Can your retirement plan roll with the punches from healthcare costs or will it suffer a knock-out in the first round? Can it survive a stroke or a heart attack? Or will it be wrecked by unexpected conditions that require long-term care such as cancer or Alzheimer’s Disease?
Like many difficult situations in life, being struck by a life-threatening disease or unfortunate circumstance is often thought as something that happen to “other people”, until they happen to you.
Health ailments do not discriminate between age and gender, nor does it only happen to the affluent. They can happen at any given time to anyone and 100% recovery may not always be possible. The World Life Expectancy indicates that heart disease and stroke are the primary killers in Malaysia, with lung disease, road traffic accidents and cancer (the lung and colon varieties) following closely behind.
In short, you never know what life will throw at you. Yet when planning for our retirement, many have not adequately accounted for (if at all) the impact of expensive medical treatments and healthcare expenses which can easily burn through your accumulated savings. If insufficiently prepared, you could even face bankruptcy.
The Star’s article Borrowing vs Financial Stability, reported that 18.5% of bankruptcy cases were a result of high medical expenses, based on data from the Credit Counselling and Debt Management Agency (AKPK). In combination with the fact that Malaysians are living longer by almost two decades, according to WHO’s World Health Statistics 2014 update, there are increasing odds that you may find yourself far removed from a blissful retirement, and instead pitting your retirement funds against healthcare costs and ailments in your twilight years.
While contracting a disease or a sudden accident is beyond your control, you can properly arm your retirement plan to cushion some of the impact from healthcare costs that may arise. This requires careful consideration of all available facts and resources to ensure your plan covers most or all areas. Hence, it helps to know what your options are in terms of finances and the types of care services required.
For your retirement funds to adequately account for healthcare costs, you need to consider the various challenges and factors involved to determine the type and amount of care needed – which directly impacts expenses – and how you will go about paying for your care.
According to the Malaysia Health Insurance, the cost of healthcare increases at an average of about 15% annually – which means that medical treatment costs nearly double every five years.
Dr H. Krishna Kumar, president of the Malaysian Medical Association states in his article, What’s Driving the Increase in Healthcare Costs in Our Country?, that the cost of hospital care is not controlled and continues to rise due to a variety of factors such as the increase in minimum wage for employment of clinic staff, expenses in producing drugs and the usage of increasingly more advanced technology to determine and treat ailments.
While the Goods and Services Tax (GST) is not applied to professional fees, it is applied to the cost of running hospitals and clinics, which the patients end up bearing. If the doctor that is treating you is a consulting doctor at the hospital (which is typically the case), his fees will also come with GST. In addition to GST, the Trans-Pacific Partnership Agreement (TPPA) might potentially come into play, driving cost of drugs higher with the tighter rules for copyright to protect intellectual properties, and inadvertently block cheaper, generic versions from entering the market. As a result, Dr Krishna states that drugs will cost even more over time.
Assisted living costs
To give a clear picture of what assistance in daily living (otherwise known as non-medical care) involves, imagine you have a physical or mental impairment. Your home – which once provided shelter, safety and familiarity – is now a labyrinth of booby traps. Everything, from going up and down the stairs, to operating the kitchen stove, is an accident waiting to happen.
By this point, the need for assistance to continue with your daily activities becomes crucial. The ability to complete tasks such as taking care of personal hygiene (i.e. bathing, using the restroom, dressing and oral care), eating and transferring from bed to chair and back becomes diminished. If you have Parkinson’s, the potential for injuries caused by falls is greatly increased due to the inability to control your balance, involuntary muscle movements and a slower reactive response.
Then you have the medication management, which is a task of precision and details as the number of medications (some of which are to offset the side effects of other types of medication), frequency of the dosage and consequences of missing a scheduled dose becomes more important than ever. Hence, a caregiver is required to assist you with these needs.
If you opt to hire a private and trained caregiver, the cost typically ranges from RM15 to RM25 an hour on a daily basis. Cumulatively, that adds up to caregiving expenses ranging from RM2,000 to RM2,800 per month. According to research conducted by Care Matters in 2014, the cost for staying in a nursing home is RM1,200 to RM2,600 a month for basic care services in a semi-private room, while a private room is about RM2,650 to RM3,500 a month.
Bear in mind, these pre-GST rates only provide room, laundry, grooming and meals while excluding the charges for skilled nurses and doctors providing specialised healthcare for rehabilitation or palliative care and items such as milk formula for tube feeding (Current Situation of Nursing Home and Care Centres in Malaysia survey by Care Matters).
Don’t let unexpected healthcare costs put your retirement plan six feet under. Life could throw you a curveball and you may end up living with consequences which you might have overlooked. CNBC’s article Overlooked Health-Care Costs Can Destroy Retirement Planning states that good planning for how much you may need for your healthcare could prevent future healthcare expenses from consuming your savings.
Are there options?
So, what are the financial options available to cope with the various needs of care? Malaysians with lower income categories would utilise services from government hospitals (which are either free or charged at a nominal fee). Those from the middle or higher income tier would typically rely on private insurance premiums (i.e. medical insurance) and out-of-pocket payments to obtain services from private healthcare facilities due to perceived higher quality and reduced waiting time.
However, in either case, it is only the medical aspects of healthcare that are addressed. While medical insurance covers surgeries, room and board, there are currently no available products that cover the non-medical care aspect. Malaysians can only pay for non-medical care with out-of-pocket payments or funds withdrawn from EPF, SOCSO or lump sum payments obtained from Critical Illness Rider (provided the patient has visited the doctor and has been diagnosed).
Hence, the funds dedicated for your out-of-pocket payments and the wealth accumulated in your retirement planning need to factor in the non-medical care aspects as well as healthcare inflation. In Planning for Healthcare Costs in Retirement, Kenanga Investors Berhad CEO, Ismitz Matthew De Alwis mentions that you should plan to actively set aside funds, specifically for your long-term care, to be invested for financial growth. His advice is to aim for investments that can provide a return of at least 10% a year without compromising on the “safety” of your investment such as unit trust funds to hedge against medical inflation.
The name of the game
Whatever you choose, the bottom line is that healthcare costs will be an increasingly major expense in the later stages of your retirement. Hence, a solid plan that combines proper health insurance coverage together with a pool of funds that factors in the various costs incurred by non-medical care will ensure you are sufficiently ready financially to face unexpected events.
Unlike its western counterparts, Malaysia has yet to develop a financial product that accommodates both medical and non-medical aspects of healthcare. Hence, it is of utmost importance that you develop your financial literacy to cultivate healthy behaviours towards money. This will further enhance your retirement planning strategies when exploring options to pick what works best for you.
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First Published in IMoney.my, March 15, 2016