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Newsletter>
Financial Planning for Retirement: Health
April 9, 2004
Retirement planning is a key focus of many Canadians. Most
of us associate this with wealth accumulation, and ensuring
we will have an adequate pension income at age 65.
A critical issue associated with this, however, is whether
provisions have been made for health care in our senior
years. While no one wants to think about it, the fact is
that no matter how well we've taken care of ourselves, the
human body still tends to wear out with time.
Canadians are very fortunate in that we have a
government-sponsored national healthcare program. However,
its funding is largely from tax dollars derived from
today's workforce. As the population continues to age,
there will be fewer people in the workforce to support the
funding of health care programs. Every day, 600 Canadians
turn age 65. The 80+ age group will double in 20 years, and
triple in 40 years. Provincial healthcare spending has
already increased 242% in the last 20 years.
The shift in costs from the government to the individual
has already begun to take place. Cutbacks in home care
support were announced this past fall 2003.
Added to this problem is the issue of changes in family
structure. In the past, extended families lived closer and
could help each other. There were less women in the
workplace. Despite the fact that today there are many more
women in established careers, there still are 3.5 women for
every man fulfilling the role of caregiver.
Current estimates indicate that almost 50% of people over
the age of 65 will need some kind of home care at some
point.
Cost of Home Care versus Facility Care
The cost of home care is initially less than the cost of
facility care. However, as a chronic condition worsens, the
cost of home care will exceed the cost of facility care,
and the ailing senior will be better cared for in a long
term care centre where there is 24-hour nursing care 7 days
a week.
The average cost of homecare is $35 per hour. The
government-funded homecare support limits the number of
hours of care per week. If more is required, the individual
must pay for it, or transfer to a long-term care facility.
Long-term care facilities charge according to the
accommodation level: ward, semi-private, and private. Also,
costs vary by province due to differences in subsidization
of the medical component. In Ontario, the government fully
pays for the cost of medical care, and the individual must
pay for the accommodation charge only. The cost to the
individual starts at $1200 (ward) and ranges up to $2100
(private) in a government-subsidized facility. Compare
this with provinces in eastern Canada where there is no
government subsidy of health care costs. Here, the charges
are double the rates charged in Ontario.
If an individual cannot afford to pay the charge, further
government assistance is available - no one is refused
health care. However, some provinces use both income and
assets tests, while other provinces such as Ontario, only
look at income and not assets.
Regardless, there is still the issue of availability of
space. Entry is controlled by the Community Care Access
Centre. They perform a gatekeeper role in determining the
need. There are more seniors in need, then there are beds
available at the ward level. This is because those who
require additional government subsidy, only have access to
ward level. There is greater access, at the semi-private
and private levels, because the cost is being born by the
individual themselves.
So ability to pay brings greater access to health care in
Canada.
Sources of Funds
The assets that have been accumulated for retirement can be
depleted very quickly when health costs rise. Furthermore,
once spouse may have a need for residential treatment while
the other spouse still requires the use of the home.
Therefore, an important part of financial planning, is
ensuring there are funds earmarked for future health needs.
One way to accomplish this, is to purchase a long term care
insurance policy while you are still earning an income.
There are limited-pay plans available that enable the
individual to pay for their plan while they are still
working and have benefits full paid up by the time they are
age 65. This is a valuable asset to have entering
retirement years, because pension can be used for daily
living expenses, and the long term care insurance can
provide the funds to pay for home care and facility care
when required.
Our next issue will deal with types of home care and long
term care policies available, as well as how to evaluate
them.
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