Insurers Shouldn't Profit Excessively from Canada Disability Benefit
At long last, the federal government is moving forward with the Canada Disability Benefit which was promised in 2020.
In theory, the benefit, which is intended to enhance the lives of Canadians by reducing disability-related poverty, is an excellent concept. Still, it requires safeguards to ensure it does not create an unintended and undeserved windfall for insurance companies.
There is a direct correlation between being disabled and living in poverty for many in Canada and many have been waiting for years for Bill C-22 to come into effect.
But there is a potentially unforeseen consequence related to the current wording of the legislation that must be addressed. There is concern it could be possible for long-term disability (LTD) insurance carriers to deduct or offset the benefit from any payments provided to an insured person.
If that happens, multi-billion insurance companies will benefit while those living in disability-related poverty will continue to struggle. Without implementing the proper mechanisms, the CDB could potentially become just another corporate handout and Canadian taxpayers could end up indirectly subsidizing private insurance providers.
The long-promised Canada Disability Benefit received Royal Assent last summer. It is aimed at low-income adults between the ages of 18 and 64 with disabilities.
More than 900,000 working-age Canadians with disabilities live in poverty, it has been reported.
“I live with cerebral palsy and experience a physical battle daily. But the financial burdens that affect me and my loved ones create even more barriers. This is the reality for many Canadians with disabilities across the country,” David Oliver Wudel writes.
“It’s time politicians at all levels of government listened to the voices of Canadians living with disabilities and truly understand our needs.
“Since 2020, we’ve been promised the Canada Disability Benefit — a federal income program to top up provincial disability benefits so that we are no longer living in deep poverty,” he added.
“We are still waiting.”
The wait will continue – the government says the first payments are still about a year away. "I know Canadians with disabilities want to see this benefit become a reality as soon as possible," Minister of Diversity, Inclusion and Persons with Disabilities Kamal Khera told CTV News.
"This is going to be a generational national program. I think it's really important that we find the balance between, of course, the expediency and the care that it needs to make sure we get it right, with engagement with the community.”
Questions remain, chief among them the possibility for insurance clawbacks.
The intent of this legislation is clearly to provide financial aid to those who are struggling to make ends meet. Group disability insurance policies and even individual policies contain wording that allows the insurer to deduct any payments provided to the insured under any government-sponsored plan.
We are taking the long way around to save insurers and deprive people in need.
As well, insurance policies may also contain provisions that permit a deduction even if the disabled person does not apply for the government benefit as long as it would have been available had the person applied. Who is really being helped?
The government called for public submissions on Bill C-22 last year. One of the groups that responded to the Senate Standing Committee on Social Affairs, Science and Technology was the Ontario Trial Lawyers Association (OTLA).
The association shared its concern that insurance companies would be able to “offset or deduct the Canada Disability Benefit, thereby shifting the payment burden to the taxpayer despite premiums having been paid for an insurance benefit.”
People pay premiums to insurance companies for disability benefit coverage either personally or through their employer, the OTLA stated.
“The intention is that if they suffer from a disabling condition that prevents them from working, they will be entitled to receive a monthly disability benefit to replace at least some of the income they will be losing as a result of being unable to work,” according to the association.
“However, almost all disability insurance policies, especially group disability policies, only pay a percentage of the income the person was earning.”
If an insurer pays an LTD claimant a disability benefit of $2,000 per month and that person is entitled to receive $1,000 in Canada Pension Plan Disability benefits, based on the wording of policies, the insurer might potentially be able to argue that it is allowed to reduce the monthly benefit paid to the individual by $1,000 and the insurer might be able to simply save that $1,000 per month, the OTLA stated.
“The reality, therefore, is that the insurer reaps the benefit of the Canada Pension Plan Disability benefit, despite the fact that the individual contributed to CPP while working and paid premiums to the insurer for disability benefit coverage,” explained the association. “This is the same unintended and unforeseen consequence that Bill C-22 will likely have for the Canada Disability Benefit.”
The argument appeared to make sense to the Senate. However, the Trudeau government rejected an amendment that sought to prevent provinces and insurance companies from clawing back the benefit.
Minister of Employment, Workplace Development and Disability Inclusion Carla Qualtrough told the House of Commons that the proposed amendment raised “significant constitutional concerns” since the regulation of insurance and contracting typically falls within provincial jurisdiction.
“If we went ahead with this amendment, the likelihood of an individual or organization bringing forward a court challenge would be very high,” Qualtrough stated. “This would create significant uncertainty and could impact the regulatory process, which could in turn impact benefit delivery. This could very well delay benefit payments.”
Negotiations with the provinces, territories and the insurance industry are expected in an attempt to prevent offsets.
That needs to happen and soon. Clawbacks penalize those who are already disadvantaged and vulnerable. The government must ensure it is just not handing over money to insurance companies. If that happens, the Canada Disability Benefit will do less to benefit those in need and more to enhance the fortunes of the insurance industry.
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