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

Published: 2022


We study out-of-pocket (OOP) medical expenditure risk of the U.S. population ages 55 and older using data from the Health and Retirement Study and its supplemental survey on household spending. We document trends in individual-level OOP spending from 1998 to 2018, both at the median and 95th percentile, showing a large increase until 2004, followed by rapid declines, so that 2018 OOP was less than 1998 OOP spending. We show how these changes impacted the budget share of OOP as a fraction of total household spending and analyze how households adjust the composition of their spending as OOP expenses vary. Because the distribution of OOP expenses is skewed, households face a non-negligible risk of incurring a large expense. We examined the extent to which OOP medical expenditures contribute to economic hardship among older households, as measured by food insecurity and skipping medications because of cost. We found a weak relationship with respect to food insecurity, suggesting that government programs, like Medicaid, help protect against OOP risk leading to such as an extreme form of hardship. However, we obtained statistically significant and economically meaningful effects with respect to medication insecurity: An increase from the 10th to the 90th percentile in OOP spending would increase the probability of medication insecurity by about 15 percentage points. When asked about their perceived OOP risk, individuals tend to substantially overestimate the chances of large OOP spending, although less so at advanced ages; prior experience with OOP expenses seems to lead to more accurate expectations.

Key Findings

    • Personal out-of-pocket spending for health care (not including health insurance), measured at the median in real terms, increased from 1998 to 2004 and then declined, reaching a level in 2018 below that of 1998.
      OOP medical expenditures are highly skewed, with the 95th percentile being approximately 10 times the median.
    • The fraction of household spending devoted to OOP medical expenditures declined from 2005 to 2019.
    • The association between OOP spending for health care and food insecurity is weak, but a large increase in OOP leads to a statistically significant increase in medication insecurity.
    • When OOP spending is high, the budget share devoted to economic necessities is lower.
    • According to food and medication insecurity, the population ages 55 to 64 is worse off than the population 65 or older, and in the older population, insecurity decreases with age.
    • Individuals at advanced old age had accurate beliefs about the OOP medical expenditure risk, while younger individuals substantially overpredicted the probability of high OOP expenses.


Rohwedder, Susann, Péter Hudomiet, and Michael D. Hurd. “Risk of Large Medical Expenditures at Older Ages and Their Impact on Economic Well-being.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2022-457. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp457.pdf