The Canadian population and workforce are aging, and the trend is unlikely to change in the foreseeable future. The national fertility rate hit a new low of 1.33 children per female in 2022, Statistics Canada reported in January. And though record immigration rates partially offset that shortfall, the country appears to be approaching practical limits there, too. Canada’s future, as a result, looks ever greyer.

For pension and benefit plans, contemplating the shift to an older populace is more than a theoretical exercise. Changing demographics affect costs now and in the future, forcing us to revisit plan design and funding. We can foresee some of the impacts by projecting plan member demographics into the future. We can also map out steps to take today to ensure plan sustainability.

Based on the latest estimates, total healthcare expenditures in Canada hit $331 million in 2022. That equates to $8,536 per person and 12.2% of Gross Domestic Product. Although the COVID-19 pandemic contributed to a spike in health spending in recent years, all these figures had been trending upward since the mid-1970s, well ahead of the inflation rate. Between 2015 and 2019, Canadian health spending increased at an average annual rate of 4% per year, about double the rate of increase in the overall Consumer Price Index.

Before the pandemic, the Conference Board of Canada predicted that health expenditures would accelerate to 5.4% per year between 2019-20 and 2030-31. The largest share, 46% of that increase, would be driven by inflation. But 37% of cost hikes would come from demographic factors, including aging (19%) and population growth (18%). A further 17% of rising costs were attributed to new technologies and treatments, which tend to be costly. For example, 12 of 16 new cancer treatments introduced in 2020 have an annual cost per person in excess of $100,000.

This will have very real effects, not just on taxpayer-funded public care but also on benefit plans for workers and retirees. Per-person care costs rise exponentially after age 75, with people over 65 already representing almost half (48%) of total health costs. The biggest line item on that health bill is drugs. It generally represents more than two-thirds of healthcare expenditures. Curiously, the share of drugs as part of the total plan spending decreases as beneficiaries age, with hospital, institutional, and other costs surpassing the cost of drugs per person in the senior population.

Our utilization of healthcare services covered by private benefit plans changes over our lifetimes, too. Families with children rely heavily on dental benefits, for example. Plan members in their 30s and 40s lean more on paramedical services. At more advanced ages, drugs and medical aids come to the fore.

The public healthcare system continues to bear the lion’s share of health cost increases. In its efforts to manage costs, however, the public system will put increasing pressure on individuals and private benefit plans. Novel therapies, though often highly beneficial, will drive further cost increases. Meanwhile, individual health insurance for seniors is becoming increasingly costly while coverage deteriorates.

That leaves group benefit plans uniquely positioned to fill the gaps and create meaningful value for their retirees. Thanks to their scale, such plans can:

• create customized benefit solutions.
• better manage costs and stabilize premiums.
• leverage the plan sponsors’ knowledge of the needs of their retiree base.
• help the sponsor organization remain connected to its members.

Of course, the approach to providing benefits to retired members differs between plan sponsors. Some offer no health benefits, others subsidize retiree benefits, and others sponsor retiree-paid benefits. The course you choose will depend on whether the plan has or will have a large retiree population to support, your philosophy toward retired members, whether you can afford to subsidize extended health coverage, and how other employers and unions in your industry typically handle retiree benefits.

PBI Actuarial Consultants can help you figure this out. We can offer benchmarking against your peers to compare how they handle retiree benefits. We can perform demographic modeling of your workforce to anticipate future needs. We can advise on plan design that will balance your needs with those of your retired members. We can work with care providers to implement coverage. We can monitor usage and member experience to ensure the plan delivers on its promises and is responsive to emerging needs.

We like to think of it as caring for the future, now.