(Dow Jones) Health care is one of the biggest costs to plan for in retirement, even with the federal Medicare program providing basic coverage to Americans age 65 and over.

That's because Medicare beneficiaries can face substantial out-of-pocket costs, and the program doesn't cover long term-care needs beyond a brief transition period. There are three major parts to Medicare that cover hospital stays, doctor visits and prescription drugs--plus myriad choices to make about the timing and selection of benefits, especially if you're lucky enough to enter retirement with continuing health coverage from your employer or union.

There's also the option of choosing a supplemental Medicare policy called Medigap to cover out-of-pocket expenses, or an alternative known as Medicare Advantage that combines multiple parts and offers additional benefits. Beyond Medicare, another choice is whether to buy private long term-care insurance in case you need ongoing nursing-home care or home health care later on.

So how do you know what's essential to defraying your health-care costs in retirement and what you can live without or at least delay deciding on?

That depends on your individual employment and financial situation and your personal preferences, experts say.

The process of enrolling in Medicare offers a way into the evaluation, said Joe Baker, president of the Medicare Rights Center, a nonprofit consumer service organization in New York.

"There are basically two ways to take care of the high cost-sharing in the Medicare program: One is by buying a private Medicare supplemental [policy] if you want to stay in the fee-for-service program," he said. "Or you can go into Medicare Advantage, primarily an HMO, which can combine the benefits of traditional Medicare and Medigap."

Choosing A Plan

Three out of four beneficiaries opt for traditional Medicare fee-for-service. Baker said he generally recommends that such people also shop around for a Medigap policy, which provides comprehensive coverage except for prescription drugs. Some Medigap plans have high-deductible options.

"A lot of people when they turn 65 still can be very healthy and might only go to a doctor once a year. They say, 'Why should I pay $225 a month for a Medigap policy?'" Baker said.