HEALTH CARE COSTS IN RETIREMENT

As I often do, I was reading some interesting information on the internet from Gordon Powers in MSN Money from September 22, 2012. I have included the article here and recommend you speak with your parents about this if you have not already done so and then give me a call.

"Insurance experts call for a new tax-deferred savings vehicle to offset the costs of long-term health care.

According to recent research from Fidelity Investments, roughly two-thirds of those approaching retirement say rising health care costs is getting higher on their list of financial concerns (outliving the other worries of savings and inflation).

But, when it comes to company health benefit plans, it appears that many workers don't know what they don't know.

While most employees say they value their health coverage, few understand how such benefits are funded, according to the 2012 Sanofi Canada Healthcare Survey. What's more, a significant number also expect health benefits to continue after retirement. The study suggests that expectations are especially high among employees aged 55 and older (69 per cent), and those who work for large companies (67 per cent for companies with 5,000 or more employees). Those who work for government are most likely to expect continued health care benefits (72 per cent), while non-unionized (39 per cent) and private sector (37 percent) employees are the least likely.

But, with people living longer and the number of retirees increasing each year, it's clear employers don't feel the same way.

Ten years ago, 62 per cent of employers offered medical and/or dental retiree benefits to new hires. In 2011, that number dropped to 49 per cent, according to Aon Hewitt. And it's likely to go lower still. What's worse, many employers have decided that it makes little sense to provide retirees with the same coverage they enjoyed while working and are now scrambling to cancel, scale back, or somehow cap their soaring retirement obligations. The end result is that more and more Canadians are being asked to look after their own long-term health issues - a development for which many are ill equipped, say insurance experts.

"Canadians have not adequately prepared for their future long-term care needs," says Frank Swedlove, president of the Canadian Life and Health Insurance Association (CLHIA). "Baby boomers are aging and unless action is taken now, they will fall well short in funding their long-term care. One of the largest roadblocks when it comes to persuading consumers to set money aside for long-term care is the misconception that employer and government programs will be enough to cover future care costs. While there is a certain degree of public support available for long-term health care, existing government programs aren't meant to be all-inclusive, Swedlove warns.

At the same time, long-term care insurance is not covered in most existing workplace benefit packages and is an extra cost that employees incur if they wish to be covered.

Long-term care insurance is used to cover the cost of care when you're no longer able to look after yourself. It can also help to cover costs if your spouse or children need to assume your full-time care. There are generally two types of long-term care insurance. One reimburses the insured for eligible expenses received on a given day, up to a pre-set maximum. The other is an income-style plan, which offers a pre-set monthly payment amount. Typically, benefits start once policyholders can no longer handle a number of basic activities themselves, such as eating, getting out of bed or personal hygiene. Despite the potential need, long-term care remains one of the least popular health insurance products sold in Canada. Only roughly 385,000 Canadians have this type of insurance coverage, according to CLHIA estimates. To close this gap, the CLHIA has suggested that the federal government mimic the U.S. model which offers specific tax credits for consumers who purchase LTC insurance and also permits further deductions for those who are self-employed.

At the same time, the CLHIA has been calling for the creation of a new long-term care savings vehicle that works like a registered education savings plan (RESP). In such a product, Canadians would be permitted to contribute a certain amount of money to a tax-sheltered account each year to save towards long-term care costs. Like an RESP, the government would also top up those contributions. When the money is withdrawn, only the growth on the funds in the account, as well as the government contributions, would be subject to tax - likely at a lower marginal rate of tax when retirees withdraw the funds later in life.

The CLHIA believes that governments have an important role to play in both educating Canadians about the need to save for their long-term care needs as well as incenting such activity."