Group insurance: Mental health issues drive up costs

The figures are revealing: one in three disability claims in Canada is related to a mental health issue, representing 70% of the total cost of claims, according to a study published in March 2025 by the Canadian Standards Association, also known as the CSA Group.

Overall, insurers paid out more than $730 million in benefits for mental health support in 2023, according to a federal report on mental health to which the Canadian Life and Health Insurance Association (CLHIA) contributed. This represents an $80 million increase compared to the $650 million it reported in 2022. It is also more than double the amount paid out four years earlier, in 2019.

“Regarding mental health, the CLHIA observes that in Canada, insurance plan sponsors are increasingly expanding mental health coverage, resulting in an increase in reimbursed consultation services,” Dominique Biron-Bordeleau, spokesperson for the organization, told the Insurance Portal. She also noted that the claims acceptance rate exceeds 90%.

The CLHIA adds that, in terms of disability, musculoskeletal disorders or cancer account for 60% of claims. Mental health follows, at 30%.

A major cause

In Quebec, half of the top ten causes of disability are related to mental health disorders, according to the Mouvement Santé mentale Québec (MSMQ). This Quebec coalition of community organizations dedicated to mental health promotion and prevention also reports that Canadian businesses spend nearly twice as much on short-term disability benefits for mental illness compared to disability caused by a physical problem.

In a research report conducted in partnership with Canada Life in 2025, Mental Health Research Canada (MHRC) examines the "growing impact" of burnout on employees and organizations. "39% of Canadian employees report feeling burnt out,” the authors write.

The annual cost to the employer varies, of course, depending on the position, ranging from $5,500 for an hourly employee to $28,530 for a senior manager, estimates MHRC. Thus, for a company with 500 employees, this represents an annual loss of approximately $3.4 million in productivity and wages. However, the annual costs of burnout drop to $2.4 million if the employer prioritizes mental health, meaning they implement effective preventative measures. Conversely, this figure could climb to $4.1 million for an organization that takes no action.

iA Financial Group wrote in a 2024 report that annual disability costs related to mental health amount to $1 million for a company with 1,000 employees. These costs are linked to overtime for replacements, delays in project delivery, the impact on team morale, and the high risk of employee turnover.

For employers and insurers, mental health-related leave is more difficult to manage than physical health claims, particularly due to the uncertainties surrounding the often unpredictable duration of the disability period. They must contend with return-to-work dates that are frequently postponed month after month.

Variable risks

Mental health realities also vary according to age and gender. iA Financial Group reported in 2024 that the proportion of disability claims is 10% higher for women.

Among Generation Z (born after 1995), mental health claims account for 50% of long-term disability benefit applications, a proportion that climbs to 60% for women in this group, according to Sun Life Financial data reported by the Insurance Portal in January 2026.

More broadly, Generation Z is affected by factors such as digital connectivity, eco-anxiety, financial worries, anxiety, depression, and, notably, the lockdowns during the pandemic while they were in school. Claims for anxiety and depression medications from members of this generation increased at twice the rate of the overall insured population between 2021 and 2024.

Finally, in 2026, healthcare costs will increase by 8.3%, according to Aon plc. This increase will be driven by higher medical claims for physical and mental health, as well as higher prices for medications (particularly psychoactive drugs), which will be affected by U.S. tariffs.