***UPDATE: PMO says once you’re in, you’re in. No opting out.
NOTE: This post has been revised, I missed a line in the announcement about post-claim payments
Big Tory announcement of the day is the proposal to extend the EI-funded maternity/parental benefits to the self employed, to avoid forcing the self-employed to “choose between starting a family and starting a business”. Setting aside the fact that no one is being forced to choose here, I’m trying to figure this one ou
On the one hand, I like the idea of incentives for people to have kids, and giving new parents a chunk of tax money to take six to twelve months to take care of their newborns seems like a good incentive. At the same time, funding maternity leave out of the EI plan never made any sense.
So, to the Tory plan. My first reaction was, “great idea”. But the more I look at it the weirder it looks. Here are the details:
1. Voluntary opt-in.
2. Same benefits as regular EI participants.
3. opt-in must be done at least six months prior to making a claim.
4. Premium rates will be set to make the system self-financing.
5. There will be a specified amount of post-claim payments, TBD.
6. Details to be set by a review by the newly created Canada Employment Insurance Financing Board.
That is basically the extent of what the Tories are telling us.
But here’s the thing. Insurance is supposed to protect you against unforeseen and accidental misfortunes, and – Bristol Palin aside — not that many people get pregnant accident. In fact, unlike insurance for things like fire and theft, where you are trying to avoid that outcome, the point of this policy is to actually encourage people to get pregnant.
That is just to say that this seems ripe for a massive case of adverse selection, where the only people who opt-in are those who are trying to get pregnant. A lot depends here on how they figure out the post-claim payments system, I think. But I turned it over to a friend who knows a lot more about public insurance and parenting than I do. Here’s his take:
Seems kinda crazy….
Idea obviously is not to avoid adverse selection, but to effect a transfer from workers generally to self-employed individuals who have babies. Raises a question of fairness in that self-employed individuals who do not have babies are not forced to pay (so it is not all workers who compensate new parents, but only salaried workers). If one wants to universalize, one should either take it out of EI (so that all of society transfers money to new parents), or else put all self-employed workers into EI. The proposed program just has salaried workers subsidizing parenthood, while self-employed workers get off scot free. So you have a universal program funded by only a subset of taxpayers (those unlucky enough to be salaried).
Sounds a bit like the Tories’s “universal child benefit” — a wasteful and illogical program, designed only to correct a bias perceived by ideological conservatives — in that case, subsidization of daycare, but not subsidization of of stay-at-home-moms. Here the perceived evil is subsidization of labour, but not entrepreneurship. So you get a weird kluge to an existing program, designed in a way that no one would consider if they were doing it from scratch.
Anyhow, the fact that the old system was in EI was already a bit awkward (e.g. I had a two-week waiting period in which I was ineligible for benefit, just as if I had been laid off, even though it made no sense with a parental benefit program). What they really should be doing it taking the whole program out of EI, and having a stand-alone system. Universal benefit should be funded by universal taxation.
Of course it would be different if the whole thing was revenue-neutral. It all hinges on the “required payments post-claim”. You’re not eligible for EI, so you’d be crazy to sign up until you were 3 months pregnant. So you can assume that every self-employed person with pay exactly 6 months in, then make some mandatory follow-up payments, and will draw the maximum benefit (again, you’d be crazy not to). It would be easier just to do the math on the maximum claim going out, the minimum payment going in, and offer people the balance as free money (like the “baby bonus” payments in Quebec).