Health literacy is defined in the Institute of Medicine report, Health Literacy: A Prescription to End Confusion, as "the degree to which individuals have the capacity to obtain, process, and understand basic health information and services needed to make appropriate health decisions."
The Calgary Charter also defines health literacy as "the use of a wide range of skills that improve the ability of people to act on information in order to live healthier lives. These skills include reading, writing, listening, speaking, numeracy, and critical analysis, as well as communication and interaction skills.”
Low health literacy is linked to higher risk of death and more emergency room visits and hospitalizations. Plus, there may be no relation between health literacy and years of education or reading ability.
Low health literacy may lead to more health care services, greater risk for hospitalization, and higher use of expensive services, such as emergency care and inpatient admissions. The elderly, immigrants, minorities, and those with low income make up vulnerable populations.
For further reading, download the Agency for Health Care Research and Quality Report, "Health Literacy Interventions and Outcomes: An Update of the Literacy and Health Outcomes Systematic Review of the Literature." 
Patients are often faced with the complexity of accessing/choosing health care services, analyzing relative risks and benefits, calculating dosages, communicating with health care providers, evaluating information for credibility and quality, interpreting test results, and locating health information. In order to be able to accomplish these tasks, patients may need to be:
Add to the above the ability to articulate health concerns and describe symptoms accurately, to ask pertinent questions, and understand spoken medical advice and treatment directions. Furthermore, the patient must have strong decision-making skills and be able to evaluate Web site content when looking up information in the Internet.
Recognizing that culture plays an important role in communication helps us better understand health literacy. The United States Department of Health and Human Services (HHS) recognizes that "culture affects how people communicate, understand and respond to health information."
Health literacy in this regard involves everyone.
Low health literacy used to be viewed as an individual patient's deficit--that is, a patient's lack of knowledge and skills regarding health issues. Now it is recognized that health literacy reflects the complexity of the presentation of health information and the navigability (or lack thereof) of the health care system.
The Joint Commission, which accredits and certifies health care organizations and programs in the U.S., stresses the importance of health literacy, health communication, and cultural competencies as an element of quality health care. Read its report, "What Did the Doctor Say?: Improving Health Literacy to Protect Patient Safety."
There are economic consequences of low health literacy.
Read the report, "Low Health Literacy: Implications for National Health Policy," which states that low health literacy "is a major source of economic efficiency in the U.S. health care system." The report estimates that the cost of low health literacy to the U.S. economy is between $106 billion to $238 billion annually. This represents between 7 to 17 percent of all personal health care expenditures.
For further information, read the following reports:
Bennett IM, Chen J, Soroui JS, et al. The contribution of health literacy to disparities in self-rated health status and preventive health behaviors in older adults 
. Annals of Family Medicine, 2009, May-Jun;7(3):204-11.
Howard DH, Sentell T, Gazmararian JA. Impact of health literacy on socioeconomic and racial differences in health in an elderly population. Journal of General Internal Medicine, 2006, Aug;21(8):857-61.
Vernon, J. A., Trujillo, A, Rosenbaum, S, (2007). Low health literacy: Implications for national health policy.