Fed/GFLEC Financial Literacy Seminar Series

March 7, 2013

3:30 PM - 5:00 PM

Seminar I: Retiree Out-of-Pocket Healthcare Spending: A Study of Consumer Expectations and Policy Implications

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Howell Jackson, Distinguished Financial Literacy Speaker

Professor, Harvard Law School


FinLit Talks: Interviews with Financial Literacy Thought Leaders

LOCATION

The George Washington University
Marvin Center Amphitheater
800 21st Street Northwest

Bio: Howell Jackson

Howell Jackson is the James S. Reid, Jr., Professor of Law at Harvard Law School. His research interests include financial regulation, international finance, consumer protection, federal budget policy, and entitlement reform. Professor Jackson has served as a consultant to the United States Treasury Department, the United Nations Development Program, and the World Bank/International Monetary Fund. He is a member of the National Academy on Social Insurance, a trustee of the College Retirement Equities Fund (CREF) and its affiliated TIAA-CREF investment companies, a member of the panel of outside scholars for the NBER Retirement Research Center, and a senior editor for Cambridge University Press Series on International Corporate Law and Financial Regulation. Professor Jackson frequently testifies before Congress and consults with government agencies on issues of financial regulation. He is co-editor of Fiscal Challenges: An Inter- Disciplinary Approach to Budget Policy (Cambridge University Press 2008), co- author of Analytical Methods for Lawyers (Foundation Press 2003) and Regulation of Financial Institutions (West 1999), and author of numerous scholarly articles. Before joining the Harvard Law School faculty in 1989, Professor Jackson was a law clerk for Associate Justice Thurgood Marshall and practiced law in Washington, D.C. Professor Jackson received J.D. and M.B.A. degrees from Harvard University in 1982 and a B.A. from Brown University in 1976.

 


 

Abstract

Even though most American retirees benefit from Medicare coverage, a mounting body of research predicts many will face large and increasing out-of-pocket expenditures for healthcare costs in retirement and that many struggle to finance these costs. It is unclear, however, whether the general population understands the likely magnitude of these out-of-pocket expenditures well enough to plan for them effectively. This study is the first comprehensive examination of Americans’ expectations regarding their out-of-pocket spending on healthcare in retirement. We surveyed over 1700 near retirees and retirees to assess their expectations regarding their own spending and then compared their responses to experts’ estimates. Our main findings are twofold. First, overall expectations of out-of-pocket spending are mixed. While a significant proportion of respondents estimated out-of-pocket costs in retirement at or above expert estimates of what the typical retiree will spend, a disproportionate number estimated their future spending substantially below what experts view as likely. Estimates by members of some demographic subgroups, including women and younger respondents, deviated relatively further from the experts’ estimates. Second, respondents consistently misjudged spending uncertainty. In particular, respondents significantly underestimated how much individual health experience and changes in government policy can affect individual out-of-pocket spending. We discuss possible policy responses, including efforts to improve financial planning and ways to reduce unanticipated financial risk through reform of health insurance regulation.