Benefit Costs for (Toronto) City Workers Soar: Rising Healthcare Expenses and Aging Workforce Mean City Paid 12.8% More for Employees Last Year

By John Spears, Star

February 15, 2008

Canada

The cost of benefits for Toronto's 71,000 employees, their dependants, and retirees is soaring at double-digit rates, says auditor general Jeffrey Griffiths.

And an aging workforce coupled with rising health-care costs "are expected to drive costs even further," Griffiths predicts in a report to the audit committee.

Griffiths has few criticisms of the way the city runs its benefits programs. Benefits are well managed by city staff, he says. And the city has negotiated "extremely competitive" fees with Manulife Financial to administer the benefits package.

Still, costs are rising sharply.

The city paid $146.2 million in 2005 for benefits including drugs, dental care and long-term disability. In 2006, the city paid $162.3 million, an increase of 11.1 per cent. 

In 2007 the cost was budgeted at $183 million, an increase of 12.8 per cent or about $21 million. To raise that much money, the city must increase the residential property tax rate by 1 per cent, or $21.75 on an average home assessed at $369,300.

And those figures don't count the benefit costs for employees of the city's biggest agencies such as the police service and the Toronto Transit Commission. They cost an additional $76 million in 2006, but the auditor's report doesn't say how much those costs increased.

There are several reasons for the soaring benefit costs:

The city's workforce is aging – the average age is about 45 – and older workers claim more benefits, especially drugs.

The end of mandatory retirement will make the workforce even older.

The province's decision to stop paying for eye exams, chiropractic care and physiotherapy through OHIP loaded more costs onto the city's health insurance.

Griffiths suggests some possibilities to curb the spiralling costs.

The city might talk to agencies like the police and TTC, which have their own benefits, about merging under a single benefits umbrella in the hopes of reducing costs.

Griffiths also notes that many benefit plans have deductibles (for example, the employee must pay the first $3 of a prescription cost) or coverage maximums (for example, a $1,200 per person annual limit on dental payouts).

Those would have to be negotiated with the city's unions – almost all of which have contracts coming due this year.

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