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

What does the Canadian government cover regarding health care?

Government health care plans vary from province to province. However, most don’t cover:

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

For example, British Columbia, Quebec and New Brunswick offer:

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

Whereas, in Ontario:

• All children under age 24, who have Ontario provincial health insurance coverage, are covered for prescription drugs. That’s at no cost.
• Adults don't qualify for the Ontario Drug Benefit Program until age 65, unless they’re on social assistance. 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 $19,300.
  • Couples with an annual income under $32,300.
• More affluent seniors pay an annual deductible of $100 and up to $6.11 for each prescription filled.

To learn more, visit the Government of Canada’s Medical Expenses page.

What’s the average cost of medical expenses in retirement?

Canadians may need pay about $5K in out-of-pocket medical expenses every year after the age of 65.* Plus, according to Statistics Canada, Canadians are living longer. Surprisingly, those who are 100+ are the fastest-growing age group in Canada. Given this, it’s a good idea to factor longevity in your retirement plan. So that means planning for how you’ll pay $5K for each year of your retirement. (Which may be long by the sound of things!) 

*Source: Globe and Mail, Hidden health-care costs can be a shock for retirees, 2015. 

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.

The cost of health insurance tends to be considerably higher 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.

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 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 at the time the conversion coverage comes into effect. You can choose:

• basic coverage, or
• enhanced benefits that include dental benefits and higher benefit maximums.*

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

3. Personal health insurance 

Personal health insurance plans require you to provide medical information. Depending on your health status:

• 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:

1. the plan you choose, your health and
2. your age when the policy comes into effect. 

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?

Whatever option you’re considering, if you’re are unsure what plan features you need, it is a good idea to:

1. start with a higher-tier product and
2. then drop down to a more basic plan in subsequent years, if necessary.

Why? Let’s say you purchase a basic plan to start and want to move up to a higher level later. Then, you must apply for coverage and submit new medical information. On the other hand, reducing coverage is often an easier change to your policy.

Don’t forget to factor rising costs of care 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 that full-time care in a long-term care facility, for example, is fully paid by the government. However, it’s not necessarily covered by the public health care system. Some Canadians may be eligible for subsidy. However, many Canadians may not be eligible for a rate reduction based on a financial means test.  And sadly 74% of Canadians admit they have no plan to pay for long-term care if they needed it.*

But there’s something you can do about it: long-term care insurance. It’s the type of insurance that pays you an income-style benefit if you become unable to care for yourself and perform activities of daily living due to aging, a serious accident, severe illness or deteriorated mental abilities. This includes needing: 

• constant supervision by another person because of deteriorated mental ability,
• substantial physical assistance with at least 2 activities of daily living, or
• stand-by assistance to perform the daily activity of bathing and transferring.

A Sun Life advisor can help you figure out what may be best for you. Find an advisor.

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