Cumulative Out-of-Pocket Health Care Expenses After the Age of 70

Summary

Executive Summary

This study estimates how much retirees spend on out-of-pocket health care expenses after age 70 until their death. Unlike many other studies, it includes only expenses for health care services actually used (i.e., Medicare and insurance premiums are not included), and it is based on self-reported expenses of actual retirees and not on projections for hypothetical individuals. The numbers are adjusted for medical inflation and reported in 2015 dollars. The self-reported expenses are from panel data from the Asset and Health Dynamics Among the Oldest Old (AHEAD) cohort of the Health and Retirement Study (HRS).

Here are the key findings: 

• For the majority of surveyed people, out-of-pocket health care expenses are not as high as commonly believed. For those who die at age 95 or later, the median cumulative out-of-pocket expense after age 70 until death is slightly above $27,000.
• But these expenses are catastrophic for some. Again, for those who die at age 95 or later, the 90th and 95th percentiles are nearly $172,000 and just over $269,000, respectively. In other words, the distribution of cumulative out-of-pocket medical expenses is skewed toward those with higher expenses.
• Nursing home expenses are one of the biggest contributors driving the skewness of the distribution. Without out-of-pocket nursing home expenses, the 90th and 95th percentiles for those who die at age 95 or later drops to nearly $96,000 and $154,000, respectively. 
• For all surveyed people, the median out-of-pocket nursing home expense is zero. But just like the distribution of total out-of-pocket health care expenses, the distribution of nursing home expenses is also skewed toward those with higher expenses, which means a small percentage of retirees face very high expenses.

1. For those who die at age 95 or later, the 90th and 95th percentiles of nursing home expenses are slightly over $87,000 and $175,000, respectively.
2. When the sample is restricted to include only those who enter a nursing home, the 90th and 95th percentiles go up to nearly $182,000 and $266,000, respectively.

• There are significant differences between men and women.

1. Women are significantly more likely to enter a nursing home after the age of 70 (38 percent of men vs. 51 percent of women). 
2. Also, women who live long enough spend significantly more than men with similar lifespans. For example, the 90th percentiles of out-of-pocket nursing home expenses for men and women who die at age 95 or later is about $77,000 and $99,000 respectively. 

• Longevity has a strong positive correlation with nursing home entry, total out-of-pocket health care expenses, and out-of-pocket nursing home expenses. 
• One-in-three of the surveyed retirees are covered by Medicaid after age 70.
• The cumulative expense numbers for the age-70-to-death period should be interpreted more as a lower bound than a true estimate. A slightly better measure (as described in section 6), though not perfect, might be the average annual out-of-pocket health care expenses. But the distribution of average annual expenses is also rightly skewed and retains all the characteristics of the cumulative distribution. The median, 90th percentile, and 95th percentile of average annual out-of-pocket expenses for the entire sample is about $2,000, $11,000 and $19,000 respectively.