Objectives. This study analyzed whether inadequate functional health literacy is an independent risk factor for hospital admission. Methods. We studied a prospective cohort of 3260 Medicare managed care enrollees. Results. Of the participants, 29.5% were hospitalized. The crude relative risk (RR) of hospitalization was higher for individuals with inadequate literacy (n=800; RR= 1.43; 95% confidence interval [Cl]=1.24, 1.65) and marginal literacy (n=366; RR=1.33; 95% Cl=1.09, 1.61) than for those with adequate literacy (n=2094). In multivariate analysis, the adjusted relative risk of hospital admission was 1.29 (95% Cl=1.07, 1.55) for individuals with inadequate literacy and 1.21 (95% Cl=0.97, 1.50) for those with marginal literacy. Conclusions. Inadequate literacy was an independent risk factor for hospital admission among elderly managed care enrollees.