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The Coming Health-Care Crisis

Planning your retirement takes more than just money. What's more important is whether, by the time you retire, you will be healthy enough to enjoy it.

In light of the Baby Boom generation's march toward retirement age, the health-care system in the U.S. is undergoing a radical transformation. As a recent report from the American Hospital Association explains, aging boomers will have a huge effect on the way the American health-care system operates in the future.

Big changes are coming
The report states that a number of factors will help define the new shape of health care. First, the sheer number of older people will test the capacity of the health-care system. Already, shortages of nurses and other trained medical professionals are occurring, and the situation is likely to worsen in the coming decades. In addition, boomers have a higher incidence of chronic diseases than their parents and grandparents did, including diabetes, arthritis, and obesity.

Meanwhile, boomers have different expectations from the health-care system. Not content with the traditional nursing home, they are largely responsible for the surge in alternatives, such as assisted living centers and home health services. In an industry once dominated by non-profit providers, companies like Assisted Living Concepts (NYSE: ALC  ) , Brookdale Senior Living (NYSE: BKD  ) , and Emeritus (AMEX: ESC  ) have reached out for access to the capital markets to help finance their growth.

Finally, medical technology has advanced quickly in recent years. Remote technology has made it easier for those in rural areas to get access to medical experts. Pioneering new methods, such as the surgical robotics equipment produced by Intuitive Surgical (Nasdaq: ISRG  ) , make it easier for doctors to work efficiently. Less invasive surgical methods have shortened recovery times and reduced the need for scarce and costly inpatient resources.

Will you be ready?
Even as the health-care system ramps up to prepare for increased demand, you'll still need to manage your own health. Medical costs have risen substantially and are likely to accelerate as stresses on the health-care system increase. Yet there are many things you can do to reduce your need for health care. Whether it's simple advice like exercising more and losing weight, or more complicated management with the use of drugs or other therapy, the steps you take now will pay dividends both financially and in the quality of your life.

The financial rewards of staying healthy are clear. The AHA survey points out that while those without any chronic conditions pay an average of $850 per year for medical care, the costs skyrocket to nearly $12,700 per year for those with five or more chronic conditions. Even though Medicare and private insurance may cover some of those costs, they still filter through to your retirement budget through insurance premiums and co-payment requirements. You can't simply do nothing and hope for the best.

What to do
Yet no matter how hard you try to stay healthy, it's likely that you'll eventually need more extensive medical care. For some, increasing your savings now may be the easiest way to make sure you can meet these needs when they arise. For others, buying long-term care insurance may be the best way to keep chronic conditions from wiping out your retirement nest egg.

The most important thing you should do is to stay aware of changes in the health-care system as they occur. Even if you don't need health care now, you probably will sooner or later. Failing to consider the impact of health-care costs is the biggest danger to your plan for retirement -- but by knowing the challenges you face, you can avoid being unpleasantly surprised in the future.

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Health care is a big concern among workers and retirees alike. Our Rule Your Retirement newsletter has a number of useful resources related to health care, including advice on how to keep your health-care costs down and analysis of your health insurance options. Try it out free for 30 days and see how Rule Your Retirement can help you successfully plan for your retirement.

Fool contributor Dan Caplinger stays as healthy as he can, but his 2-year-old does her best to thwart his efforts. He doesn't own shares of the companies discussed in this article. Intuitive Surgical is a Rule Breakers selection. The Fool's disclosure policy will help keep your portfolio healthy.

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  • Report this Comment On September 18, 2008, at 11:21 AM, bjackr wrote:

    Medicare Insurance At A Glance

    Medicare is a health insurance program established by the U.S. government for citizens 65 years of age or older. Its purpose is to provide an affordable health insurance solution for the elderly population so that they can receive the medical care they need. Here you will find basic information on eligibility requirements and the types of coverage offered, as well as resources to further research your Medicare options.

    Eligibility: To qualify for Medicare, you must be 65 years of age or older. The enrollment period for Medicare begins three months before the month of your 65th birthday and ends three months later. For example, if your birthday is June 1st, you are eligible to enroll between March 1st and September 30th of the year of your 65th birthday.

    Types of Medicare Coverage: Medicare is split into three parts-Part A, Part B, and Part D.

    Medicare Part A covers hospital expenses. For most Americans, this insurance is free since they have already paid for coverage through payroll tax deductions. You or your spouse must have 40 work credits (equal to approximately 10 years in the workforce) to obtain this coverage at no cost. For those individuals who have less than 40 work credits, coverage can be obtained at a premium based on any work credits you may have. It is advisable to enroll in this coverage as soon as you are eligible as it allows you to qualify for Medicare Part D.

    Medicare Part B covers doctor and outpatient services. There is a premium associated with this coverage. For 2008, the Medicare Part B premium is set at $96.40 per month for most individuals. It is important to enroll for this coverage as soon as you are eligible because there is a penalty if you enroll after the initial enrollment period. There is an exception but it is better to be safe than sorry.

    Medicare Part D covers prescription drug expenses. As with Part B, there is a premium and a penalty for not enrolling during the initial enrollment period. There is an exception to the penalty-if you already have prescription coverage that is considered to be as good as Part D, you will not be penalized for obtaining Part D when that coverage ends after the initial enrollment period.

    There are two ways to obtain Medicare. You can join the traditional, government-run Medicare program or you can elect to join a private Medicare insurance plan. There are pros and cons to both programs and it is prudent to research both options to find out which one is right for you.

    For more information on Medicare, use the following resources:

    AARP Medicare Information

    Center for Medicare & Medicaid Services

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