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Department of Community Development

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.