Living Longer and Paying More for Health

Boston College has a Center for Retirement Research which examines health issues related to retirement, among other matters.  The Center has published a few papers on expected remaining lifetime health costs at various ages, with the objective of helping older persons plan for a financially secure retirement.  One of the papers has some interesting findings on the relationship between health status and expected health spending.   (BC Brief)

The paper first builds on earlier work from these researchers looking at the expected spending for older Americans. Using a large number of individual simulations based on representative survey data, the authors found that the average expected present value of lifetime uninsured health care costs for a married couple aged 65 is about $197,000 without nursing home costs or $260,000 with them.   But the distribution of expected costs was large and there was a five percent chance that they could be $311,000 without nursing home and $570,000 with. This expected spending obviously declines as people age, so that at age 70, it is less but still significant.  Even at age 85 or 90, the present value of remaining uninsured health costs averages around $200,000 with nursing home included.  Remember, these are uninsured costs, so they represent a substantial financial burden for most people, particularly given the inadequacy of Americans’ retirement savings.

Next the researchers turned to the relationship between health status and expected remaining lifetime health costs.The average household spending (not covered by insurance)  for a couple with husband aged 65-69 was $6509 if in good health and $7989 if  not in good health.  By age 85 plus, those averages were $7223 and $8453.  But even though those persons in poorer health had higher costs in any one year, their average expected lifetime costs were lower.  At age 65, for those in poorer health that cost is $220,000 but for those in good health it is $260,000.  At age 85, the respective costs are $202,000 and $240,000.

The reasons are fairly apparent–those in good health live longer and incur costs for more years; those in good health eventually are likely to get a chronic disease and begin to incur more costs and finally, people in good health are actually more likely to need nursing home care at some point, since they will live to be older.  Simplistically, one way to look at this is that unhealthy people tend to die younger and to do so without lingering for an extended time in a nursing home.  One implication is that healthy persons need to plan to spend more on health care over their lifetimes.

This research is also consistent with the somewhat counter-intuitive notion that prevention and wellness may not save on overall health spending.  In the short-run, such programs would appear to result in less annual spending, but over the longer term, they may add to aggregate spending.  Different payers may therefore have different perspectives on the value of these initiatives.  Employers and private insurers may see great benefits from moving a person to good health status, but Medicare may end up paying more when the person becomes its responsibility.