This article was published by Advisor.ca on March 28th 2012. To see this article and other related articles on Advisor.ca website, please click here
The Ontario budget tabled yesterday included provisions that would see high-income seniors pay a new income-tested deductible on the provincial drug plan, starting August, 2014.
Financial advisors with seniors in their client base, however, need not fret. Seniors advocacy groups and industry experts have unanimously said the change is not as dramatic as it seems and that planning professionals can help those impacted come to terms with the new reality.
Under the new plan, single seniors with an income over $100,000 will pay a deductible of $100 plus 3% of their income. For couples with an income above $160,000, the deductible will be $200 per couple plus 3% of the family income.
Currently, under the Ontario Drug Benefit program, seniors (other than lower-income seniors) pay the first $100 of their annual drug costs.
The proposed plan will affect about 75,000 seniors who will pay an average of $665 a year more toward their prescription drugs covered when the plan comes into effect in August 2014.
However, the changes will not impact seniors living in long-term care homes or receiving publicly funded home care.
The budget, released Tuesday, reads: “The fairness of the program will be improved by asking the highest-income seniors to pay more of their own prescription drug costs, while ensuring that these costs do not impose an unreasonable burden.”
Finance Minister Dwight Duncan quashed any speculations about a backlash against the change.
“I’ve heard repeatedly from people around the province, particularly people of better means, that in this era, we don’t really need to be paying the full drug cost for people who are very wealthy,” he said.
Interestingly, advocacy groups for seniors in Ontario see no reason for alarm.
The threshold for the new deductible is set quite high and affects only those dependent on expensive medication, says Susan Eng, vice-president, advocacy, at the Canadian Association of Retired Persons (CARP).
“The budget papers say that this increase will potentially affect about 75,000 Ontario seniors out of a population of 1.9 million Ontario seniors,” said Eng. “Even with these changes, Ontario seniors continue to have the most generous coverage across Canada.”
This is an income test, not a means test which would look at capital assets as well, says Eng.
“For those above the threshold, the additional deductible is 3% of the net income over the threshold,” she said. “So for a person with $120,000 net income, the deductible would be $700 a year; a person with $200,000 net income would pay a $3,100 deductible for the year.”
This is a deductible, not a premium as it is in other provinces, so a healthy senior who spends very little on prescription drugs will not be concerned with the new deductibles, she added.
In other provinces, there is already income testing or universal coverage with higher premiums or deductibles. Ontario has been a distinct outlier with the most generous and presumably unaffordable program.
Eng expects affluent seniors to take it in their stride. “No one wants to pay more, but I’ve had high income seniors say to me that they didn’t think they should be getting free drugs.”
She also points out that the provincial plan does not cover all medications and many Ontarians will buy additional health insurance. It is, however, unclear whether such health insurance will cover the additional deductible from the provincial plan.
A view of the future?
The most important takeaway is that governments are not afraid to employ means or income tests for benefits programs, says Stephen Rotstein, vice-president, policy and enforcement, and general counsel at FPSC.
“When people are calling their financial advisors [asking] what it means to them, they should be really looking at their financial plan, their cash flow and budgeting and [finding ways to] tighten their belts and making sure their finances will be able to cover this additional cost,” he said.
Industry watchers see these proposed changes as the government trying to get out of certain social programs or tightening up their requirements.
“Seniors on a fixed income will be looking to a financial planner to help them with budgeting and cash management,” said Rotstein. “These are conversations that seniors in Ontario need to have with their [planning] professionals.”
Although the changes only affect the top 5% of seniors, Rotstein warns there are other programmes where governments may be looking at increasing eligibility requirements.
“It’s valuable for financial planners to meet with their clients who are worried about these [changes] to discuss these issues.”