Navigating Health Care Costs in Retirement

Health care costs present a significant challenge for American retirees. Using data from the Health
and Retirement Study, we show that the distributions of these expenses are highly concentrated.
We distinguish between the different types of coverage options provided by Medicare and show
how expenses vary under each type of coverage. We also document the incidence of common
medical conditions and estimate their marginal impact on annual out-of-pocket expenses. Finally,
we show that there is a significant increase in out-of-pocket spending at the end of life, and that
nursing home or long-term care expenses are key contributors to that. While the median nursing
home expenses were zero in the last year of life, among individuals who passed away after age 90,
5% spent $116,000 or more.