Out-of-Pocket Health Care Spending for Retirees

Out-of-pocket health care expenditures may be less than projections suggest for the majority of retirees. A small proportion of retirees, however, will incur substantial out-of-pocket expenses because of nursing home care.

A researcher with the Employee Benefit Research Institute (EBRI) analyzed actual spending data from the Health and Retirement Study (HRS). A segment of HRS respondents born before 1924 was asked about their medical expenditures every two years starting in 1993 and through the time of their death. The EBRI analysis used data through 2014 and adjusted the reported spending for medical inflation.

Median out-of-pocket spending was $4,385 for those who died between the ages of 70 to 74. It increased to $27,382 for those who lived to 95 or older. Put another way, the majority of respondents spent less than $28,000 on out-of-pocket medical expenses in retirement.

Average spending was higher, ranging from $13,618 (death at ages 70 to 74) to $66,806 (death at age 95 or later), because of the skewing effect of those whose expenditures ranked in the top 10% and top 5%. Out-of-pocket expenditures for those whose spending ranked in the top 90th percentile was $40,746 for those who died between age 70 and 74, and $171,979 for those who lived to 95 or older. At the 95th percentile, spending totaled $55,153 and $269,293, respectively. Nursing home care added approximately $115,000 in out-of-pocket expenditures for those who lived to at least 95 and whose spending ranked in the top 5%.

Fewer than half of all surveyed retirees spent at least one night receiving nursing home care (54.2%). Not surprisingly, the likelihood of receiving nursing home care rose with age, from 15.3% for those in the age 70 to 74 group to 61.0% for those who lived to at least age 95. Women were also more likely to receive nursing home care than men (50.8% versus 38.0%). Just 23.1% of all retirees incurred an out-of-pocket expense for nursing home care because of Medicare, Medicaid and/or long-term care insurance.

The median and average costs should be viewed as the lower boundary of what might be spent. Retirees should also be aware of the risk of significantly higher spending should an extended period of care be required.

Source: “Cumulative Out-of-Pocket Health Care Expenses After the Age of 70,” by Sudipto Banerjee; EBRI Brief No. 446, April 3, 2018.