During your working years, you probably get your health insurance through your employer. But once you retire, where will your health insurance coverage come from? With skyrocketing health care and drug costs these days, the thought of going without health insurance is very scary. And it seems inevitable that the longer we live, the more likely it is that our health may decline, making the need for health insurance even more critical as we get older. Health insurance coverage may be different in retirement, but there are options.

Medicare – Health Insurance from Uncle Sam
In the past, many employers extended some form of health care coverage to retired employees, but these days, those generous employers are few and far between. If you retire at or beyond age 65, you may automatically be covered by Medicare, provided by the U.S. government.

Medicare has three parts: Part A is hospital insurance, which doesn’t cost you anything if you or your spouse paid Medicare taxes during your working years (if you’re not eligible for free Medicare part A coverage, you can enroll and pay a monthly fee for the same coverage). There are, however, yearly deductibles and co-payments for certain services.

You do pay a monthly premium ($93.50 in 2007) for Part B coverage, which is Medicare medical insurance and covers doctors’ services, outpatient hospital care, and some other medical services such as physical and occupational therapy and some home health care.

Part C, Medicare Advantage plans (previously called Medicare+Choice), provide you with more choices and, sometimes, extra benefits by letting private companies offer you your Medicare Part A and Part B benefits. Some Medicare Advantage plans require an additional monthly premium for the extra benefits they offer.

Prescription drugs are not covered under either Part A or Part B, but the Medicare Prescription Drug Improvement and Modernization Act of 2003 provides comprehensive prescription drug coverage (Part D).

Medicare’s Limitations
That’s all good news, but it’s not perfect. For one thing, Medicare doesn’t kick in until you’re 65, so if you retire earlier than that, you’ll need to find other coverage to tide you over until age 65. If your employer doesn’t offer post-employment health benefits, you might be able to continue your pre-retirement group coverage through COBRA. Group health coverage for COBRA participants is usually more expensive than coverage for active employees, since the employer typically pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage, which is another option to consider.

Secondly, Medicare won’t cover all your medical expenses, leaving you to find a way to fill the gap. And that gap can be expensive—the list of things that Medicare does not pay for include:

• Drugs
• Routine physical examinations and testing
• General dental work
• Routine eye and hearing exams
• Glasses or hearing aids
• Medical expenses during foreign travel

You may still have significant out-of-pocket costs to cover. And it won’t pay for long-term care if you ever need it. If you think you might, you may want to explore long-term care insurance (but do so while you’re relatively young and healthy—you can’t get it unless you’re in good health, and premiums are based on the age at which you take out the insurance).

Filling the Gap: Medigap and Medicaid
Many retirees purchase supplemental insurance, such as Medigap, to help pay for what Medicare doesn’t cover. Though provided by private health insurance companies, Medigap is strictly regulated by federal and state governments. Standardized Medigap policies come in 10 levels with costs that increase accordingly with the level of coverage. When shopping for a Medigap policy, consider the terms on which the policy premiums will rise over time. Even if you can afford the policy at today’s premiums, consider whether you will still be able to afford it in later years when your income and assets have decreased and the policy premiums have increased.

Medicaid is a joint federal and state program that helps with medical costs for some people with low incomes and limited resources. Each state sets it own guidelines regarding eligibility and services. These guidelines are complex and vary considerably, even among states of similar size or geographic proximity. Thus, a person who is eligible for Medicaid in one state may not be eligible in another state, and the services provided by one state may differ considerably in amount, duration, or scope from services provided in a similar or neighboring state. In addition, state legislatures may change Medicaid eligibility, services, and/or reimbursement during the year. Certain Medicare recipients may also qualify for Medicaid.

Plan Ahead
All of this may seem overwhelming and complicated. If you’re closing in on retirement, you probably want more information, which you can get from websites such as www.cms.hhs.gov for the Centers for Medicare and Medicaid Services, the federal agency within the U.S. Department of Health and Human Services that administers the Medicare program. You may also want to explore long-term care insurance with your insurance agent or financial planner, even if you still have most of your working years ahead of you. The reality is, health care costs will continue to rise, and most people will require more healthcare as they get older. Planning today for tomorrow’s needs will help make the future more secure.