Pre-funding of Healthcare Benefits After Retirement

Pre-funding of Healthcare Benefits After Retirement

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While current demographic and economic changes have implications for both pension and healthcare schemes, addressing financial sustainability of health care systems entails a somewhat distinctive approach. Throughout this paper we will propose a framework for discussion and analysis of financial sustainability through addressing the structure as well as financing of healthcare systems.

First, expenditures in the healthcare market are characterized by a high level of uncertainty. Unlike a pension-system where benefits can be assessed based on a defined-contribution or defined-benefit approach, a healthcare-system could actually be described more as a service defined system, which will be denoted as undefined-benefit system. In the first section of this paper, we will discuss how different factors affect both systems differently, and how certain features of social protection systems take on different realities in healthcare and pension.

Second, the cost of healthcare will most likely continue to escalate due to many economic and demographic factors, and if left unmitigated will add to the strain put on public and household finances. Throughout this paper, we will argue that the problem of healthcare financing should be addressed in all its complexities, with emphasis on healthcare for the elderly. We will shed light on the issue of financial sustainability in the context of the demographic challenges facing today's healthcare-systems, and the ability of the different financing systems to cope with these challenges. Our analysis will attempt to make the case for setting up a somewhat hybrid healthcare-system that caters for an increasingly ageing population, by building up a reserve that will eventually serve for paying the health benefits of the elderly in the population, while the benefits of the currently under retirement age continue to be paid on a pay-as-you-go basis.

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