The CRR says it did the study mainly to assess the risk of incurring "exceptionally large" health care expenses during retirement.

"The objective of the analysis was not to calculate how much households spend on health care in practice, or even how much households should optimally choose to set aside to cover health care costs -- but to quantify the magnitude and distribution of potential lifetime expenditure," according to Anthony Webb, associate director of research for the CRR.

In more than 300,000 simulations, CRR reached the $197,000 average for a typical married couple age 65, without nursing home expenses.

"Americans need to assess the possibility that they may incur out-of-pocket health care costs that are significantly higher than average," said Malcolm Cheung, vice president of Long Term Care for Prudential. "Without managing this risk, in some cases, a household may possibly have to either forego needed health care or rely on Medicaid."

The study also showed that although health care costs decline with age, they're still substantial. At age 85, couples face an average remaining lifetime cost of $140,000 without nursing home care and they face a 5 percent risk of exceeding $266,000. Including nursing home care, the average cost is $203,000, with a 5 percent chance of exceeding $477,000.

Main sources of retired households' health care cost risk:

• Co-payments for Medicare covered payments and payments for non-covered services, such as nursing home care.
• About one-third of individuals turning 65 in 2010 will need at least three months of nursing home care, 24 percent more than a year, and 9 percent more than five years.
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  • In 2008, the annual cost of a nursing home was about $71,000 for a semi-private room and $79,000 for a private room. Medicare pays for a maximum of only 100 days of nursing home care.

To download a copy of the issue brief, or view a video of the study findings, visit http://crr.bc.edu/ or www.prudential.com.