Canadians Need a Medium-Term Sickness/Disability Income Benefit

Canadians Need a Medium-Term Sickness/Disability Income Benefit by Michael J. Prince January 2008

Canadians Need a Medium-Term Sickness/Disability Income Benefit by Michael J. Prince January 2008 Michael J. Prince, Ph.D. is Lansdowne Professor of Social Policy at the University of Victoria.

Copyright 2008 by The Caledon Institute of Social Policy ISBN 1-55382-271-4 Published by: The Caledon Institute of Social Policy 1390 Prince of Wales Drive, Suite 401 Ottawa, ON K2C 3N6 CANADA Phone: (613) 729-3340 Fax: (613) 729-3896 E-mail: caledon@caledoninst.org Website: www.caledoninst.org

Table of Contents Introduction 1 Federal Disability and Sickness Income Programs 2 common features of CPP disability and EI sickness benefits 2 notable differences 2 EI regular and EI sickness benefits 5 Program Interactions 6 EI sickness benefits 6 CPP disability benefits 7 Gaps in Coverage and Consequent Risks 8 gaps in public income support programs 9 gaps in private disability insurance plans 10 putting a face to those left out 13 Strengthening Employment Services and Social Insurance 14 policy objectives 14 the case for extending income protections against sickness and disability 15 closing the gap: design elements and reform options for medium-term coverage 16 Option 1: extending the duration of EI sickness benefits 17 Option 2: creating a new sickness/disability program 18 Option 3: adding benefits for partial disabilities to the CPP disability program 18 overall review of the reform options 19 improving employment opportunities and work incentives 20 Strategic Considerations 23 Parliamentary recommendations and Government of Canada responses 23 intergovernmental relations in disability policy 24 disability community perspectives 25 employers, private insurers and workers compensation plans 25 costs, savings and affordability 26 Conclusions 27 Endnotes 29 References 30

Introduction There is a serious weakness in Canada s social foundation of income security. Much more than a crack, the problem concerns the absence of a social insurance program for millions of working Canadians whose work and earnings are interrupted because of illness or disability. Presently, the interruption of employment income and economic security due to a moderate disability and recurring illness is, to a large degree, a matter of individual responsibility with the possibility, for some people, of private insurance plans and, for others, provincial and territorial welfare programs. Working-age Canadians with disabilities who do not qualify for Employment Insurance (EI) sickness benefits or the Canada Pension Plan disability (CPP-D) program include many of the selfemployed, those in nonstandard employment and people battling numerous kinds of recurrent and cyclical health conditions. Not covered by either program, people experience stress, a loss of dignity and may be forced to divest assets in order to meet the cost of living and added expenses associated with their impairment. Unable to access federal social insurance programs to which they have made contributions, some people are compelled to apply for provincial/territorial social assistance, the welfare program of last resort in Canada s social foundations. The current collection of public programs, at the federal and provincial/territorial levels, does not provide income protection to Canadians for medium-term illnesses and moderate disabilities, a problem of government social policies internationally too [OECD 2003b]. This paper s focus, therefore, is on people with moderate to severe disabilities in the medium term. The problem is compounded by the incomplete coverage of Canadian workers through disability insurance protection plans. Moreover, the problem is not declining over time. Trends in the nature of employment and the hazards of modern life suggest the social risks of sickness and disability, and thus of economic vulnerabilities, likely will increase in significance. It is time to take a step forward in modernizing federal employment services and income security for this group of Canadian workers. The aim of this paper is to assist in exploring new directions for income security for Canadians, by examining existing relations between EI sickness and CPP disability, and explore the need and possibilities for stronger linkages between these programs. More specifically, the purposes are to identify gaps in coverage that currently exist for some clients and thus to consider if a new program is required and/or whether reforms should be made to EI sickness, CPP disability or both. By documenting the extent and nature of gaps in coverage and the risks to Canadians, the paper raises the profile of this issue and seeks to stimulate policy discussion on possible solutions. Caledon Institute of Social Policy 1

Federal Disability and Sickness Income Programs common features of CPP disability and EI sickness benefits The CPP disability and EI sickness programs share a number of features. Both programs rest on clear federal jurisdiction under the Canadian constitution; EI is an exclusive federal jurisdiction, while the CPP is under the joint stewardship of federal and provincial governments. Medical assessments and certificates are required for both programs to determine eligibility, though in greater detail for the CPP-D program. A key goal of both programs is the protection of income stability or continuity. As social insurance measures, contribution requirements and benefit eligibility in both programs are related to earnings and labour force attachment. Funding is based on designated contributions rather than general taxation from the consolidated revenue fund, with the funds administered and reported as a separate account by the Government of Canada. Both plans are in a surplus position with annual revenues exceeding annual benefit payouts. As work-related and contributory-based benefits, these programs are considered earned rights although people must apply for them. Both programs have elaborate systems of review and appeals for disputed decisions. Both benefits are indexed automatically, adjusted annually and treated as taxable income. The Canada Pension Plan disability benefit and Employment Insurance sickness benefits have similar histories and contexts, introduced in the early 1970s as supplementary provisions within much larger social programs. 1 The disability program is linked with the CPP retirement pension plan (and related survivor and death benefits), while the sickness program is one of a number of special benefits (along with adoption, fishing, maternity, parental and compassionate care) under the Employment Insurance scheme. As a share of total spending under their particular systems, CPP disability benefits account for 12 percent of CPP payouts. EI sickness benefits, by contrast, account for about 6 percent of total EI income benefits in recent years. notable differences While the EI system covers the entire country, the CPP covers all provinces and territories other than Quebec, which has its own contributory pension plan with retirement, disability and survivors benefits. 2 For the most part, EI sickness beneficiaries are employable while CPP disability beneficiaries are deemed unemployable. For EI sickness benefits, applicants are required to prove inability to work but also would otherwise be available for work. For CPP disability benefits, applicants must 2 Caledon Institute of Social Policy

demonstrate they have a severe, long-term disability that prevents them from working regularly at any gainful employment. This difference is further reflected in the outflow rates from each program. Since EI sickness is a short-term benefit, by design the annual outflow is virtually 100 percent, although not all clients return immediately to the labour market. Given that the CPP disability is a long-term benefit for people with severe and prolonged impairments, there is a very low rate of annual outflow from the program. In fact, less than one percent of beneficiaries leave the program each year as a result of recovery or a return to work [Canada 2003; OECD 2003a: 58]. A related difference is that EI sickness beneficiaries are less likely to require aids and devices for daily living, because of their milder conditions and younger profile, than CPP disability beneficiaries, most of whom are between ages 45 to 64 and with severe health conditions. 3 A recent survey found that 69 percent of CPP disability recipients require some kind of assistive aid or device in their daily activities, compared to 52 percent of EI sickness beneficiaries [PALS 2001]. On eligibility requirements related to labour force attachment for EI, 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. Chart 1 summarizes further details on qualifying conditions for both benefits. While the two programs share similar types of qualifying conditions, the specifics are in many respects quite different given the distinctive purposes of the two programs. Consequently, some individuals may qualify for the EI sickness benefit but not qualify for CPP disability benefits (and the other way). Contribution rates for employee and employer premiums to the plans are dissimilar in that the rates have been altered more frequently (and up and down) for the EI program indeed, by law, the EI employee and employer premium rates are set each year than for the CPP over the history of the programs. The EI and CPP programs also diverge on the way the funds for the programs are managed. Since 1999, with the creation of the CPP Investment Board, surplus contributions for that program are invested in public and private equities. A related difference in administrative structure is that employer and employee representatives are directly involved as commissioners in the administrative structure of the EI program, a feature absent in the governance of the CPP. Waiting periods to receive benefits is another difference: a two-week period for EI benefits and a three-month period before CPP disability benefits begin. Indeed, the longer waiting period for the CPP disability benefit rests on the belief that other short-term income benefits are available to applicants from other public programs (such as EI), employment-related plans (sick leave and sickness insurance) and personal resources. On income replacement rates, the EI sickness program provides 55 percent of weekly insurable earnings compared to an approximate 30 percent of covered earnings at average income for the CPP disability program. 4 The duration of EI sickness benefits is to a maximum of 15 weeks compared to up to 45 weeks for EI regular benefits, while CPP disability benefits are de facto permanent until age 65 or retirement. Caledon Institute of Social Policy 3

Chart 1 Eligibility Conditions for CPP Disability and EI Sickness Benefits Conditions Age Earnings Labour force attachment Work incapacity Health assessment CPP Disability Between 18 and 64 years old Earned a specified minimum amount: $4,100 in 2005 Sufficient contributions 5 to CPP in four of the last six years Have a severe and prolonged disability Severe = incapable of regularly pursuing any substantially gainful occupation Prolonged = likely to be long continued and of indefinite duration (at least the next 12 months) or likely to result in death A fairly detailed and specific process: Various forms of evidence required and to be verified by medical assessment(s) EI Sickness Weekly earnings have decreased by more than 40 percent due to sickness or injury Accumulated 600 hours of insurable employment in the last 52 weeks (or since last claim) Incapable of performing the duties of regular or usual employment or of other suitable employment because of sickness, injury or quarantine AND would otherwise be available for work A relatively straightforward process: A one-page medical certificate completed by a physician attesting to the claimant s inability to work and for how long On overall program size, the CPP disability program has between four to five times the annual number of beneficiaries and benefit expenditures than the EI sickness benefit. CPP-D is the single largest disability insurance scheme in the country. Another difference that has implications for possible policy reforms concerns the constitutional regime for each program. The EI program, the topic of a constitutional amendment in the early 1940s, established exclusive federal jurisdiction over unemployment insurance. A recent Supreme Court opinion (to be discussed later in this paper) has affirmed the competence of the federal government to deliver various special benefits through this social insurance program. 4 Caledon Institute of Social Policy

The CPP program, also the result of a constitutional amendment in the 1960s, granted the federal government concurrent jurisdiction with the provinces over contributory pension plans, but with paramount authority over this field remaining with the provinces. Thus the federal and provincial governments are the joint stewards of the CPP and any major changes to the CPP require consent of the federal Parliament as well as the legislatures of at least six provinces representing two-thirds of the Canadian population. The CPP legislation, as amended in 1997, stipulates that any enhancements to existing benefits (be they for retirement, survivor or disability benefits) must be fully funded which, depending on the cost impact of the change, could mean the benefit enhancement would be accompanied by a corresponding increase in the legislated contribution rate to ensure the financial soundness of the plan. EI regular and EI sickness benefits EI sickness benefits joined the then unemployment insurance scheme in 1971 as part of a suite of major reforms, this new special benefit targeted for workers with at least 20 weeks of insured employment. The maximum duration for the sickness benefits was set at 15 weeks, a feature that has remained constant over the subsequent 35 years of the program s history. Indeed, through much of this period marked by considerable legislative changes and political attention devoted to regular UI benefits and other special benefits, the sickness benefit has remained relatively untouched and overlooked. In 1989, changes to UI allowed for a total of 30 weeks of combined special benefits of sickness, maternity and parental benefits. In 1996, with the shift from UI to EI, the system changed from a weeks-worked to an hours-based system to determine eligibility, and the qualifying condition for sickness benefits changed to 700 hours of insurable employment. Amendments to EI in December 2000 reduced the number of insurable hours required to qualify for special benefits to 600 hours, and the number of weeks of combined special benefits was raised from 30 to 50 weeks. 6 The EI regular and EI sickness benefit schemes share legislation, departmental administration and appeals systems. Both have a two-week waiting period, are treated as taxable income and have a basic benefit rate of 55 percent of average insured earnings to a maximum of $413 in 2005. Individuals can work part time while in receipt of either benefit and must report any earnings while collecting benefits. People not covered under EI include the long-term jobless (12 months or longer unemployed); persons without insured employment (i.e., workers who do not pay EI premiums); people with a minor labour force attachment (i.e., less than the minimum 600 hours of insured employment over the last year); individuals who leave their job to attend school; people who quit their job for a reason considered invalid under EI rules; and self-employed workers, independent consultants or contractors for services, and sole owners or partners of a business. This last category can include commissioned salespersons, real estate agents, tradespeople in construction and various professionals, such as accountants, physicians and lawyers. Caledon Institute of Social Policy 5

There are several significant differences between EI regular and sickness benefits: the duration of sickness benefits is a maximum 15 weeks while regular benefits can range from 14 to 45 weeks; the specific duration of sickness benefits does not depend on the number of hours worked (beyond the minimum entrance requirement) as it does with regular benefits; and a medical certificate is required for the sickness benefit and not for the regular benefit. In addition, although an EI client can work while in receipt of either benefit, under regular benefits workers can earn $50 per week or 25 percent of their weekly earnings (whichever is higher) 7 and any amount above that is deducted dollar for dollar. For the sickness benefit, any amount earned is deducted dollar for dollar. Chart 2 provides a summary of key features of the EI regular and sickness benefits. In terms of sheer size, the sickness benefit was one-fifth the size of the regular benefit caseload in 2003-04. The general age profile of both benefits is similar, with about half the claimants in both programs in the 25 to 44 age group, and nearly another quarter of claimants in the 44 to 54 age group. A number of differences by gender exist on coverage, average number of weeks in sickness benefits, average weekly benefit and total amounts paid. Program Interactions EI sickness benefits For EI sickness, earnings from sickness plans, disability wage-loss indemnity plans and workers compensation plans (a disability pension or lump-sum payment) are not taken into account in the determination of earnings for benefit purposes. Neither are CPP disability benefits treated as earnings for EI benefit purposes [Canada 2003: 21]. In fact, a person may apply separately for the EI sickness benefit and the CPP (or QPP) disability benefit at the same time. Earnings that are taken into account for EI sickness include payments from a paid leave plan for sickness, a group wage-loss indemnity plan and motor vehicle accident insurance. Individuals can apply for the EI sickness benefit while waiting for a provincial workers compensation decision on a claim but, in such circumstances, they must sign an understanding to repay the sickness benefits when the workers compensation claim is finalized. Likewise, if individuals receive financial support from a provincial/territorial social assistance program while waiting for EI benefits to start, they may have to reimburse that money out of their EI benefits. 8 By contrast, employer-provided programs that offer supplemental payments to EI sickness benefits during a period of unemployment due to illness, injury or quarantine are not deducted from the employee s EI benefits. The average duration of EI sickness benefits is just over nine weeks, though about 30 percent 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 (i.e., 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. 6 Caledon Institute of Social Policy

Chart 2 EI Regular and EI Sickness Benefits: An Overview Comparison, 2003-04 EI Regular EI Sickness Claimants Total Men Women Age Under 25 25-44 44-54 55 and over Average Weekly Benefits ($) National Men Women Amount Paid ($millions) 1,493,000 900,000 593,000 184,000 782,000 342,000 186,000 312 340 271 293,990 122,040 171,950 30,630 148,150 71,440 43,750 280 320 252 Total Men Women 8,768.9 5,852.5 2,916.4 Source: Canada Employment Insurance Commission (2005). 778.5 366.0 412.4 CPP disability benefits 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. Caledon Institute of Social Policy 7

CPP disability benefits differ from provincial and territorial disability (i.e., social assistance) benefits in important ways. Unlike provincial disability benefit programs, CPP disability benefits are not asset-tested; there is no limit on personal assets. Receiving income from other sources (except for a certain level of employment income) will not disqualify a person from receiving CPP disability. Also in contrast to provincial/territorial disability income benefits, if CPP disability clients become involved in a dependent relationship, such as a marriage or common law relationship, their benefits are unaffected. CPP disability benefits are portable across the country whereas that is not the case with provincial and territorial social assistance. CPP disability benefits are indexed and taxable, while provincial/territorial welfare benefits are neither taxed nor indexed automatically. Provincial and territorial disability income benefits are funded through general revenues while the CPP-D is funded through contributions. Since CPP benefits rest on a social insurance foundation, there is the element of an earned right to the benefit and therefore not the same extent of stigma associated with provincial and territorial welfare programs. Within the CPP itself, there are some benefit offsets and interactions. A person eligible for the CPP disability and CPP survivor benefit can receive both in a combined payment, although the total amount is adjusted based on the survivor s age and other benefits received. For insured workers between ages 60 and 65 who receive a CPP disability benefit, they cannot at the same time get the CPP retirement pension. 9 Gaps in Coverage and Consequent Risks Who in Canada is left out of current programs public and private for disability income support? How many people, and what groups, may face gaps in income security (and return-to-work services) when they experience an illness or disability? What social and economic risks do they consequently face? According to the 2001 Participation and Activity Limitation Survey (PALS), of the 3.42 million adults with disabilities in Canada, a substantial proportion does not receive support from federal or provincial income programs or private insurance plans. Chart 3 presents information on the share of adults with disabilities receiving each of six disability-related income programs. Research on disability and income in the non-senior population shows that 27 percent of persons with disabilities have low income in contrast to 14 percent of the remainder of the population [Spector and Kapsalis 2005: 9]. The presence and type of disability-related income support are significant in explaining some of the variations in the likelihood of low income among persons with disabilities. Recipients of workers compensation or private disability insurance benefits are much less likely to have low income than persons who receive only the C/QPP disability benefit, veterans pension or social assistance. Furthermore, persons with disabilities who receive only the C/QPP 8 Caledon Institute of Social Policy

Chart 3 Adults with disabilities who are recipients of income support programs (percentage of 3.42 million) Program Canada/Quebec Pension Plan Social assistance Veterans benefits and other assistance Private disability insurance plans Workers compensation EI sickness benefits % 10.0 9.9 6.4 6.2 5.1 4.3 Source: Participation and Activity Limitation Survey (PALS) 2001. disability benefit or social assistance were found to be more likely to experience persistent poverty (i.e., continued low income over the period 1994-2000) than individuals in receipt of workers compensation benefits. gaps in public income support programs In social insurance programs such as CPP and 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 welfarebased disability benefit. As Chart 3 shows, in Canada about as many adults with disabilities receive social assistance as receive a C/QPP disability benefit. A worrisome implication of this is the fact that individuals have to exhaust other sources of income and a share of their assets before being entitled to Social Assistance benefits [Grey 2002]. One-third of EI sickness beneficiaries exhaust their entitlements each year [Canada Employment Insurance Commission 2004]. Caledon Institute of Social Policy 9

Research further suggests that many unemployed people not eligible for EI benefits or who have exhausted their EI benefits are likely without income support for some time. Moreover, since few individuals combine social assistance and short-term work, there appear to be barriers (absence of needed supports, financial disincentives, inability to work, lack of training or work opportunities), once a person becomes a social assistance recipient, to reintegrating into the workforce [Grey 2002]. Even for many workers with sufficient labour force attachment, 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. In 1999, the applicant rejection rate was 55 percent, up from 42 percent in 1990 and well above the OECD average of 39 percent in 1999. On appeals, just one in nine (11 percent) rejected applications eventually are granted a CPP disability benefit a lower rate of successful appeals than most other countries [OECD 2003a: 87]. The CPP disability program has always been among the least generous public schemes with rather modest levels of benefits. Other distinguishing features of Canada s national disability insurance program, in a cross-country context, is the absence of partial benefits and the limited linkages between the government sickness benefit and disability benefit programs. No doubt, the partial connection between EI sickness and CPP disability, compared to a number of other countries, arises from the fact that the CPP program s definition of disability is stricter than in several other social security systems that define disability in terms of a work-capacity or earnings-capacity reduction specified in a percentage rate (often a 33.3, 50 or 66.6 percentage rate). 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. People can have quite serious medical conditions that are recurrent, episodic or cyclical be they different types of cancer, an assortment of musculoskeletal conditions, respiratory infections, multiple sclerosis or schizophrenia, for example, but may not meet the criterion of prolonged for the eligibility purposes of CPP disability. As noted, to qualify initially for CPP disability, applicants must demonstrate that they have a severe disability and one that is likely to be long continued and, at the same time, of indefinite duration lasting for at least 12 months with no possibility of a return to any work within the year. gaps in private disability insurance plans Private disability insurance plans promise financial protection to individual employees and their families in the event of income loss from unexpected injuries, illnesses or disabilities. These disability 10 Caledon Institute of Social Policy

benefit plans are sponsored mainly by employers or professional associations, and administered by private insurance companies. The qualifying conditions for long-term disability (LTD) plans are usually more straightforward than for CPP disability [Torjman 2002; House of Commons 2003], and benefit levels typically insure at about 70 percent of earnings replacement rate a rate comparable to provincial workers compensation plans, somewhat higher than for EI and much higher than for CPP. Not all LTD plans, however, are indexed for annual adjustments as are the public programs. In addition, it is important to remember that LTD benefits are reduced by any CPP disability payments that a plan member may receive. How many Canadians in the labour force have access to disability insurance? Coverage by LTD income replacement plans had grown from 5.8 million Canadians in 1990 to 8.4 million Canadians by 2001. For 2001, this represents an LTD coverage rate of 56 percent of all employed workers in the labour force, up from about a 43 percent coverage rate in the early 1980s (see Chart 4). 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). A study of benefit coverage of full-time and part-time Canadian workers in 1998-99, by sex, reveals further insights. Chart 5 presents information on the distribution of benefit coverage of life/ disability as well as supplemental medical benefits which often go hand in hand with disability plans. Chart 4 Proportion of Labour Force and Paid Workers Covered by Long-Term Disability Plans, 2001 Number of LTD plan members Canadian Labour Force LTD members as a % of labour force Employed workforce LTD members as a % of employed workforce 8,422,000 16,111,000 52.4% 14,947,000 56.5% Sources: CLHIA (2003: 9) and Statistics Canada, Labour Force Survey. Caledon Institute of Social Policy 11

Most full-time employees, male and female, had life/disability insurance protection, with a notable difference in levels of coverage by sex. In terms of overall gaps in income protection, at least one-third of full-time employees and more than three-quarters of part-time employees lacked private disability insurance coverage. Chart 5 Incidence of Life/Disability Benefit Coverage for Full-Time and Part-Time Workers by Sex, 1998-99 (percentage) Benefits Full-time Female Part-time Female Full-time Male Part-time Male Life/Disability 60.4 23.6 67.6 19.8 Supplemental medical 56.0 18.8 64.9 20.8 Source: Adapted from Comfort, Johnson and Wallace (2003). The Survey of Labour and Income Dynamics offers further details on employer-sponsored life/ disability insurance benefits. An analysis of this data set found that 44 percent of employees in 2000 did not have this life/disability benefit coverage from their main paid job. This represented a 56 coverage rate for nearly 7.7 million employees and a gap rate of just over 6 million workers that year [Marshall 2003: 7]. Low levels of coverage by life and disability insurance was apparent, in relation to job characteristics, among part-time workers, temporary workers, non-unionized staff, employees in small firms (under 20 employees) and workers with low hourly earnings (less than $10/hour). By personal characteristics, low levels of private disability benefit coverage were most evident among young workers (ages 16 to 24), those with less than high school and those workers with less than two years work experience. By industry, relatively lower coverage rates exist in accommodation and food, trade, construction and primary industries. Stated plainly: The better the job, the better the benefit package [Marshall 2003: 12]. Self-employment is a growing trend in the Canadian labour force, with more than 2 million people now self-employed, and the Survey of Self-employment offers information on the availability of health and disability insurance benefits for self-employed workers. Results from the 2000 survey are shown in Chart 6. In 2000, of the self-employed, 787,000 or 38 percent had insurance coverage for disability, usually obtained through direct purchase or membership in an association. 12 Caledon Institute of Social Policy

For the 62 percent of self-employed workers without disability coverage, the main reason for non-coverage was affordability, followed by the fact that they had not thought about it and the belief that it was not good value. Interestingly, the major reasons for unmet needs for aids and devices for Canadians with disabilities are financial barriers. The supports are too expensive and are not covered by insurance [Fawcett et al. 2004; Chaykowski 2005]. Chart 6 Health and Disability Insurance Coverage and Non-Coverage of the Self-employed, 2000 Covered Not covered Source: Akeyeampong and Sussman (2003: 15). Health 881,000 1,196,000 Disability 787,000 1,285,000 In summary, more than half of the Canadian labour force, 57 percent or 7.3 million people, have no disability insurance coverage as a workplace benefit. putting a face to those left out Drawing these various elements together, Canadians more likely to be at risk from having little or no coverage of income support or private insurance for serious illnesses and disabilities include the following: new entrants and those with only periodic labour force attachment, estimated for C/QPP disability to be around 20 percent of contributors [Puttee 2002: 88] self-employed workers, with some exceptions, excluded from EI coverage persons with chronic diseases, including recurrent, episodic and cyclical conditions such as arthritis, cancer, diabetes, heart problems and rheumatism clients who exhaust their EI sickness benefits persons who receive only CPP disability or social assistance as income support workers in nonstandard jobs temporary, part-time, self-employed and contractual/ casual work people out of the paid labour force for the past year or more families with one-income earners and families headed by a single parent women returning to the labour force after some absence Caledon Institute of Social Policy 13

recent immigrants who may not have coverage workers in the agriculture, accommodation and food service, construction, recreation and culture industries [Akyeampong and Sussman 2003; Marshall 2003]. True, there are patterns of non-coverage, with determinants of gaps associated with levels of education and income, age and gender, among other factors. Even so, serious illness and disability can strike anyone. Risks are present to a significant extent across all sociodemographic groups, including older, well-educated, long-term and full-time employed people with higher incomes. Just as not all workers in nonstandard jobs are inevitably vulnerable, neither are all workers in good jobs invariably secure from economic risks. The fundamental point is that participation in the labour force does not exempt Canadians from the vulnerabilities of income insecurity. Risks to individuals and families, communities and the economy, arising from inadequate coverage of workers from sickness and disability include financial insecurity and hardship from disrupted earnings and no income protection; depleting personal and household assets before qualifying for social assistance; and persistent poverty (low income) for a number of years. Risks to the self-employed include the loss not only of income but also conceivably their credit worthiness and business. Canadians in these circumstances face tremendous financial and 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. 10 In addition, individuals face barriers to participation in the labour market, and other aspects of community living, due to lack of affordable disability-related supports and insurance. There can be little doubt that sickness and disability, with attendant risks of interrupted earnings and additional expenses of care, are contingencies beyond the capacity of many Canadian workers and families to finance adequately from their household resources or from public and private insurance programs. Strengthening Employment Services and Social Insurance policy 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. 14 Caledon Institute of Social Policy

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. The focus is on income through employment and income through insurance measures. A medium-term benefit, when combined with ongoing (albeit reduced) earnings, would provide a reasonable level of income stability. It would also seek to support the willingness and ability to work, such that the person would be better off working than not at all. the case for extending income protections against sickness and disability Major changes to Canada s labour force over the past three decades. These changes include the rising education levels of workers, the growing participation rate of women in the labour force, and increasing productivity and standards of living in overall terms. Other trends are the increase in nonstandard employment (part-time, temporary, multiple jobs and self-employment), a persistence of low-paid work and wider disparities in earnings from employment [Saunders 2006]. Research reviewed here shows that low-paid jobs tend to have low access to extended health and life/disability insurance. Moreover, many better-paid workers have no disability coverage at work: One in two wage earners of $10 to $20 per hour and one in four workers with a $20 or more hourly wage lack access to disability insurance as an employment benefit [Marshall 2003]. Limitations in the coverage of the EI sickness and CPP disability programs. Unless substantial extension is undertaken, thousands of workers and families remain not covered by social insurance protection for the risks of significant illnesses and disabilities. In 2003-04, for example, close to one-third of EI sickness beneficiaries (17,120) exhausted their entitlement to sickness payments, and only 10 percent of this group (approximately 1,700) later received CPP disability benefits [Canada Employment Insurance Commission 2005]. Old program boundaries make less sense in today s world of work, and create unintended restrictions and hardships because support is something which happens for just 15 weeks or only for severe and prolonged disabilities, when other workers with equally onerous impairments and pressing needs go uncovered [OECD 2003a: 35]. Another example is that when an individual works while in receipt of the EI sickness benefit, any earnings are deducted at a marginal tax rate of 100 percent or dollar for dollar from their benefits representing a strong discouragement to beneficiaries to improve their own situation and contribute to the productivity of the labour force. Existing public and private programs fall well short against values of Canadians. These values include fairness, income security, employment opportunity, personal responsibility and pooling resources against known and widespread social risks. Canadians should be able to avoid serious disruptions of their living standards because of illness or disability. Employers should be encouraged Caledon Institute of Social Policy 15

to institute disability and extended medical insurance coverage, and public programs should provide a reasonable minimum income, without stigma and a loss of dignity, in the event of earnings disruption arising from sickness and disabilities. There should also be access to employment services and supports for all working-age Canadians who want to find work, keep a job or re-enter the labour market regardless of their work situation, insurance status or benefit receipt [OECD 2003a: 156]. Measured against these principles, it is clear there is considerable distance today between these social values and our social arrangements. Sickness benefits in Canada, as provided through EI, are not very long by international standards. Canada has one of the shortest durations for sickness benefits among industrial nations [European Commission 2005, 2003; OECD 2003a]. Few countries provide less than six months of income protection against sickness: Canada, Korea and the United States. Some countries offer up to 26 weeks (Greece, Italy and the United Kingdom), while several offer sickness benefits for up to one year (Austria, Belgium, Norway); others offer between one to one-and-a-half years of benefits over a multi-year period (Denmark, France, Finland and Germany) or an even longer duration of sickness benefits (Netherlands, Portugal and Switzerland). closing the gap: design elements and reform options for medium-term coverage In the context of modernizing the architecture of social policy, reform options should seek to 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. 11 Program design features of the reform options presented here would include the following elements. The core policy technique would be compulsory social insurance for employees with earnings-related benefits. Program funding would be self-financing from employee and employer contributions, given that it is a work-related program and both parties benefit from such schemes. Eligibility would be for people with a certain level of labour force attachment and for workers who face one or more restrictions that together have a substantial impact on their working lives and earnings, requiring some health assessment. The waiting period for the benefit might be the same as for EI two weeks, maybe longer but it would not be necessary or desirable for it to be the threemonth period for CPP disability benefits. The duration of the benefit would be from 16 plus weeks to 35 weeks (or another option could be up to 52 weeks). The basic value of the benefit might not be as high as CPP disability because recipients would be assumed to be employable to some degree, even while in receipt of income support, and thus be earning some income from employment. The new benefit would have an earnings exemption, as generous as that for EI regular benefit or the EI parental benefit, so that the marginal tax rate on any earned income was not prohibitively 16 Caledon Institute of Social Policy