Plan sponsors are being inundated with a changing benefit landscape — including an escalating incidence of heart disease and obesity and more biological drugs — that is challenging them to rethink their benefit philosophy.
The elimination of mandatory retirement at age 65 has added another challenging component. Employees older than 65 have the same need for benefits, such as paramedical practitioners, orthotics, dental care and vision care, as all other employees. And none of these benefits are covered through government programs. So should employers provide post-65 benefits?
Employers have to consider the potential implications of future legal challenges to age-based discrimination around accessing employee benefit plans — how would they justify not giving these benefits to this employee group?
It should be noted employment standards apply protection to persons “18 years or more and less than 65 years,” so employers are not legally required to provide benefits to employees aged 65 or older. But there has been some discussion as to whether the standards will be challenged in this regard.
In some cases, the insurance industry has made the decision for employers when it comes to post-65 employee benefits. Long-term disability (LTD) benefits are seldom provided after an employee turns 65. Generally, life insurance benefits reduce at this age and the conversion privileges for life insurance cease. Group critical illness is another benefit that often terminates at 65.
However, the decision to continue benefits, such as health and dental, rests with the plan sponsor. The decision is primarily influenced by an employer’s overall philosophy regarding age distinction within the benefit program and its ability to fund benefits after 65.
Many employers struggle with treating an active employee who is 65 or older any differently than the rest of the active workforce. Employees 65 or older can be valuable assets to an organization and continuing to offer benefits provides additional incentives for them to work longer.
That said, there are also employers that encourage employees to retire at 65. In this case, having a benefit plan that stays in force after age 65 persuades employees — who may be working primarily for financial reasons and access to an employee benefit plan — to stay at work longer.
After retirement or retention concerns, the decision for a plan sponsor becomes primarily financial. An employer that wishes to treat all active employees equally, regardless of age, must decide whether it is affordable to continue benefits beyond age 65.
Governments are struggling with the cost of providing prescription drug coverage to citizens 65 or older. This has resulted in many cutbacks and the offloading of costs to employers and insurance carriers. Employers considering offering drug coverage to post-65 employees should focus on the coverage that government plans do not provide.
Canadians pay into support programs during their working lives through taxes or premium contributions and, in return, receive benefits such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and medical care. An employer’s health benefit program may provide for semi-private hospital coverage. This benefit pays for the difference between the ward cost, which is paid by the province, and the cost of a semi-private room.
The logic behind providing this kind of benefit — which is not medically necessary and does not result in better outcomes for the patient — is for another discussion. That said, Canadian employers do not relieve the government from its obligation to provide ward coverage to citizens and fund the cost themselves, so why would they relieve the government and provide drug coverage?
With the absence of a nationally regulated drug program, access to approved and funded drugs significantly varies by province. For example, cancer drugs approved and funded by British Columbia are significantly more costly than similar drugs in Ontario. Ontarians are required to submit an application to the Exceptional Access program prior to acceptance for many cancer drugs. If these programs are sufficient for the health and welfare of non-working Canadians over age 65, then they should be sufficient for working Canadians over 65.
In 2009, the average annual claim submitted per cardholder aged 65 or older was more than double that of an employee aged 40 to 49, found Telus Health Solutions, a major prescription drug manager. With drugs continuing to increase greater than the consumer price index, this benefit cost will only increase and put a strain on benefit budgets. Many of the plan designs were in place prior to the abolishment of mandatory retirement and were established with trend and risk models that had a financial obligation end date.
Due diligence should be taken to ensure the plan designs for these health benefits have an element of consumerism, with members participating in the cost through co-insurance and plan maximums. Working over age 65 is, for many Canadians, today’s reality.
Regardless of whether or not an employer is philosophically aligned with providing benefits past age 65, the reality of the additional financial obligation may be the overriding factor in this decision.
Bill Brown is a senior vice-president of leadership and corporate services at Williamson Group, a benefits consulting and financial services firm based in Brantford, Ont. He can be reached at firstname.lastname@example.org.