Government Insurance Benefits... An Oxymoron?

Spring 1999 CSANews Issue 31  |  Posted date : Mar 01, 2007.Back to list

Government Insurance Benefits ­ the word oxymoron comes to mind, like jumbo shrimp, postal service and border-crossing assistance. There are still people who believe that the government should be in the insurance business and I would like to take a few minutes to give you my somewhat-biased views.

Let's look at some examples of government-run insurance benefits. The Canada Pension Plan (C.P.P.) is bankrupt! It started out as a plan to collect money from people while they were working, invest it, and then pay them pensions when they retired. It very quickly became, collect the money, give it to the provinces at ridiculously low interest rates, and then pay the pensions. This "progressed" to, the money that is collected must ALL be paid out to people who are retired. Now, some 30 years later, the money coming in is not going to be enough to pay the money going out. What happened to our money?

The government has a very strict, and justified, set of regulations about company (or private) pension plans. These regulations are meant to protect employees and to guarantee that their pensions will be there when they retire. These regulations work! You have probably read news articles about companies and employees fighting about their pension plan surpluses. This means there is too much money to pay the pensions. Whatever happened to the C.P.P.?

If the government had applied its own regulations to itself, we would all be rich in retirement, not poor. If the people in charge of private pension plans ran them like the C.P.P. has been run, the government would put them in jail, literally.

Workers' Compensation, which is really a workplace disability insurance plan, has accumulated billions of dollars in deficits across Canada, despite high premiums. Why? Because the government is administering the benefits poorly and allowing fraud to run rampant throughout the system. One person I met was paid benefits for two months ­ his disability? He stubbed his toe!

Have you ever wondered why automobile insurance is so high? Well, many provincial governments decided that automobile insurance should become a form of disability insurance. The C.P.P.'s disability benefits and other government programs were becoming too costly, so, dump the costs back on the people. Look at the accident benefits section of your automobile insurance policy. The cost used to be about $15. Now, it's $300, $500 and sometimes even $1,000 for this pretend disability insurance.

The ultimate case study is British Columbia's government auto insurance plan. Back in 1974, the B.C. government ran ads trumpeting the fact that they paid only $25 to insure a government vehicle. They implied that they would give that rate to everyone in British Columbia when the government took over. A great story! The very first year they took over, in 1975, they charged an average premium for basic insurance of $124. What happened to $25?

Then came the next year, 1976. Whoops, there was a slight miscalculation, and now the rate was $236. In 1998, the average basic rate you paid in British Columbia was $893.

Of course, there are benefits such as the Old Age Security for which we all paid. Now, the benefits don't exist unless you are close to poverty income levels ­ they are "clawed" back in what is basically a 100 per cent tax.

To quote Bob Jackson in his President's Message, "A government-run, out-of-country insurance program frightens me, as it should you." Two provincial governments have reviewed this issue seriously ­ and rejected it. One of them actually privatized the entire provincial system (with government funding) as they felt the private sector could deliver benefits more effectively and efficiently.

Now that we understand a few "government" plans, let's look at the CSA's Medipac program. In 1992, our benchmark rate was $585. Exactly what we had promised! Less than half of what was being charged by most companies at the time. As benefits are paid in U.S. funds, we must convert the premium to U.S. dollars for an accurate comparison. $585 Canadian was worth $488 U.S. in 1992. Seven years later, including the dramatic inflation of medical costs in the United States, including new strains of drug-resistant bacteria and viruses causing higher claims, and including increases in staffing, printing and marketing costs ­ Medipac's 1999 benchmark rate is $549 Canadian or $357 U.S. In other words, we have decreased real benchmark rates by seven per cent Canadian funds and, when you take into consideration the devaluation of the Canadian dollar over the past seven years, the savings in U.S. dollars is an astonishing 25 per cent. Does anyone really believe that any government could match this performance?

This very simplistic overview of the government-administered insurance plans cannot ever deal with the very complex and intricate parameters that drive these plans. What we as consumers can see, however, is that the government plans don't work, they do not do what was promised to us and they cost far too much.

For those people who still think a government travel insurance plan is the answer, please remember that Canada is the only country in the world that provides any medical benefits outside the country.

Let's just give thanks for the Canada Health Act and for the CSA.