Trends in health benefits for retirees
Since the late ’90s there has been a growing shift away from employers providing group health and dental coverage for retirees. Increasing healthcare costs, provincial de-listing of services, an aging population and changes to accounting rules are the main culprits that are eroding coverage for post-employment.
Some employers continue to offer retiree coverage to compete for talent, fulfill the terms of a collective agreement, or because they believe it is the right thing to do, but a number of factors have prompted a larger number of employers to either reduce or eliminate retiree coverage.
According to a 2011 LIMRA study, nearly 80% of Canadian employers do not offer retiree benefits to non-union employees.
It is no secret that Canada is becoming a nation of older people. According to Statistics Canada 14.8% of the population was 65 and older in 2011, up from just 8% in 1971. Within the next two decades, that number is expected to rise to 22.8%.
The latest census data shows a tidal wave of Canadians approaching retirement. Among the “working-age group,” a record 42.4% were between 45 and 64, compared to 28.6 per cent two decades ago
For employers providing retiree coverage, their costs will continue to increase due to the significant amount of employees moving to retirement.
Providing retiree benefits is getting more expensive. Not only are the number and cost of drug and dental claims rising due to an aging population, but expensive drug therapies, such as biologics, are driving up employers’ burden. And these particular reasons that have driven many employers to not offer retiree benefits at all.
These cost pressures will force employers to think twice before simply extending benefits into retirement without considering plan design changes, such as higher deductibles and reduced care for elective services. These factors have also driven many employers to not offer retiree benefits at all.
Governments are also experiencing the impact of rising health costs driven by an aging population. The result has been a constant shifting of coverage to the private sector, and a reduction or elimination of some provincially funded services, such as the de-listing of chiropractic services in Alberta, Saskatchewan and Ontario, for example.
Again, this shift places a greater financial burden on the employer. Stretched budgets due to rising healthcare costs for active employees negatively impacts the decision to reduce or eliminate retiree coverage.
Revised accounting rules
Before 2000, retiree benefits were paid on a pay-as-you go basis; employers were not required to record the liability for future claims on their balance sheets. This changed in 2000 as the Canadian Association of Chartered Accountants revised the accounting rules for retiree benefits.
The change requires the present value of these costs to be accounted in the liabilities of the company. The earnings impact to an employer could be a considerable increase in cost, and makes it much more difficult financially to provide retirees the same coverage as active employees.
What does the future hold?
As the financial commitment to providing group benefits increases, we can expect to see fewer and fewer employers provide retiree health and dental benefits. However there is a growing focus by employers on helping employees approaching retirement to prepare for the financial burden they may face on the health front.
Helping employees understand what their healthcare costs could be in retirement, as well as educating them about the products and services available to mitigate or protect against those costs.
Written by Mike Waechter, Director, Group marketing with Equitable Life of Canada for Benefits Canada Magazine