A Medium-Term Sickness/Disability Income Benefit

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Presentation for the Maytree Webinar
February 26, 2009
Michael J. Prince
University of Victoria

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Overview

1. The issues
2. Federal programs in place
3. The gaps and risks
4. Three policy options
5. Conclusions
    

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The issues

• Millions of Canadians whose work and earnings are interrupted because of illness or disability lack income protection
• The interruption of employment income and economic security due to a moderate disability and recurring illness is largely degree an individual responsibility with the possibility, for some people, of private insurance plans and, for others, social assistance programs
•  Emotional stresses, struggling to afford the necessities of life and to balance family roles and responsibilities, all too often with diminished morale, sense of hope and health status
• Barriers to participation in the labour market, and other aspects of community living, due to lack of affordable disability-related supports and insurance

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The issues

• Depleting personal and household assets before qualifying for social assistance
• Loss not only of income but also conceivably credit worthiness and business
• Trends in the nature of employment and the hazards of modern life suggest the social risks of sickness and disability, and economic vulnerabilities, likely will increase in significance over time
• Canada spends less on disability benefits than the U.S. and most other OECD countries

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Federal programs in place

CPP Disability and EI Sickness Benefits share several features:

• Introduced in early 1970s at federal jurisdiction
• Medical assessments for eligibility
• Work-related and contributory-based benefits
• For EI sickness, employees normally must have 600 hours of insurable earnings in the last 52 weeks
• For CPP disability, applicants must have participated in the labour force with four years of valid CPP contributions in the last six years

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Program differences

EI Sickness

• Employable
• Annual outflow of close to 100%
• 55% replacement rate of weekly insurable earnings
• 15 weeks duration

CPP Disability

• Unemployable
• Only 1% of clients leave the program
• 30% of covered earnings at average income
• De facto permanent until age 65

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Poll 1

Which level of government should have primary responsibility in tackling issues of disability coverage and income protection of working Canadians?

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EI program interactions

• The average duration of EI sickness benefits is just over nine weeks, though about 32% of clients exhaust the full 15 weeks. After the final payment, if a person does not have a job to which to return, he or she may apply for and possibly receive EI regular benefits, up to 50 weeks of combined benefits (15 weeks of sickness benefits and 35 weeks of regular benefits)
• Similarly, a person on EI regular benefits who becomes ill while on that claim can apply for and may receive sickness benefits

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Poll 2

In the Employment Insurance (EI) program, any money received through paid employment is deducted from EI sickness benefits, dollar for dollar. In principle, do you think an earnings exemption should be introduced in EI, to allow some level of earnings without threatening benefit amounts?

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CPP program interactions

• The existence (actual or assumed) of other public and private programs influences several design elements of CPP disability – specifically, the income replacement rate of a reasonable minimum, with additional benefits to come from other sources; the three-month waiting period; being the payer of first resort; and the offset of some or all of CPP disability benefits by other programs
• For example, the Guaranteed Income Supplement, the Spouse’s Allowance and Allowance for the survivor, War Veterans Allowance and provincial/territorial social assistance take into account CPP disability benefits

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Gaps in EI coverage

• In programs such as EI that cover only the labour force (and not all of that), non-coverage is an issue, resulting in a sizeable number of working people with illnesses and disabilities excluded from public disability support programs
• The public program alternative is provincial/territorial social assistance – in effect, a welfare based disability benefit
• Many unemployed people not eligible for EI benefits or who have exhausted their EI benefits are likely without income support for some time

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Access challenges to CPP D

• Access to CPP disability benefits can be challenging and frustrating, often because their health condition is assessed to be not severe enough and of a sufficiently prolonged nature, as required by the program’s eligibility criteria
• One of every two applicants to the CPP disability program has their application rejected
• People who may not qualify for CPP disability include workers with mild or moderate physical and mental disabilities, and probably workers with certain kinds of severe disabilities not well recognized by the medical community
• On appeals, just one in nine rejected applications are granted a CPP disability benefit

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Gaps in private disability insurance

• In 2001, the Long Term Disability (LTD) coverage rate was 56% of all employed workers in the labour force
• This means that 6.5 million employed Canadians in 2001 did not have long-term disability coverage at their place of employment (and just over 7.6 million in the total labour force)
• Most full-time employees, male and female, have life/disability insurance protection, with a notable difference in levels of coverage by sex
• At least one-third of full-time employees and more than three-quarters of part-time employees lack private disability insurance coverage
• Among the self-employed, just 38% have insurance coverage for disability

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Poll 3

More than half of Canadians in the labour force have no disability insurance coverage as a workplace benefit. How should occupational coverage be expanded? Select one of the following public policy options:

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Reform approach

Better match temporary income support to individual circumstances of those in need; provide access to disability coverage and related employment benefits, at a minimum, to all full-time permanent workers; reinforce social insurance principles of EI and CPP; and address diverse employment patterns, varied functional capacities, and episodic and moderate disabilities

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Reform objectives

A medium-term income benefit for working Canadians with illnesses and disablements would have three policy objectives:

• To assure continuity of income against interruptions of earnings in case of illness or disablement
• To provide an incentive to work – i.e., to retain or secure employment and, where appropriate, to enhance work-related skills and capacities
• To prevent workers from falling into dependency on social assistance

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Three policy options

A medium income benefit could be structured as one of three policy reform options:

• Extension of the EI sickness benefit
• A distinct new program that bridges EI sickness and CPP disability
• Introduction of benefits for ‘partial disabilities’ within the CPP disability program

In all three are options there is replacement of some portion of earnings lost due to sickness or disability

The intended results are mitigating sharp reductions in living standards; enabling workers to secure, retain and advance in suitable employment; preventing dependency on social assistance programs

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Option 1: EI reform

• Extend duration of benefits to 35 or 50 weeks (from present 15)
• Determine eligibility over 78 weeks of insurable earnings
• Benefits could be taken all at once or in parts over a two year period

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Option 2: Change CPP-D eligibility

• A partial benefit for workers with chronic, cyclical/recurrent health conditions
• Eligible for 30% of any lost income
• Benefit amount based on a multi-year average to smooth fluctuations on earnings capacity
• Maximum benefit 60% of CPP-D rate

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Option 3: Create a new income insurance program

• For workers who experience a significant reduction in earnings capacity due to chronic/episodic illnesses or impairments
• Benefit of 55% of weekly insurable earnings
• Up to a 50 weeks which could be used in one period or over a 2 year period
• Make available work incentives through a number of measures (e.g., strong emphasis on vocational rehabilitation and employment counseling services for return to work)

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Poll 4

This report presents three options for addressing the gaps in income protection for those working age Canadians with recurring or cyclical illnesses. Which of these options do you MOST prefer?

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Poll 5

This report presents three options for addressing the gaps in income protection for those working age Canadians with recurring or cyclical illnesses. Which of these options do you LEAST prefer?

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Poll 6

All three options discussed in Prince’s report deal with adults of working age and with a labour force attachment. For those persons with disabilities who cannot be reasonably be expected to find gainful employment, which of the following policy reforms do you agree with:

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Conclusions

• EI and CPP are examples of public programs that rest on conceptions of the labour market and work histories, and of the employability of people with illnesses or disabilities, which are somewhat outdated
• There have been improvements in the coverage of employed workers by private disability insurance plans and service improvements in the administration and delivery of benefits in recent years. Nonetheless, shortcomings remain throughout the income protection system
• Canadian social policy needs to include one or more measures that provide income support to workers with medium-term illnesses or disabilities, and that help these workers retain or regain participation in paid employment
• Medium-term coverage can be provided by an extension of the duration of EI sickness benefits; the introduction of a distinct new program between EI sickness and CPP disability; or the introduction of partial benefits within the CPP disability program