This paper explores whether health cost risk can explain empirically observed annuity levels. We find that the timing of health cost risk is an important determinant of optimal annuity demand and utility gains from annuitization are neglible when facing health cost risk. If out-of-pocket medical expenses can already be sizeable early in retirement, full annuitization is not optimal. When comparing predicted annuity demand to empirically observed levels of annuitization, we find that high health cost risk early in retirement can explain the observed pattern of annuitization as a function of initial wealth at retirement.