Here's a little math problem. Let's see who can solve it first. The question is this: How much money would you need to give to a 21-year old today, in a lump sum, so he can invest it and pay for his lifetime of healthcare?

Your assumptions are as follows:

-        Life expectancy: 85

-        Health insurance currently costs $6,000 per year

-        Healthcare costs rise 10% per year

-        Investment income averages 4% per year after taxes

-        You can spend your principle too, so you have zero left at death

Feel free to add any assumptions I left out, except for assuming a higher investment return. You would invest your healthcare money in something safe, such as municipal bonds.

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Oct 2, 2009
Did anyone else notice how many different numerical answers there were to the same math problem? I hope it's just little things (like beginning v. end of period or taking/adding payments/interest monthly v. once a year, etc.) and not that we're that horrible at math as a group.
Oct 2, 2009
I made it $3,880,656 assuming the $6,000 in the first year does not earn any interest.
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Oct 2, 2009
On my browser Scott's discussion of healthcare costs was right next to an add for "electronic cigarrettes". Just saying...
Oct 1, 2009
In addition to the given assumptions, if investment amount is given on 21st birthday and allowed one year to accrue interest before the annual health insurance cost is deducted, the initial investment would need to be in the neighborhood of $735,000 in order for the balance to be nearly zero at the end of the 85th year of life (65th year of making health insurance payments).

I have to agree with other comments that it would be better to drop the insurance around age 60 with close to $2 mil in the bank and go out (early) with a bang.
Oct 1, 2009
Okay, I came up with an initial investment of $2,385,918, which seems abnormally high, but then again, most of these guesses seem to be in the $3.5 million range. I'm sure Scott will explain tomorrow why he wanted this math done. Excel and 10 minutes of time gave me the answer, but I don't mind, I'm at work.

Hmmm, assuming it was too high, I redid my stats, and came up with $414,931, which seems a lot more reasonable.

You've got almost 90 responses Scott, what's the answer?
Oct 1, 2009
For the people saying insurance isn't $6,000 per year at 21. It can be. I had a friend that had to pay just part of her policy in her early 20's (and this was more than 10 years ago) and she would have been paying $5,000 per year, so by now it would certainly be over $6,000. And, of course, if you are one those irresponsible people who choose to work in a job like a certified nurses aid, or teachers aid, you probably have to pay for all of your insurance (if you can get it) on your less than living wage pay.

And you are missing the out of pocket (OOP) costs.
"In 2007, adults with employer coverage faced an average of $729 annually in OOP costs for medical services, including deductibles and other forms of cost sharing such as copayments and coinsurance. That represents a 34 percent increase from 2004, when the average OOP burden was $545. "

Source: http://www.commonwealthfund.org/Content/Publications/In-the-Literature/2009/June/Workers-Out-of-Pocket.aspx
Oct 1, 2009
Man, this is hard....one more time...Needs investment of $4,092,000.00 so that at age 85 he can pay for his last year (OK, $9.00 short, but - industry standard 20%)
Oct 1, 2009
Sorry i meant insurance cost at 85 would be $2,674,749.41 per year! not trillions!
Oct 1, 2009
Jesus, I came up with insurance costing $1,207,577,209.32 a year at age 85.

And a total cost for insurance over the 65 years at $29,362,243.52.

WIth 4% interest Per Annum, then he would have to start now with: $1,815,000.00.

With $144,000 left for a nice funeral (we probably also need a formula to calculate the funeral costs! :-}
Oct 1, 2009
I calculated the total cost needed for years 21 through 84 (assume death on 85th b'day) to be $26,687,494.11.

Working backwards from that number, assuming a 4% interest from the previous year, I come up with $2,255,316.10 needed to start with on year 21. This does not take taxes into consideration (let's assume a tax-free health investment account).
Oct 1, 2009
I came up with $3,522,414.43 and he'd have $0.02 left over when he died.
Oct 1, 2009
Here is the amount based on Scott's assumptions: $3,825,337 (rounded to the nearest dollar).

Here is the amount based on a 21 year old paying $1,200 per year for health care, instead: $765,068 (rounded to the nearest dollar).

All right, I think that at some point the cost of health care isn't going to climb by 10% every year, because I don't see how anyone is going to be ABLE to pay $222,895.78 PER MONTH in 64 years. Even if that figure assumes we'll all be paying to become cyborgs by that point, I still don't see it happening. It's just not sustainable. Hopefully there could be some kind of health care bubble burst coming up or the past years are a period of abnormal growth before costs plateau? I mean, let's face it, with costs rising at 10%, at some point it will make more sense to go without insurance, no matter what kind of illness you have.
Oct 1, 2009
$3,731,400. He/she would have $2 left at death.
Oct 1, 2009
You are conflating health insurance with health care. I can calculate how much the hypothetical 21 year old will need for health insurance under your assumptions, but what about copays, deductibles, non-covered items, etc.?
Oct 1, 2009
JoeHope: Our healthcare is expensive for several reasons... one being that Americans are really unhealthy compared to other industrialized nations -- in terms specifically of obesity and exercise. We also get very expensive health care. An average American will have a couple MRIs and several other expensive tests throughout our lives. I have a complete physical every year. My cousins in Europe don't do that. Hospital rooms are huge and private and filled with medical equipment -- most of it sitting idle almost 100% of the time. We have a horrible malpractice (lawsuit) problem that effectively requires an aggregated increase in all health costs to cover. It's also a career that too few people are interested in (probably also because of the lawsuits). The inefficiencies in our system are terrible, but... they're only a piece of our problem.
Oct 1, 2009
I have to say, I think it's a pretty sad reflection on the state of the discourse that the preponderance of the resposnes to this post entitled "math problem" are either challenges to the assumptions, searches for the "trick", or otherwise attempts to not do the problem

I acknowledge that Sott A has been known to pull the rug out from under us on occasion, but I still think it's a bit sad that we automatically assume some form of mischief.
Oct 1, 2009
Health insurance isn't $6k for a 21 year old.
Oct 1, 2009
Kudos to the few (or was it one) who reminded us of Scott's propensity for diverting our attention (ala Wally today) from the real point of his questions. And Kudos to JohnFX for dredging up Scott's own words about predictions.

So, doing the same, this is a trick question because, as we should well know by now, Scott believes that in the future (if not already!) we'll be living in the Matrix, and 100% of our income will be going to "health care". (We will have signed away all of our assets to the Matrix Corporation when we entered, and how you define "health care" will be sort of moot.)


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Oct 1, 2009
Assuming healthcare costs rise 10% a year for the next 64 years is the same as investors in the 90's assuming the stock market would consistently yield similar annual gains until 2050.

The comments that I have seen imply that a government health plan would be the solution to our $3 million dollar problem. That simply in illogical, because that would be another $6000/year insurance that increases at 10% while the Gross Domestic Product increases at 4%... that is worse than the social security problem. The proposal in Washington does nothing to reign in health costs; it has a noble purpose of making sure the unemployed have health insurance. Still, it is just another health insurance "company".

I am a software developer at a "non-profit" health insurance company, heavily monitored by the state. Our overhead costs are below 10% of income, the rest of which goes into healthcare costs and savings account in case of a pandemic. I don't think government health insurance would to be more efficient. That doesn't stop the need to have coverage for the unemployed. One other thing, 25% of the $6000 spent on health insurance (at least here in Minnesota) goes to cover the uninsured. Everyone gets care, and all the providers get paid... we who are paying for health insurance are covering the costs. Its a hidden tax of sorts.

What needs to be done is to reign in the annual expenditure on healthcare - which has nothing to do with health insurance (government or private). Let me suggest a few ways:

1. Individual Responsibility - (A) Prevention. obesity has led to a startling rise of preventable diabetes which amazingly corresponds to the timing of the increase in healthcare costs. Americans tend to think that doctors and drugs should fix any abuse we do to ourselves; (B) Nature's Doctor. Americans run to doctors (ka-ching) to get a prescription (ka-ching) from a pharmacist (ka-ching) because they are unwilling, impatient and/or uneducated in natural remedies.

2. The drug industry is the #1 PAC in Washington, judging by money spent. Reign in the money spent on pharmaceuticals and you reign in the cost of healthcare, and by extension health insurance.

3. A major healthcare cost is malpractice insurance. Many things could be done in Washington, but it is unlikely because the majority party is heavily tort-oriented.

4. Term limits for congressmen and senators. They are too much in bed with PACs.

5. More over-the-counter healthcare, currently monopolized by AMA doctors with whom we must get our magic prescriptions.

6. Do intensive studies of the effects of designer chemicals and hormones affecting our food supply. Is it me, or is there a relationship between high-fructose corn syrup and the rise of diabetes? What about our milk and eggs being produced in factory farms? Double-blind studies are needed today to attack the new "tobacco" industries that are potentially creating our current health crisis.

Of the above items, I tend to think that individual responsibility is the best solution. Perhaps the only way to spur us to be more responsible is to have long lines where health services are doled out. If that is the case, then bring it on.

In the meantime, I suggest we look a the cost of health insurance as a symptom, not a cause.
Oct 1, 2009
"guess what, folks? Social Security is bankrupt"

That's not even lying with statistics. It's just plain lying. Social Security cannot 'go bankrupt'. It hasn't borrowed any money from a 'bank' or anywhere else. The Social Security Trust Fund currently holds more than $2,000,000,00 dollars in US Gov't paying about 5.5% interest. (The US Gov't itself pays only 1 to 4%to borrow money)

Here's some real statistics: In the worst possible economic case, 30 years from now Social Security will only be able to pay 75% of 'promised' benefits. (That's still more than you get paid today) In the best economic case Social Security will pay full 'promised' benefits with no changes required in the plan.

Even if the worst possible economic case comes to pass, Social Security can easily be fixed by modest increases in the income levels taxed or the retirement ages.
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