It’s a common misperception: once you turn 65, Medicare covers all your health care needs. While it’s true that Medicare provides a substantial health security umbrella, health care expenses still pose a serious threat to the financial security of older Americans-and that doesn’t mean today’s seniors and Baby Boomers alone.

Health care expenses are on track to consume huge portions of retirement resources in the years ahead for many Americans. And today’s seniors and older Boomers are comparatively well-off compared with younger Boomers and the GenX’ers now in their mid-30s to early 40s.

Skyrocketing health care costs mean that 44 percent of Americans won’t be able to maintain their standard of living in retirement, according to The Center for Retirement Research (CRR) at Boston College. The CRR projects that the average American couple retiring in 2010 at age 65 will need nearly $206,000 to cover health care over the rest of their lifetimes. That total soars to $284,000 for couples retiring in 2020 and on into the stratosphere from there.

MEDICARE BASICS

Check out RetirementRevised’s Medicare basics page, and our primer on Medicare Advantage and Part D prescription drug plans

OUT-OF-POCKET HEALTH CARE COSTS

Boomers will see their retirement savings eroded by the skyrocketing cost of health care, according to the Center for Retirement Research at Boston College. When Medicare premiums, co-payments and other expenses are considered, the average individual will need to set aside $102,000 for retirement health expenses; for couples, the number rises to $206,000.

Medicare premiums are projected to rise an average 5.9 percent for the next 20 years, and 4.9 percent afterward.

TOO YOUNG FOR MEDICARE?

If you’re too young for Medicare and don’t have access to a group policy, you’ll need to shop for an individual policy. These policies have been expensive and difficult to obtain, especially for older Americans. But the new health care reform law is bringing change to the individual insurance market.

Starting in 2014, insurance companies won’t be able to refuse applicants with pre-existing conditions. Starting in 2010, insurers can’t rescind coverage if you get ill, and they can’t cap the lifetime dollar value of your coverage. The new law also creates new insurance options for people who need individual coverage. Starting mid-year in 2010, new, temporary high-risk insurance pools will launch for those who have been without coverage for six months and have pre-existing conditions. These pools are intended to serve as a bridge to longer-term solutions. State-based insurance exchanges will operate starting in 2014, and M Medicaid will be expanded to more low-income households over the next few years. Coverage will be made available to all individuals under age 65 with incomes up to 133 percent of the federal poverty level-in 2010, $22,050 for a family of four.

Most people will have to buy health insurance starting in 2014, but tax credits will be available on a sliding income-based scale to help make the coverage affordable. Although insurance companies won’t be allowed to consider pre-existing conditions when pricing policies, they will be permitted to vary their rates somewhat based on age.

COBRA

This is the federal program that allows workers to hold on to their health insurance benefits after a job loss. Coverage typically is available for 18 months but at a steep price: the former employee usually pays 100 percent of the premium plus a 2 percent administrative fee. The coverage is expensive but can be an especially important option for individuals who may not be able to obtain new coverage due to preexisting conditions. The coverage gap issues are especially acute for older workers who may have been forced into premature retirement due to the economic turmoil but are  too young to obtain Medicare coverage (age 65). The Economic Recovery and Reinvestment Act provided for some laid-off workers by paying for 65 percent of COBRA premiums for up to nine months–but only for workers who lost their jobs between Sept. 1, 2008, and Dec. 31, 2009.

Other COBRA help – If you lost your job due to trade policy, such as competition from exports or overseas outsourcing, you can get help paying up to 80 percent of COBRA premiums through the Trade Adjustment Assistance Reform Act. Under this law, you can receive monthly payments or a year-end tax credit to offset COBRA premiums for up to three years (the COBRA law mandates that certain employers offer coverage for 18 months, but they are not prohibited from offering coverage for longer periods of time). The economic stimulus bill boosted the reimbursement rate from 65 percent to 80 percent.