Preparing for the cost of Canada's changing demographics

Scott Beckett, BSc, MBA
Vice President, Living Benefits, PPI Financial Group

CAR FORUM 2001;45(4):5-6

Canadians are living longer, and in the next four decades there will be unprecedented growth in Canada's senior population. Advances in medical treatments and procedures, as well as our increased focus on living a healthy lifestyle, are key factors in this trend. According to the 1996 Census, life expectancy at 65 is 18.4 years, 5 years longer than it was in 1941. Statistically, 9 of those 18 years will be free of disability, but, for the average Canadian, the remaining years will include three years each of slight, moderate and, often, severe disability. In addition to the abundant demographic information pointing toward a quantum increase in the number of Canadians over the age of 65, we also know that per capita health care expenditures increase drastically after age 55. This means more seniors competing for health care dollars.

If, on average, we can expect three to six years of dependent living, and we know that there will be increased competition for health care resources, will the health care system be able to meet your needs? Are you willing to take the risk?

The cost of care

Aging Canadians face tremendous fiscal challenges as federal and provincial governments continue to redefine health care. For the last 35 years, home and facility care services have been provided through provincial health care systems. This effort, although well intentioned, has been inadequate in providing the necessary home and facility services for Canada's aging population.

Today, limited access and less-than-optimal standards of care characterize the government-financed system. Recent funding cuts to acute hospital care and residential long-term care have left few options and little flexibility for those in need of dependent care for an extended period of time. In most provinces, residents of private long-term facilities pay the full cost of their care. In addition, inconsistent provincial and national regulations and standards for both home and facility care have only increased the concerns of Canadians entering their retirement years.

Over the next 40 years, the increased competition for health care, including home and long-term facility care, will very likely lead to huge inflationary pressures on the cost of health care services. The combination of a large aging population with significantly higher health care costs creates a large threat to financial security during the retirement years.

As a result, more individuals are preparing for their retirement and the possibility of home and facility care costs through sound advanced planning. By spending a very small percentage of your assets now on long-term care insurance, you can protect yourself from the escalating costs of care and provide for a more comfortable life in the event of a disability during your retirement.

Preparing for the costs

In your early income-earning years, income protection is your primary financial concern because it is the foundation used to fund life's essentials, as well as a certain lifestyle. However, in the years leading up to retirement, like most Canadians, you will likely see your earnings peak and eventually decline. With retirement, employment income stops. It is at this point that the accumulation of assets diminishes and you begin to use your assets to provide a retirement income. Your priority shifts to protecting your assets.

Long-term care (LTC) insurance is an asset protection tool. Often the focus of retirement planning is on structuring your affairs to minimize taxes upon death, and little time is spent on managing future expenses incurred as a result of disability in retirement and the potential need for home or facility care. During retirement, an unexpected health crisis can significantly deplete hard-earned assets, leaving you with limited and possibly unsatisfactory home and facility care choices.

LTC insurance provides coverage for health and personal care services in either a home or facility care environment when an individual is no longer able to care for themselves. It also relieves the need to deplete your assets by paying for the daily expense of required long-term care services. Currently, the LTC insurance benefit provides a maximum of $300 daily for home and facility care. The reduction or removal of this possibly onerous financial responsibility addresses a potential pitfall in retirement planning without fiscally burdening family members.

Canada's health care system will undergo a substantial transformation in the years ahead to cope with the costs related to these demographic changes. Unfortunately, there is no guarantee that our current systems of care will be maintained or improved. LTC insurance will help you prepare today for the decisions of tomorrow and ensure that you will have the flexibility and the freedom to make critical choices when you need to the most.

Scott will be speaking about LTC insurance at the 64th CAR Annual Scientific Meeting in September. He is a member of the Conference for Advanced Life Underwriting and an officer of the Canadian Radiological Foundation. Scott can be reached at 416 349-6478 or sbeckett@ppi.ca

© 2001 Canadian Association of Radiologists