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Most retirees in the United States receive Medicare benefits, and most obtain supplemental insurance to help fill the coverage gaps that Medicare leaves, such as for prescription drug expenses. But even with both these types of coverage, they face out-of-pocket expenses for premiums, cost-sharing obligations, and items or services not covered by Medicare or supplemental plans. This study examines whether retirees and near-retirees understand what their likely out-of-pocket health care expenditures might be in retirement. Using the RAND American Life Panel, a representative Internet survey of about 4,000 U.S. households, researchers surveyed Americans age 40–80 on these issues. They found many retirees and near-retirees do not understand the magnitude and variability of their future out-of-pocket health care costs and may be unprepared to finance higher-than-typical expenditures. Women and younger respondents (age 40–60), in particular, were most likely to underestimate their future out-of-pocket health care expenses.

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The research described in this report was prepared for the Social Security Administration by the Financial Literacy Center.

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