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September 06, 2012
Long-term care a “ticking time bomb”

Long-term care is a "ticking time bomb" that may end up dominating the health care policy in Canada in the near future, according to the Canadian Life and Health Insurance Association (CLHIA).

Just as pension funding has pushed its way to the front of the line in social policy issues, lack of long-term care facilities and the cost associated with long-term care for the elderly will likely become a political flashpoint as Canada’s population ages and more people need long-term care.

"We see this very much as a ticking time bomb," says CLHIA President Frank Swedlove. "There’s going to be a significant shortfall [of long-term care] in the next 35 years as baby boomers move through their retirement years."

According to estimates compiled by the insurance organization, it will cost almost $1.2 trillion to provide long-term care to aging baby boomers. The problem: current government programs and financing cover approximately half of that cost.

While lack of foresight on the part of governments and health care authorities may account for the general lack of preparedness in meeting the demand for long-term care and other health needs of an aging population, denial on the part of baby boomers is also playing a major role in preventing long-term care from becoming part of the nation’s health care agenda.

According to Jason Round, head of financial planning support for the Royal Bank of Canada, recent polls of baby boomers indicate that 40 per cent of boomers don’t expect their lifestyle to be affected by health restraints after retirement.

"The reality is, it’s likely to be significantly worse than that," he warns.

The warnings of potential problems in long-term care are already evident. For example, according to Statistics Canada, while the average Canadian can now expect to live 81.4 years, the average disability-free life expectancy is 68.6 years. In other words, the average person can expect to live 12.8 years of his/her life with some kind of disability.

And the number of elderly people with illnesses or disabilities requiring permanent or long-term care is likely to increase. For example, according to the Alzheimer Society of Canada, an estimated 1.1 million Canadians will have dementia by 2035.

"The chances are between 20 and 25 per cent that you will need long-term care," says Institute for Research on Public Policy researcher and author Michel Grignon. "With private savings, that means that 75 per cent of individuals will have saved for nothing while the remainder might still find themselves unable to cover all the costs of their care."

Of greater concern, of those that concede they may have long-term health care needs in their senior years, most think those needs will be met by the government.

"The difficulty is there’s a perception by Canadians that their long-term care needs are going to be covered by government; that’s just not the case," CLHIA President Frank Swedlove says. "Long-term care is not included under the Canada Health Act. While there are government programs to assist people, they vary by province and are typically income based. Canadians need to understand that they will be largely responsible for the cost of their long-term care needs."

And long-term care facilities don’t come cheaply. For example, a bed in a facility providing basic level care costs from $1,600 to $2,200 per month in Toronto, according to that city’s Community Care Access Centre. Mid-range to premium facilities often charge from $3,000 to $4,500 per month or more.

"It’s not uncommon for people in Canada to spend $40,000 to $50,000 a year in care costs," says Tina Di Vito of the BMO Retirement Institute. "If you’re looking at staying in a particular kind of facility for long-term care, the cost can be quite substantial."

At the moment, long-term care dilemma appears to have three possible solutions. They include the following:

1. The development of a universal public health care system, similar to the country’s existing retirement income programs such as the Canada Pension Plan, Old Age Security and Guarantee Income Supplement. However, such an arrangement would have serious taxation implications for the whole country and would likely take years of federal-provincial negotiations before it could be launched. Early estimates by the Institute for Research on Public Policy suggest that personal and corporate taxes would have to increase by 6.4 per cent for governments to fully support a long-term care program.

2. The development of a national saving scheme, similar to tax-free savings accounts, registered retirement savings plans or registered education savings plans, to encourage people to put aside money to help cover the costs of their long-term care. While feasible, the number of people willing to set aside funds to save for a major and negative event, such as long-term care for a lingering illness like dementia, could be problematic.

3. The purchase of an individual long-term care insurance policy. While long-term care insurance is not a common insurance product, it can help cover the cost of health care services that are not covered by traditional health insurance plans or government health care programs.

Long-term care insurance generally covers the costs of private services to help individuals perform the basic activities of daily living such as dressing, bathing, eating, toileting, continence, getting in and out of a bed or chair, and walking. Some policies also provide funds to help pay for nursing home care, hospice care, adult daycare and similar services. While premiums for such coverage can be high compared to life or disability insurance products, individual long-term care insurance can provide prudent individuals with an important financial safety net that will have a high probability of being used in the future.

For more information on individual long-term care insurance, contact Coughlin Individual Financial Services Consultant Jackie Moulton at jmoulton@coughlin.ca.

While long-term care may not be a high profile issue today, it appears safe to predict that it will become part of the national agenda in the years to come.

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