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NEW YORK (Money Magazine) - After 26 years with steel giant LTV, Betty Boyce was ready to have fun.

From her retirement income, she budgeted $600 a month for winter skiing, summer golfing, three-day-a-week workouts and salsa dancing. Then a bankrupt LTV cut off retiree benefits, leaving the 62-year-old Ohioan with no health insurance. Now Boyce pays $242 a month for medical and dental coverage.

So much for salsa: Boyce is pursuing part-time work to pay her health-care bill and still have money to play. "I haven't job hunted in 30 years," she says. "I feel frustrated and betrayed."

For retirees, employers have been a critical source of benefits that are otherwise expensive and hard to get. But as surging medical costs squeeze already-pinched corporate budgets, that source is drying up.

Canceling benefits for current retirees (as LTV did) remains rare, yet companies are increasingly trimming coverage for future retirees. At the least, those looking ahead to retirement can expect to pay a greater share of premiums as well as higher deductibles and co-pays. So if you're dreaming about retiring before age 65, you'd better think about how you're going to pay for health insurance.

A study by the Employee Benefit Research Institute (EBRI) shows that a 55-year-old retiring today will need $83,000 to cover typical group insurance premiums plus out-of-pocket expenses for 10 years -- just to get to age 65, when Medicare kicks in. The amount needed for 10 years of individual coverage is even more staggering: as high as $256,000 for someone with a chronic condition requiring prescription drugs.

Even post-Medicare, you're not off the hook. If your employer doesn't provide supplemental insurance, you'll need to figure out how to pay for drugs and other services that Medicare doesn't cover. With health-care costs rising three times faster than inflation, that's a tall order: A 65-year-old without employer coverage would need at least $116,000 for Medicare supplement and drug coverage through age 80, says EBRI.

Costs this high require dedicated and careful planning. We'll tell you what to expect -- and how to make finding medical benefits as painless as possible.

When calculating how much you need for retirement, be sure to factor in health insurance costs. A 40-year-old hoping to retire at 55 should save an additional $630 a month -- practically a second mortgage payment in some markets -- to provide for future health costs, and that's assuming good health.

You also need to figure out where you'll get insurance. If your spouse still works, by all means sign up for his or her insurance plan. But typically the first place to look is your employer. Even if your company doesn't offer retiree health benefits, it still must allow you to keep your insurance for 18 months after you leave work under the federal COBRA law; you pay the full premiums plus a 2% administrative fee. (Businesses with fewer than 20 employees are exempt.)

Enrolling in Medicare grants you and your dependents access to COBRA for 36 months. So if you work past 65, hold off on enrolling in Medicare, which starts the three-year clock ticking even though you still have group coverage.

COBRA coverage isn't cheap -- the average COBRA policy costs $260 a month, and family coverage brings the price to a jaw-dropping $676 -- but in most cases it's your best option because it allows you to benefit from group rates negotiated by your employer. Ask your employer what your COBRA rate would be.

Of course, COBRA does eventually run out, so as early as a year before retirement, start shopping for other group coverage and individual policies so you'll know how to budget.

Check whether any professional or alumni association you belong to (or could join) offers group coverage. Start a part-time business -- even a one-person consultancy -- and your local chamber of commerce can probably help. In some states, firms can apply for "group of one" insurance that allows companies with one employee (yourself) to obtain group rates.

Your state may offer other benefits, including extended COBRA eligibility and high-risk pools for people who can't find insurance elsewhere. Consumer guides for each state can be found on the Web at Healthinsuranceinfo.net. Or contact your state insurance department.

If you can't find a group policy, you'll have to shop for individual coverage. Contact several top carriers, such as Blue Cross/Blue Shield, or find a local insurance broker who can price policies. A Web site like Insure.com offers tips and quotes.

Rates vary depending on local laws and health-care costs -- and on your own health. Unlike with group policies, you must disclose your medical condition to obtain individual coverage.

How healthy you are makes a big difference in the price. For example, a 58-year-old Richmond man who doesn't smoke, is fit and takes no medications can buy a comprehensive policy from Anthem -- $20 physician co-pay, $300 deductible -- for $290 a month.

Say that man is a little overweight and takes allergy medicine: The rate jumps to $360. If the man also has a chronic condition, such as high blood pressure or cholesterol, his premiums rise to $510. Worst-case scenario: He's undergoing chemotherapy for cancer, so he'll pay more than $900 a month for coverage.

Medical woes may jack up your premiums, but at least you can still get insurance -- as long as you follow certain rules. Most insurers cannot reject you for an individual policy because of a pre-existing condition, if you're leaving a group plan that covered you for at least 18 months. These so-called guaranteed access policies require you to exhaust COBRA first.

If you're over 65, you'll be looking for a Medigap policy that supplements your Medicare. Or you can opt for a lower-cost Medicare HMO plan that includes extra benefits like prescription drugs but limits your choice of doctors. Search for and compare such plans at www.medicare.gov.

If all this sounds like too much money, consider a less comprehensive policy. Increasing your deductible, say, or accepting limits on prescription-drug benefits will cut your costs. For that Richmond man, a $1,500 deductible lowers the monthly premium range around 40 percent, to $170 for perfect health and $580 for the most serious medical conditions. Deductibles up to $5,000 are available.

"The question," says California insurance broker David Fear, "is how much are you going to be trading off. Think through how much you use the medical system."

Unfortunately, many financial planners tell us, the best option may be to return to work part time for a company that offers benefits.

That's what Weston, Fla. resident Barbara Blank did after her $379-a-month COBRA expired. A retired teacher, she now works 20 hours a week at an elementary school near her home. Says the 55-year-old, "When you're not used to paying for it, health insurance seems really expensive."