Canadian Life and Health Insurance Association says rates would climb if system changes

The decades-old practice of using the Canadian Pension Plan Disability Benefit to offset insurance payouts keeps costs down, says the Canadian Life and Health Insurance Association, amid calls to change the system.

Some Calgarians are raising concerns about a long-standing practice where insurance companies require people too sick to work, to apply for the CPP Disability Benefit. Once approved, their private insurance payments are clawed back by the amount of the federal payout.

This is a “standard offset” that has been around for decades, according to Laurie Down, the association’s Director of Disability Policy.

“Trying to keep the affordability of that plan in place is paramount for the employer and for the insured,” said Down. “That is why these types of offsets are in place, so that benefits that are received from other sources are incorporated into the calculation of the plan amount, of the benefit amount and also of the premium pricing.”

Down adds that allowing Canadians to keep both benefits independently would be a costly measure.

“Would the premiums go up? Quite likely they would.” she said.

Financial hit can be considered on a case-by-case basis

Concerns have also been raised that, once the CPP Disability Benefit kicks in, a person’s monthly income can take a hit because the federal portion is taxable while most private insurance payments are not.

Many people, depending on their income, will get that money back in their income tax return at the end of the year. But others won’t.

While it’s general practice in many companies to claw back the total CPP Disability Benefit, including taxes, Down says some companies will adjust their contribution to compensate for the loss.

“Some companies may do a calculation and offset a net amount. But that is something that’s offered, I think, on a case-by-case basis.”

Down isn’t sure how common the practice is, saying it depends on the plan, the company and whether or not a request is made by a customer.

Offsets prevent double dipping, says insurance industry

Insurance companies have another reason for the offsets. The system is in place to ensure those collecting from policies don’t make too much money, according to Down.

“There has to be some sort of incentive that an individual is not going to be able to collect benefits from all sorts of different sources and actually profit, or benefit, because they’re receiving more money on disability than if they had been working.”


Author: CBC News