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As we are getting closer and closer toward our goal of early retirement, we have been doing a lot of projections, calculations, and planning. While it’s somewhat easy to estimate our income and expenses in early retirement, one thing that has been creeping in the background that we may have ignored over the years is health coverage in early retirement.
To be more specific, what do we do with health coverage gaps in early retirement? Health coverage is one of the critical expenses that everyone must factor into his or her retirement budget.
Fortunately, thanks to universal health care in Canada, healthcare expenses aren’t as scary and uncertain compared to those in the U.S. But what happens to health expenses like prescription drugs, dental care, vision care, and paramedical care that aren’t typically covered by the provincial and territorial health care?
I thought it’d be worthwhile to do some research and find out what our options are.
Please note, this post is based purely on my online research and I will focus on coverage for BC specifically. For those readers who are retired or have done more research on healthcare coverage in early retirement in Canada, I would love to hear from you in the comments section below.
Our current situation
Unlike what many Canadians believe, our universal healthcare system doesn’t cover everything.
When you are working, your employer typically offers extended health benefits, which give you access to extended healthcare options.
Take our family, for example. Thanks to my full-time job, my employer offers extended health care insurance via SunLife. We have three different extended health care options to pick from: Your Choice, Traditional, and Enhanced, with each option covering a different amount of extended health care and each option has different premiums..
After some calculation, we picked the Enhanced coverage for our family and with this coverage, we pay $78.83 every two weeks, $170.89 per month, or $2,049.58 per year for extended health and dental benefits.
The Enhanced coverage gives us the following extended health coverages:
- 100% coverage on generic prescription drugs
- Semi-private hospital room type
- 100% unlimited maximum, 60-day trip duration for out of country emergency coverage
- $1,000 per year up to a combined maximum of $1,700 for various paramedical services (i.e. massages, naturopaths, acupuncture, chiropractors, counsellors, etc)
- $1,500 per year for physiotherapists
- $400 every 24 months for vision care for adults, $400 every 12 months for children
- 100% coverage for preventative dental care up to $2,000 for the benefit year, 65% coverage for major restorative, and 50% coverage for orthodontics for a $2,500 lifetime maximum
Since we’re paying for the extended healthcare, we try to take full advantage of our paramedical, vision, and dental benefits every year.
For the most part, we haven’t needed to use the prescription drug benefit. We have used the physio benefits here and there (as in a few years ago when my back was bothering me).
The BC Provincial Healthcare
The Medical Service Plan (MSP) is BC’s health insurance program that pays for required medical services. Here in B.C., the MSP covers the following medical benefits:
- Doctor visits and hospital stays
- Maternity care provided by a physician or a midwife
- Medically necessary surgeries and procedures
- Diagnostic tests and X-rays
- Annual eye examination for children aged 0-18 and seniors aged 65+
- Some mental health services
I believe other provinces and territories have similar medical plans covering similar benefits as well.
When you live in B.C., you are required to enroll in the MSP. Years ago, you needed to pay MSP premiums based on your income. But the premiums were eliminated on January 1, 2020. In case you’re wondering, the MSP is now funded through general taxation. The fact that BC MSP has no monthly premium means it is one less expense to consider in early retirement.
However, as you can see, the BC MSP does not cover things like prescription drugs, dental care, vision care, paramedical care, and physiotherapy. This is where the extended health coverage may be necessary in early retirement.
When it comes to BC MSP, there’s not much you need to do when you retire. To qualify for the BC MSP, you just need to maintain B.C. as your primary residence and the coverage continues automatically as long as you remain a B.C. resident.
Extended Healthcare in early retirement Option 1: Self funding
The easiest way when it comes to extended healthcare in early retirement is to self fund all the different services. So instead of having extended health insurance covering dental care, vision care, and paramedical services, we would simply pay for these services as needed.
The nice thing with self funding these expenses is that most of these expenses like massages, physiotherapy, dental care, and vision care, are considered as eligible medical expenses so we can claim them on our tax return and potentially reduce the tax that we may have to pay.
Right now, since we’re paying extended health premiums, we are having dental, vision, and paramedical services like massage and acupuncture regularly to max out our eligible benefits. If we go with the self funding route in early retirement, perhaps we would reduce the overall extended healthcare expense amount by only spending on what we deem as essential services. For example, rather than going for a massage every month, perhaps we would go every two or three months instead.
Extended Healthcare in early retirement Option 2: Government & private coverages
Although self funding is an option, it might be better if we can get extended healthcare coverage via a combination of government benefits and private extended health insurance.
BC’s Fair PharmaCare
One thing that’s interesting for early retirees in B.C. is that the province offers an income-based drug coverage program called Fair PharmaCare.
Under Fair PharmaCare, all BC residents are eligible if they have MSP coverage and meet the income level requirements. The program covers some prescription drugs, medical devices, and pharmacy services. You can find more about what BC PharmaCare covers here. Basically, Fair PharmaCare is based on your family’s net income from two years ago. You have to pay a deductible first then Fair PharmaCare covers 70% (or 75% if someone in your family was born before 1940). Once you hit the family maximum, Fair PharmaCare pays 100% of the eligible costs for the rest of the year. You can find the family deductible amount here.
Fair PharmaCare is a good option for early retirees in BC if you need coverage for prescription drugs. In our case, this may not be as important (*knock on wood*).
The Canadian Dental Care Plan
For dental care, early retirees may be eligible for the Canadian Dental Care Plan (CDCP). The CDCP is a Canadian federal government program designed to provide access to affordable dental care for eligible Canadians who do not have access to dental insurance. Early retirees under the age of 65 are eligible if the household income is under $90,000.
The CDCP covers a variety of dental services:
- Preventive care like cleanings
- Diagnostic services like exams and X-rays
- Restorative treatments
- Surgical removal of tumours and cysts
Now, the CPCD will only cover over 100% of eligible dental expenses if the adjusted family net income is lower than $70,000. If your family’s net income is between $70,000 and $90,000, you will need to cover the co-payment portion.
Private Health Insurance Options
Another option is to go through private health insurance. This might make sense for our household to cover out-of-pocket costs for dental care, vision care, and paramedical services. If I look at our past extended health expenses over the last few years, I noted that we have spent anywhere between $5,000 and $8,000 (most of these expenses were reimbursed by our extended healthcare plan). Therefore, for our household, it may make sense to utilize the private health insurance option rather than self-fund these expenses.
Based on the market rates I found during my research, the average monthly premium per person is between $60 to $150. This is a wide range because the monthly premiums are based on your age. For someone in their 40s, the premiums are between $60 to $80 per person.
Again, these are the average ballpark figures. The actual cost will depend on age, health, location, and the level of coverage you choose.
For the most part, private health insurance options in Canada are offered by SunLife and Manulife.
SunLife’s private health insurance is called SunLife Health Insurance and there are three coverages – basic, standard, and enhanced. All of them are very similar to what my employer’s extended health offers (not a surprise since my employer uses SunLife). The per month cost, however, seems to be much higher than what we currently pay ($411.27 per month for the enhanced plan or $4,935.24, more than double the amount we’re paying under my employer’s extended health plan).
Manulife’s private health insurance is called Manulife Health Insurance and offers different plans, including Flexcare Plans and Guaranteed Issue Enhanced.
For both SunLife and Manulife, the cost of the extended health insurance plans varies depending on the coverage. However, from what I can find, the per month cost for our family is much higher than what we are paying right now.
Continue private health insurance via an existing employer plan
Interestingly, both SunLife and Manulife offer options to convert a group employer plan to an individual plan. Basically, if you’re leaving an employer group plan, you can do the conversion within 60-90 days without medical underwriting or testing.
This means we can convert our existing SunLife group extended health plan to an individual plan without answering any medical questions, health exams, and pre-existing conditions are covered.
Now, if you miss this 60-90 day window, you will need to face medical underwriting, higher premiums, or exclusions for pre-existing conditions. Obviously, this is not very desirable.
The group to individual conversion is highly attractive for us once we are in early retirement. I will need to follow up with my company’s HR team to find out more information without raising too many red flags… another option is to contact SunLife to find out more information.
Our current strategy for healthcare in early retirement
Looking at the different options available, here’s our current healthcare strategy when we retire early: Continue Reading…
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