Risk of Large Medical Expenditures at Older Ages and Their Impact on Economic Well-being

Published: 2022
Project ID: UM22-09


We investigate the extent to which out-of-pocket (OOP) medical expenditures replace other types of spending and their role in households’ experiencing financial hardship at older ages. We will begin by documenting trends in out-of-pocked (OOP) medical expenditure risk in the older U.S. population over the past three decades, using the Health and Retirement Study. Second, we will investigate how households’ nonhealth care spending responds to large OOP spending, using detailed expenditure data obtained for a subsample of the same study. Third, we will study to what extent large OOP expenditures increase the likelihood of experiencing material hardship, either immediately or in subsequent years. Finally, we will investigate whether individuals are aware of the OOP medical expenditure risk they face, since lack of awareness of this important risk may lead to inadequate saving behavior and welfare loss. To this end we will compare the observed risk to individuals’ subjective expectations about their future OOP medical expenditures.