Few retirees have the desire or the resources to foot the bill for their health care on their own. Fortunately, most American retirees don't have to. They are covered by Medicare, a federal program that is the primary source of health insurance for individuals age 65 and older.

However, you generally can't rely on Medicare to pay all of your health costs in retirement. Medicare doesn't cover everything, and you'll have to satisfy a deductible and make co-payments for some types of care. For this reason, you may want to look into buying a Medigap policy designed to supplement Medicare coverage. Or, if you're worried about needing nursing home care in the future, you may want to look into buying a long-term care insurance policy, especially if you don't want to rely on Medicaid to pay for possible nursing home bills.

Note: The following discussion assumes that you will turn 65 before 2003. However, if you are currently age 62 or younger, you should be aware that your eligibility for Medicare may be affected by the increase in the normal retirement age for Social Security. The age for collecting full Social Security benefits will gradually increase from age 65 to age 67 over a 22-year period (this period began in 2000). This means that the age at which you can begin receiving Medicare benefits may be greater than 65 (if current law still applies) because the date you become eligible for Medicare is the date you reach normal retirement age. However, neither the Social Security Administration nor the Health Care Financing Administration has yet published information on how the change in normal retirement age will affect Medicare eligibility.

Your changing health insurance needs in retirement
Your need for health insurance won't automatically increase after you retire, but it will change. It's wise to be prepared. Here are some of the ways your health insurance may be affected after you retire:

Your health-care costs may rise
Although you may remain quite healthy, you may find that you need to visit your doctor more frequently as you grow older. You also may need to take more prescription medications and require more extensive treatment than you did when you were younger.

Your employer-sponsored health insurance coverage may end
Retirement may spell the end of your employer-sponsored health insurance. Generous employers may offer extensive health insurance coverage to their retiring employees, but this is the exception rather than the rule. If you are 65 or older when you retire, you don't have much to worry about--you'll automatically become eligible for Medicare benefits upon your 65th birthday. But if you retire before age 65, you'll need some way to pay for your health care if your employer doesn't extend health benefits to you. You may want to consider buying a private health insurance policy or extend your employer-sponsored coverage through COBRA.

You may become entitled to Medicare and other government benefits
Several government programs exist that can help you pay for health care in retirement. These programs include Medicare, Medicaid, and certain military benefit programs that aid retired service-members.

Medicare
As mentioned, most Americans automatically become entitled to Medicare when they turn 65. In fact, if you're already receiving Social Security benefits, you won't even have to apply--you'll be automatically enrolled in Medicare. However, you will have to decide whether you only need Part A coverage, which is free, or if you want to pay the premium for Part B coverage. Part A covers home health care, hospice care, and services associated with inpatient hospital care. Part B covers other medical care such as physician care, laboratory tests and physical therapy. You may also choose to enroll in a managed care plan under Medicare Part C if you want to pay fewer out-of-pocket health-care costs.

Medicaid
If you are aged, disabled, or blind and can't afford medical care, Medicaid may pay for your hospital and doctor bills, among other things. Approximately 38 million people receive Medicaid benefits, including over 60 percent of all nursing home residents. However, there are many rules for using Medicaid to pay for nursing home care. Check with a financial planner or an attorney experienced in Medicaid planning before relying on Medicaid to pay for long-term care.

Medigap
Medigap is supplemental insurance specifically designed to cover some of the gaps in Medicare coverage. Although the name might lead you to believe otherwise, Medigap is provided by private health insurance companies, not the government. Federal and state governments do strictly regulate Medigap, however.

Unless you can afford to pay for the things Medicare doesn't cover (e.g., prescription drugs), as well as annual co-payments and deductibles that apply to certain types of care, you may want to buy some type of Medigap policy when you sign up for Medicare Part B. There are 10 standard Medigap policies that you can purchase. Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.

Military benefits
Health care for veterans is typically available at VA hospitals and health-care facilities. In general, active duty service-members, retirees, and veterans other than those who were dishonorably discharged are eligible for military benefits. Survivors of service-members and veterans are also eligible for some of the same benefits. However, the rules surrounding these benefits can be complex and may change frequently. It's best to check with your local VA office if you have questions about your health-care benefits in retirement.

You may need long-term care
The possibility of a prolonged stay in a nursing home weighs heavily on the minds of many older Americans and their families. This is hardly surprising, considering that the annual cost of nursing home care in most facilities is more than most people's annual salary. There are several resources you can use in planning for this potential expense, including self-insurance, Medicare (limited benefits), Medicaid, and military benefits. You might also consider purchasing separate long-term care insurance, which is designed specifically for this purpose, especially since private health insurance generally doesn't cover nursing home care.