ARCHIVED - Expenditure Review of Federal Public Sector - Volume One - The Analytical Report and Recommendation

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8. Comparability of Other Benefits

In this chapter we will summarize available information on benefits other than pensions in comparison with what is provided by other major public and private employers. As with pensions, there are unfortunately no recent definitive studies in relation either to particular benefits, or to the ensemble of non-pension benefits. We look first at the Public Service Health Care Plan (PSHCP), then more briefly at the dental plan, the life and disability insurance plans, severance pay and leave entitlements.

Before proceeding, we must emphasize that real comparability is about the full suite of compensation elements enjoyed by one group of employees versus another. This chapter decomposes various important benefits to understand how employers differ in designing these plans.

Public Service Health Care Plan

We have two documents to assist us in positioning the benefits available under the Public Service Health Care Plan (PSHCP). The first, the Mercer Benchmarking Study was commissioned by the union-management-pensioner PSHCP Trust,^[131] which was established in 2000 to manage the Plan on behalf of the stakeholders and to oversee the work of Sun Life in administering the Plan benefits. Table 1050 below summarizes the findings of the Mercer study. The second document is a set of prevalence tables produced by Watson Wyatt annually based on information obtained from a range of Canadian employers.^[132]

The Mercer study reported on 25 employers, covering 380,000 employees in the private and public sectors. About one third of the employers were from the public sector and all but one, a not-for-profit organization, were from the private sector. A few general points of note:

• Half of the organizations surveyed offered flexible benefits for current employees and some made this choice available to pensioners. The PSHCP makes only one fixed set of benefits available for all members.
• A majority of organizations provide a prescription drug card for employees. The PSHCP requires the employee to pay for drugs themselves, and then seek reimbursement subsequently.
• The PSHCP has annual deductibles of $60 for an individual and $100 for a family. For traditional plans, with no flexibility to select coverage options, only four of 17 had deductibles at or below these levels.
  
  

The PSHCP only reimburses 80% of eligible expenses. For drugs, 12 of 17 traditional plans provided higher reimbursement. The most common policy, in 60% of plans, reimburses at 100%. The pattern for paramedical services was similar.

To focus our description of specific benefits, we review in turn the largest PSHCP cost components in 2002: drugs, health practitioners, hospital room coverage and vision care.

Drugs

Drugs are an area of rapidly increasing costs, representing around 63% of PSHCP costs in 2002. About one third of the plans surveyed required the use of a generic substitution for a prescribed drug or the use of a formulary.^[133] The PSHCP was relatively more generous in relation to smoking cessation, fertility and anti-obesity drugs, in that about 40% of plans simply did not cover these categories, whereas the PSHCP did. Like the PSHCP, most of the survey plans did not reimburse for the erectile dysfunction drug, Viagra.^[134] Mercer observes that the 80% reimbursement rate for drugs is relatively low for active employees, particularly for traditional plans, but competitive for retirees. On the other hand, several survey plans levied a per-prescription deductible, ranging from $0.35 to $9.00, but the PSHCP had no such charge.

Health practitioners

Health practitioners refers generally to qualified service providers in such areas as physiotherapy, chiropractic, massage therapy or psychological treatment. Acupuncture is not covered by the PSHCP, although it was accepted by several survey plans. The PSHCP plan sets separate maximum annual billings for each category of service. At the same time, the PSHCP has no combined annual ceiling. This protects plan members but also prevents tradeoffs between expenditure categories. The PSHCP spending limits for the various services were as good or better than most survey plans in psychology but in most areas the PSHCP coverage maximum was lower than for most survey plans. For retirees, the PSHCP compares more favourably, with several plans offering no coverage of this type for retirees.

Hospital room coverage

Hospital room coverageis offered under the PSHCP at three levels. The first is automatic and fully funded by the employer. Participating employees pay the additional premium cost for the two higher levels, which aim at subsidizing the cost of semi-private and private rooms. A majority of survey plans for both active employees and retirees provide unlimited support for semi-private hospital accommodation, whereas the PSHCP limits such support to $60 per day at level I and $100 at level II.

Vision care

On vision care, the PSHCP reimburses up to $160 (i.e. 80% of $200) every two years. Most survey plans offered greater coverage, generally in the range of $200 to $300 every two years.

In the Mercer survey, employers paid the full cost of health care premiums for three quarters of the 17 traditional plans examined. While the PSHCP requires an employee contribution for the upper two levels of hospital coverage, this is a small proportion of the total plan costs. For retirees, the PSHCP is competitive with survey plans for level I hospital coverage, but less so for the higher two levels. Almost half of retiree survey plans were fully employer-paid, and 23% were fully paid by the employee.

Beyond the comparative details, the best way to integrate this analysis is by comparing actual per employee/retiree costs for different employers. Such costs reflect of course, not only differences in the plans, but also such differences in the workforce as age and gender and the healthiness of the workplace.

We have a limited set of data on such costs for a sample of 10 major public and private employers.^[135] For the four years from 2000 to 2003 inclusive, the average per capita costs for these 10 companies was $823. Coincidentally, the PSHCP average per capita for the same time period was almost exactly the same. However, the sample had four plans with much lower and four with substantially higher per capita costs. The full range was from $495 per capita to $1,243. The lower group spent between $495 and $586, whereas the higher group paid between $1,024 and $1,243. PSHCP's per capita cost increase averaged 8.5% over the three-year period 2000–01 to 2002–03. Plan costs for the other employers were rising in the same period more quickly, at 12.2% per year.

In conclusion, the 2003 Mercer survey report for the Public Service Health Care Plan Trust observed:

Overall, the health benefits provided for active employees by the PSHCP are competitive compared to the organizations surveyed. There are just a few areas where the PSHCP could be considered to be somewhat less competitive.^[136] These areas included the absence of a drug card, reimbursement and deductible levels, hospital room coverage, limits on many paramedical specialists, vision care limits, as well as private duty nursing and out-of-country coverage.

Unlike the PSHCP, few employers provide the same level of coverage to retired employees as to active employees, resulting in the PSHCP providing very competitive coverage for retirees, in the scope of coverage offered and the cost sharing of the coverage for level I hospital, in particular.

Public Service Dental Care Plan

In the area of dental protection, we also have two sources of information on the comparability of the federal public service plan^[137] and what is provided by other major employers in Canada. The first is a 2004 benchmarking study conducted by Mercer Human Resources Consulting^[138] for the Treasury Board Secretariat. This study drew on Mercer databases covering over 90 employers, and the Web site for the government of British Columbia. The second is information extracted from the Towers Perrin database on benefits provided by 191 employers with at least 1,000 employees.^[139]

Key points for comparison are summarized below. The first comments in each case are from the Mercer study. Where appropriate we add further detail from the Towers Perrin database.

Waiting period

At three months, the Treasury Board plan exceeded the most prevalent standard of beginning of coverage on the date of hiring.

Cost sharing

Treasury Board was among the 80% of sample employers that pay 100% of dental plan costs. In the Towers Perrin sample, about 40% of employers required employee contributions to their dental plan.

Deductibles

With annual deductibles of $25 for a single employee and $50 for a family, the Treasury Board plan was distinct from the over 80% of sample employers that had no deductible.

Reimbursement

For diagnostic and preventative services, the Treasury Board reimbursement rate of 90% was exceeded only by about one third of sample employers. In the Towers Perrin database, 55% of employers were identified as reimbursing 100% in this area.

For major restorative services such as dentures or crowns, the Treasury Board's 50% reimbursement rate was as good or better than the practices of a majority of sample employers.

For orthodontics, only about 20% of sample employers offered a reimbursement rate better than the Treasury Board's 50%. In the Towers Perrin database the proportion of employers offering a higher reimbursement in the orthodontics area was even smaller at about 11%.

Maximum reimbursement levels

With an annual maximum of $1,400 in 2003 for total claims in relation to basic and major services, the Treasury Board plan was less generous than the plans offered by a majority of sample employers. For orthodontics, the public service lifetime maximum of $2,500 was better than three quarters of the sample employers' policies.

Frequency of recall examinations

Fewer than 10% of employers offered more frequent recall examinations than the once-every-nine-months standard in the Treasury Board plan.

Timeliness of dental fee guide

Most employers applied the current dental fee guide whereas the Treasury Board lags one year in updating its approved rates. However, in practice, it appears that dentists generally bill federal public servants based on the lagged rates.

Retiree coverage

For two thirds of the plans included in the Towers Perrin database of 192 organizations with at least 1,000 employees, all dental coverage ends at age 65, whereas federal pensioners have the option to maintain their dental coverage indefinitely.

Overall, Mercer concluded that, "there are areas where Treasury Board is less competitive, such as the waiting period, deductible, and the combined maximum for basic and major dental services." However, Treasury Board is more competitive in the lifetime maximum for orthodontics.

Life and disability insurance plans

Life insurance

On life insurance, Mercer's comparative analysis yielded these points:

Starting date

Like three quarters of the sample employers, the Treasury Board life insurance plan applies from the date of hiring.

Cost sharing

On cost sharing, the Treasury Board's 17% share of the cost of basic life insurance is well below that of nearly all the sample employers. In fact, 85% of employers in the sample covered 100% of their plan's cost. In the Towers Perrin database of 193 plans covering at least 1,000 employees, about 70% were fully company paid.

Life insurance benefit level

At two times annual salary, the Treasury Board life insurance benefit level was as good or better than three quarters of the sample employers.

Treasury Board was among about one third of the sample employers that set no maximum life insurance benefit.

In summary, the terms of the Treasury Board life insurance benefit compare well with other employers, but the cost-sharing ratio is relatively unfavourable for employees.

Long-term disability insurance

Turning to long-term disability insurance, Mercer observed as follows.

Starting date

The Treasury Board enrols employees on the date of hiring for long-term disability income protection, as do two thirds of the sample employers.

Cost sharing

Seventy percent of the sample employers covered the full cost of this form of insurance, whereas the Treasury Board only pays 85% of the cost.

Benefit level

At a benefit level equal to 70% of pre-disability salary, the Treasury Board plan is as good or better than more than half of the sample employers.

Maximum coverage

With no monthly maximum income support, the Treasury Board is very competitive; only 30% of sample employers are as generous.

All-source maximum

Mercer states that: "the maximum income from all sources during disability varied from 75% to 100% of pre-disability earnings, with 85% the limit most often seen." It is difficult to assess policy in this area since it is intertwined with other issues such as taxability of benefits and indexation. The federal public service plan is integrated with other plans such as worker's compensation and the superannuation plan. However, other income may be allowed beyond the general benefit level of 70% of pre-disability earnings.

Cost of living

The Treasury Board long-term disability benefits are indexed to the cost of living to a maximum annual increase of 3%. This is as good or better than the plans sponsored by two thirds of the sample employers. In the Towers Perrin database of 193 organizations employing at least 1,000 workers, about half of the plans provided no such adjustments for inflation.

Waiting period

The Treasury Board plan had an elimination period of 13 weeks, which is the minimum period before an eligible employee can access benefits. This was the shortest period reported among the employers included in Mercer's sample.

Definition of disability

Consistent with most sample employers, the Treasury Board plan definition of disability is an inability to perform one's own occupation for two years, and thereafter, any occupation.

Overall, the Treasury Board long-term disability plan is competitive in comparison with Mercer's sample of major employers, particularly in regard to the benefit level, inflation protection and maximum coverage. Both of the insurance companies delivering the federal public service plans are of the view that these plans are not only competitive, but generous in comparison with other clients. The cost sharing for the employee is relatively less generous.

We have not included specific information about comparability in relation to the Treasury Board's short-term disability policy, since plans vary tremendously across organizations. For federal employees the main component of short-term protection is sick leave that can be accumulated from year to year. Advances can be authorized if necessary.

Severance pay

Federal public sector workers are generally eligible for severance pay when their employment ceases. This is equal to between one-half and a full week's pay per year of service, up to a maximum normally of 28 or 30 weeks. Although we have not identified any means of confirmation, we understand that a formal severance pay benefit is relatively rare among non-unionized employers

For unionized workers, we have been able to consult the database of collective agreements, covering at least 500 employees, that is maintained by the Labour Branch of Human Resources and Social Development Canada (HRSDC). In the unionized sector about half of all collective agreements include entitlement to a severance payment at the end of a worker's employment with the organization. These agreements cover about 62% (which equates to about 1.36 million workers) of those whose collective agreements are included in the HRSDC database. About 75% of provincial public servants enjoy such a benefit, whereas only about 20% of municipal workers do. Federal public servants constitute at least one quarter of all unionized Canadian workers eligible for severance pay.

Among those entitled to severance, about 90% receive a payment which increases according to the employee's years of service. The remainder receive a lump sum amount.

Leave entitlements

Essentially, federal public service leave entitlements are these:

• 11 statutory holidays are recognized;
• new employees are entitled to 15 days annual vacation leave, an entitlement that increases with years of service to a maximum of 30 days after 28 years–for most employees;
• sick leave accumulates at 15 days per year, less the amount used;
• employees may access up to 5 days of family-related leave; as well most unionized employees may take one day of personal leave and one day for voluntary service each year; and
• maternity and parental leave is granted in line with entitlements under the Employment Insurance Act.

We were able to get some comparative information regarding the leave policies of other major employers. On vacation leave, the 2004 Mercer Benchmarking study reported on vacation practices in the finance and insurance sector. For salaried employees, the average initial entitlement was 11.5 days; after 20 years the average was 24.8 days.

We were also able to consult the Towers Perrin database of about 290 employers. During the first year of employment, vacation entitlement was 13 days or less for over half of the organizations surveyed. About 5% had more than 15 days. At the other end of the entitlement spectrum, the number of years of service required for 30 days' leave ranged from about 7% of organizations requiring 20 or fewer years, to 31% with 21 to 25 years' service, to 43% that do not provide that length of vacation leave.

On the right to carry over vacation leave, the federal public service is in line with the two thirds of employers included in the 2004 Mercer Benchmarking study most of whom set a maximum number of days that may be carried over. Where the federal public service goes further than two thirds of employers surveyed, however, is in permitting employees to cash out unused vacation days.

The federal public service does not permit newly recruited employees to bring their level of leave entitlement with them. According to Mercer, over one third of surveyed employers do permit this for executives and managers, although this drops to 12% for regular employees. In the Towers Perrin database about one quarter of employers permit employees to maintain the level of annual leave entitlement they earned through service with earlier employers.

The only other area of leave on which we have comparative data is maternity and parental leave. From the 2004 Mercer benchmarking study, we learned that in the financial and insurance sector about three quarters of employers top up Employment Insurance payments for maternity leave, although half impose a minimum service requirement averaging 36 weeks to be eligible. However, only about 12% provide a similar top up for parental leave under the Employment Insurance Act. Not-for-profit and public sector organizations in the sample generally provided a top up for both maternity and parental leave, but with an average minimum prior service requirement of about 41 weeks. The federal public service, on the other hand, tops up both maternity and parental leave to 93% of regular earnings, for a combined maximum duration of a year, with no prior service requirement.

From the information presented here we conclude that the federal public service is generally more generous in its policies on annual leave and on maternity and parental leave than most employers surveyed.

 

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