LifeWorks accounting assumptions survey for Ontario hospital post-retirement benefits
LifeWorks recently conducted our second annual survey of accounting assumptions for over sixty Ontario hospitals with respect to their post-retirement medical and dental benefit provisions. Assumptions in the survey include retirement age, benefit take-up rates, percentage retiring with a covered spouse, and expected future retiree claim costs. These assumptions are set by hospital management based on a combination of recent experience and forward-looking expectations. Medical and dental coverage for retirees generally expires at age 65 for most hospital workers.
Some key findings of the survey are as follows:
Despite trends of Canadian workers retiring at later ages, the most common retirement age assumption for hospital workers is age 60. This is likely heavily influenced by the pension plans’ early retirement incentives.
Cost sharing arrangements of retiree medical plans have a high degree of influence on the voluntary take-up rates of coverage. Interestingly, when benefits are fully paid for by the retiree, it is expected that half of them will participate in the plan. When the cost sharing is set at 50%, it is expected that 75% of retirees will participate in the plan. This relatively high rate demonstrates the need for cost certainty amongst pre-age 65 retirees with respect to their medical and dental retiree coverage.
Most retirees are expected to elect spousal coverage at retirement, with an average assumption of 65%. However, this assumption ranges widely from hospital to hospital, with anywhere from 50% to 100% electing family coverage at retirement. This shows us that not every hospital has the same demographic profile and highlights the importance of helping our hospital clients select customized best-estimate accounting assumptions.
A new component of our survey was to look at the expected future retiree claim costs assumption used for each hospital surveyed. Health claims vary from $1,570 to $4,144 while dental claims vary from $342 to $1,228. These are extremely wide ranges, demonstrating the differences by hospital in both the plan provisions and experience. For hospitals in the upper- range, we would recommend a review of the plan ranging from its provisions to the administration of benefits.
This survey will allow hospitals in Ontario to benchmark their post-retirement benefit accounting assumptions in comparison to others in their industry. LifeWorks will continue to be performing this survey annually and over time we expect that the results will reveal more demographic trends.