How expensive - in money terms - are the expected cost of unhealthy living?
Inspired by the high healthcare expenses of the elderly in my family, I have been wanting to research this question for some time now. To be more specific, my own father has rheumatoid arthritis and the father of my girlfriend has a cardiovascular condition. Both diseases are very costly and quickly able to exceed the franchise and personal allocation of health insurance plans. Both belong to the so-called "non-communicable diseases". For my train of thought, I focused on cardiovascular diseases, musculoskeletal diseases and diabetes. As these can be influenced to a high degree by the choices you make in your 30s, 40s and 50s.
Why is looking at this from a money perspective worthwhile? Money rules the world and is one of the most powerful motivational tools, just like cocaine - Business Insider reported. So it would be a nice motivational trick for all of us if we knew roughly what we were saving in healthcare expenses by eating healthy food, sleeping enough and keeping ourselfs fit.
In insurance math, one simply calculates with expected values, i.e. the average costs to be expected in the event of a claim. A fair monthly premium would therefore be exactly this average. And this is exactly what I have derived from the figures of the Federal Statistical Office and the Swiss Medical Journal.
If this is too "nerdy", which I can well understand, then there is one more thing I would like to say before your take off: The comparison to a normal health insurance is, of course, misleading. A healthy lifestyle is more like a capital-forming life insurance, because you have a payout, in the form of a better quality of life if the claim (illness) does not occur. Next week, in the second part of this blog post, I will go into detail about why High Intensity Strength Training is so well suited for the prevention of these non-communicable, or even civilization diseases and why this gave me peace of mind during long working hours in investment banking. For me, High Intensity Training is my fitness, health and wellbeing solution for over 10 years now, and thats why I want to share it with you.
Back to the numbers. Let´s think about pension plans. It's so important that the government makes it mandatory. Liberal Switzerland has a wonderful three-pillar system in which everyone can provide for themselves additionally.
The parallels to preventive health care, which is succinctly described as "keeping oneself fit", are striking. Especially, since both should go hand in hand, which they usually don´t do. This is ludicrous, beause monetary pension planning is endangered by a lack of health precaution (or keeping oneself fit), as we will see in a moment.
Both private monetary pension planning and keeping oneself fit are incentivised in one form or another. In the case of monetary pension provision in the form of tax-deductible payments into Pillar 3a, i.e. your personal marginal tax rate that you pay less in taxes on that amount. In the case of health provision: through a health insurance subsidy for the fitness subscription. In both cases, the respective stakeholders, i.e. the state and the health insurance company, are prepared to forego income in order to steer our behaviour. Why?
The answer is clear: They see it as an investment that will pay off in the future through massively lower costs. Follow the money!
In the case of monetary pension provision, the problem of the AHV shortfall has been known for a long time and the pension system is due to be reformed for years, NZZ reported. That´s why the private level is so important.
In the case of the healthcare system, the costs arising from avoidable "diseases of civilisation" are difficult to estimate. On the one hand, there is a sad emotional price to pay; these NCDs (non-communicable diseases) are today the most common cause of death for women and men alike in Switzerland. Although the most recent study on the exact costs and their distribution among the individual clinical pictures dates back several years and was conducted in 2011, it can be assumed that these proportions have at least remained the same and that the overall costs have increased.
For example, 82 billion francs were already forecast for 2018. (It takes some time until the actual costs can be published on a national scale, thats why 2018 is the most recent we have),
Remeber, I said let´s only look at cardiovascular diseases, musculoskeletal diseases and diabetes.
The self-payment rate including KVG and VVG, i.e. the share not paid by the state or by mandatory health insurance, is estimated at 27.3% for 2018. For the sake of simplicity, let us assume here too that these costs are equally distributed among the individual clinical pictures. Let us further assume that in most cases the costs for these diseases are only incurred after the age of 65. In other words, when you retire. Wow thanks what a coincident. This means that these costs will be spread over around 1,577 million 65+ golden agers living in Switzerland as of 2018.
Let us therefore calculate what costs for the individual could at least be reduced proportionately by conscious, private health provision. As in "keeping oneself fit". It will not be possible to prevent these completely, we are all aware of that. Nevertheless, it is to be hoped that these costs can at least be reduced:
In total, this means an average cost of 4,329 francs per year or 360 francs per month as an expected value for every Swiss citizen over the age of 65. For a pensioner's household, this quickly results in a burden of 8,660 francs per year. Grandma and Grandpa you know. And I have of course omitted mental disorders, urogenital, blood and hormone diseases, cancer, diseases of the digestive tract, chronic respiratory diseases, injuries and prevention. On the one hand, this is because it is not possible to say one-dimensionally that sport and healthy eating will certainly help here and, on the other hand, the probability of these diseases does not necessarily increase with age. However, one can certainly assume that the number of undetected cases will drive up the expected value, as older people simply have a higher risk of falling ill, unfortunately. It is also worth mentioning that in the case of diabetes, a distinction must be made between diabetes type 2 and diabetes type 1. While diabetes type 2 actually tends to occur in old age, diabetes type 1 is also diagnosed in children. For the calculation of the diabetes costs I mainly used diabetes type 2.
Ultimately, the data is from 2018, so a today 40-year-old would reach this critical age only in 25 years from now. So another important aspect is inflation. Consumer prices have risen by an average of 0.5% per year over the past few years. If we cautiously assume 1% p.a. for 27 years, we will arrive at an inflation rate of 31% over this period. In other words, an expected value of CHF 5,663, which then has to be covered by private health care spending. Outch! Inflation can certainly be higher, and one thing must be clear: if you suffer from cardiovascular disease or something similar, the costs will clearly exceed the expected value and put your financial health in jeopardy.
Nonetheless, we now have a rough idea of the monetary consequences of not doing anything to maintain our health today. Or, to use the insurance analogy, what costs we can "insure" ourselves against with our lifestyle.
Luckily all the information to live a healthy lifestyle is available at low costs and strategies like High Intensity Training are proven to work against those NCDs.
Looking forward to next week, when we dive deep into how High Intensity Training boosts your health and thereby achieves this insurance effect.