November 01, 2023

Health insurance in retirement: How to pay for your health costs

By Jillian Stinson

When you’re making your retirement budget, be aware that your province’s health insurance plan won’t cover all your health-care costs. So, plan how you’ll pay for what’s not covered.    

As Canadians, we tend to be proud of our government health insurance. It gives us important protection – but not as much as we might think. Then there are the health-care benefits our employers frequently provide. Between government and workplace coverage, we may not often give a second thought to the cost of health care. 

That’s why, when we retire, many of us aren’t aware of – or prepared for – out-of-pocket medical expenses. They can be a shock. But the good news is, you can plan for them ahead of time. Here’s how.

What does Canadian government health-care insurance cover?

Government health care plans vary from province to province. They all cover physicians’ care and hospitalization. However, most don’t cover:

  • Dental services
  • Paramedical services (e.g., massage therapy, physiotherapy, chiropractic care)
  • Glasses or contact lenses

Prescription-drug coverage varies by province, too. For example, British Columbia, Quebec and New Brunswick offer:

  • Prescription drug plans with geared-to-income premiums to all residents without workplace coverage.

Some other provinces only cover people in certain categories. For example, in Ontario:

  • Everyone under age 24, who have Ontario provincial health insurance coverage, is covered for prescription drugs. That’s at no cost.
  • Adults don't qualify for the Ontario Drug Benefit Program until age 65. They can qualify before that age if, for example, they’re on social assistance or living in a nursing home. And deductibles and co-payments may apply.
  • Lower-income seniors pay up to $2 per prescription filled, with no deductible. This includes:
    • Singles with an annual income under $22,200.
    • Couples with an annual income under $37,100.
  • More affluent seniors pay an annual deductible of $100 and up to $6.11 for each prescription filled.

Look for a way to recover some of your health-care costs not covered by insurance? You may be able to claim them on your income-tax return. To learn more, visit Revenue Canada’s Medical Expenses page.

What are your options for health insurance in retirement?

Beyond coverage provided by government plans, there are 3 main sources of health insurance available once you retire:

1. Employer-sponsored group plans

Your employer may offer an extension of your employee health benefits into your retirement. But don’t count on it. Retiree health benefits are an expensive perk that many private-sector employers no longer offer.

Health insurance tends to cost considerably more for retirees than for active employees. And many employers offering retiree health coverage may require former employees to pay all or part of their insurance costs.

Check with your employer before you retire to see what options you may have. 

2. Conversion plans

Conversion plans are for people who had group benefits through their employer or association. If you're a former group plan member, you can often opt into a conversion plan. You usually need to do this within a certain period (i.e. 60 days) after you leave the group.

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You generally don't have to complete a medical questionnaire or submit to a medical examination to qualify. So, a conversion plan may be worth looking into. That’s especially true if you have pre-existing health problems that could make you ineligible for health insurance elsewhere.

How much you pay each month is based on your age when the conversion coverage begins. You can choose:

  • Basic coverage, or
  • Enhanced benefits that include dental benefits and higher benefit maximums.*

*Note: This only applies if you had enhanced benefits while you were covered by your group plan.

3. Personal health insurance 

Personal health insurance plans ask you to provide medical information. If you’re healthy, you may be eligible for more coverage than a conversion plan offers. But if your health isn’t good:

  • Premiums quoted may be higher than for a conversion plan,
  • You may be offered modified coverage, or
  • An insurance company can decline coverage.

It's wise to work with an advisor who fully understands the eligibility criteria and benefits offered. They can walk you through the application process.

How much you pay for coverage each month will depend on your age, health and the plan you choose.

What’s the difference between a conversion plan and personal health insurance?

When comparing conversion plans with personal health insurance, here are some questions to ask:

  • How comprehensive is the plan?
  • How much are the premiums and what do I get for them?
  • If I apply for spousal coverage, do I get a price break?
  • Are annual and lifetime paramedical maximums for all service providers cumulative? (e.g. $500 total for massage therapy, physiotherapy and chiropractic care) Or individual? (e.g. $350 for each type of service)?
  • Is some dental coverage available in the basic plan or is it only offered as an add-on?

For personal health insurance, there is a different sweet spot for each person. When deciding the kind of coverage you need, compare:

  • What you are paying out-of-pocket now and
  • What the premium quoted will cover for you later.

How do you choose the right option for health insurance in retirement?

When you’re considering your options, you may not be sure what plan features you need. It’s a good idea to start with a higher-tier plan. That way, you can drop down to a more basic plan in the future, if necessary. It will be much easier to drop down than to move up. Why? Let’s say you purchase a basic plan to start, but want more comprehensive coverage later. In that case, you must apply for the enhanced coverage and submit new medical information. On the other hand, reducing coverage is often an easier change to your policy.

Remember that health care costs will probably increase as you age

The reality is: the cost of care goes up as our health and abilities start to decline with age. And, once again, many Canadians mistakenly believe government health insurance covers more than it does. For example, you might think the government pays the entire cost of full-time care in a long-term care facility. It doesn’t. Provincial health insurance does offer subsidies and fee caps for long-term care. But only those with the lowest incomes receive a 100% subsidy. And the subsidy usually only applies to a basic level of care. If you would like a private room, for example, you will have to pay the difference.

Unfortunately, nearly three-quarters of Canadians admit they have no plan to pay for long-term care if they need it. That’s according to a survey by Leger Marketing for the Canadian Life and Health Insurance Association.

But there is a way to be prepared: Look into long-term care insurance. Long-term care insurance pays you an income-style benefit if you can no longer care for yourself. That could be due to aging, a serious accident, severe illness or deteriorated mental abilities. Whatever the cause, you’ll get a benefit if you can’t manage what’s known as the “activities of daily living.”  For example:

  • You may need constant supervision because your mental ability has deteriorated. 
  • You could need someone to stand by to help you take a bath or shower, or to get out of bed and into a chair.
  • You might need someone close by to help you with two of a standard list of common activities. This includes eating, dressing and going to the washroom.

*Source: Leger Marketing survey conducted on behalf of the CLHIA, 2019.

Get health insurance for retirement with one of these 3 options from Sun Life

  1. Get a free health insurance quote. Apply for personal health insurance online. 
  2. Find an advisor. Talk to a Sun Life advisor who can help you understand all of your health insurance options.  
  3. Apply for Choices insurance. Are you leaving a workplace insurance plan with a Canadian insurance company? You can apply for Sun Life Choices insurance within 60 days of leaving. (That’s regardless of whether your workplace plan was with Sun Life.)

Read more: 

This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.

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