Understanding and Improving Financial Literacy With Respect to Healthcare Expenditures in Retirement

80 Pages Posted: 17 Jul 2012 Last revised: 6 Aug 2012

See all articles by Allison K. Hoffman

Allison K. Hoffman

University of Pennsylvania Carey Law School

Howell E. Jackson

Harvard Law School

Date Written: July 19, 2012

Abstract

Health care costs are an increasingly significant category of expenditures for retirees. Studies have demonstrated that many retirees face a shortfall with respect to these out-of-pocket health care expenses, but there has been little investigation into why. Are retirees unable to save for or otherwise finance such expenditures or are they unaware of the magnitude of likely future expenditures?

This article explores this question by examining what individuals approaching and in retirement expect with regard to their own future out-of-pocket health care expenditures in retirement. By conducting a survey of 2000 individuals ages 40 to 80 through Rand Corporation’s American Life Panel, this study ascertains respondents’ expectations regarding insurance coverage and health care expenditures in retirement and compares their answers to policy experts’ estimates. While, respondents’ answers neared experts’ estimates on some dimensions, such as median monthly expenditures, there was a significant discrepancy on others, including in lump-sum estimations and expectations regarding long-term care costs. Furthermore, responses signaled a greater gap between expectations and likely expenditures for women and younger cohorts. Finally, respondents failed to differentiate between sources of uncertainty in spending due to high individual costs, policy changes, or health care inflation, and underestimated the possible effects of these sources of uncertainty on individual expenditures. These results suggest and the article discusses important implications for financial education, health care policy, and further research.

Suggested Citation

Hoffman, Allison K. and Jackson, Howell Edmunds, Understanding and Improving Financial Literacy With Respect to Healthcare Expenditures in Retirement (July 19, 2012). Available at SSRN: https://ssrn.com/abstract=2110375 or http://dx.doi.org/10.2139/ssrn.2110375

Allison K. Hoffman (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

HOME PAGE: https://www.law.upenn.edu/cf/faculty/ahoffma1/

Howell Edmunds Jackson

Harvard Law School ( email )

Griswald 402
1563 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-5466 (Phone)
617-495-5156 (Fax)

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