Study Finds Retirees in Good Health Face Higher Health Care Costs

NewImage.jpgThe latest brief from Center for Retirement Research at Boston College found that retirees in good health face higher lifetime health care costs than those in poor health.

According to the study, a typical healthy couple at age 65 can expect to spend $260,000 with a 5-percent risk of exceeding $570,000.  A typical unhealthy couple can expect to spend $220,000 with a 5-percent risk of exceeding $465,000. Those in good health live longer, eventually become less healthy, and often need nursing home care. So the healthy who delay buying Medigap or long-term care insurance could face much higher premiums later.

“This counterintuitive finding suggests that those currently in good health would be unwise to assume that they will enjoy lower-than-average health costs throughout their retirement,” says CRR director Alicia Munnell.

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The brief explains this somewhat counterintuitive finding.  Underwritten by Prudential, the CRR research found three reasons the healthy may incur higher health care costs than sick people over a lifetime:

  1. Those in good health can expect to live much longer, so are at risk of incurring health care costs over more years.
  2. Many who are currently free of chronic disease will eventually succumb to one or more of them.
  3. Those in healthy households face a higher lifetime risk of requiring nursing home or long-term care than the unhealthy. They are more likely to get to an advanced old age, which is when the risk of requiring such case is greatest.

To read a copy of the brief, click here.

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  • How is this counterintuitive thinking — if all die? One should expect this to be the case. At some point immune systems break down by the sheer ravages of age.

    However, it should also be true that the discounted cash flow value of those costs should be less for the healthy (and if medical cost inflation is accounted for, discounting should include general inflation). The reason for this conclusion is the vast majority of higher medical costs should normally incurred by healthy individuals at an older age than those who are the same age currently but are not as healthy. Of course, defining who is and who is not “healthy” for this purpose becomes a very interesting exercise since someone who is healthy today can become unhealthy in the future by voluntary but negative actions and in rare cases, vice versa.

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