What Every Retiree Should Know About Medicare vs. Medigap
Key Points
Every retiree needs to choose between original Medicare and a Medicare Advantage plan.
There are major pros and cons for each.
Learn about your options before making a decision, as a suboptimal choice could be costly.
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According to the folks at Fidelity, a 65-year-old person retiring in 2025 can expect to spend $172,500, on average, on medical and healthcare expenses throughout their retirement. That doesn't even include long-term care, over-the-counter medications, or most dental services. For a married couple, the average total is $345,000.
Thus, it's important, as you approach retirement, to understand certain important things about Medicare, including what "Medigap" plans are and whether you should sign up for one.
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Original Medicare vs. Medicare Advantage
Medicare is a government health insurance program designed for those 65 and older, though some younger people with certain conditions can qualify for it.
You can enroll in Medicare as you approach age 65. When you do so, you get to opt for either "original" Medicare, which features Part A (hospital coverage) and Part B (physician/medical insurance), or a Medicare Advantage plan, sometimes referred to as Part C. (Don't enroll late, though, as you can end up paying a steep penalty.)
Those who sign up for original Medicare typically add Part D, which covers prescription drugs, and they'll often add a "Medigap" supplemental coverage plan, too.
Here are a few quick pros and cons regarding original Medicare and Medicare Advantage.
Original Medicare
|
Pros |
Cons |
|---|---|
|
You often pay only 20% of expenses. |
There is no out-of-pocket spending cap, so you might end up spending many thousands, unless you buy a Medigap plan. |
|
It's generally accepted by every provider, anywhere in the U.S. |
Coverage is somewhat limited, with some routine exams not covered. |
|
You typically won't need a referral to see a specialist. |
Does not cover hearing, vision, or dental care. |
|
You generally won't need to have prior authorization for certain services or supplies. (This may be changing, though.) |
Congress is looking into testing prior authorization requirements in some states and may roll it out nationwide. |
Data source: Author research.
Medicare Advantage
|
Pros |
Cons |
|---|---|
|
You can switch out of it to original Medicare at least annually. |
If you switch into original Medicare later, you may have to pay more for a Medigap plan -- or you may be denied that coverage altogether. This is a big deal and should be weighed carefully. |
|
Every Medicare enrollee pays for Part B coverage (projected to be $206.50 for 2026), but otherwise, premiums can be as low as $0. |
If you're traveling, you'll likely not have providers in-network near you, though you're covered if you need to go to an emergency room. |
|
It typically offers more than original Medicare, such as coverage for hearing, vision, dental, and/or prescription drugs. |
Restricted to a network of providers and facilities, unless you pay more. |
|
Your out-of-pocket spending will be capped. The 2026 limit is $9,250 for in-network expenses (excluding drugs) or $14,750 if your plan allows you to see some out-of-network providers. Some plans may feature lower caps. |
You'll likely face co-pays at many appointments. |
|
Medicare Advantage plans are rated for quality, so you can shop for the best plans near you. |
You'll often need a referral to see a specialist. |
|
Having a Medicare Advantage plan can be simpler than having original Medicare, plus Plan D, plus a supplemental plan. |
Your plan may deny you some care that original Medicare might have covered. (About 6.4% of prior authorization requests in 2022 were denied, though many decisions were reversed on appeal, per a Kaiser Family Foundation report.) |
Data source: Author research.
Read and learn more about these two options, understanding that what's best for one person may not be best for another, due to their health conditions, needs, and preferences. You might even call Medicare at 1-800-MEDICARE (1-800-633-4227) to discuss your options.
What's Medigap?
Medigap plans are also known as Medicare Supplemental plans, and they're offered by private insurance companies (such as Humana (NYSE: HUM), Cigna (NYSE: CI), and Aetna) to cover and pay for things that original Medicare doesn't. Medicare generally pays 80% of all kinds of costs, but if you have, say, a $300,000 bill from a hospital and you're on the hook for 20% of that, you're looking at a $60,000 out-of-pocket expense. That's one kind of expense that could be largely paid for via a Medigap plan.
The best time to buy a Medigap plan is right when you enroll in Medicare -- and you'd have to be enrolling in original Medicare to get a Medigap plan. At that time, you can't be refused due to any pre-existing condition. If you try to buy a plan later, or you switch to original Medicare from a Medicare Advantage plan, you may not be able to buy one, or you might have to pay a lot more for it.
There are around 10 different Medigap plans to choose from, with different costs and different coverages. None of them cover prescription drugs, so you'll need a separate Plan D for that. Monthly premiums for Medigap plans recently ranged from $32 to $550, with many people paying between about $90 and $300 per month.
Since healthcare is such a costly expense in retirement, prepare and save for that. Then, after doing some research, sign up for the best Medicare plan for yourself.
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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