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Retiree Out-of-Pocket Healthcare Spending: A Study of Consumer Expectations and Policy Implications

73 Pages Posted: 11 Feb 2013 Last revised: 8 Jun 2013

Allison K. Hoffman

University of Pennsylvania Law School

Howell E. Jackson

Harvard Law School

Date Written: February 10, 2013

Abstract

Even though most American retirees benefit from Medicare coverage, a mounting body of research predicts that many will face large and increasing out-of-pocket expenditures for healthcare costs in retirement and that many already struggle to finance these costs. It is unclear, however, whether the general population understands the likely magnitude of these out-of-pocket expenditures well enough to plan for them effectively. This study is the first comprehensive examination of Americans’ expectations regarding their out-of-pocket spending on healthcare in retirement. We surveyed over 1700 near retirees and retirees to assess their expectations regarding their own spending and then compared their responses to experts’ estimates. Our main findings are twofold. First, overall expectations of out-of-pocket spending are mixed. While a significant proportion of respondents estimated out-of-pocket costs in retirement at or above expert estimates of what the typical retiree will spend, a disproportionate number estimated their future spending substantially below what experts view as likely. Estimates by members of some demographic subgroups, including women and younger respondents, deviated relatively further from the experts’ estimates. Second, respondents consistently misjudged spending uncertainty. In particular, respondents significantly underestimated how much individual health experience and changes in government policy can affect individual out-of-pocket spending. We discuss possible policy responses, including efforts to improve financial planning and ways to reduce unanticipated financial risk through reform of health insurance regulation.

Keywords: health law, health policy, Medicare, out-of-pocket costs, financial literacy, Medicare reform, health insurance

Suggested Citation

Hoffman, Allison K. and Jackson, Howell E., Retiree Out-of-Pocket Healthcare Spending: A Study of Consumer Expectations and Policy Implications (February 10, 2013). American Journal of Law and Medicine, Vol. 39, No. 1, 2013; UCLA School of Law, Law-Econ Research Paper No. 13-04; Harvard Public Law Working Paper No. 13-14. Available at SSRN: https://ssrn.com/abstract=2214643

Allison K. Hoffman (Contact Author)

University of Pennsylvania 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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