How Canadians can pay for long-term care: Ottawa Citizen Op-Ed

With a bulge of baby boomers approaching retirement, many Canadians are unprepared for the extra costs of health care in life’s later years. Our public health-care system does not cover most long-term care costs and Canadians are, for the most part, not saving for them. Forward-looking reforms should encourage that more money be put aside for tomorrow’s costs, and that government funds support patient preferences for location of care.

The system of public health insurance in Canada mainly covers hospital and physician costs, but with respect to other forms of health care — such as drugs, long-term care, dental care — private insurance or out-of-pocket costs pay for most care.

As individuals age, they become more likely to suffer from a chronic illness that prevents them from performing one or more common activities of daily life, such as eating, bathing, toileting, walking. For the unfortunate few who require a high degree of support, the costs for elderly care can be very expensive.

How big is the problem?

At current use rates, and without a major expansion in government funding, total annual costs for formal long-term care, from 2013 to 2043, will rise by around $70 billion — from around $30 billion to $100 billion per year — according to estimates from the Canadian Life and Health Insurance Association.

These costs will be paid for primarily by individuals. Also, much of these costs will fall on family members — spouse or children — as informal care support. While the annual pace of change might be gradual, the costs of care will be radically redefined by the boomer generation.

Young and healthy Canadians are generally not motivated to buy long-term care insurance because it’s often the furthest thing from their minds, they do not want to think about the likelihood of needing future care, nor they do not want to purchase insurance that may reduce the public subsidy they would receive if they otherwise did nothing.

Another problem is that the limited government subsidies available target institutionalized care. This overlooks the range of long-term care needs for individuals who need help with one or a few activities of daily living, who would otherwise prefer to remain in their homes for longer at a lower cost to the health system.

What to do?

While Canadian provinces have not made any major reforms in recent years, many other OECD countries have been actively redesigning their long-term care systems. For instance, Nordic countries — such as Denmark, Finland and Sweden — have rearranged the way government subsidies are distributed. Rather than negotiating contracts with health providers directly, public funds are distributed to individuals, based upon need, to spend on a restricted set of available services. Once a care package is decided upon, individuals then supplement — or top up — these costs with private savings.

In 2016, the United Kingdom will introduce a funding system that sets a lifetime cap on the amount individuals would have to pay for long-term care services. For example, once adjusting for assets and income, individuals would be responsible to pay for (up to) the first $120,000 of costs for eligible long-term care services after which, for the rest of their life, long-term care costs would be covered by the state.

The advantages of this reform are two-fold. Government funds would be targeted to both those who are less able to pay and would provide the most support to those who incur catastrophic costs from long-term care support needs. Further, the reforms make clear the public-versus-private cost share. By reducing this ambiguity, individuals — and the public at large — would have strong incentives to prepare for future costs.

With gradual increases in annual costs for long-term care over the next few decades the temptation will be to do nothing. But individual retirement savings plans, in the main, inadequately plan for future long-term care costs. Canadian policy-makers should tackle the issues facing long-term care financing now, before the first wave of baby boomers begins to draw heavily on long-term care programs in about 15 years’ time.

Given the limited public coverage for long-term care costs, policies must find a way to fill the gaps. On this score, government policy might take modest steps to encourage private insurance, especially for seniors who wish to pass on assets to their heirs, which might reduce the need for public subsidies to a limited extent. Further, public benefits could also be designed to better meet patient preferences, via a voucher mechanism, like in Nordic countries.

Colin Busby is a senior policy analyst at the C.D. Howe Institute in Toronto.