There are two aspects of our future health care needs that individuals need to consider. First, individuals want to protect themselves from the financial devastation that an unexpected and expensive medical condition might cause in their lives. When someone contracts a disease, perhaps a form of cancer, it can seriously reduce someone’s ability to work (and enjoy life). For these low-ish probability but uncertain events, individuals ought to purchase health insurance. I have no doubt that every single kid who makes his way into high school, or into college or into the workforce at some point understands this on some level. Given that the probabilities of these events occurring are not very high, and that young people are healthier than older people, purchasing insurance to protect yourself from most unfortunate outcomes would be affordable for most people (not for the chronically ill or disabled, that is for another post). In any reasonably functioning market system I believe you could purchase high deductible health insurance (actual insurance in the hard cases, no coverage for the basic stuff) for a very low price – something like $200 per month or less.
Second, there are certain medical expenses that all of us should reasonably expect to have to incur throughout our lives. Some, especially when we are young, is for routine maintenance. Much of these expenditures however comes from the fact that we know our bodies break down when we age, and therefore we will have to dedicate more and more of our future income toward medical expenses in our older age if we want to remain comfortable. But this obviously comes at the expense of spending on other consumer goods when you are older. Indeed, we know that a huge portion of each of our lifetime medical expenditures will come from our last year of life. So while we do not know when this year will likely be upon us, we know what the expenditures are likely to be. Once again, as in the above case, none of this is surprising. I would argue that most Americans are very well aware of these facts.
So let me ask the question. If we know that insurance markets are out there and can protect us from catastrophic events, and if we know that we will incur other certain medical expenses as we get older, then why aren’t young and middle aged people purchasing more insurance and more importantly, why are they not saving more for their future medical expenses? The answers to most of you will be obvious. Allow me to spend a moment on the idea of saving for your future health care needs.
One argument might be that young people are too stupid to save for their future health care needs. I say that is hooey. I see young people jogging and rowing and walking and lifting and dancing and doing all sorts of things that are good for their long term health prospects. So I just don’t buy the behavioral argument as being unique in this area. However, I don’t see very many young people putting aside $2,000 per year or more away from their disposable income, and never touched, just to pay for the future medical expenses. Maybe we just treat all of our savings as a single bucket to be accessed for any future spending needs, but if one were to survey people and ask, “how much money are you putting away to make sure you can pay for your hip replacement when you are 75 years old, or for the cardiac stent when you are 60, and so on …” you would get a blank stare. I’ve got hundreds of new students out there in the labor market now. Their average income is probably around $50,000 in their first year, and my bet is that the modal amount of health care savings for them is zero dollars.
This should be particularly disturbing since we are all very well aware of the poor shape of future Medicare benefits, and even more odd given the abject horror that people exclaim to have when we hear of possible government health care rationing or health care rationing by insurance companies. Well, you know how to reduce your exposure to the whims of these future outcomes? Save your own money. And with the quality of medical care in developing countries rising, and the cost of getting access to care in those countries very low, it is conceivable that with some prudent saving you can pay out of pocket for much of your future health care needs.
Keep this in mind as you read and think about our health care crisis. Keep this in mind when you see a group of guys take that week long beach vacation to Tahiti. Keep this in mind when you treat your family to a week-long ski trip in Park City. Keep that in mind when you make your next $2,000 rental or mortgage payment, when you could have found a place for $1,500. We are all quite rational to be making these expenditures, since we all think someone will be there to foot the bill if we ever needed to take care of something serious in the future. And certainly, no matter how prudent some of you may be you may be confronted with untenable medical expenditures going forward, but it seems to be implausible that with such awareness about our current health problems that people are not bright enough to change their behavior. That they haven’t ought to tell you something about the direction of public policy.