The following is an excerpt from Chapter 5 of The Border Guide: A Guide to Living, Working, and Investing across the Border by Robert Keats. Mr. Keats is a dual citizen who holds a certified financial planner designation in the United States and Canada as well as a registered financial adviser designation in the United States and registered financial planner designation in Canada. Read Mr. Keats' tips for retiring to the U.S. here.
Doctor in the House
Getting the Most from Out-of-Country Medical Coverage
One of the most perplexing matters for Canadians wintering or taking up permanent residence in the United States is medical insurance. Americans moving to Canada can, after a 90-day wait (in most provinces; New Brunswick now has no waiting period), simply join the provincial medicare system. There appears to be an endless squeeze in both Canada and the US between medical services provided and the costs of those services. This squeeze guarantees that the areas of travel insurance and medical insurance are complex and constantly changing.
The last thing people need to worry about when they travel is becoming ill or suffering an accident. Unfortunately, sickness and accidents respect neither your travel itinerary nor your socioeconomic status. A medical emergency can happen anywhere, at anytime, and to anyone!
Any unforeseen expense is important to today's traveller, and you will want to be protected no matter how great or small the potential loss. Minor problems, such as the loss of luggage, can be a traumatic experience for many travellers, ruining their holidays or business trips. However, a catastrophic illness or an accident outside Canada can turn a relaxing trip into a financial nightmare.
The decline of out-of-country coverage in the provincial health care programs in the late 1980s and early '90s greatly increased the demand for private health insurance to fill the widening gaps in coverage. This demand lured many insurers into the travel health-insurance market. The competition made it difficult for consumers because there were nearly 100 plans from among 30 companies to choose from. They did, however, benefit from the competitive pricing that drove premiums down significantly. Many of these new insurers lacked the specialized experience and resources to effectively manage claims and lost huge sums of money very quickly. The health insurance industry has now consolidated into about a dozen committed and professional companies, offering 20 to 30 plans. Current provincial medical coverage for Canadians while outside of Canada is listed in Figure 5.1 along with phone numbers and websites you can consult for more recent updates and changes.
Many travellers are unaware of the need for adequate travel insurance. While provincial health and hospital programs may provide adequate benefits at home, a Canadian who finds himself or herself in trouble outside the country may discover the provincial plan covers only a small portion of the actual medical expenses. As illustrated in Figure 5.1, provincial plans vary considerably with respect to the amounts paid outside Canada. Prince Edward Island was the first province to reimburse travellers at provincial rates of reimbursement, and currently still pays the most for out-of-country medical services. A few provinces have followed suit under pressure from their residents, but still no provinces have matched Prince Edward Island's reimbursement schedule for out-of-province travelers. Most provinces pay out-of-province hospital bills, at around $100 per day. This is only a small fraction of what hospitalization actually costs, especially in the United States, where medical expenses may easily exceed $2,000 per day. In most US hospitals, $100 a day would barely get you a parking spot, a bed pan, or a couple of aspirins. Canadians should be aware that in many parts of the world, physicians and hospitals do not follow the Canadian system of billing, where the daily room charge is all-inclusive and covers most services and treatments. Many hospitals outside Canada charge a fee for room and board, and then charge for every procedure and bandage they use. In the past, the Ontario Health Insurance Plan and other provincial plans have not only reduced the portion of these costs that they pay, but they have also made it more difficult to collect reimbursement. More people had to rely on their travel insurance for the entire medical bill. It remains to be seen whether this trend will reverse itself in the near future.
Travellers who purchase token medical insurance plans may discover that the plans they purchased are inadequate or do not cover them when they need hospital and medical treatment. Your bargain medical insurance may be instead a simple trip cancellation or flight accident insurance policy. Many of you have heard stories of Canadians who were forced to mortgage their property or worse in order to pay for US medical expenses. The purchase of proper travel insurance not only reduces financial risk, but provides peace of mind as well.
Many people purchase travel protection as a supplement to their provincial medical plans, before heading south for the winter. The typical insurance plan has an expiration date of less than six months. If travellers covered by these plans wish to stay longer than six months, they either go without coverage or have to return to Canada and convince their insurance carriers to give them extended coverage. Premiums have become quite costly, and a typical married couple aged 65 can expect to pay between $2,500 and $5,000 for a six-month policy, depending on the company and the deductible chosen. Numerous travel insurance plans are available through travel agencies, insurance companies, the Canadian Automobile Association, the Canadian Snowbird Association, and premium credit cards. The types of coverage and premiums can also vary widely.
Most plans have benefit limits of $1 million to $5 million for covered medical expenses, although some plans have no dollar limitations on benefits. Terms may range from 24 hours to a maximum of one year. Premiums are based on the age of the travellers - usually with categories for those over age 65 and those age 65 or younger -and may also depend on the number of people in a party. Nearly all carriers require you to purchase your coverage before you leave Canada. Don't automatically assume that the association in which you are a member has the best medical plan for you. More often than not, you will get better coverage through a travel insurance broker, who can give you quotes from many companies as well as provide you with information on the claims-paying experience. Many associations change underwriters every year, so claims paying can vary greatly from year to year. Several associations tend to make the sale of travel insurance a key source of annual income, so they may tend to pressure members into thinking they must get the travel insurance from them even when they know there are better policies elsewhere.
A very positive development in the travel insurance industry, with all this new competition, has been a much better choice of plans with deductibles ranging from $50 to $10,000. Choosing a high-deductible policy can reduce annual travel insurance costs by 50 percent or more without a significant increase in risk. (See Appendix F for a listing of the names, addresses, websites, and phone numbers of the major Canadian travel insurance providers.)
Not all policies are alike, and you often need to work through a maze of costly options to ensure coverage for all major travel hazards. Here are some pointers to help you through that maze:
• In general, you get what you pay for. Buying the lowest premium may get you inadequate coverage. However, just because a plan is expensive doesn't mean it won't have gaps in its coverage. Premiums alone should not be the sole criterion for purchasing travel insurance.
• Check with your credit card company: some gold or premium cards will provide limited medical coverage for travel stays between two weeks and sixty days. These are sometimes included in the annual credit card fee. We must caution you to check out this type of coverage carefully, since many plans are inadequate. All major Canadian banks have cut back the maximum age for any travel coverage to 65, and they continue to add restrictions.
• Look for a policy that covers all of the expenses that your provincial plan does not, with no limitations on standard doctors' fees or daily hospital expenses.
• Check the upper limit of the policy. Many policies have total benefit limitations as low as $25,000, so you'll have to pay any costs beyond that amount that your provincial plan doesn't cover. Even a brief emergency stay in a US hospital can exceed this limit. Claims paid recently by travel insurance companies for hospital stays in the US have been over $750,000 (for claims such as heart bypass operations with complications). So as long as your upper coverage limit is higher than this amount, you should be okay.
• Choose the highest deductible available from an insurance carrier. Canadians are conditioned to think they must have no out-of-pocket expenses regardless of how small the claim. Since small claims are relatively expensive to process, you'll pay through the nose for a low or no-deductible policy. You'll pocket big savings by sharing a small amount of risk, while limiting your exposure to smaller bills. If an insurer offered you a six-month, maximum $4,750-of-expenses-covered medical policy for $392, you'd think it was outrageous, yet at least one major insurance carrier will offer you a $392 (45 percent) reduction from an $873 premium if you take a $5,000 deductible rather than a $250 deductible. A difference of only $4,750 more in total coverage costs you $392! Other insurance plans provide similar savings if they offer a choice of deductibles.
• Review the "exclusions" clause of your policy very carefully. Many policies will exclude coverage for any prior medical condition or pre-existing condition, as insurance companies like to call them, which means any condition that has been treated by a doctor within the past year (or some other specified time period). If you had a bypass operation several years ago and have an annual checkup by your doctor, any hospital stays that are even remotely related to your heart may not be covered.
• If you have a pre-existing medical condition, look for a policy that will at least provide you with emergency coverage for that illness up to a specified dollar amount. If you are uncertain how your pre-existing condition will be covered, pick up the telephone and call the underwriting department of the company in question and ask to be medically underwritten so that your conditions and the coverage for them will be spelled out in advance, eliminating surprises. Be absolutely clear and honest about any conditions or treatment you have had or are currently having, and do not be tempted not to mention a pre-existing condition when signing up for travel insurance. A five-minute telephone call may save you thousands of dollars. Be very leery of insurance companies that don't complete some form of medical underwriting using detailed questioning in their applications. These companies are the most likely to decline claims related to pre-existing conditions, as they try to do their underwriting after a claim is made. On the surface, such plans may appear to be easy to qualify for, but you may be denied coverage later. There is definitely an inverse relation between the difficulty and detail required in the application form and the number of claims paid - the harder it is to get through the detailed application, the more likely your claim will be paid once you are accepted for coverage.
• Talk with friends and other travellers who have made a claim through the insurance carrier you are considering, to see whether they were treated fairly and if their claims were paid on time.
• Don't expect miracles from insurance companies when submitting claims. Most companies will pay only according to the letter of the policy and they have highly structured claims systems to prevent fraud. Some companies pay only after the provincial plans have paid their portion of the claim. Only British Columbia, Ontario, and Quebec allow insurers to bill them directly on your behalf. With payments from Ontario and some other provinces running many months behind, payment from private carriers will, as a consequence, also be slow. The better travel insurance carriers will pay your claims quickly, without waiting for provincial plans to pay up.
• Look for a few of the better travel insurance carriers that have set up claims-paying offices and have negotiated payment schedules with hospitals in the more heavily populated winter visitor areas in the United States. This will often mean much faster claims processing. Instead of you paying the hospital and waiting months for reimbursement, you pay nothing and the carrier pays the hospital directly. This valuable service is worth asking for when shopping for travel insurance.
• Some provinces have reduced the repatriation allowance for Canadians returning to Canada for further medical treatment. It currently costs about $15,000 to fly a patient back to his or her home province from the Sunbelt. Check your policy to see whether you are covered for the portion your provincial plan won't pick up.
• Look for a plan that has a toll-free or collect emergency assistance telephone number manned by the insurance carrier itself, not by a third party. It can be very reassuring to have a 24-hour hotline that you can call if you need assistance or wish to verify coverages. Often hospitals will call this line for you and establish any necessary liaison between you and your insurance provider.
• Most companies have early-bird rates if you purchase your insurance well in advance of traveling. For example, major carriers will give you last year's rates before the new season's rate increases if you purchase before mid-August for upcoming winter travel. Rate increases for many years have been in the 10 percent range or higher, so these early-bird savings can be significant.
• Finally, review the policy's cancellation procedures. Many policies are canceled automatically the minute you use them if you don't return immediately to Canada after the treatment. For example, say you went to an emergency room when you thought you might be having a heart attack and it turned out to be indigestion. If you wanted to stay the rest of the winter in the Sunbelt like you had originally planned, you might find your insurance company canceling your policy automatically and leaving you without coverage for the remainder of your stay.
REMAINING IN THE UNITED STATES MORE THAN SIX MONTHS
There are currently no Canadian provinces that allow you to remain covered by provincial medicare plans after absences of longer than six months, except Manitoba, Ontario, and Newfoundland. Ontario and Manitoba allow seven months, and Newfoundland allows eight months of out-of-province travel. This is a real dilemma for those who want to remain in the United States for an extra month or two. Most travel insurance policies will cover you up to a maximum of six months (unless you are from Manitoba, Ontario, or Newfoundland) and will pay only if the provincial plan pays. There are several options for someone in this situation:
• Do nothing and hope the province will not find out that you were out of the province longer than you should have been. In the past this option would have been much less of a gamble, but with hungry provincial medical administrators looking to cut costs, we do not recommend this strategy.
• If you have a group insurance plan with your employer or even with your own corporation, the group insurance can normally be expanded to include coverage on a limited basis in the US. A US citizen or green card holder could possibly get on a group plan through a US employer.
• Find an insurance carrier that will cover you when medicare may not cover you, and for longer than six months at a time, or make a trip back to Canada to get an extended policy, keeping in mind that most travel insurance companies require you to have current valid provincial medicare coverage before they will pay claims. There are some international company policies available through brokers in Canada that offer such a policy, but now that the Ontario Health Insurance Plan allows seven months of travel, it is expected that other carriers will come out with extended coverage. See the next section of this chapter for information on insurance brokers.
• Purchase year-round insurance coverage that will cover you anywhere in the world for both emergency and non-emergency medical services. These high-deductible plans are discussed in the next section of this chapter. If you are in good health, these policies are very reasonably priced and give you access to any medical facility in the world. The benefits of using these year-round plans instead of travel insurance are invaluable to those that need to bypass a sometimes slow or insensitive Canadian medical system (as they cover visits to out-of-province or out-of-country facilities, which you may choose to use if there is a waiting list in the Canadian province or city where you are living). With several Canadian provinces now offering private clinics to supplement their healthcare systems, these year-round policies will give you insurance-paid access to more medical options.
• Become a resident of the United States if you are eligible (see Chapter 7) and enrol in an American health care plan. This will be discussed in the next section.
INSURANCE FOR CANADIANS MOVING TO THE UNITED STATES
There are a great many myths about Canadians finding effective and affordable medical insurance when they take up permanent residence in the United States. I have prepared plans for Canadians, both winter visitors and permanent residents, for a good number of years and have successfully discredited most of these myths. We have been able to develop a variety of alternatives that ensure Canadians receive the best of both medical systems.
With the passing into law of the controversial US government-run US medical insurance in March 2010, president Obama has provided a very important benefit to Canadians wishing to move to the US. This benefit was not specifically intended for Canadians but Canadians who legally immigrate to the US will be able to get access to "affordable" health insurance regardless of any pre-existing conditions or age. This new legislation is going to take years to implement so it will be difficult to predict when exactly this coverage will be available for Canadians coming to the US. We do expect this to happen some time in 2011 so keep in touch through The Border Guide Forum for updates, at www.TheBorderGuide.com.
Canadians and Americans like to constantly debate which country's medical system is the best. My nearly 30 years' experience in this area has taught me that you can never answer this question unless you can determine when, where, and what medical assistance you will need in advance. Of course, this is the million-dollar question, because if you knew when, where, and what illness you were going to have, you could shop the medical purveyors in either country to get the best care. However, this is equivalent to trying to plan your spending in retirement so that the last cheque you write on the day you die bounces. By combining the best benefits from both countries and planning so you can easily access both countries' medical systems, you can obtain the best protection with maximum flexibility. (See the next section, "Have Your Cake and Eat It Too!")
Canadians over 65 who have resided in the United States legally for at least five years, or who are US citizens, are eligible for complete US Medicare regardless of any pre-existing conditions. The cost is approximately $700 USD per month each, or $100 USD per month each if you or your spouse has contributed at least the minimum amount to US Social Security programs on US employment earnings. (See Chapter 13 for more information about qualifying for US Social Security.) There are also numerous private insurance carriers that provide Medicare supplements to fill any gaps in US Medicare coverage. If you do not qualify or are waiting to qualify for US Medicare and are over 65, there is limited but quite adequate choice of coverage available to you from private insurance carriers, most of whom originate outside the United States. Be sure to secure this coverage before becoming a US resident so that it is effective when you leave Canada and there are no gaps in coverage.
Those under 65 have a wide variety of health insurance options. Health insurance works much like car insurance in the United States. If you want zero deductible, with your auto insurance company paying for the slightest scratch, you will pay a substantially higher premium than someone with a $1,000 deductible. With health insurance in the United States, you can choose your coverage and your deductible. For example, a healthy person aged 60 can get a health policy with a $2,500 deductible and a $2-million coverage limit from an AM Best A-rated company for less than $350 per month.
A good health insurance broker knowledgable about both US and Canadian health issues can be of great assistance to those who are considering living in the US. In addition, those who are tired of having only travel insurance and want full medical coverage and complete year-round access to the US medical system should talk to a health insurance broker. The cost of this insurance, particularly if you use a high-deductible plan, can be very reasonable when compared to your standard travel insurance policy. Unlike travel insurance, these policies will cover you for non-emergency medical assistance in the US, as well as for emergency help 12 months a year regardless of where you travel. With this year-round access, if you needed what your provincial plan classified as non-emergency heart surgery and you were in a waiting queue in Canada, you could get almost immediate surgery in the US for only the cost of your deductible. You should also note that if you have one of these year-round, full-coverage policies and develop a serious medical condition, you cannot be dropped from your plan; whereas if you have travel insurance only, when your current six-month policy expires, you might never be able to get coverage again and would be limited to travel within Canada for the rest of your life, unless you were prepared to risk travel without insurance.
We have used a very good broker for the past 20 years who has helped clients get full US medical coverage in even the most difficult of situations. Through working with us to solve cross-border health insurance issues, he has become as close to an expert as you will be able to find in this unique area. His name is Bill Norgaard, of Norgaard Insurance Services, and you can reach him toll-free from Canada and the US at 1-877-679-7900, or email firstname.lastname@example.org.
Those heading to the United States for employment will generally have excellent medical coverage available from most large employers' group plans.
If you are under 65 and have a pre-existing condition, expect to pay higher premiums and/or have some conditions excluded from coverage, or be denied coverage altogether. When choosing a health insurance carrier in the United States, stick to an AM best-rated company with an A2 to A1 rating that has been providing health insurance for at least ten years. Read over any policy and the company's sales literature very carefully.
There is much debate in the United States as to whether the current medical system should be changed to make it more accessible to more people. The major concern is how the new system will work, what it will cost, and who will pay for it. Revamping the American medical system would have the likely outcome of giving Canadians who become residents of the United States better access to the US medical system.
Some recent US legislation now improves the chances that someone under 65 with a pre-existing condition has of obtaining new health insurance or maintaining existing coverage until he or she can get on Medicare at 65. In addition, there are several US states that will make special provision for persons with pre-existing conditions. For example, I had a client, aged 60, with a serious pre-existing condition who normally would have been refused health coverage by any health insurance company in the United States. In fact, he had been told by his cardiologists in Canada that they could do nothing for him and that he was doomed to live with a serious heart condition. The client took up residence in California, where state laws allowed him to obtain adequate medical coverage at a reasonable cost in spite of his medical condition, which made him eligible for US medicare and allowed him to get treatment even before he reached 65.
HAVE YOUR CAKE AND EAT IT TOO!
By extending its out-of-province travel coverage to seven months or 212 days, the Ontario Health Insurance Plan (OHIP) has provided a great opportunity for those who can take advantage of it. For the first time it is now practical for those who can get legal immigration status in the United States to leave Canada for tax purposes yet maintain OHIP without breaking any rules. OHIP eligibility rules on their website state that "Coverage is based on citizenship and Ontario residency and is not determined by whether you have a job or are unemployed, or whether or where you pay your income tax." In order for this to work, a retired person would need to exit Canada for tax purposes and return to his or her Ontario residence or cottage for five months each year. For most Ontario snowbirds, this would be a perfect set-up: seven months in the Sunbelt in the winter and five months in Ontario in the summer.
The CRA, in the February 1998 federal budget, unknowingly put a very necessary tax rule in place that makes this setup possible. The new rule brought in was intended to prevent Canadians exiting Canada to avoid the Bronfman rules (the deemed disposition of assets upon exit from Canada). The 1998 budget rule states that if a taxpayer is a resident of the United States or another treaty country under the applicable treaty residency rules, he or she is automatically a non-resident of Canada for tax purposes. Under CRA rules before February 1998, having OHIP coverage regardless of other factors, including the Canada/US Tax Treaty tiebreaker rules (see Chapter 3 for the treaty tiebreaker rules), would be an indication of Canadian residence and you would have been taxed on your world income in Canada at full Canadian rates (if you exited Canada with that OHIP coverage still in place). Those with residences in Manitoba, now that Manitoba has added an additional 30 days to their six-month out-of-province medical coverage limits, could now likely take advantage of the same situation that those from Ontario are able to.
Those who can obtain legal resident status in the United States, then complete a comprehensive cross-border financial planning analysis and execute it with professional help, may have the best of both worlds: access to both the Canadian and US medical systems at a low cost, and income tax assessed in the United States at substantially lower rates. Chapters 7, 8, and 13 should be read closely before one decides to implement this setup, which allows you to "have your cake and eat it too." The plans and procedures needed to make this work are very complex and difficult to maintain, and should not be attempted without professional help from an experienced cross-border financial planning professional.
Many Canadian residents have worked in the US for extended periods and paid into the US Social Security system, and these people (as well as US citizens in Canada) can get full access to US Medicare at age 65, even though they don't live in the US. Having US Medicare not only gives these people full access to the US medical system at low or no cost, but, if they like to winter in the US Sunbelt, US Medicare can also provide very good travel insurance coverage that is not limited to emergency treatment like most other travel policies. As long as these people continue to follow their provincial medicare rules, they will maintain Canadian coverage while being on US Medicare. Therefore, these people will have the best of both worlds. (The exception is that unless they are from Ontario or Newfoundland, as discussed above, they will likely still be paying Canadian taxes on their world income as Canadian residents for tax purposes.)
WHAT HAPPENS IF YOU GET SICK IN THE UNITED STATES?
Contrary to what you might have been led to believe by some Canadian media, you will not be left to die in the streets because you do not have large buckets of cash with you when you arrive in the emergency room of a US hospital. It is the law in every state that you cannot be turned away from an emergency medical facility because of your ability, or lack thereof, to pay for your emergency treatment.
If you are using a travel insurance company with an emergency assistance line, your first call should be to them as soon as possible after entering the hospital.
If you are unable to make the call, instruct someone else to do it for you. Usually the hospital will have trained personnel to deal directly with the insurance company for you, since they have a vested interest in getting paid. The travel insurance company can be invaluable in providing you with reassurance, finding medical specialists, or just getting you home in the shortest possible time.
If you do not have travel insurance, contact your provincial medicare office during business hours at the first possible moment. It won't be quite as easy as contacting a private insurance provider with a 24-hour hotline, but you should receive some valuable assistance nonetheless.
Be careful not to overdo it with medical treatment that can be deferred until you return to Canada, unless you have purchased one of the year-round, full-coverage policies discussed earlier in this chapter. Out-of-province travel medical insurance will not cover elective procedures, so you could be doing it at your own expense. Once again, if you are not sure what is or isn't covered, call the emergency assistance line and confirm the treatments that will be covered.
If your condition has been stabilized and your doctors agree that you are well enough to travel, your insurance company and/or the provincial medicare services will make the necessary arrangements to have you flown back to Canada for follow-up treatment. The insurance company will normally make arrangements for loved ones and your automobile to return to Canada.
Generally, you are exempt from any adverse consequences from the IRS or United States Immigration if your stay in the United States has to be extended beyond normal limits for medical reasons.
Border Guide readers are encouraged to participate in cross-border Q&A through the new The Border Guide Forum, which is a blog where you can easily post questions about the contents of this book, which will be answered by a cross-border financial planning professional in a timely fashion. You can also post comments or create discussions with other Border Guide readers to share experiences and swap cross-border financial planning tips. To post a question or comment, go to www.TheBorderGuide.com and click on the title Border Guide Forum.
Reprinted with the permission of Self-Counsel Press.