Embracing the Grey Tsunami – What Group Benefit Plan Sponsors can do to Adapt to an Aging Workforce

We hear it all the time: Canada’s population is aging. We all know it’s going to be a challenge for governments to meet the economy’s demand for labour and the rising cost of health care. What’s not as well understood are the ways it poses challenges and opportunities for employers and group benefits plan sponsors in terms of everything from plan design to hiring practices.

The cost of health care has been rising for decades, both in current dollars and after considering inflation. Total health spending in Canada was $308 billion in 2021, or $8,019 per person. It represented 12.7% of the GDP. All those numbers are trending upward.

And the trend is expected to accelerate. In 2020, without taking COVID-19 or the recent inflation spike into account, the Conference Board of Canada projected health costs would increase 5.4% annually between now and 2030-31. Just under half of that growth, 46%, will come from generalized cost inflation. The rest will come from the greater demands of an aging population (19%), population growth (18%) and increased access and system improvements (17%).

That’s a problem for governments, which fund 70% of total health costs. But relatively speaking, it places even more of the burden on private insurance plans for things like drugs, dental and paramedical services, and vision care. These plans’ share of private health expenditures is as high as it has ever been. Between 2010 and 2019, insured healthcare costs rose 3.4% per year, which is to say 1.4% in real terms, after factoring out inflation.

Now consider what is going to happen as Canada’s largest age cohort enters its senior years. Between 2015 and 2050, the proportion of the world’s population over 60 years of age will almost double, from 12% to 22%. In Canada, that aging process is even more advanced. Currently, the cost of health care for people 65 and over-represents 48% of total health spending. In 2030, that proportion will rise to 58%. As a share of GDP, the cost of caring for seniors will rise from 4% today to 5.25%.

That’s a big shift in just eight years. There will be political pressure to hold the line on health spending and keep the share spent on seniors at 4%. That can only be accomplished by some combination of lowered levels of care, improved system efficiency and increased reliance on private funding. There is a risk for plan sponsors, then, that the insured portion of private health funding gets leaned on to pick up a greater share of the tab.

This risk arises at the same time as employers face a growing labour shortage. In response, they will make new efforts to retain workers entering retirement age. We could easily see growing numbers of employees continuing to work until age 70 or even 75. This will have three important consequences:

  • Age-rated benefits will cost more.
  • Utilization of health and disability benefits will increase.
  • The kinds of benefits employees prefer will start to shift.

Benefits important to employees with young families, like dental coverage and life insurance, could become a lower priority. Extended health benefits used more by older plan members such as vision, hearing, and medical equipment may take precedence over physio-, chiro-, and massage therapy. All categories of benefits, especially drug coverage, end up costing more as the average age of members rises.

We looked at a case study involving an industry group benefit plan with approximately 10,000 members. For every year the average age of members increased, and healthcare costs went up 5%.

While we recommend that employers adopt a proactive strategy to mitigate the aging of their workforces, competition for younger workers will make any such initiative hard to implement. Nonetheless, employers and plan sponsors need a recruitment strategy that takes plan demographics into consideration. They need to develop younger workers with apprenticeship, co-op, and tuition assistance programs, as well as by participating in immigration programs.

Employers and plan sponsors also need to provide benefits and a work environment that young workers value. That may mean designing dynamic benefit plans that “grow old” with their employees. Plans need to adopt cost-effective telehealth modes of delivering care along with investing proactively in wellness and Employee Assistance Programs since prevention is always cheaper than a cure. Another plan feature to consider is support for members caring for aging family members.

The cost of doing nothing to respond to the aging workforce is growing by the year. Sponsors need to start thinking about the members who will be using their plans tomorrow and shape them in a way that ensures their long-term sustainability.