The Lifetime Medical Spending of Retirees

Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive
and net of Medicaid payments), we estimate the distribution of lifetime medical spending that
retired U.S. households face over the remainder of their lives. We find that at age 70, households
will on average incur $122,000 in medical spending, including Medicaid payments, over their
remaining lives. At the top tail, 5 percent of households will incur more than $300,000, and 1
percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The
level and the dispersion of this spending diminish only slowly with age. Although permanent
income, initial health, and initial marital status have large effects on this spending, much of the
dispersion in lifetime spending is due to events realized later in life. Medicaid covers the
majority of the lifetime costs of the poorest households and significantly reduces their risk