Background Health literacy presents an enormous challenge in the delivery of effective healthcare and quality outcomes. We evaluated the impact of low health literacy (LHL) on healthcare utilization and healthcare expenditure. Methods Database analysis used Medical Expenditure Panel Survey (MEPS) from 2005-2008 which provides nationally representative estimates of healthcare utilization and expenditure. Health literacy scores (HLSs) were calculated based on a validated, predictive model and were scored according to the National Assessment of Adult Literacy (NAAL). HLS ranged from 0-500. Health literacy level (HLL) and categorized in 2 groups: Below basic or basic (HLS <226) and above basic (HLS ≥226). Healthcare utilization expressed as a physician, nonphysician, or emergency room (ER) visits and healthcare spending. Expenditures were adjusted to 2010 rates using the Consumer Price Index (CPI). A Pvalue of 0.05 or less was the criterion for statistical significance in all analyses. Multivariate regression models assessed the impact of the predicted HLLs on outpatient healthcare utilization and expenditures. All analyses were performed with SAS and STATA®11.0 statistical software. Results The study evaluated 22 599 samples representing 503 374 648 weighted individuals nationally from 2005-2008. The cohort had an average age of 49 years and included more females (57%). Caucasian were the predominant racial ethnic group (83%) and 37% of the cohort were from the South region of the United States of America. The proportion of the cohort with basic or below basic health literacy was 22.4%. Annual predicted values of physician visits, nonphysician visits, and ER visits were 6.6, 4.8, and 0.2, respectively, for basic or below basic compared to 4.4, 2.6, and 0.1 for above basic. Predicted values of office and ER visits expenditures were $1284 and $151, respectively, for basic or below basic and $719 and $100 for above basic (P < .05). The extrapolated national estimates show that the annual costs for prescription alone for adults with LHL possibly associated with basic and below basic health literacy could potentially reach about $172 billion. Conclusion Health literacy is inversely associated with healthcare utilization and expenditure. Individuals with below basic or basic HLL have greater healthcare utilization and expendituresspending more on prescriptions compared to individuals with above basic HLL. Public health strategies promoting appropriate education among individuals with LHL may help to improve health outcomes and reduce unnecessary healthcare visits and costs.