addition to the 20% co-insurance and the annual deductible paid by employees on claims under the PSHCP, members contribute monthly, based on their chosen level of hospital coverage, and pensioners contribute under extended health coverage. Payments in 2002–03 for current public servants varied from a single rate of $1.10 per month for level-two coverage, to a family rate of $10.34 for level three. Active employees contributed $7.2 million for this coverage, and pensioners contributed $73.8 million. Executives and equivalent were not required to contribute. Figure 2067 summarizes the overall financial picture for the PSHCP for 2002.

Corresponding employer contributions were $60.56 per month, whether for single or family coverage. This is a taxable benefit in Quebec. Overall the employer contributed about $363 million (81%), and the members about $83 million (19%). Employer contributions during the year for employees in the core public service domain are estimated at about $108.6 million.^[89]

Within the whole PSHCP, the distribution of claims in 2002 is set out in Table 2068. Drugs, most notably, account for about 63% of expenditures.

The average value of claims per member during the year was about $840. On average members claimed for about 20.5 items, at an average unit cost of about $41.

Table 2068 Public Service Health Care Plan claims by benefit type
Benefit	Amount in $M	Percentage
Drugs	267.3	62.9%
Group Health Practitioners	45.9	10.8%
Hospital	35.5	8.4%
Vision	26.9	6.3%
Others	36.6	8.6%
Total—supplementary plan	412.2	97.0%
Total—comprehensive plan	12.6	3.0%
Total plan—PSHCP claims	424.8	100%

Separate employers

The part of the Plan costs that can be attributed to the separate employers amounted to about $41.7 million in 2002.

Retrospective—Public Service Health Care Plan (PSHCP)

Plan Coverage

In 1950, under the auspices of the National Joint Council^[90] (NJC), a Public Service Group Hospital Medical Plan was established on the basis of full funding by employee contributions. This was superseded in 1960 with the introduction of a comprehensive insurance plan known as the Group Surgical-Medical Insurance Plan (GSMIP), which offered coverage for employees and pensioners, as well as the widows and orphans of both. The employer assumed 50% of the premium cost for employees in 1960, and for pensioners and survivors from 1963. Optional hospital coverage under GSMIP became available in 1960 at the member's expense until 1969, when the employer assumed 50% of the cost of this component as well.

Following the passage of the federal Medical Care Act in 1966, provinces and territories established medical care plans for medically necessary services over the following few years. As a result, in 1972 the basic GSMIP coverage was discontinued, and only the supplementary portion was continued to cover GSMIP benefits not included in provincial medicare plans. An improved "comprehensive" plan was introduced in the same year for employees serving abroad and their dependants.

Hospital insurance was strengthened in the 1980s. Optional coverage for the cost of semi-private accommodation became available in 1980; in 1985 a further level of coverage was introduced to cover the cost of private accommodation. These new options were employee funded.

In 1991, the GSMIP shifted from being an insurance plan funded by premiums, to an administrative-services-only plan for which the Treasury Board carries the insurance risk. Coinciding with this change in the basic character of the plan, it was renamed the "Public Service Health Care Plan" the title by which it is known today. This change resulted from a recommendation by the Auditor General,^[91] intended in part to reduce the taxes payable to provinces on insurance plans. Subsequently, however, Quebec, Ontario and Newfoundland extended their insurance taxes to apply to administrative-services-only plans as well.

Cost-sharing

Prior to 1989, the only notable change in the employer/employee 50/50 cost‑sharing formula was the decision in 1981 by the Treasury Board to fully fund GSMIP basic coverage for members of the Executive (EX) group and their dependants. As we will cover in the next section, in 1988 the Public Service Dental Care Plan (DCP) became 100% employer funded. Negotiations with the main unions led in 1989 to a new 25%-75% contribution split favouring the employees, including the cost of level I hospital coverage. As noted earlier in this section, when the "health insurance remuneration supplements" program was discontinued in 1991, employer contributions on behalf of employees were raised to 90% and for pensioners to 75%. EXs became eligible for employer-paid hospital level III coverage.

In 1992, following the 1991 public service strike and legislated wage freeze, the employer agreed to pay 100% of the PSHCP contributions, including the hospital level I coverage.^[92] The pensioner contribution was reduced from 25% to 20%.^[93] A condition of these various changes was that the accumulated surpluses relating to the PSHCP (including the hospital portion) were dedicated to covering cost shortfalls until the surpluses would be exhausted. The opening amount was $94.2 million in 1992; by 2000, this source of supplementary funding was fully used up.

Member contribution rates for pensioner coverage were increased significantly in 1997, following a 1996 shortfall. The single rate went from $4.66 to $9.00 per month, and the family rate from $9.03 to $17.65.

Through most of the history of the GSMIP and the succeeding PSHCP, deductibles were $25 per year for single coverage, and either $40 or $50 for family coverage. In 1997 these amounts were adjusted to $60 for single and $100 for family coverage. The co-insurance of 20% of most eligible expenses being paid by the member has been a constant (i.e. claims are reimbursed to 80% of the eligible costs).

Plan costs

Our analysis of the PSHCP distinguished the 2002-03 costs attributable to the various employment domains within the federal government structure. Breaking out costs in this way for past years is more complicated than it is likely worth. Therefore, we decided to concentrate our assessment in this section on the PSHCP as a whole, and merely refer to it in "the retrospect" parts of our analysis of later domains. This is reasonable since the plan is administered in a unified way.

The cost of the PSHCP is the sum of the value of claims paid, administrative expenses of the insurance company managing the plan and taxes payable. Total costs since 1995 have been the following:

Year	Total Costs ($M)
1995	$251.0
1996	$266.9
1997	$271.1
1998	$297.1
1999	$319.5
2000	$354.6
2001	$408.9
2002	$446.2

Within these costs, the administrative and tax element grew from about $12.5 million in 1995 to approximately $22.2 million.

Plan financing

The total amount paid by the Treasury Board on behalf of the Government has been estimated at nearly $84 million in 1990–91, $125 million in 1991–92, $140 million in 1992–93, and $156 million in 1993–94. From 1994–95 to 1999–2000 the annual cost to the employer was about $175 million. This is the period during which the surplus accumulated by the GSMIP was used to cover cost increases, and (after 1997) when monthly pensioner premium rates rose by nearly 100% per member. Since then, the costs have risen markedly, from $283 million in 2000–01 to $350 million in 2001–02 and $422 million in 2002–03.

Figure 2069 plots the track of employer contributions from 1992–93, total costs for the PSHCP, and estimated contributions from other sources.  It should be noted that the GSMIP surplus helped hold down employer contributions in the first few years after 1992. Pensioners' contributions are also significant. In the early 1990s, these contributions rose from $33.5 million to around $55 million. From 1997, when pensioner contribution rates were effectively doubled, the total reached about $74 million. Employee contributions are quite small, limited as they are to level II and level III hospital coverage. They have been around $7 million since 1996.

Figure 2069
Sources of financing and total costs for the Public Service Health Care Plan, 1992 to 2002*

Display full size graphic

* Costs are for calendar years and sources of financing for fiscal years. Although there is some distortion, we use calendar years for the horizontal legend. Records on employer contributions before 1993–94 were destroyed, so earlier figures are reconstructed estimates. The contributions of both pensioners and employees are estimated based on a costing model.

Claims experience

Table 2070 illustrates the Public Service Health Care Plan claims experience and membership as they have developed over the period from 1985 to 2002. From the Table we can see that the membership reached 460,000 or so in 1991, and remained close to that level until 1999. Thereafter membership expanded to reach just over 500,000 in 2002. Considering the rapid changes in the public service during these years, the trend line for PSHCP membership has been notably stable. This reflects the reality that as active employee members decreased by 50,000 between 1991 and 1998 (from the departure of Canada Post from the plan, and program review downsizing), pensioner members grew by nearly 40,000 between 1991 and 2002. They increased their share of total membership from about 36% to 45% during this period.

Table 2070 gives the figures on the growth of PSHCP claims since 1985. In that year claims totalled $63.3 million. The cost per member was $154.30. By 1990, these figures had doubled to $134.4 million on claims and $300 on per-member costs. The next doubling occurred by 1998 when overall costs reached $284.8 million, with per capita costs of $616. As of 2002, the corresponding amounts were $424.8 million and $841.

Table 2070 Summary of membership and claims experience for the Public Service Health Care Plan for selected years, 1985 to 2002
Year	Total membership	Claims paid ($ millions)	Claims paid per member ($)
1985	410,000	63.3	154
1990	448,000	134.4	300
1991	463,279	155.7	336
1992	487,480	178.9	367
1993	465,657	223.8	481
1994	472,515	232.1	491
1995	472,395	238.6	505
1996	462,627	254.9	551
1997	462,157	259.0	560
1998	462,667	284.8	616
1999	467,379	304.9	652
2000	474,657	337.9	712
2001	489,443	389.1	795
2002	505,276	424.8	841

Table 2071 compares the expenditures by category for 1992, 1997 and 2002. From this data we can see that drug costs are the overwhelming driver of cost increase. This category accounted for $184 million of the $246 million difference in the cost of claims between 1992 and 2002, approximately three quarters of the growth. By contrast, the hospital and vision components have increased little in cost, but have fallen as a proportion of total spending.

Table 2071 Breakdown of Public Service Health Care Plan claims by benefit type for selected years, 1992 to 2002
Benefit	1992		1997		2002
	Amount ($ M)	%	Amount ($ M)	%	Amount ($ M)	%
Drugs	83.6	46.8	129.3	49.8	267.3	62.9
Hospital	34.9	19.5	45.8	17.7	35.5	8.4
Vision	13.8	7.7	24.4	9.4	26.9	6.3
Others	34.3	19.2	51.3	19.9	82.5	19.4
Total, Supplementary Plan	166.6	93.2	250.8	96.8	412.2	97.0
Total, Comprehensive Plan	12.2	6.8	8.2	3.2	12.6	3.0
Total PSHCP claims	178.8	100.0	259.0	100.0	424.8	100.0

Claims paid in relation to employee Plan members and their dependants were $84.2 million (46.7%) in 1992, $99.2 million (38.3%) in 1997, and $166.6 million (39.2%) in 2002. Claims relating to pensioner members and their dependants were $75.7 million (42.3% in 1992), $143.7 million (55.4%) in 1997, and $233.8 million (55%) in 2002. The remainder was paid in relation to dependants of Canadian Forces and RCMP members.

Public Service Dental Care Plan

The Public Service Dental Care Plan (DCP) generally covers reasonable and customary dental treatment necessary to prevent or correct dental disease or defect. The main categories of benefit are:

Routine preventative care

This includes such services as diagnostic work, cleaning and polishing teeth, fillings, and root canal therapy.

Major restorative care

Provides for items like crowns, dentures and bridges.

Orthodontic services

Repair of dental problems such as protruding or misaligned teeth.

Members are reimbursed 90% of the standard cost (using the previous year's provincial dental fee guide) for routine preventative work, and 50% for the other two categories of services. There is a lifetime limit of $2,500 on orthodontic work for any beneficiary, and an annual limit in 2002 of $1,400 reimbursement for any beneficiary. There is an annual deductible of $25 per member, and $50 for two or more beneficiaries in one family.

The DCP offers sub-plans for employees represented by the Public Service Alliance of Canada (PSAC sub-plan); and for employees represented by the other 15 bargaining agents participating in the National Joint Council (NJC sub‑plan). The latter plan also covers executive, excluded and unrepresented employees, and other groups such as employees of Parliament and judges. These two plans cover members' eligible dependants also. There are as well sub-plans for the dependants of members of the Canadian Forces and the RCMP, and for eligible members of the Canadian Forces Reserve. Benefits and plan terms are essentially the same for all the sub-plans.^[94]

In 2002, DCP membership amounted to about 330,000. This total comprised about 250,000 in the PSAC and NJC sub-plans, about 41,000 in the Canadian Forces dependants sub-plan, about 18,000 in the RCMP members' dependants sub-plan, and around 20,700 in the Canadian Forces Reserve sub-plan.

Claims in 2002 totalled about $155.9 million. Administrative costs and plan taxes took the total cost of the plan to about $167.3 million. The portion of this cost relating to the core public service domain is estimated to have been about $87.6 million. Great-West Life administers the plan on an administrative-services-only basis.

The government pays the full cost of the DCP,^[95] (interest income on the float account yields negligible revenue.) In effect, however, employees made what could be called a "virtual" contribution equivalent to about $20 million in 2002. This observation is based on the fact that in 1987 Treasury Board and the public service unions agreed that the rebate on Employment Insurance premiums relating to the existence of the government paid sick leave and maternity leave programs could be directed into the dental care plan. Previously this had been reimbursed to individual employees each year.

Figure 2072
Public Service Dental Care Plan—Income and expenditures, 2002

Display full size graphic

The $155.9 million in claims paid in 2002 broke out as follows among the three main categories:

Routine preventative care	$117.1 million
Major restorative care	$ 21.2 million
Orthodontic services	$ 17.6 million

The average cost of claims per member across the whole DCP was about $470 in 2002. On average there were about 10.5 units—a unit is any specific service provided under the Plan—claimed, for an average unit cost of about $45.

Separate employers

Costs for the Dental Care Plan related to the separate employer domain totalled about $32.7 million in 2002.

Retrospective—Public Service Dental Care Plan

Plan coverage and cost-sharing

The DCP was implemented in 1987. Contributions to fund this administrative-services-only plan were set originally at 50/50 for the employer and employees. Almost immediately, however, an out-of-court settlement between the Treasury Board and the public service unions led to the employer assuming 100% of the Plan costs.^[96] Aside from this change, however, the terms of the DCP have remained the same since its inception. Coverage is automatic; reimbursement is at the rate of 90% or 50% depending on the service, and the annual deductible is $25 for individuals and $50 for families.

Table 2073 gives the key historical information on membership and claims since the beginning of the DCP in 1988. Plan members include employees of both the core public service and separate employer domains, Canadian Forces reservists, and dependants of members of the Canadian Forces and the RCMP. Total membership grew during the first few years of the Plan to a maximum of about 352,000 members in 1993, then fell during the Program Review period to as few as 291,000 in 1998, and has since risen with the size of the public service to around 330,490 in 2002.

Plan costs and claims experience

Claims data in Table 2073 shows that the total value of claims paid increased fairly quickly as the Plan commenced operations, rising from about $61.1 million in 1988 to nearly twice as much ($118.4 million) in 1993. Claims then remained in the general area of $120 to $130 million until 2000; thereafter claims rose quickly to $155.9 million in 2002. Claims paid per member took longer to double, rising from just over $200 in 1988 to $423 in 1996. Since then per member claims fell and then rose most recently to reach $472 in 2002.

Table 2073 Summary of membership and claims experience for the Public Service Dental Care Plan, 1988 to 2002
Year	Total membership	Total claims paid ($ M)	Average value of claims paid ($)
1988	304,000	61.1	201
1989	306,100	67.3	220
1990	308,900	77.2	250
1991	344,600	88.5	257
1992	347,035	104.1	300
1993	352,300	118.4	336
1994	348,200	123.4	354
1995	322,300	126.4	392
1996	303,405	128.2	423
1997	297,607	117.9	396
1998	291,066	118.5	407
1999	299,713	120.7	403
2000	310,912	130.5	420
2001	324,509	139.0	428
2002	330,490	155.9	472

Total Plan costs have generally run about 7% above the cost of claims alone. The total cost of taxes and administrative expenses billed by the insurance company managing the Plan have risen from approximately $7.3 million in 1992 to about $10.6 million in 2002. Total Plan costs were $111.5 million in 1992, and $167.3 million in 2002.

The distribution of claims among the three main categories over the past decade is illustrated in Table 2074 below. While the share going to routine preventative care has held steady around three quarters of total cost, the proportion going to orthodontic services has risen from 8.2% to 11.3%.

Table 2074 Public Service Dental Care Plan claims by main category 1992 to 2002
Category	1992		1997		2002
	Value ($ M)	%	Value ($ M)	%	Value ($ M)	%
Routine preventative care	80.1	76.9	87.3	74.1	117.1	75.1
Major restorative care	15.5	14.9	17.6	14.9	21.2	13.6
Orthodontic Services	8.5	8.2	13	11.0	17.6	11.3
Total	104.1	100.0	117.9	100.0	155.9	100.0

Pensioner non-pension benefits

Retired public servants and their spouses and dependants are supported by the federal government through several post-retirement benefits. The most important are the Public Service Health Care Plan (PSHCP), and the Pensioners' Dental Services Plan.

Public Service Health Care Plan—Pensioners

The PSHCP supplements provincial health care insurance, particularly in the areas of prescription drugs, health practitioner costs, hospital charges and vision care. As previously noted, about 227,000 (45%) of the total 505,000 members covered by the PSHCP were pensioners. The portion of the total cost of claims in 2002 attributable to the pensioners and their dependants was about $233.8 million, about 55% of claims under the Plan. Note that this group comprises federal government pensioners of all types, including from the armed forces and the RCMP.

The employer contribution in relation to pensioners' PSHCP benefits was about $163 million in 2002–2003. In 2002 pensioners contributed about $73.8 million towards PSHCP costs, about 89% of the non‑employer contributions, or around one-third of the cost of claims by pensioners or their dependents.

Pensioners' Dental Service Plan

The Pensioners' Dental Services Plan (PDSP) is a voluntary plan that was established by the Treasury Board in order to provide  public service pensioners and their eligible dependants with a plan for dental coverage. The Plan was introduced in 2001 as one of several benefit improvements affecting pension, life insurance, and the death-benefit plans. PDSP is contributory; pensioners' benefits are paid on the same basis as those paid under the Public Service Dental Care Plan. The plan is administered by Sun Life on an administrative services only basis, the same basis upon which the main plan is administered.

Figure 2075
Income and expenditures—Pensioners' Dental Services Plan, 2002

Display full size graphic

Basic parameters of the Plan have been very stable over its first years. Membership has grown modestly from about 124,000 in the first year to about 134,000 in 2002. About half of members have eligible dependants. Taking account of these, the total number of people covered amounted to about 217,000.  Total claims have been very steady at about $59 to $60 million each year so far. The average value of claims per member has actually declined from about $472 in 2001 to around $445 in 2002. This average claim level is very comparable to that in the larger Public Service Dental Care Plan. Total Plan costs have run about 5% higher than claims costs, with just over $3 million per year in administrative expenses and taxes.

At the outset of the Plan, the Government agreed to cover 60% of the costs. So far, the rates set for member contributions have covered more than 60% of the overall costs, reversing in effect the planned employer/employee contribution proportions. Members contribute $16 per month for single coverage, $31.96 for a member and one eligible family member, or $47.96 for a family of more than two. Member contributions were $36.8 million in 2001, increasing to $40.7 million in 2002. The Government pays the difference between actual costs and the members' contribution. In 2001, the Treasury Board paid $24.9 million towards the Plan; by 2002 this had declined to around $22.2 million, about one third of the total. Over time it is expected that the employer will cover about 60% of total costs.

Pensioner non-pension liabilities

Both the PSHCP and the PDCP therefore imply an obligation to pay the employer's share of future pensioners' claims. This is true both in relation to those already retired, and to those currently employed. The Public Accounts estimate these future costs on an actuarial basis. In March 2003, the estimated value of the  PSHCP liability was $5.8 billion, net of members' contributions. This evaluation increased by about $350 million since March 2002, or about 6.3%. The estimate of liability for the PDCP was about $1.39 billion in March 2003, up by the same proportion over the year. These liabilities represent net present value of future payment benefits to retired and current employees, in relation to the portion of their service rendered to date.

Other non-pension benefits

As we described in previous sections, other non-pension benefits provided to retired public servants include:

• the Supplementary Death Benefit,
• Life insurance for executives under the Public Service Management Plan, and
• Disability Insurance or Long-term Disability benefits. These may continue to age 65, to make up any difference between entitlement under these plans and the total of other benefits including the public service pension.

Separate employers

Non-pension benefits for pensioners are also available to most eligible former employees of the separate employers, in the areas of health and dental protection, life insurance, and other benefits for retired employees in receipt of superannuation, generally on the same basis as for pensioners who retired from the core public service.

 

• Previous Page
• Table of Contents
• Next Page