Morn.Pension

Reading: Morneau Shepell Handbook of Canadian Pension and Benefit Plans, 17th edition, LexisNexis Canada, 2020

• Chapters 17-19

Candidates will not be responsible for specific values and figures included in the text.

Authour: Morneau & Shepell

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Pop Quiz

What are 5 reasons for government involvement in insurance? [Hint: FCC(ES)]

Study Tips

This isn't a P&C paper. It deals with issues of health, workers compensation, and employment insurance, so it's of lesser importance. Many previous exam questions concern the financing and tax treatment of these programs.

Estimated study time: 1-2 days (not including subsequent review time)

BattlePlan

Based on past exams, the main things you need to know (in rough order of importance) are:

• EI (Employment Insurance) seems to be the commonly asked topic
• funding & taxation for al 3 programs: medical, EI, WC (Worker's Compensation)
• miscellaneous facts about WC

reference	part (a)	part (b)	part (c)	part (d)
E (2017.Fall #11)	medical funding: - necessary conditions	medical funding: - identify conditions not met
E (2016.Fall #11)	EI: - government role
E (2014.Spring #14)	WC: - inception of program	WC: - funding	WC: - individual liability
E (2013.Fall #16)	EI: - premium reductions	EI: - returning premium	EI: - disqualifications
E (2012.Fall #15)	EI: - objectives	EI: - financing	EI: - tax treatment

In Plain English!

Chapter 17: Provincial Medical Plans

I lived in the U.S. for several years and had insurance through my employer, but they didn't cover the full premium. My portion of the annual premium (covering me and my spouse) was $5,000. Then there was an annual deductible of $3,000. That means I had to spend $8,000 out-of-pocket before any coverage would be triggered. And to make matters worse, the co-pay was 20% - so even after coverage was triggered, the insurance company only reimbursed at 80%. Plus filling out all those claim forms was such a royal pain!

I thought I'd open with that little story just to put things in perspective. Sometimes you have to see the other side to appreciate what you have! Anyway, our current system is based on the Canada Health Act of 1984. Its primary objective is...

...to protect, promote & restore the health of Canadians without financial or other barriers

Part of the intent of the Act was to establish uniform standards across all provinces. This is tied to transfer payments to provinces, which means that if a province doesn't follow these federal rules, they 'aint gonna get no fundin'! The 5 conditions are: CUPPA (As in, would you like a CUPPA (cup of) tea?)

• C: Comprehensive: covers all hospital & medical services
• U: Universal: covers all eligible residents
• P: Public: requires administration by non-profit public authority
• P: Portable: between provinces
• A: Accessible: uniform terms & conditions for all eligible residents

Note that I put these conditions in a different order than in the reading. I did this so the first letter of each condition would spell CUPPA.

In terms of financing, the federal government (through transfer payments) now contributes less than half of the total cost. That means the provinces have to come up with ways of raising the balance. There are 4 ways of doing this (see BattleQuiz below), one of which is direct cost-sharing by residents & employers.

In terms of tax treatment, individual contributions to provincial plans are not tax deductible (that sucks) and employer contributions are taxable (that double-sucks.) On the other hand, employer contributions to private plans are not taxable benefits Yay!! (Except in Quebec.)

Even though we enjoy a high standard of living in Canada, there will always be new challenges.

Question: identify 2 challenges facing provincial hospital and medical insurance plans and how the federal government is addressing the issue

• prescription drug costs

- federal government is joining the provinces in the pan-Canadian Pharmaceutical Alliance (pCPA)

• demographics (the ratio of working-age people to retired people is going down)

- federal government is increasing immigration targets (Immigrants tend to be younger.)

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Chapter 18: Workers Compensation

Worker's Compenastion hasn't been tested since 2014 (2014.Spring #14). I mentioned before that this is not P&C, but I suppose the CAS wants you to know at least something about what the "other" actuaries do.

There isn't much to say about this beyond what's in the BattleQuiz below. Worker's Compensation is based on the principle of no-fault insurance, and is funded by the employer. The employer premiums are tax-deductible. There are no tax implications for the employee. (Neither employer contributions nor employee benefits are taxed.)

There is a crossover question with the last section of CAS.GovtIns - TRIA & WC about evaluating the effectiveness of the WC program according to the W/I-SEAN criteria. You should take a moment to review that because of the contradiction in the 2012 & 2018 examiner's reports.

Recent Legislation: Public attitudes about mental illness are evolving and this is very much in the news with tragedies like the 2018 van attack on Yonge Street in Toronto There is now recent legislation that deals with WC claims related to mental disorders. British Columbia and Ontario are broadening the scope of eligibility for mental disorders. Most of the provinces have introduced legislation to cover psychological injuries such as PTSD. See the mini BattleQuiz below for more details

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Chapter 19: Employment Insurance

There were questions on this topic from 2012.Fall, 2013.Fall, and 2016.Fall, but the (2016.Fall #11) was a better question because it wasn't based solely on memorization. It was as follows:

Question: why would EI (Employment Insurance) not be viable without government involvement

• As soon as government involvement is mentioned, I think of the reading CAS.GovtIns. Do you remember the 5 reasons for government involvement in insurance? FCC(ES) It might be an idea to do a quick review right now.
• The first reason F is filling an unmet need. Ask yourself: Would there be an unmet need for EI if the government were not involved?

• Who would buy EI? Probably nobody would buy it until they needed it. But this is adverse selection. That's the 1st reason.
• You might say, well, the employers would buy it. But why would they? They don't get any benefit - the benefits go to the employees. (That's the second reason) You need the government to mandate that employers buy it.

• The second C stands for convenience. If you review CAS.GovtIns, this means that the government may already have some of the necessary structures in place to administer the program. This reason is stated as complexity. It's too complex for private insurers to administer it.

To summarize: The 3 reasons for government involvement in EI are:

adverse selection: only those about to lose their jobs would buy it

employers wouldn't contribute: they get no benefit (government must mandate coverage)

complexity: Govt already has necessary structures in place to facilitate operations

There is an example of an EI benefit calculation in this chapter. There has never been a calculation problem on this topic, but it's easy so it will only take a moment to review it:

given info:

• a person worked for 50/52 weeks in the past year (so she is eligible for EI)
• her income over her best 18 weeks was $17,000 (the time period of 18 weeks is location-dependent and is based on the unemployment rate in the location)

solution:

• average weekly earnings = $17,000/18 = $944
• weekly benefit = $944 x 55% = $519
• The maximum benefit is $573 per week

If a question like this appeared on the, you'd have to be given her income, # of weeks, and percentage to apply to average weekly earnings. It would then be a simple matter of putting the pieces together to calculate the final weekly benefit. (And don't forget to check eligibility. If someone doesn't meet the eligibility requirements, they would receive $0 in benefits.)

See the mini BattleQuiz below for more details

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BattleCodes

Memorize:

• just go through the BattleQuiz for each section - there are too many miscellaneous facts to list here

Conceptual:

• The question in the EI section, on why government involvement is necessary, could be asked about health insurance and WC as well. It connects to the reading on CAS.GovtIns. Think about it on your way to work tomorrow.

Calculational:

• none

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POP QUIZ ANSWERS

5 reasons for governmental participation in insurance: FCC(ES)

for FILLING NEEDS unmet by private insurance (Ex: terrorism)

- may occur when private insurance is not economically viable (after 9/11 terrorist attack in NYC, private market withdrew coverage)

when insurance is COMPULSORY (Ex: BC auto - see the wiki article ICBC.Affordable)

- if insurance is compulsory but not offered by the private market (for whatever reason) then government must be the provider

for CONVENIENCE (Ex: flood)

- government may already have necessary structures in place (government already provides disaster relief after floods)

for EFFICIENCY (Ex: auto)

- agent commissions eliminated → lower expense ratio → lower premiums for consumer

for SOCIAL purposes (Ex: medical coverage)

- private market is motivated by profit, sometimes at the expense of social purposes like universal medical coverage