How Much Is Enough? The Distribution of Lifetime Health Care Costs

TitleHow Much Is Enough? The Distribution of Lifetime Health Care Costs
Publication TypeReport
Year of Publication2010
AuthorsWebb, A, Zhivan, NA
Call Numbernewpubs20100407_Webb.pdf
KeywordsHealthcare, Medicare/Medicaid/Health Insurance, Retirement Planning and Satisfaction

Estimates of the expected present value of lifetime out-of-pocket medical costs from age 65 onward are of limited value to households managing wealth decumulation in retirement. Their risk characteristics may differ from the average. They will also care about the whole probability distribution of health cost outcomes, and will want to update that probability distribution during the course of retirement. Using Health and Retirement Study data, we simulate health, mortality, and health cost histories of retired households. We show that the life expectancy and average health costs of our simulated households closely match published life tables and the findings of previous research. Using our simulated data, assuming a 3-percent real interest rate and including Medicare and private insurance premiums, we estimate that a typical household age 65 has a 5-percent risk of the present value of its lifetime health care costs exceeding 311,000, or 570,000 including the cost of long-term care. We find that relatively little resolution of uncertainty occurs with age, even for those who remain free of chronic disease.

Endnote Keywords

health insurance/health care costs/Medicare/retirement planning

Endnote ID


Citation Key5785