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Funding for retirement health coverage

Learn how extended health care and dental coverage in retirement is funded.


Your pension from BC's Municipal Pension Plan is a monthly income for your lifetime. It’s based on your salary and years of pensionable service.   Group benefits—extended health care (EHC) and dental coverage—are not part of your basic lifetime pension. Because these benefits are not guaranteed, they’re funded differently from the basic lifetime pension. The Municipal Pension Board of Trustees has identified access to group benefits in retirement as one of the top three priorities:
 
  1. Guarantee of the basic pension benefit
  2. Sustainability of cost-of-living adjustments  
  3. Access to group benefits coverage

Group benefits can change at any time, including EHC and dental coverage, deductibles, limits, subsidies and premiums.

How group benefits are funded

As an employee, your EHC and dental coverage may be provided or paid in part by your employer.

When you retire, you may have access to group EHC and dental coverage through the plan.

The plan takes part of the current employer contributions to fund group benefits coverage for today's retired members. This small portion of employer contributions is used two ways. One part funds the inflation adjustment account (IAA),   from which cost-of-living adjustments (COLA) are paid. The other part subsidizes group benefits for current retirees.
 

To break it down even further, meet Jack. He’s a 52-year-old seasonal groundskeeper. Last year he earned $34,500. You can see how his contributions work.  

Each time Jack is paid, a portion is deducted as a pension contribution. His contribution rate is 8.5 per cent. The majority of that amount goes to the basic account, which is used to pay his basic lifetime pension. But one per cent of it goes into the inflation adjustment account to help cover cost-of-living adjustments. Jack is not contributing to retiree group health care and dental coverage.

Jack’s employer contributes, too. Employer contributions are used three ways – to fund the basic account, the inflation adjustment account, and group health care and dental coverage. That small portion of the employer contributions funds current retirees’ health care and dental coverage. It is not pre-payment for Jack’s group benefits in retirement.

Retired members also pay premiums for group health care and dental coverage.

In 2017, the plan offers retired members:

  • Subsidized MSP premiums based on years of service
  • Subsidized EHC premiums based on years of service
  • Unsubsidized dental coverage at group rates

These group benefits are not guaranteed. There are limits set by the plan’s funding policy as to how much of member and employer contributions can be used for COLA and group benefits coverage for retired members.

What does the Municipal Pension Plan pay for?

As a retiree, you pay premiums if you want access to group benefits through the pension plan.

The plan subsidizes EHC premiums based on your years of pensionable service. The plan's EHC coverage is an ASO arrangement, also known as administrative services only. This means the pension plan is responsible for all costs, including claims and expenses. The plan pays Pacific Blue Cross (PBC) to administer EHC coverage on its behalf, but the plan is also financially responsible for every claim paid. PBC charges the plan the actual amount of the claims plus an administration fee each month. 

What do you pay for in retirement?

EHC premiums deducted from your pension payment each month are estimated to cover the total claims plus administrative fees, less plan subsidies if any. The board, in consultation with the provider, sets the EHC premiums each year based on actual and projected claims and expenses for the coming year. The board also determines the amount of subsidy, if any. The pension plan is responsible for actual costs, less premiums collected. 

The plan's dental coverage is different; the plan does not subsidize dental premiums. The plan’s dental coverage is an insured arrangement with PBC. This means PBC is responsible for all claims and expenses in exchange for premiums. PBC bills the plan for the premiums and the plan deducts the premiums from your pension payment each month. PBC sets the dental premiums each year, based on actual and projected claims and expenses for the coming year. The premiums are estimated to cover the total claims plus expenses, including administration fees and reserves. If premiums are insufficient in a year, PBC is responsible for the deficit. If premiums exceed costs, PBC retains the surplus.

Here are some examples:

If you have 10 years of pensionable service, you pay $234.00 a year in EHC premiums. If your total annual EHC claims come to $1,635 after the deductible, you are responsible for 30 per cent of the first $1,000 ($300.00). The rest, assuming all are eligible expenses, is covered by the plan That means you pay $534.00 for the year. The plan pays 70 per cent of the first $1,000 and the remainder of claims over that. In this example, the plan pays $1,335.00 for your claims for the year.

If you are on the Essential dental plan, you pay $320.76 a year for your plan. If your annual costs at the dentist are $419.50, you are directly responsible for the portion of the cost not covered by PBC. The plan does not pay any of the claims.

For this reason, EHC claims have a direct impact on the plan’s funding, where the dental coverage claims do not.

Who makes decisions about the coverage?

Retiree extended health care and dental coverage is made available through a contract between the Board and Pacific Blue Cross. These programs supplement coverage available through MSP, Pharmacare and other government programs.  The board can increase, decrease or eliminate group benefits, including changes to coverage, deductibles and limits, subsidies and premiums.

The board is required to act in the interests of all plan members. To help make decisions, the board and the plan partners have agreed on three priorities:

  1. Deliver the basic pension promise: This priority is secure because the basic lifetime pension is pre-funded with employer and member contributions and earns investment returns.
  2. Provide sustainable cost-of-living adjustments: This provides all members receiving a pension payment with COLA, if granted. COLA is determined annually. Once granted, it becomes part of your basic pension payment for life.
  3. Provide access to group benefits coverage: This provides retired members with access to group coverage for EHC and dental.  

The board made changes effective January 1, 2017, to contain EHC and dental coverage costs within the available funding limit.