An aging population, new and more expensive drugs and the continued push by governments to cut spending on health care through delisting will soon force employers to fundamentally change their health-care benefits, experts warn.
Now is the time to introduce ways for employers to be less responsible for the costs of health care for retired employees while still ensuring those individuals get all of the care they need, said Madeleine Gaul, a senior benefits consultant with William M. Mercer.
Once again this year, employers can expect health-care costs to increase by at least 15 per cent. Depending on where employees live and what the plan covers, it could be more.
“We already know it is going to be higher in B.C. because they cut back on government coverage for paramedical services and introduced higher out of pocket costs for drug benefits,” Gaul said.
Alberta and Ontario appear set to make similar moves in the months ahead, and as these trends catch on it will soon become too much for employers to pick up the slack.
In Ontario, for example employers with plans that cover paramedical costs (chiropractors, physiotherapists and so on) can expect those costs to more than double in the next year unless they introduce limits or shift part of the expense to employees, said Gaul.
It’s also likely the Ontario government will withdraw drug coverage for “wealthy seniors,” she said. If that happens, employers who cover the cost can expect to pay about $1,100 to $1,300 per person per year.
“Currently, employer programs cover many of us while we are working. If these plans were to pick up delisted services, and continue to pay for increasingly higher drug, semi-private hospital and dental expenses, the cost will double in the relatively short term,” she said.
Gaul said the government should introduce incentives to get individuals to save for health care in retirement. “Let’s acknowledge that Canada does not have a publicly funded health-care system. Here in Ontario, 32 per cent is paid for by employers and individuals,” she said. In order for the government to fund that, it would have to increase taxes by just under $12 billion. Instead, it’s time to look at providing health care for an aging population the same way we look at the provision of pensions. “In short, we prefund to a certain extent.”
People should be allowed to set aside pre-tax dollars to save for health-care expenses, much the way they do now with RRSPs. “This would be a Health Services Spending Account to cover future, rather than current, health-care expenses. Tax-assisted health accounts would also represent an effective vehicle for those employers who choose to contribute towards health care for their future retirees,” she said.
A recent survey by Watson Wyatt consulting suggests employers are already scaling back benefits offerings for retirees. In 1996, 50 per cent of responding companies offered retiree health coverage but today only 31 per cent of respondents were providing that coverage.
“This decrease may be due, in part, to cost cutting by employers,” said Jane Petruniak, a senior benefits consultant with Watson Wyatt. While employers will be looking for ways to cope with those rising costs, there is no tax incentive for companies to provide post-retirement benefits. There are no tax-effective vehicles for employers or employees to set aside money to pay for health care in the future.
Of those firms that do offer post-retirement coverage, 38 per cent provide the same coverage for retirees as they do for active employees, 49 per cent have no specific criteria to be eligible and 63 per cent do not require retiree contributions.
“I think for most of us the thought of seeing a friend or colleague unable to get care because they can’t afford it or because they can’t work and don’t have coverage is unacceptable,” said Gaul. But things can’t continue the way they are.
The Canada Health Act was created in 1967 and much has changed since then but the act hasn’t. For example, tremendous pharmacological advances mean people don’t have to go to hospital as often or for as long and scientific breakthroughs could produce even better drug therapies. But that comes at a cost and within 10 years spending on drugs will become the single largest health-care expense surpassing hospitals. But prescription drugs are not covered under the Canada Health Act, unless you get them in hospital, Gaul said.
Other findings from the Watson Wyatt Comparison Canada survey on employer benefit programs include:
•28 per cent have defined benefit (DB) plans only, 42 per cent have defined contribution (DC) plans only and 13 per cent have combined plans;
•51 per cent of DB plan sponsors subsidize early retirement at age 55 with 10 years of service; and
•almost half of the study participants from the financial services sector offer retiree health benefits, but less than 20 per cent of high-tech firms do.
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