Although current health care costs for healthy retirees are lower than those of the unhealthy, the healthy actually face higher total health care costs over their remaining lifetime. That’s the surprising finding of an issue brief released Tuesday from The Center for Retirement Research at Boston College.
Entitled “Does Staying Healthy Reduce Your Lifetime Health Care Costs?,” the brief notes medical and long-term care costs represent a substantial uninsured risk for most retired households. An earlier brief from the Center reported findings on average lifetime health care costs at selected ages and on the distribution of those costs. This second brief explores the relationship between health care costs and health status. That is, it considers whether current good health is a predictor of low health care costs over one’s remaining lifetime. If so, healthy households could set aside less for health care expenditures than the unhealthy, and households that stay healthy could release for general consumption money that they had previously set aside for health care costs.
“The somewhat counterintuitive finding is attributed to the bottom line that all of us, whether healthy or unhealthy, are going to experience a period of ill-health prior to death,” says Anthony Webb, one of the brief’s authors. “Healthy people will live longer, and as a result, rack up higher health care costs.”
Adverse selection is another reason, as many healthy households wait until close to the time of use to purchase insurance. They then run the risk of facing higher pre-miums, or for long-term care insurance, being denied coverage altogether. Insurers need to charge premi-ums that reflect the risk of claim. Therefore, households that do not buy Medigap when they first join Medicare run the risk of facing substantially higher premiums, as do households of any age that postpone buying long-term care insurance.
To illustrate, the expected present value of lifetime health care costs for a couple turning 65 in 2009 in which one or both spouses suffer from a chronic disease is $220,000, including insurance premiums and the cost of nursing home care, and 5 percent can expect to spend more than $465,000. The comparable numbers for couples free of chronic disease are substantially higher, at $260,000 and $570,000, respectively.