Tuesday, May 11, 2010

Health costs in retirement - are you ready?

As I sat reading the newspaper on Saturday morning, it occurred to me that not a day goes by without a story in the news about the costs of healthcare. Federal or provincial budget impacts, funding for hospitals, costs of drugs, cost of high blood pressure and cholesterol, diabetes and other common health problems….with the amount of awareness being generated by the media, you would think that every Canadian would understand the true costs of healthcare and the challenges that we are now facing to fund the services we need.

Unfortunately, they don’t. This is particularly disturbing when you look at the number of people now approaching retirement and who will be moving off of their employer-sponsored health plans.

According to an RBC poll, in the first year of retirement, approximately 10% of individuals’ annual spending is for healthcare today. The Canadian Institute for Health Information (CIHI) estimates that individuals’ private healthcare spending (costs of services that are not covered by government programs) will increase as we age, at a rate of approximately 5% per year. Apply the power of compounding interest, and it is astonishing how much each of us will need to spend on our healthcare as we get older.

Add it up!

Do you know how much your employer spends on your health benefits? This cost is considered by your employer to be part of your compensation, and is one of the few remaining tax-free benefits your employer can offer. Do you know how much each of your regular visits with your physician or other health care providers (think physiotherapists, massage therapists, eye doctors, chiropractors, dental checkups, and any other service by a licensed professional) cost the Canadian healthcare system? Over time, more of these costs are being transferred to individual Canadians.

To truly understand how much money you will need to fund your healthcare costs in the future, and especially through your retirement years, you need a solid understanding of how much healthcare you are actually consuming.

We have a healthcare system to be proud of – our model is even being adopted by other countries. The down-side is that we have enjoyed such a robust system of government and employer-sponsored healthcare for so long that many of us have the perception that it is “free”. It is not free. As I said in my last post, Canadians need to take more responsibility for their health spending. The better you understand the cost of the healthcare services you use, the more prepared you will be to address the costs as more and more of the financial burden is placed on your shoulders.