The Employee and Labour Relations Committee recommends that:

1.         The Executive Committee receive the item for information.

The Employee and Labour Relations Committee requested the Executive Director of Human Resources to conduct a preliminary review on whether to bring the administration of employee benefits in-house or, alternatively, in conjunction with other municipalities.

This report presents the results of discussions undertaken with the City’s benefits carrier, Manulife Financial, to explore initiatives to further manage drug costs within the context of the City’s traditional benefit plans.  Additionally, this report summarizes the success of the City’s benefits cost containment initiatives implemented over the past five (5) years. 

Since 2009, the City has taken many positive steps to identify and implement initiatives that have enabled the City to significantly reduce its actual benefit plan costs year-over-year and achieve much better results than currently being achieved in the industry on average.  While the Canadian Industry Average continues to reflect increases in 2013 for both health (12% increase) and dental (8% increase), the City experienced decreases in 2013 for active employees and retirees of -6.5% for health and -4.0% for dental.

In addition, the concerted effort over the last five (5) years to reduce benefit costs is also having a positive impact on the post-retirement portion of the City's long term employee benefit liabilities.  Post-retirement benefit liabilities have decreased by $169.0 million, or 19.7% since 2011. 

Continuing to build on these successes, the City will be implementing in the latter part of 2014 a Preferred Provider Network (PPN) of pharmacies that employees and retirees can voluntarily access for prescription drugs.  Additionally, City staff will continue to partner with industry experts and Manulife Financial (the City's benefits carrier) in monitoring benefit trends and costs in 2014 and 2015 (both within the City and across the industry) to help identify further areas for improvement and emerging best practices.  Staff will report back to the Employee and Labour Relations Committee by Q3 2015.

There are no financial implications associated with this report.

Table 1, below, compares the City’s benefit costs from 2011 to 2013. In 2013, the City spent approximately $202.5 million, as compared to $206.5 million in 2011, or a decrease of $4.0 million. These benefit costs include Health, Dental, Group Life Insurance and Long Term Disability (including administrative fees and taxes) for all Active employees and Retirees (approximately 25,156 active employees and 9,637 retirees).

Active Employees: Based on a number of cost containment initiatives (including both administrative as well as plan design changes) implemented for active employees, the City achieved an overall decrease of $7.3 million (or -4.0%) since 2011.

Retirees: The cost of retiree benefits has increased by $3.3 million (13.5%). 

Overall: The City has achieved a decrease in its total benefit costs of $4.0 million (or

-1.9%) since 2011.

Table 1

Benefits Costs for Active Employees and Retirees (after administration fees & taxes)

 By Benefit Type:   2011 to 2013

*1:  Includes Group Life Insurance (GLI), Accidental Death & Dismemberment (AD&D), Line of Duty of Death (LODD)

In addition to the cost containment initiatives implemented in the benefit plan design, the City has also taken steps to reduce the administrative fees with the benefits carrier and to reduce the long term liabilities associated with the sick leave benefits and post retirement benefits.  Table 2, below, provides a summary of the overall cost savings and liability reductions achieved over the last few years.

Table 2

Summary of Overall Cost Savings and Liability Reduction

*1:  Savings of $21.6 million for 2012 to 2013, plus additional savings of $32.5 million for 2014 to 2016 (inclusive).  See Council report GM3.8, May 17, 18, 19 2011 Council Meeting; http://app.toronto.ca/tmmis/viewAgendaItemHistory.do?item=2011.GM3.8

*2:  See E&LR Report, EL20.5. Employee & Labour Relations Committee meeting May 19, 2010:  http://app.toronto.ca/tmmis/viewAgendaItemHistory.do?item=2010.EL20.5

The Deputy City Manager and Chief Financial Officer has reviewed this report and agrees with the financial impact information.