(MONEY Magazine) – For an idea of your employer-paid health insurance coverage in retirement, consider what it is now. Chances are your company has been tinkering with your medical benefits lately, adding an option here, a cost there, forcing you to plan more and pay more. That's what retirement will hold -- only much more so, as health-care costs continue to spin out of control. Says Harold Dankner, a partner at the accounting firm Coopers & Lybrand: ''It's unrealistic for today's workers to expect anywhere near the benefits that current pensioners receive.'' His discomfiting prediction: ''An employee at mid-career may get only half that coverage. He may get nothing.'' Well, okay, you may say. There's always Medicare. True, but not until you're 65, which is no help if you retire early. Besides, Medicare pays only about half of a patient's total medical expenses. And you'll still need a way to take care of bills that Medicare doesn't cover. Fortunately, at retirement you'll have lots of choices. You can buy private insurance, join a health maintenance organization or move to a residential community that provides medical services. But the quality and price of these alternatives vary widely, so the smartest thing you can do in the last few years before retirement is to study the options to make sure you'll make the right choices. Here's what everyone, no matter how far from retirement, should know:

-- Company Coverage

If you're only a couple of years from retirement, your employer's benefits department may be able to give you a reasonable idea of the coverage you can expect. For employees of large corporations, that should be nearly as much as they now receive. If you're several years away, though, assume you'll get less. Reductions are likely to be proportionate to your age. When Armstrong World Industries in Lancaster, Pa. announced last June that it would no longer pay premiums on its group health plan for workers retiring after 1989, those older than 48 got a partial reprieve. Depending on their present age, when they retire they will pay 7% to 93% of premium costs, now $1,247 a year. Younger workers will have to pay all their premiums themselves or find their own insurance, which probably will cost them more and cover less than the company's group policy. To cushion the loss of coverage, Armstrong World will give its current employees company stock; the number of shares will depend on their ages and years of service. New hires will have to find coverage on their own after they retire. Even if you have to pick up the whole tab, staying in a group plan is usually your best bet. Group rates are generally about 20% less than the cost of individual policies, and you don't have to pass any physical exams or wait to be covered for pre-existing conditions. And the coverage will probably be better than what you could buy on your own. If you know you won't have company coverage as an early retiree, you may want to consider putting off your departure until age 65. Then Medicare will be the backbone of your protection against medical costs, no matter how much -- or how little -- coverage your company provides. Any company benefits you have will be coordinated with Medicare, providing protection against the gaps in its coverage. (This means that you will not need the insurance known as medigap, which is discussed later in this article.) Early retirees without company benefits will have to find coverage on their own. Federal regulations, however, stipulate that your employer must let you or your under-65 spouse stay on the company plan for at least 18 months, at your expense, typically $110 a month.

-- Individual Coverage

If you have to go it on your own, expect to pay a lot. The policy you'll need, called comprehensive major-medical insurance, will cover most of your bills, including ones from doctors, hospitals and labs. The price? Consider Aetna's AetnaCare Xtra. It would cost a 62-year-old man and his 60-year-old wife an average of $5,950 a year, with a $1,000 yearly cap on their out-of-pocket expenses above a deductible of $500 each. Not-for-profit Blue Cross may be cheaper -- a similar policy might cost $3,600 or so a year -- but in parts of the country where medical costs are highest, premiums have been running about the same for Blue Cross as for commercial carriers. You can reduce premiums by assuming more of the risk yourself. One way is to ask for the highest deductible you can afford. For instance, by doubling deductibles on the Aetna policy, you could reduce the annual premium to $4,367. Or you can buy a policy that covers only serious illnesses. One such policy, Prudential's Pru-Med, pays specified amounts for hospital, surgical and other major expenses but provides benefits for lesser services, such as office visits to a doctor, only when your out-of-pocket costs exceed $1,000. The price of the policy depends on the maximum reimbursements you choose for daily hospital charges ($175 to $300) and surgical fees ($3,000 to $6,000). The higher the potential payback, the higher the cost. For maximum coverage, a 60-year-old of either sex would pay Pru-Med about $2,000 a year with a $300 deductible.

-- HMOs

As a less expensive alternative to insurance, you can join a health maintenance organization (HMO), which will provide most medical services for a flat monthly fee. In return for the greater coverage, you must patronize doctors, hospitals and labs that have contracts with your HMO. HMOs cover nearly 100% of your costs, usually with no deductibles or partial payments required from you. The organizations often wind up costing you less than comprehensive medical insurance would. In 1988, a typical HMO monthly premium was less than $100 for individuals under 65. About half of HMOs accept applicants over 65, and Medicare picks up most of the monthly fee. You'll owe only $30 or so a month for extras not covered by Medicare, like eyeglasses and hearing aids. A study released this year by the federal Health Care Financing Administration, which supervises Medicare, concluded that older people are more likely to receive top-quality care at HMOs than from practitioners with no connection to one another. The reasons: continuity and comprehensiveness of care.

-- Medigap Insurance

If you're not in an HMO, and your company coverage is inadequate or nonexistent, you may want to buy medigap insurance to cover Medicare's shortfalls. (See ''What You Need to Know About Medicare'' on page 99.) There are two kinds of medigap policies. Most are of the first type, paying only your share of costs covered by Medicare. The second, more valuable type of medigap policy pays excess charges for doctor bills and lab tests -- meaning the charges that exceed Medicare's limits. Though these policies are sometimes no more expensive than the first type, they may require you to have an above-average medical history. For example, National Home Life of Valley Forge, Pa. rejects 10% to 15% of all applicants for health reasons, and Golden Rule in Indianapolis turns down 20% & to 30% of those age 65 and nearly half of those 70 and older. Both companies sell competitively priced policies that cover excess fees. Home Life charges a 70-year-old woman $299 to $575 a year, depending on where she lives. A man the same age pays $359 to $671. A 70-year-old of either sex pays $579 a year for Golden Rule's policy in most parts of the U.S. By comparison, policies sold by Blue Cross in North Carolina and Maryland cost more than $700 and cover no excess charges. There are several excellent consumer guides to medigap coverage. Among the best are The Consumer's Guide to Medicare Supplement Insurance (free from the Health Insurance Association of America, P.O. Box 41455, Washington, D.C. 20018) and Managing Your Health Care Finances ($7.95 from United Seniors Health Cooperative, 1334 G St. N.W., Washington, D.C. 20005).

Long-Term-Care Coverage

Neither Medicare nor medigap insurance will be of much use if you need long- term care in a nursing home. Both cover only skilled nursing after illness or injury, not the custodial care required for deterioration caused by aging. With average annual costs at a nursing home topping $30,000, lengthy care could destroy a couple's financial security. As a result, more than 100 insurers now sell long-term-care policies to cover some of the cost of a stay in a nursing home and, sometimes, of care in your own home. Sales of these policies have shot up 200% over the past two years, but panic, not prudence, may be motivating most people. According to Susan Polniaszek, director of United Seniors Health Cooperative, a Washington, D.C. consumer group: ''People assume the issue is what they should buy, not if. For younger or healthier people, insurance may not be worth the cost.'' Coverage is expensive -- $300 to $400 a year for those in their fifties, $2,000 to $3,200 for those in their late seventies, depending on the amount of coverage -- and no policy is comprehensive. For instance, most require that you be ill or injured before they'll pay, though physical frailty, not illness or injury, is the main reason for needing long-term care. Only a few companies -- Travelers, Unum and Mutual of Omaha among them -- offer coverage for care required by disability alone, and those policies are the most costly, up to $5,000 a year for a 75-year-old of either sex. Any policy worth buying covers Alzheimer's patients. Another problem is inflation. The policies almost always pay only indemnity benefits -- fixed daily amounts that don't rise with costs over the years. With nursing-home expenses climbing 5.5% a year, a typical benefit of $80 a day, adequate for nursing-home costs today, would cover less than two-thirds of them in 10 years and just a third in 20 years. Some policies have inflation riders that let you bump up the amount of your benefit by a few percentage points for a corresponding increase in your premium. But no policies have inflation riders that keep benefits entirely abreast of inflation. Currently, three of the largest and most reliable insurers -- Aetna, John Hancock and Amex Life Assurance -- offer high-quality policies with similar benefits of $80 per day. Hancock charges a 70-year-old $1,441 a year for six years of coverage, and Aetna asks the same person for $1,552 for only four years. Amex prices lifetime coverage at $1,134. The bottom line is, read every word and learn what to look for. You can get some help from Long-Term Care: A Dollar and Sense Guide ($6.95 from United Seniors Health Cooperative) and The Consumers Guide to Long-Term Care Insurance (free from the Health Insurance Association of America).

-- Continuing-Care Communities

If you are over 60 and in good health, you can cover all your health-care needs by spending the rest of your life in one of the country's 800 continuing-care retirement communities, also called life-care communities. Residents get private apartments and services such as housekeeping, meals and medical care, including nursing-home care, as needed. Some communities exact a flat entrance fee -- generally about $37,000 to $100,000, depending on the size of the apartment -- and $730 to $1,100 a month for maintenance, meals and health care. Residents receive whatever services they need at no additional cost. Other communities charge less -- typically entrance fees of $27,000 to $85,000 and $650 to $750 a month -- but residents must pay extra for services beyond the minimum specified in their contracts. For instance, a contract might limit home health care to 60 days or require residents to pay 80% of the cost of care in the community's nursing home. Communities with the lowest entrance and monthly fees -- $21,000 to $56,000 and $570 to $690 -- charge extra for each service. Val Cosper, 77, will use $170,000 of the proceeds from the sale of his San Francisco house to buy an apartment in the nearby continuing-care community being built by the Episcopal Church. When it's ready in 1992, Cosper will pay $1,600 a month for his unit, three meals a day and whatever medical services he may need for the rest of his life. Cosper's fee is all-inclusive, but if you move to a community with separate fees for all or some services, you may still need medigap and long-term-care insurance. The policies may be offered at group rates to residents and be 15% to 25% cheaper than if you bought them on your own. Increasingly, entrance fees at continuing-care communities are at least partially refundable if you change your mind at any time. Some communities refund all or part of the entrance fees to the estate upon a resident's death. It's wise to make sure that there are no blemishes on the record of a facility you are considering; call or write the attorney general of the state in which the community is located. Accreditation sponsored by the American Association of Homes for the Aging, a trade group, is another indicator of sound management. But accreditation is voluntary, and only about 70 communities have met the standards so far. For a free list of accredited facilities, write AAHA, 1129 20th St. N.W., Washington, D.C. 20036. For $4, you can also get the AAHA's guide to choosing a continuing-care community.

BOX: Insurance to the rescue

One innovative way to cover the expenses of long-term care is through whole life insurance. About 20 companies now offer optional riders on some policies available in more than half the states. Generally, for an extra 5% or so in premium, a policyholder can tap 2% a month of his death benefit if he needs nursing-home care. (A few policies will also pay you as much as 50% of the death benefit to help you handle the cost of a catastrophic acute illness such as cancer.) If you have no survivors to protect or have made other provisions for them, life insurance can be an efficient way of guarding against the unexpected cost of long-term care. Insurers offering long-term-care riders on their life policies include ITT, National Travelers and First Penn-Pacific. Bear in mind, though, that whole life premiums rise sharply as you age. National Travelers would charge a 45-year-old man $1,300 annually for a $100,000 policy and a 70- year-old $5,975.