year ended March 31, 1999 Scope of audit work
Review of legislation relating to Health Insurance Premiums payable by seniors
In addition to the audit of the Department’s financial statements, we reviewed the Seniors Benefit and the Health Insurance Premiums legislation to determine the changes needed to reflect the intent of the government to provide a single income-tested program for seniors through the Department of Community Development.
Transfer of funds from the Department of Community Development to the
Department of Health
In correspondence with the Ministry, Treasury Department and Alberta Health, I have expressed my concern with recording the transfer of funds from the Department of Community Development to the Department of Health as though these were health insurance premiums payable by seniors.
Government intent relating to health insurance premiums payable by seniors
As stated in the Alberta Seniors Benefit – Information Booklet, the intent of the Alberta Seniors Benefit (ASB) program is to provide a cash benefit and lower health
insurance premiums for eligible seniors with low incomes.
The Department of Community Development provides seniors with a cash benefit. The Department of Health, under Health Insurance Premiums (HIP) regulations, sets a lower premium rate for seniors, on the basis of their
incomes. The legislation does not support the government’s expressed intent of reporting both these costs of seniors’
benefits in Community Development.
HIP obligations payable by seniors
The amounts that Health bills to Albertans, including some seniors, are recorded as revenue. For the seniors, these represent true premium obligations payable under
Section 8.2 of the HIP Regulation. The seniors are parties that are external to Health and transactions with them have correctly been recorded as premium revenue.
Notional HIP revenues and its allocation between CD and Health
Where legislation does not require seniors to pay premiums, the two Departments have computed a notional premium amount for each senior, by assuming that every registered senior should be paying the full premium that would be paid by any other non-senior with the same marital status. They have also determined which Department is responsible for this notional amount based on the intent of the ASB program.
Incorrect accounting treatment for the notional HIP revenue that is deemed to be CD’s responsibility
Health records revenue and Community Development records an expense for the part that is determined to be Community Development’s notional responsibility. Making this entry inflates revenues and expenses, because under existing legislation there is no premium obligation for these seniors and, therefore, nobody can have any revenue from them.
Recording the transfer from CD to Health is possibly misleading
It is my view that the transfer from Community
Development to Health of $40.1 million in 1998-99, that is based on the lower rates for seniors’ premiums, is not only notional but misleading.
Need for a consolidation eliminating entry
It is important that the effects of inter-ministry transactions be eliminated with a consolidation entry so that the
consolidated accounts of the Province do not overstate assets, liabilities, revenues or expenses because of such inter-ministry transactions. The consolidated financial statements should reflect only arm’s length transactions with persons or entities outside of the reporting entity.
Including inter-ministry transactions overstates the revenues and expenses of the Province
The objective of financial statements, among other things, is to provide information about an entity’s resources and its economic performance. The excess or deficiency of
revenues over expenses is an important indicator to users of the financial statements about the extent to which an
organization has been able to obtain resources to cover the cost of its services. Including inter-ministry transactions as revenues and expenses distorts this presentation and
overstates the total revenues and expenses of the Province.
In 1997-98, Treasury was correct in making the consolidation eliminating entry
In 1998-99, Treasury did not make the consolidation entry to eliminate the effects of the Community Development
transfer to Health on the revenues and expenses of the Province. In my view, Treasury was correct in 1997-98 when it did make such a consolidation eliminating entry.
Misstatement of revenues and expenses in the Province’s financial statements
Based on my understanding of existing ASB and HIP
legislation, I believe the consolidated financial statements misstate the revenues and expenses of the Province if the consolidation eliminating entry is not made.
Financial statements cannot be prepared incorrectly to meet budgetary needs or to reflect the government’s intent
I acknowledge that this proposed consolidation eliminating entry results in a presentation that is not consistent with the program intent or the budget. However, I do not believe that the financial statements can be prepared incorrectly solely to satisfy these concerns. In the absence of legislative
amendments, the government’s intention for and effect of this program can be reported in other ways. For example, the government and the Ministries could indicate in other reports, the amount that Health would have collected from seniors, if seniors were required to pay the same premiums as other Albertans.
Need for amending legislation
As stated earlier, although the intent of ASB is to provide a cash benefit and a payment by Community Development to Health for the lower rate for health insurance premiums for eligible seniors with low incomes, unfortunately, the existing legislation does not support this intent.
Suggested legislation amendments
In a letter to the Provincial Treasurer, I suggested that to legitimize an arm’s length relationship between Community Development and Health for the seniors’ premiums,
legislation could be amended to:
Require seniors to pay the same premiums under HIP legislation as other Albertans
1) Require seniors, under the HIP Act and Regulations, to pay the same premiums as other Albertans by removing certain clauses in Section 4 of the HIP Act and
Section 8.2 of the HIP Regulation; and
Provide a premium subsidy to seniors under SB legislation
2) Provide the full benefits for eligible seniors with low incomes under the SB Act. The SB Act could also provide that the cost of lower health premiums would not be paid directly to seniors, but would be paid on their behalf to Health. In effect, the payment to Health for the lower premiums would be a deduction from the total benefit payable to seniors under the SB Act.
Premium subsidy to seniors under SB Act becomes reportable revenue for Health
Deductions from gross amounts payable to seniors under SB
legislation would clearly be external revenue when received by Health. The proof is that the revenue is not created internally; the revenue is derived from transactions between the government and external individuals.
Change would not affect seniors and the
transaction would not have to be eliminated on consolidation
The seniors would not be affected by these changes to legislation, as they would continue to receive the same net benefit and reduced premiums that they presently receive.
These changes would allow Community Development to transfer to Health the funds it withholds for premiums from seniors. This would also allow Community Development to record an expense and Health to record premium revenue, and not require the transaction to be eliminated on
consolidation as it would be “genuine” revenue for Health under its legislation.