The steep price of being healthy

This comes under the category of economic life isn't (necessarily) fair.

Specifically, the Center for Retirement Research at Boston College is out with a new study that makes an important, but greatly underappreciated point about health care spending. The current health care costs of unhealthy retirees are higher than that of healthy retirees. No surprise there, right? Here's the rub: Healthy retirees actually face higher total health care costs over their remaining lifetime.

In Does Staying Helathy Reduce Your Lifetime Health Care Costs? scholars Wei Sun, Anthony Webb, and Natalia Zhivan illustrate the basic idea with this example. They estimate that the 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. The figure includes insurance premiums and the cost of nursing home care. And 5 percent can expect to spend more than $465,000. (Chronic diseases include diabetes, cancer, lung disease, heart disease, and stroke.)

The comparable numbers for a healthy couple free of chronic disease are substantially higher, at $260,000 and $570,000, respectively.

What's going on? The basic reason is that someone free of chronic illness will tend to live longer and, therefore, incur greater health care expenses over their lifetime compared to someone suffering from chronic illness. For one thing, a healthy 80 year old has a remaining life expectancy 29 percent longer than an unhealthy peer. For another, folks that make it to age 80 free of chronic diseases can still expect to spend a third of their remaining years struggling with one. Finally, healthy people are at much greater risk of living long enough to end up in an expensive nursing home.

The personal finance implication: If you're aging and healthy don't assume that you won't have to tap deep into savings to meet steep health care bills. (This is not a brief against good health, byt the way.)

The public policy inference is the common perception that the one way to reduce health care expenditures is to drastically cut down on obesity, diabetes, and other severe health issues is probably wrong. Success agaisnt disease may well mean that we spend much more on health, not less.

But is a cause for celebration. It's a good thing if we end up reducing chronic diseases and spending even more of our wealth on health care. A healthy society could be a more expensive society, but it will also be happier and more productive. In other words, we can afford to be healthy.

Who says economics is a dismal science.

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