Healthcare Insurance Benefits for Retirees in Canada
Great healthcare coverage is a gift worth paying for. This makes healthcare insurance benefits for retirees in Canada critical as part of your financial plan.
While in the workforce, workplace healthcare coverage is usually commonplace. In some cases, some lucky retirees have ongoing coverage as a continuing benefit paid for by their former employer – such as in my parents’ case.
Those good ol’ days are fading fast…
This means, if you’re in your 40s or 50s, and thinking ahead to any form of semi-retirement or full retirement, I believe it’s best you make an informed healthcare insurance benefits decision.
As always on this site, I like to talk to some experts that live and breathe this stuff every day to get facts as best we can.
In the past, I’ve had my friend and insurance expert Brian So on the site.
Brian helped me personally when it came to my term life vs. whole life insurance decision here.
We also previously touched on this subject, a bit, in this post when workplace benefits are disappearing.
Based on some recent reader questions earlier this year, and based on my own reflections about what I need to consider when it comes to healthcare insurance benefits for retirees, Brian was a natural choice to get the goods on healthcare insurance benefits for retirees in Canada.
Brian, welcome back and thanks again. Let’s pick up where we left off…
I can appreciate you might be a bit biased given you see these needs every day, but do you agree that healthcare insurance benefits in semi-retirement or retirement are a good idea? Why?
Absolutely Mark. But don’t let your readers take my word for it. Have them check out this article below.
I can appreciate we don’t live in the U.S. but having an accident or illness could be very costly and totally devastating to your retirement plan if you don’t have health insurance.
The reality is, many people are used to using their healthcare benefits through their workplace for things like dental, prescription drugs, paramedical services, etc. Unfortunately, they take it for granted. That’s because some people don’t pay much attention to the employer-supported premiums paid for their healthcare benefits coverage – it’s not a direct, complete financial hit to them.
Because I do see concerns people are facing every day, I would encourage Canadians to think very hard about their healthcare needs in retirement – the simple fact is – the true costs in retirement will come with major sticker shock. Of course, you have to weigh the costs/premiums of these benefits and what you may be able to self-insure for but for the most part, most if not all Canadians need some form of healthcare insurance benefits. It will be essential at some point.
I couldn’t agree more. Hence our article today! So, what are the main healthcare insurance options for any retirees?
Mark, let’s look at three (3) major ones:
- Employer-sponsored group plans
- Rollover plans
- Individual plans.
Employer-sponsored group plans
The reality is retiree health benefits are expensive to maintain. Your parents are very lucky Mark. These plans are simply going away.
Simply, these benefits are just as they sound: employers sponsor (i.e., pay for) health insurance to retirees as an ongoing retirement benefit. The advantages of this are numerous of course. If you are able to take advantage of any employer-sponsored group plan throughout your retirement, generally speaking, go for it.
Rollover plans / group conversion plans
“Rollover” plans are for people who had group healthcare benefits through their employer or association when working. But instead of the employer sponsoring the entire plan going forward, you do. If you’re a former group plan member, you can “opt in” to a rollover plan within a specified period of time (generally 60 days) after you leave the employer. After that, no chance.
The great thing about this employer-group conversion plan is, you don’t have to complete a medical questionnaire or submit to a medical examination in order to qualify – just like when you likely joined your organization. Therefore, a rollover plan may be worth looking into. This is especially true if you already have some health problems that could make you ineligible for individual coverage.
The downside is your premiums are based on your age when you rollover into the plan, so generally speaking, the older you are the higher the costs. You can choose basic coverage or enhanced benefits – just like when you were working.
This is probably the most common type of health insurance plan.
There are really two types of this insurance:
- Medically underwritten plans where you have to complete a medical questionnaire, and
- Guaranteed acceptance plans where you don’t.
The benefit of the medically underwritten plan is you will likely get better coverage, but it might not be available if you have pre-existing medical conditions. In that case, you may opt for option #2. This way, with the guaranteed acceptance plan you are covered for existing conditions, but overall limits are lower, and the plan will be more expensive. So, with option #2, depending on your health status, premiums could be high. This is because your premiums will depend on the plan/coverage you choose, your health status, and the age of when your coverage takes effect. We’ll see some examples below.
Given employer-sponsored group plans are basically non-existent now, here are some things Canadians should consider when it comes to comparing a rollover plan to an individual plan:
- How much are the premiums?
- What coverage do I get for those premiums? (e.g., 80% dental?)
- Is there a cap on service providers? (e.g., massage therapy, physiotherapy, other?)
Smart readers will know that government healthcare plans vary from province to province, and typically they don’t cover dental or vision care.
In your province Mark, Ontario, retirees won’t qualify for the Ontario Drug Benefit Program for the most part until they are age 65 – although some exceptions may apply.
So, while your plan for semi-retirement and early retirement is great, you’ll need to consider healthcare coverage and that might come with some extra costs.
For those that could take advantage of an employer-group conversion plan, without the need to complete a medical questionnaire or exam, are these generally a good idea to take? Why or why not?
Reference post: what to consider when workplace benefits are disappearing.
As a rule of thumb Mark, if you are healthy, you should always go for the medically underwritten plan and complete the medical questionnaire to get the best rates and fewest exclusions.
Now, that said, a benefit of any employer-group conversion plan is there is no waiting periods to use the benefits. It is as if you never left your employer-group plan. This is not the case for a medically underwritten plan, there is a waiting period to use some benefits.
If you’re not healthy (e.g., you’re already on medication or you might have other medical issues), you can apply for employer-group conversion to continue to get coverage for your current medication. The downside of group conversion plans are they will be more expensive than the medically underwritten ones as we have outlined above.
Let’s get into the moneystuff. Assuming an employer-sponsored group plan is not an option, are you able to break down the costs of individual plans?
Last time we talked, you highlighted the typical personal insurance plan or a 55-year-old couple. Are you able to provide any examples for singles as well? What might be the estimated costs for healthcare coverage be for certain individuals or couples?
Let’s assume, coverage for at the time of this post:
- 80% of the cost of prescription drugs up to a maximum of $5,000 per person per year.
- 80% of basic dental services up to a maximum of $1,200 per person per year with 2 recall visits per year.
- 50% of major restorative services.
- 50% of orthodontics.
- $300 per person every 2 years for vision care.
- $500 per person per year for registered therapists and health practitioners (physiotherapists, chiropractors, etc.).
- $5,000 per person per year for medical services and supplies not covered by government plans.
- Miscellaneous benefits such as private duty nursing care, accidental death & dismemberment, etc.
I put together a table below, to focus on individual medically underwritten plans (not the guaranteed acceptance or employer-group conversion plans). Again, I think folks if they can get the best coverage for the best rates with individual medically underwritten plans:
|55 single||55 couple||60 single||60 couple||65 single||65 couple|
What FAQs (Frequently Asked Questions) do you get from aspiring retirees on this subject?
A few Mark:
- What’s covered and how is it different than what they currently have? (Typically, the plan design will be different than what they had at their workplace; examples include different deductibles, coinsurance, etc.)
- What are the maximum limits? (Retirees want to know if there are annual and lifetime limits for big ticket items like drugs. Also, there are likely annual limits for dental treatment and paramedical services like massage therapy, physiotherapy, chiropractor, etc.)
- What is the best plan for them and how much will it cost?
So, while these are the top-3 there are many other questions and factors.
I’ve compared plans from different insurance companies for years (e.g., Manulife, SunLife, Canada Life, Blue Cross) and their plan design and costs have a wide range.
These plans typically give you a few options to choose from the most basic to the most comprehensive. Such plans let you design and customize your plan (e.g., no dental coverage, basic dental coverage, or comprehensive dental coverage).
Essentially what I ask clients to consider is which part of the plan they will use the most (to ensure they get the coverage they need). There is usually a sweet spot for any individual or couple.
Finally, Brian, if folks are not yet convinced, they should at least consider healthcare insurance in retirement, what advice do you have for them?
Well, unless they know something I don’t know about, I believe healthcare costs will rise as you get older.
In fact, when you compare yourself to your working years, Canadians over age 65 consume 45% of provincial and territorial government health care dollars (source CIHI), despite making up about only 14% of the population.
Simply put, retirees in Canada need to plan for their healthcare costs.
One way (beyond healthcare insurance) is by saving more and keeping a larger emergency fund. I know you are considering a cash wedge in retirement – that seems very smart to me.
That’s likely not enough, so healthcare insurance will provide some relief.
For some affluent retirees, they might not need too much insurance but I encourage everyone to ask a few “what if” questions. Your decision to own healthcare insurance in retirement will depend on many factors such as your current savings, retirement income streams, whether you have that cash wedge cushion to absorb increased medical expenses, but it will also depend on your risk tolerance.
While healthcare insurance coverage may not be a huge need while you are younger and working, you simply won’t have the opportunity to recuperate assets or losses as a retiree. This is especially true for folks who unfortunately have an accident or illness. Something for your readership to think about!
Great stuff Brian.
I think this post will help many aspiring retirees!
If you have questions for Brian, he’ll be happy to answer them below on this site and keep the conversation going. Alternatively, if you have a specific set of questions for him – don’t hesitate to reach out.
Check out my post with Steve Bridge, a Certified Financial Planner (CFP®) from Vancouver who works as an advice-only financial planner about what goes into a good financial plan.
Brian So is a life insurance agent based in beautiful Vancouver, British Columbia. He runs Brian So Insurance (no affiliation) and is committed to helping his clients find the best coverage for their needs.
He takes a holistic approach to insurance, implementing life, disability, critical illness, healthcare and long-term care insurance into his clients’ risk management plan to provide comprehensive coverage for their families.
How are you navigating your loss of workplace benefits? What is that costing you? Did you factor that into your retirement budget and plans? Let me know and share in a comment below.