Managing Your Money : RETIREMENT : A Consumer’s Guide to Health Insurance : Assess your medical needs. Be prepared to pay. And if you can’t get coverage here, think about moving. Some states do better.

One American family in five says fear of losing health insurance has locked their wage earners into jobs they’d rather leave. That startling finding by the Kaiser Family Foundation in a national survey last month underscores the erosion of public confidence in the nation’s fragmented health care system.

Feeling job-locked may be an overreaction. Most employers still provide health insurance, and it’s also available to most people who want to buy it on their own.

On the other hand, the field is filled with land mines for the unwary. And if you have a real health problem and need to buy medical insurance, you’ve got trouble.

What’s required today is greater caution and a thorough reading of the fine print to make sure a career move doesn’t leave you financially unprotected against illness. If you’re on your own in the search for health coverage, you’ll have to be flexible and prepared to pay.

You may even have to move.

The health care system, moreover, is in flux. President-elect Bill Clinton is expected to make it a priority when he takes office, and numerous reform proposals are pending in Congress and state legislatures. Much could change in the months ahead.

The first line of defense for employees of companies with more than 20 workers is a federal law known as the Consolidated Omnibus Budget Reconciliation Act of 1986, or COBRA.

If you are fired, laid off, have your hours reduced, leave for other employment or elect to take early retirement, COBRA entitles you to continued health coverage under your employer’s group policy for 18 months.

You may have to pay up to 102% of the plan’s prorated cost, but that is likely to be cheaper than buying insurance on your own. Disabled employees can extend that term to 29 months for an additional charge. Spouses and children qualify for 36 months.

Besides providing time to find substitute insurance, COBRA is also useful if you or a family member has a chronic medical condition that the new insurance plan won’t immediately cover.

In fact, most private health insurance policies don’t cover ailments that predate the policy. Most employer plans eventually cover them, usually after a year, says Tom Morrison, a health-benefits consultant with Towers Perrin in Los Angeles. So continuing coverage under a former employer’s plan will protect you during this qualifying period.

If you plan to buy insurance directly, add up your health expenses over the last few years. Did you use a lot of prescription medication? How many times did you visit doctors? Are there any chronic illnesses in the family that could flare into serious episodes requiring hospitalization?

Keep in mind that health insurance, in its most basic form, is designed to help pay for unanticipated medical costs. If you can handle the known prescriptions and routine physicals out of pocket, a no-frills, high-deductible health plan might be the most economical.

Raising your deductible to $1,000 from $150 can cut a typical premium by 31%. For a young family of three in Los Angeles, the higher deductible could slash monthly premiums to $280 from $400.

Don’t underestimate the paperwork and time involved in qualifying for insurance. It’s a good idea to start researching eligibility and other requirements well before leaving your current job, and to thoroughly read all contracts and program literature.

Seek professional help too, but don’t rely entirely on the advice of a benefits counselor or insurance agent. You know best the particulars of your own and your family’s eligibility. For example, some early retirement offers include continuing health benefits, but only to employees with, say, at least 10 straight years of full-time service. A benefits counselor, summarizing the plan, may skip this, but the contract should say clearly whether your maternity leave eight years ago makes you ineligible.

“What’s written is what prevails, not what someone might have told you,” Morrison says.

If you’ve opted for self-employment and have a medical condition that disqualifies you from coverage, state-run insurance pools may offer a solution. California and 26 other states have such pools, enabling people turned down for health insurance and too young to qualify for Medicare to buy coverage at a reasonable cost.

Unfortunately, the same recession that has increased demand for these programs has sharply limited the amount of money states have to fund them. In California, for example, the 2-year-old Major Risk Medical Insurance Program, known picturesquely as Mr. MIP, has a waiting list of 4,000.

“There are many more that need the assistance than the program is funded for,” says John Ramey, Mr. MIP’s executive director.

Applicants wait an average of 18 months for an opening in the pool. Once accepted, they can buy individual or family coverage from major carriers such as Blue Cross, Blue Shield or Kaiser Permanente for 125% of the average premium charged in their locality.

In Los Angeles, an applicant 30 to 34 years old with two or more dependents would pay between $450 and $700 a month, depending on the type of health plan.

Beware of deals that sound too good to be true, such as those that promise coverage despite your medical history and without a physical examination. The multibillion-dollar health insurance industry has its share of scam artists, eager to pocket premiums with no intention of paying on medical bills.

Consumers have also been betrayed by well-intentioned group-purchasing organizations that got involved with unreliable insurance companies. In either case, there is little that regulators can do to recover your money, and you will be stuck with responsibility for the unpaid medical bills.

“The best protection is prevention,” says Walter Zelman, California’s deputy commissioner for health insurance.

State insurance departments can usually advise you on the reliability of an insurer or purchasing association. Some of these associations--certain university alumni groups, for example--are well known and have solid track records in providing health insurance to members.

Other associations may have no connection with you at all. You are simply asked to join and pay dues to gain access to the group health insurance plan. This is a red flag, says Zelman. Sign nothing without thoroughly investigating.

A key question is which entity is responsible for paying your medical bills: the association or the insurer with which it contracts. Sometimes big-name health insurers agree to manage an association’s own fund, leading consumers to believe that their policy is with the insurance company.

Zelman advises getting the relationship defined in writing. Then call the California Department of Insurance to make sure both the association and the insurer are licensed and have a clean record.

The department has a hot line (800) 937-HELP, and will also provide consumers with a checklist of questions they should ask the association or insurance agent selling the policy.

If you are unable to obtain insurance through a legitimate association, and if the major risk pool in your state has a long waiting list, consider relocating.

The major risk pool in Minnesota, for example, has no waiting list. (There is a six-month residency requirement and an additional six-month delay before pre-existing medical conditions are covered.) In other states, risk pool funding is either fixed or fluctuates with the local economy. All of them are running long waiting lists.

Several states also have an insurer of last resort that must accept all applicants, even those with serious medical conditions.

In New York, every health insurer will have that obligation beginning April 1. The companies will also be barred from discriminating against those with pre-existing conditions, and will be required to offer the same rates to individuals as to groups. Hawaii, which comes closest to universal health insurance, has a variety of state and private plans that virtually anybody can buy into.

But don’t pack your bags without contacting state insurance regulators in your destination for details and qualifying obstacles.