The American Association of Retired Persons estimated in July that 59 percent of the total health bill for people over 65 is paid for by Medicare.

Others put the figure even lower: The Employee Benefit Research Institute, a nonprofit, nonpartisan research organization in Washington, reports that Medicare covered only 48.8 percent of total personal health care expenses in 1984 for persons over 65.

In any event, there is a sizable gap between total cost and the share covered by Medicare. The recipient of care must pay the difference unless there is some other source of protection.

That outside source may be a supplemental insurance policy purchased by the individual, either directly from an insuring agency or through a group plan. Often, however, the Medicare gap is filled by the individual's former employer, providing medical coverage as a part of the company's retirement package.

Sometimes a worker retiring from a company that doesn't provide any continuing health benefits is given the option of converting the existing company coverage into an individual, self-paid health insurance plan. A conversion of the company plan often turns out to be more expensive than buying a new individual policy; sometimes this is because the latter may carry a large deductible, extended waiting periods and exclusion of pre-existing conditions.

For those who go into retirement with no health benefits coverage from their employer, there is little choice but to buy health insurance of some kind. The alternative is to risk having all those retirement dollars wiped out by the high cost of medical care.

A retiree under 65 without continuing company benefits probably should buy some kind of policy that provides as complete coverage as he or she can afford. On reaching 65 and qualifying for Medicare, a Medicare supplement is likely to be the appropriate answer.

These "Medi-gap" policies come in a variety of shapes and sizes -- and with a wide range of premium costs. The June 1984 Consumer Reports magazine showed a range of annual premium costs running from $150 up to $1,071 for a Medicare supplement policy for a 65-year-old woman living in Florida.

Of course, there is a correspondingly wide range in benefits; and rates for the same benefits vary in different parts of the country, depending on average medical costs and the minimum coverage standards set by various states. You'll have to look at your own circumstances to determine which kind of protection best suits your needs -- standard health insurance (either individual or group), a hospital indemnity policy, a health maintenance organization (HMO), a preferred provider organization (PPO) or major medical insurance.

Then comes the difficult part: selecting the one plan, of the many offered, that provides the best value to meet the retiree's particular requirements, at a cost that is manageable.

The final selection requires time-consuming effort; but if you're not fortunate enough to have a company-paid health benefits program, you really have no viable choice but to find the private program that will permit you to protect your assets and enjoy retirement without worrying about the potentially disastrous financial costs of health care.

The mushrooming cost of medical care for retirees is becoming a subject of concern to corporate management. This cost spiral can be traced to several factors: the complexity and high cost of modern health care systems; the skyrocketing cost of malpractice insurance premiums, which has become almost overwhelming in some medical specialties; in a few cases, unfortunately, the avarice of the medical practitioners themselves; and even the very existence of Medicare and private health insurance, which has led to the unquestioning acceptance of whatever amount is billed, because "the insurance will pay for it."

Funding standards for pension plans in private industry are set by law, but there is no funding requirement for health benefits. Only about 5 percent of the large corporations included in a recent study by the Institute on Aging, Work and Health of the Washington Business There is a sizable gap between total health care costs and the share covered by Medicare. The recipient of care must pay the difference unless there is some other source of protection. Group on Health (WBGH) pre-fund for health care for retirees. The rest operate on a pay-as-you-go system.

One of the mechanisms for funding employe benefits is a Voluntary Employe Benefit Association (VEBA). This is a fund that can be established under the Internal Revenue Code to provide life insurance, sickness and accident coverage, and other benefits to employes and retirees (and their dependents).

A VEBA is a tax-exempt entity; payments by the corporation are a deductible business expense, and earnings by the assets in the fund grow without tax liability. But the Deficit Reduction Act of 1984 substantially reduced the attractiveness of a VEBA for pre-funding medical benefits for retired employes.

Meanwhile, corporations in financial difficulty are looking at retiree health benefits as subject to paring. Several corporations attempted to reduce the benefits provided to retirees, but court decisions generally have affirmed the contractual nature of the promised benefits and upheld the retirees' rights to continued coverage.

In one such case, the corporation -- Bethlehem Steel -- attempted to reduce coverage for retirees to correspond to newly limited benefits provided to current employes. The attempt failed, although, in a later settlement, the retirees as a group agreed to some reduction in benefits and increased individual cost-sharing.

Estimates of the size of the unfunded liability for retiree health benefits range from "high" to "very high" to "unimaginable." Pension benefits officials in the Department of Labor estimated that corporate liability for unfunded health benefits for retirees reached at least $125 billion in 1983; other sources place the figure in the trillion-dollar range.

(There is much more uncertainty about the future liability for health benefits than for retirement benefits because, in addition to actuarial estimates of life expectancy, health costs are driven by unpredictable increases in the cost of health care and by the even more unpredictable results of continuing medical research.)

Protection of retirees' health benefits may be provided by legislation similar to ERISA, spelling out vesting rights, requiring pre-funding and establishing some kind of insurance fund against dropouts. Congress may reverse its 1984 action and restore favorable tax treatment for VEBA funding of retiree health plans. There even has been talk of an option for permitting IRAs specifically for post-retirement medical expenses.

The various alternatives -- these three and other more esoteric possibilities that have been suggested -- have advantages and disadvantages. As is generally the case, what is good for the retiree is bad (or at least expensive) for the corporation, and vice-versa. The important message is that this long-neglected subject finally is getting some attention. Employes and retires should keep in touch with developments.

What about the worker who is not disabled but opts for early retirement -- before 65 and therefore before Medicare coverage begins? Employers who provide continuing health insurance benefits generally cover early retirees adequately, with suitable changes at age 65 when Medicare kicks in. (Unlike Social Security, Medicare benefits aren't provided to those who retire early, except in cases of total disability.) According to the WBGH survey, 98 percent of the companies responding offered coverage to retirees under age 65.

Some of the workers who do not carry company-paid health care benefits into retirement may continue their company health plan on a shared-cost basis, with the company contributing some percentage of the total premium.