Canada Disability Benefit should not be a windfall for insurers

By Tony Poland, LegalMatters Staff • The federal government’s Canada Disability Benefit (CDB) – intended to enhance the lives of Canadians by reducing disability-related poverty – is an excellent idea in theory but it requires safeguards to ensure it does not create an unintended and undeserved windfall for insurance companies, says Barrie-area litigator M. Steven Rastin. 

“There is a direct correlation between being disabled and living in poverty for many in Canada,” says Rastin, senior counsel at Rastin Gluckstein. “Canadians with disabilities have been waiting for years for Bill C-22 to come into effect. However, there is a potentially unforeseen consequence related to the current wording of the legislation that must be addressed.

“As it stands now, it appears it will be possible for long-term disability insurance carriers to offset or deduct the CDB from any payments provided to an insured person,” he tells LegalMattersCanada.ca. “If that is allowed to happen, the CDB will benefit multi-billion insurance companies rather than assist those living in disability-related poverty. How does that help those truly in need? Without the proper mechanisms in place, this has the potential to become just another corporate handout. Essentially, Canadian taxpayers could end up indirectly subsidizing private insurance providers.”

Rastin says the long-promised Canada Disability Benefit received Royal Assent last summer after it was first introduced, and then tabled, in 2020.

Program is aimed at low-income adults

The program is aimed at low-income adults between the ages of 18 and 64 with disabilities. It has been reported that more than 900,000 working-age Canadians with disabilities live in poverty.

Many Canadians have spoken up about the urgent need for financial help, Rastin says.

“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.”

That wait will continue, Rastin says. 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.

Rastin says many questions remain, chief among them the possibility of insurance clawbacks.

‘We are taking the long way around to save insurers’

“The intent of this legislation is clearly to provide financial aid to those who are struggling to make ends meet,” he says. “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.”

Rastin adds that insurance policies can 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.

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“So who is really being helped?” he asks.

Last year, the government accepted public submissions on Bill C-22. 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 OTLA 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.”

The association stated people pay premiums to insurance companies for disability benefit coverage either personally or through their employer.

Claimant only receives a percentage of the income

“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,” the OTLA submitted. “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 a 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, according to the OTLA. 

“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,” the association stated. “This is the same unintended and unforeseen consequence that Bill C-22 will likely have for the Canada Disability Benefit.”

The argument seemed to strike a chord with the Senate. However, the Liberal government rejected an amendment that sought to prevent provinces and insurance companies from clawing back the benefit.

‘Significant constitutional concerns’

Minister of Employment, Workplace Development and Disability Inclusion Carla Qualtrough told the House of Commons at the time 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 said. “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.”

The federal government says it will negotiate with the provinces and territories and deal with the insurance industry in an attempt to prevent offsets, says Rastin. 

“Hopefully that will happen and happen soon. Clawbacks penalize those who are already disadvantaged and vulnerable,” he says. “The government needs to make sure that they are just not giving money to insurance companies. If that happens, the CDB will do more to benefit the rich than the needy.”