Item - 2020.AU6.4

During the review of the Order Paper on October 27, 2020, City Council adopted a procedural motion to remove this Item from the Audit Committee and bring it forward to City Council for consideration.

The Audi Committee recommends that:

1.  City Council request the City Manager to forward the report (October 8, 2020) from the Auditor General, on as needed basis, to selected Agencies and Corporations and request that they review and consider implementing similar controls recommended in this report that are relevant to their respective organizations.

2.  City Council request the Controller, in consultation with the Benefits Plan Administrator, the Chief People Officer, and the City Solicitor, to undertake a review of dental benefit plan coverages and industry standards and best practices to consider opportunities for changes to the City's coverage to provide cost effective dental benefits; and a process should be established for:

a.  consultation, on a periodic basis, with industry experts and the Benefits Plan Administrator to identify industry standards and acceptable practices for dental benefits coverage limits, particularly in areas where use by the City's plan members is significantly higher than industry standards or benchmarks; and

 
b.  recommending reasonable maximum plan coverages for the appropriate services, such as the benchmark averages provided by the Benefits Plan Administrator and examples provided by the Auditor General; consideration for special circumstances should be provided, where necessary; and the identified cost saving opportunities should also be considered for other benefit plans and implemented across the City and its Agencies and Corporations.

3.  City Council request the Controller, in consultation with the Benefits Plan Administrator, to review the identified exceptions and select the instances (outliers) that require a detailed review, including obtaining records from the service providers. Results of the review to be documented for corrective actions. These actions may include:

a.  recovery of cost where applicable;

b.  communicating instances with practitioners/service providers and patients; and

c.  identifying potential new systematic controls and developing management information reports for ongoing monitoring; and any findings and realized savings should be documented to inform future Benefit Plan design.

4.  City Council request the Controller, in consultation with the Benefits Plan Administrator, to develop an information guide and online training for plan members to understand their dental plan coverage and common dental treatment services and related fees. Plan members should be advised to review and assess the fees charged for their services at the time of each visit.

5.  City Council request the Director, Pension, Payroll and Employee Benefits, in consultation with the Chief People Officer and the City Solicitor, to explore introducing co-pays for the dental and health benefits at the respective joint union-management benefit committees and explore introducing co-pays for the dental and health benefits for the non-union/management benefits plan.

The Audit Committee considered Items AU6.1 and AU6.4 together.

The Auditor General gave a presentation on Employee Health Benefits Fraud Involving a Medical Spa, as it pertains to Item AU6.1.

The objective of the Continuous Controls Monitoring Program is to use data analytics techniques to provide reports for management to proactively monitor financial transactions, detect unusual expenses and identify areas where internal controls could be strengthened.

The City of Toronto (City) provides extended health and dental benefits coverage to its employees and retirees, their spouses and eligible dependents in accordance with City policies and collective agreements. In 2019 the City spent $152 million to provide employee health benefits. Dental benefits amounted to $51.9 million.

Testing of controls to ensure claims are reasonable and legitimate and reviewing plan design provides assurance to City Council that the City is receiving the best value. We did not conduct an audit, but used extensive data analytics techniques combined with selective testing to form an assessment of how the City is doing in this area. We followed-up all observations with the plan administrator and discussed with the management to form our assessment.

What we found:

Overall, we found the plan administrator has good controls in place. 

1.  Pension, Payroll and Employee Benefits Division (PPEB) has followed the AG's past recommendations to include strong upfront controls for benefits management.

2.  Controls appear to be working.

3.  Although we identified some claims would benefit from further review, nothing came to our attention that would suggest fraud. Our findings are consistent with an independent third-party audit conducted by PPEB.

4.  Where we identified some claims for a deeper review, in some cases the plan administrator had already picked up the items for review themselves. This is good news and it provides us with confidence that the controls are in place and operating.

5.  Employees would benefit by having better training on using benefits and how to verify services being charged by dentists. Enhancing the continuous review of trends and expenses using advanced data analytics will help to control costs. These measures will continue on a go-forward basis to help ensure the long-term sustainability of plan.

There are also opportunities for savings.

We have identified cost saving opportunities through analyzing data and benchmarking with other levels of government. The City should consider:

1.  exploring plan design changes, such as, harmonization of benefit plans among various groups of staff for major dental services.

2.  having annual maximum allowable amounts on basic and comprehensive dental services categories.

3.  when negotiating future employment agreements, whether there is an opportunity to reduce dental costs by establishing some co-insurance payments by plan members. This measure appears to be in line with other public service plans. The savings could be further enhanced if these measures are extended to other health benefits and across the City Agencies and Corporations.

Our recommendations are related to the following three areas:

1.  Exploring options for plan design changes to reduce the dental benefit costs.
The City pays 100 percent of basic and comprehensive basic dental procedures. We have identified cost saving opportunities, for example, considering co-insurance payments by plan members and having annual maximum allowable amounts on dental services.

2.  Improving controls through ongoing review of atypical benefit claims.  
Enhancing the continuous review of trends and expenses using advanced data analytics would help control costs. These measures will continue to help ensure the long-term sustainability of the benefit plans.

3.  Improving awareness among City plan members of dental services and related charges.
This will help plan members understand their dental coverage and common dental services and related fees. An informed review by plan members of the charges billed by practitioners will complement other recommended controls.  

We have made four recommendations. Implementation of the recommended changes discussed in this report could result in significant annual savings. We have provided potential savings in various plan design change scenarios. The realized savings will be reported after plan design changes are evaluated and implemented.