Whom would you rather insure – the healthy or the sick?
Ha ! Trick question!
Researchers at Boston College compared the present value of future expected health care costs for healthy people with the PV of future expected costs for the chronically ill.
Results? Big surprise! Healthy people incurred higher health care costs than sick people did, according to a study by Boston College Center for Retirement Research. Just for fun, run that fact past your best underwriting friend.
The chart above tells the sad story.
The study took data from a national health study for people over 65. It created two groups: healthy households and households where at least one person was chronically ill. Then it simulated the heck out of the databases to create the expected present value of health care costs for both the healthy households and the less-healthy households.
Healthy households incurred $260,000 in lifetime health costs, vs. just $220,000 for the less healthy, an 18% difference. At the 95th percentile, the healthy paid 23% more. The reasons:
- Healthy people live longer, but every year they run up medical bills. The chronically ill die faster on average, but once dead, their health care costs are minimal.
- Some of those healthy people will become chronically ill. The study’s simulations showed “individuals who are free of any chronic diseases at age 80 can expect to spend one-third of their remaining life suffering from one or more such diseases.”
- People who are healthy are more likely to enter a nursing home, which can be a real budget buster.
Obviously, healthy people under 65 might be better risks than chronically ill people. But that makes the underwriter’s job too easy.