Time Will Tell

This new dynamic of aging and retirement has very significant implications for employers and employees—from workforce composition to compensation and benefits, to lifestyle issues. But the focus here will be on health-related matters associated with the aging of the Canadian population. While Canadians are living healthier and wealthier at every stage of life than ever before, there are health-related risks associated with aging that can have significant financial implications. Employers and employees need to be aware of and plan for certain cautionary realities—whether they’re in the future or not.

Imposing Numbers

The group of boomers turning 65 beginning in 2011 should not be looked at in isolation from the current population that is now age 65 and older. It is the movement of the boomers into various age cohorts that is much more important.

According to Statistics Canada, between 2005 and 2036, the seniors’ population is projected to increase from 4.2 million to 9.8 million. The 65 to 74 age group will grow from about 2.2 million (6.9% of the population) in 2005 to 4.8 million (12.4% of the population) by 2031. Yet between 2031 and 2041, StatsCan projects that 65- to 74-year-olds will account for a declining share of the total population.

For the 75 to 84 age cohort, between 2005 and 2021, this share of the population is projected to stay constant at roughly 5%. However, the absolute numbers of this group will increase from 1.5 million in 2005 to two million. The largest increase will be between 2026 and 2041, when this share of the population goes from 6.9% to 9.7% and its total number reaches 3.9 million. This is due mainly to the continued aging of boomers.

Finally, and most significantly, is the group age 85 and older. Between 1981 and 2005, the absolute number in this group increased from 196,000 to 492,000 (from 0.8% to 1.5%, respectively). By 2021, StatsCan projects that there will be 800,000 people age 85 and older in Canada, representing 2% of the population. Between 2021 and 2056, as boomers enter this group, the absolute number is projected to increase to 2.5 million, with a population share of 5.8%.

Impact of Longevity

Examining the health characteristics of these age cohorts helps to clarify vexing issues, especially those relating to healthcare and social services from the public and private systems. Just as aging should not be viewed only in terms of boomers turning 65 in 2011, the question of health, too, should not be viewed in isolation.

There has been a lot of speculation over the years that the aging of Canadians will create a “healthcare crisis” and that the publicly funded system will simply not be able to bear the strain caused by the healthrelated issues of older people.

In August 2000, the provincial and territorial ministers of health released “Understanding Canada’s Health Care Costs,” which said that aging would create an annual expenditure increase of 0.8%; population growth, 0.9%; and CPI, 2%. And 1% will be due to other factors. The report states, “over time, as population growth slows and the aged component of the population rises, the relative contributions of these factors change,” such that between 2025/26 and 2026/27, expenditure growth from aging could be 1.3%.

Submissions to the Romanow

Commission (“The Future of Health Care in Canada”) citing Robert Evans and other health economists reject the notion that aging on its own will have a significant negative impact on publicly funded healthcare in Canada. The Canadian Health Coalition cites a Finance Department study that says that healthcare will remain affordable over the next 40 years and that “public healthcare expenditures are not exceeding public resources.” That report goes on to say that what is really out of control are items, especially drugs, not covered by the Canada Health Act. In fact, drug costs have tripled as a share of national income in 20 years.

New Definitions

Too often, we look at health as a state of living characterized by the absence of disease. We need to go beyond this perception and embrace health as a state of physical, mental and social well-being, viewing health as a resource that allows for positive living. In doing so, we go beyond the medical model that emphasizes doctors and hospitals, which, since the beginning of medicare in Canada, has been the focus of the public system.

When we extend the definition of health to encompass a state of optimal, positive living, we get a better context in which to consider aging and healthcare. This is where demographics are especially important, because the health experience of seniors— regardless of their overall well-being—is not consistent. And these differences have significant implications for healthcare provided by Canada’s publicly funded system and services that fall outside of the public realm.

Not all age-related health issues require significant interventions. Much of the care that people need as they get older comes from family or friends, or from more formal supports such as home care, assistive devices, home modifications and a host of other services not mandated under the Canada Health Act or covered much, if at all, by the provinces.

Likewise, most services provided by other health professionals (psychologists and massage therapists, for example) and alternative service providers (e.g., naturopaths or homeopaths) are paid from the private sector. And boomers are much more likely than preceding generations to avail themselves of such services. Many boomers expect to have at least some of these expenses covered under employer health benefits programs or private insurance until they end employment.

When it comes to institutional living in Canada, the 2001 census indicated that 7% of those over age 65 lived in institutions, but only 2% of those ages 65 to 74 did so, compared with 32% for those age 85 and older. However, more than twice as many senior women ages 75 to 84 lived alone (43%) than did men (18%) of the same age. With the enormous growth in the population over age 80, the total number of seniors who will seek alternative accommodation will accelerate.

Wealth and Health

The relationship between wealth and health is complex. There are, of course, no assurances that a higher level of wealth can protect an individual from illness or disease. However, it is important for Canadians—especially boomers—to realize that this relationship is real and that the more broadly we define health, the more the relationship becomes relevant.

As we approach retirement, as well as in our retirement years, this relationship may be more significant simply because as we age, we often face greater health challenges. Canadians may be living longer and healthier, but the reality is that with increased life expectancy comes longevity and healthcare expense risk—largely related to the number of health services that the provinces may cover only partially or not at all.

Considering that health involves a lot more than merely the absence of disease, it’s not surprising that income is so important. Wealth—which, in retirement, is necessary for income generation—also helps to determine an individual’s ability to access services, housing and transportation in order to maintain independence. Wealth is also essential for access to non-insured health services and supports.

When considering aging, health and healthcare, then, Canadians should keep these four main points in mind.
• Aging in Canada alone will not significantly affect health spending in the public sphere.
• Not all healthcare services are covered by the publicly funded system.
• Age-related health conditions do not necessarily involve intensive services but may be ameliorated with care that is privately funded.
• Increased levels of wealth provide greater choice for health-related services, alternative living arrangements and a host of other services.

Having the financial means to be able to choose the type of alternative living setting, afford to see certain types of healthcare providers or purchase prescription medications that may not be covered under provincial plans—as well as to afford home care and other non-insured services—should be a part of every Canadian’s financial planning for retirement.

Preparing for the Future

While employers and employees should be thinking of these general factors, aging and health also present specific challenges—from workplace stress and benefits plan design, to education and financial planning for retirement.

There is a very significant effect on the labour market related to the provision of informal care for aging parents and relatives. We have an increasing number of seniors and an increasing number of very old seniors. This is leading to an increase in the number of employed Canadians who have to balance work with caregiving.

According to StatsCan’s 2002 General Social Survey, more than 1.7 million adults ages 45 to 64 provided informal care to 2.3 million seniors, helping them cope with long-term disabilities or physical limitations. Seven out of 10 of these caregivers (most are women) were employed. Of these employed female caregivers, 27% had to alter their work patterns. (For men in this group, the rate was about half.) Reduced hours result in lower income and lower productivity. The greatest impact is on those who quit work—2% of caregivers ages 45 to 64 stopped working at their paid jobs to help seniors. Also, workplace and personal stress levels among employees are increasing, according to the 2008 sanofi-aventis Healthcare Survey, and providing care to seniors is a major contributor to stress levels among workers.

Most working-age Canadians have access to employer-sponsored health insurance for drugs, dental and vision coverage. When those employees stop working, unless there is an option for post-retirement benefits, they lose that coverage. Although a program such as the Ontario Drug Benefit (which covers a range of pharmaceuticals) begins at age 65, not all drugs are covered under the benefit. Services that are at least somewhat covered by employer-sponsored plans—such as those provided by psychologists, physiotherapists and a range of other providers—will have to be covered by individuals, either from their own pockets or through private insurance.

Whether an employee retires with or without post-retirement health benefits, the health expense risk that we should all plan for relates to options and freedom of choice. Specifically, this will involve payments for services beyond what is covered by provincial health plans—for example, many non-institutional mental health services, dental services and prescription medications not included in the province’s formulary. When it comes to living accommodations, having sufficient finances means that an individual will have greater choice to select the type of retirement facility, to modify his or her current dwelling or to afford home care and other supports in order to stay at home for as long as possible.

There are distinct ways that employers can play a proactive role and assist employees in each age group. Over the years, there has been a move to greater self-reliance when it comes to employees taking responsibility for their financial well-being in retirement. The most obvious manifestation has been the move from defined benefit pension plans to money purchase plans, defined contribution plans or group registered retirement savings plans (RRSPs). The trend toward self-reliance is also showing in the broader health market.

The new tax-free savings account, which will be available on Jan. 1, 2009, may well be the most important new savings vehicle for Canadians since the introduction of the RRSP. Over the years, it could provide older persons with a significant pool of funds from which to draw the additional monies that will be required with longer life expectancy, whether or not they are used for health-related items. Providing staff with educational opportunities for retirement financial planning is commonplace. These days, employers should consider retirement planning education that includes information about the new dynamics of retirement—especially as it concerns longevity and healthcare expense risk—and how to plan for those elements.

All employees should also have the opportunity to learn about relatively new insurance products that have come onto the market for critical illness and long-term care. Employers should consider how these products might fit with the current offering of long-term disability insurance.

Realizing that some employees have, or may one day have, caregiving responsibilities for aging family members is essential. Educating employees about what they should and should not expect from the public healthcare system will go a long way toward preparing workers should they find themselves in the role of caregiver or care organizer. Understanding the potential for increased stress levels and accommodating staff is not only the right thing to do; it is also good business practice.

Boomers who are about to turn 65 will embark on their retirement years in better health, in better financial condition and with greater prospects for a long and enjoyable last third of life than any preceding generation of Canadians. They will have real opportunities to either stay fully employed or to transition from full-time work to a lifestyle that gives them greater choice and flexibility.

The good news is that we are living longer and healthier than ever before. The bad news is that longer life expectancy carries certain risks, including health expense risk. But the really good news is that with proper planning, we can effectively deal with this issue.

David Michaels is an investment advisor in Toronto. His background includes more than 20 years as a health administrator, specializing in seniors’ care and the public/private mix of healthcare in Canada. davidmichaels@rogers.com

> click here for a PDF version of this article

© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the December 2008 edition of BENEFITS CANADA magazine.