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Looking to lower what promise to be some hefty health care expenses in later life? Focus on prescription drugs.

You may already have seen some of the estimates about just how big your out-of-pocket medical bills could be after you leave the office. Most run well into six figures. But a recent study from the Employee Benefit Research Institute in Washington, D.C., takes the math a step further. The institute calculated spending needs in retirement based on three levels of possible drug expenditures at the national median, the 75th percentile and the 90th percentile and found some startling differences.

A couple retiring today with median drug expenses, according to the institute, would need $158,000 for a 50 percent chance of having enough money to cover health expenses in later life. But the same couple at the highest level of drug spending (90th percentile) would need $231,000. Looking ahead, the differences grow larger. A couple planning to retire in 2020 would need an estimated $265,000 to cover health care bills in later life, given median drug expenses; the same couple at the 90th percentile would need $387,000. (See the entire study at ebri.org; Issue Brief No. 351, December 2010.)

There are two lessons here. First, you might be able to cut your out-of-pocket medical expenses in later life by as much as one-third if you can limit your trips to the pharmacy. Second, regardless of how much you spend on prescriptions, health care costs will put a sizable dent in your budget in later life. But most of us aren't preparing for that certainty, says Paul Fronstin, director of the health research and education program at EBRI. In particular, people "think Medicare is going to cover everything," Fronstin notes, when, in fact, the program covers just under half of most beneficiaries' total medical and long-term-care expenses, according to the Kaiser Family Foundation.

So what can you do to help limit spending on prescription drugs and save more for health care bills in general? Four ideas to consider:

Medicare Part D

Picking the right drug plan under this program could save you a bundle if, and this is the key, you stay on top of changes in your plan.

Typically, you sign up for Part D when you first enroll in Medicare. Ideally, the plan you select will be one that covers the medications you take at the most affordable prices. (Each Part D plan, offered by private insurers, covers different drugs with different premiums and co-payments.) The problem: The plans can (and do) change, dropping drugs here, adding others there, and raising or lowering fees. If you fail to notice, for instance, that your plan no longer covers one of your medications and if you don't take advantage of the annual opportunity to switch plans your nest egg takes a hit.

It's a pain in the neck, but you have to do the homework every year. "A mistake here, depending on how long you allow it to go on, could cost you thousands of dollars," says Joseph L. Matthews, coauthor of Social Security, Medicare and Government Pensions.

Health savings accounts

Simply put, these are one of the best ways to save and pay for medical bills in later life if you can max out contributions during your working years and avoid dipping into the account early.

You can open an HSA if you're covered by a high-deductible insurance plan ($1,200 for an individual in 2011; $2,400 for a family). The maximum annual family HSA contribution is currently $6,150 (plus $1,000 more if you're 55 or older). The best part: no taxes on your contributions, investment growth or withdrawals, as long as the money is used for medical expenses. Start in your 40s or early 50s and you can set aside a sizable chunk of money for retirement, says Roy Ramthun, president of HSA Consulting Services in Silver Spring, Md.

One problem: There's still some confusion about how HSAs work. (At year's end, for instance, you don't forfeit funds you haven't used, as happens with a flexible spending account.) "We're still at the early stages in the learning curve," Ramthun notes. But "companies are moving to HSAs in greater numbers. Over time, people will understand them."

Newsletters

Of course, one of the best ways to limit spending on prescription drugs and other medical needs is to enter retirement in good health. (Case in point: One-third of men and 38 percent of women ages 40 to 59 are obese, among the highest percentages of any age group, according to the Centers for Disease Control and Prevention.) Several medical centers and universities now publish monthly newsletters that focus on health matters for individuals 50 and older. Most offer an invaluable mix of feature stories and questions and answers.

Among the best: Health After 50, from Johns Hopkins; Focus on Healthy Aging, from the Mount Sinai School of Medicine in New York; and Healthy Years, from the UCLA division of geriatrics in California.

Incentives

And speaking of entering retirement in good health: Do you have a wellness program at your workplace? If so, why haven't you joined?

Such programs, of course, are designed to improve your health and the company's bottom line (by reducing absenteeism, for one). Now, according to Buck Consultants, employers increasingly are offering incentives such as discounted health-insurance premiums that reward you for, say, maintaining a healthy weight or blood pressure. Even better: Looking ahead, the new health care law allows firms to increase the size of such rewards.