THE PLANS
The five-per-cent problem
The PBO compiled the report at the request of the Senate national finance committee, which is trying to get a handle on how rising employer costs for its six major plans compare to other jurisdictions.
Here are the plans and how much they cost in 2024-25:
- Public Service Health Care Plan (PSHCP), which includes retirees: $2.3 billion.
- Public Service Dental Care Plan (PSDCP): $518 million.
- Pensioners’ Dental Services Plan (PDSP): $312 million.
- Disability Insurance Plan (DI): $649 million.
- Public Service Management Insurance Plan (PSMIP), which includes retirees: $123 million
- Royal Canadian Mounted Police (RCMP) Life and Disability Insurance Plan: $103 million.
From 2020-21 to 2024-25, the government’s employer insurance costs grew an average of 11.3 per cent a year, the report says. That is one-and-a-half times faster than the fastest-growing province, British Columbia at 7.7 per cent, and nearly four times the rate in Ontario. Treasury Board Secretariat has yet to explain the faster rise. Not even workforce reductions can offset it.
Last year, the plans cost the government about $3.5 billion. That’s roughly five per cent of the total personnel bill. Half of those costs came from the Public Service Health Care Plan, the biggest plan by far. Dental plans – covering both employees and retirees – made up about a fifth. Disability another fifth. The management insurance and RCMP plans accounted for the rest.
Canada Life runs the health and dental plans. It took over the health plan from Sun Life in a troubled 2023 transition. The coverage and reimbursement rules are negotiated by the government and unions. For active employees, the government pays core coverage and Canada Life simply processes the claims under the rules.
This isn’t about headcount. It’s about what each member costs. Employees who retire or exit using the Early Retirement Incentive, for example, leave payroll but stay on the plans. The government spends about $3,453 per member annually on health and dental plans alone.
Let’s look at the numbers behind that.
Cost-per-member in the Public Service Health Care Plan grew at 11.3 per cent annually between 2020-21 and 2024-25 while membership grew just 2.3 per cent.
Dental-plan cost per member for employees: 13.6 per cent. The disability-insurance plan gets lots of attention because of soaring mental-health claims, but it was actually the most contained of the group: 4.8 per cent per member. Claims in 2020-21 were unusually high, though.
And then there’s the Pensioners’ Dental Services Plan: a 33-per-cent-average annual jump in cost per person while membership barely moved: up 1.4 per cent. Cost per person nearly tripled in four years.
Why the gap between the feds and other jurisdictions? Unclear. But all employer-benefit plans are facing the same pressures: costs are rising and people are using their benefits more.
NEW ERA, NEW COSTS
What’s driving benefit costs everywhere?
Specialty drugs are among the fastest-growing costs, especially high-cost biologics and rare-disease treatments that didn’t exist a generation ago.
Mental-health claims have risen sharply since COVID, with longer disability durations and higher use of psychology and counselling services. The use of paramedical services – physiotherapy, chiropractic, massage, and osteopathy – is shifting from treating injuries to being an aid for routine wellness. And an aging workforce simply uses more of everything.
Joseph Ricciuti, mental-health and benefits expert and principal at Eliza Consulting Group, finds the report worrisome. He was disappointed by the lack of “meat,” the data that would explain why the feds are outpacing the provinces.
In most plans, he says, about 20 per cent of members account for roughly 80 per cent of total costs. It’s the 80/20 rule. High-cost drugs, chronic conditions, and long-term disability claims tend to cluster in that small slice of the workforce. Does the spike in federal cost-per-member fit that pattern?
Once departments start hiring again, per-person expenses will ratchet up the bill even further, so the government must get a handle on specifically what is driving up costs, he argues.
Who owns this? Political accountability for these costs belongs to the government. But TBS is the employer. The costs fall under its authority, though Treasury Board does not negotiate with a blank cheque.
A longstanding criticism of federal compensation is that wages, pensions and benefits are negotiated separately, making it harder to get a full picture of costs and the trade-offs between them.
In this fragmented approach, no single actor is responsible for the total cost. That’s a governance problem, not simply a Treasury Board management issue. The Carney government, however, wants to reduce operating costs, and personnel expenses are the largest component of that spending.
“I think this government is looking for any opportunity to lean things out and find savings,” said one senior bureaucrat familiar with the file.
“Given the quantum of dollars involved, it’s reasonable to assume that this is something that will get some focus.”
One of the bigger questions: will Carney – banker, economist and corporate insider – decide it’s time for government to start managing its workforce through a total-compensation lens?
“Spend, baby, spend.” Some argue the plans have no built-in incentives to control costs. The government pays the full cost of dental and extended health coverage and most disability costs. Third-party insurers administer the plans. As one senior official put it, the result is a “spend, baby, spend” culture.
Others argue the rising costs raise questions about the health of the workforce – and where’s it’s headed. The workers who have left first tend to be younger and healthier: the term employees, casuals and students. “The healthy ones with great teeth,” one official says. Who is left? An older workforce with more aches and pains – and heavier use of health and dental plans? Cutting headcount at the younger end could increase costs.
But who wants war? The report comes as Treasury Board and PSAC are locked at a contract standstill. But how much political turmoil is the Carney government willing to risk to get these compensation costs under control. It has much bigger fish to fry on its economic agenda. The last thing it needs is a war with its employees and their unions.
If the government digs in on wages while cutting headcount, does the next phase of cost control mean asking employees and retirees to shoulder more of their benefit costs?
Here’s how the costs are shared now:
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