Before Choosing Medicare: The Costly Retirement Error Many People Make at 65

Choosing a Medicare plan is one of the biggest financial decisions many retirees will ever make. The issue is not only monthly premiums or whether a preferred doctor is included in a plan’s network.

It also matters what happens later if health needs change, medical bills increase and you discover that moving to different coverage is harder than expected.

That is especially important for people comparing Medicare Advantage with Original Medicare plus a Medicare supplement policy, commonly called Medigap. Medicare Advantage plans often have lower premiums and extra perks, while Medigap can offer more predictable out-of-pocket costs and wider provider access.

The catch is that in most states, once the initial Medigap enrollment period ends, an applicant may need to pass medical underwriting before buying a policy.

There is also an important development ahead for 2027. As some Medicare Advantage plans leave certain markets, affected beneficiaries may receive guaranteed-issue rights that let them buy Medigap without medical underwriting. But those rights come with deadlines.

In a recent episode of Decoding Your Money, Votava, founder of Goodcare.com and author of Making the Most of Medicare, explained what retirees should know about Medigap, how to compare plan costs and why the cheapest choice now can become the most expensive later.

Below is a transcript of that conversation, edited for clarity and brevity.

Bob Powell: If your Medicare Advantage plan is leaving your area, you may have an unexpected chance to buy a Medigap policy without answering health questions.

But you have to move quickly. And if you are turning 65 and choosing Medicare coverage for the first time, there is another reason to pay attention: the choice you make now can shape your health care costs and options for years.

We are talking about Medigap, what it costs, what it covers and when you have the right to buy it.

And so that Medigap choice, when you want to make it down the road, you may have missed your window of opportunity to do it.

Powell: Medicare Advantage plans are leaving some markets. For someone who gets a notice that their plan is ending, could that create a chance to buy Medigap without medical underwriting?

Katy Votava: Yes. And that is especially relevant now because so many plans have been canceled.

People often get upset when they receive those notices. They may think they did something wrong, but it has nothing to do with the consumer. It is a business decision by the insurance company.

When you get that notice, read it carefully. You may have extra rights to enroll in a Medigap plan without underwriting, and you may also have more time to decide.

Still, do not wait too long. You do not want to find yourself in January with Original Medicare but no supplemental coverage or prescription drug plan.

Could Medicare Advantage cost more than Medigap?

Powell: One reason people choose Medicare Advantage is the lower monthly premium. But if you look beyond premiums and focus on what someone might actually spend over a full year, what does that comparison show?

Votava: I look at the stop-loss amount, meaning how much you could spend in a year and what your maximum financial exposure is.

Medigap costs more each month. According to the Kaiser Foundation, the annual premium is about $2,300. Medicare Advantage may cost only $172.

That is a major difference.

But with Medigap Plan G, out-of-pocket costs for Medicare-covered services are minimal. You pay the Medicare Part B deductible, and that is essentially it.

When we ran the numbers at Goodcare, comparing Original Medicare with Medigap and a Part D prescription drug plan against Medicare Advantage, we found annual exposure of about $5,200 with Medigap versus more than $12,000 with Medicare Advantage.

That is a lot of money.

People are often surprised by copayments and coinsurance. An MRI, for example, could cost $300 or $400 out of pocket.

For people who visit specialists often or have significant health care costs, Medigap can offer more predictability.

And there is another advantage: with Original Medicare, you generally have broad access to doctors and hospitals across the United States that accept Medicare.

Is your first Medigap decision your last?

Powell: Many people do not realize this when they first enroll in Medicare. If they choose Medicare Advantage because they are healthy and premiums are lower, can they switch later and buy Medigap?

Votava: That is where people can run into trouble.

When you first become eligible for Medicare, you have a chance to buy Medigap with guaranteed-issue protections. But in most states, once that first window closes, you may have to go through medical underwriting.

That means an insurance company can review your health history. You may pay more, or the company may deny your application.

I have seen people apply to three companies before they were accepted.

So the first chance to buy Medigap may be the best chance.

I understand why healthy people choose Medicare Advantage. The premiums are lower. But if their health changes and they want Medigap later, they may have lost the opportunity to get it.

More Retirement

What if you are still working at 65?

Powell: Suppose someone turns 65 but keeps working and stays on an employer health plan. Do they still get an opportunity to buy Medigap when they retire?

Votava: Yes. When people leave employment and enroll in Medicare, they have another opportunity to make that choice.

They need to decide whether they want Original Medicare with Medigap and a separate prescription drug plan, or Medicare Advantage.

The key is to coordinate the timing so there is no gap in coverage.

Which Medigap plan should you choose?

Powell: Even after someone decides Medigap is the right fit, there is another challenge: the many different plans. How do you sort through them?

Votava: It can be confusing. There are many standardized plan designs, and some cover more than others.

In my experience, I usually recommend Plan G.

I call it G for good. It covers almost all Medigap benefits except the Medicare Part B deductible.

One thing I have found is that a plan with fewer benefits does not necessarily save you money. Sometimes a plan with less coverage costs nearly as much as Plan G.

So do not assume fewer benefits automatically mean a lower premium.

Why do Plan G premiums differ if the benefits are the same?

Powell: This may surprise people. Two companies can sell Plan G with identical standardized benefits but charge very different premiums. How should consumers decide?

Votava: The benefits are set by law, but these are private insurance policies.

You may find 10 or 12 companies offering Plan G in your area, all with different prices. One insurer might charge 50% more than another for essentially the same coverage.

I suggest finding a strong company first and then comparing prices.

Medicare.gov has improved its shopping tools. It now includes premium information, which makes comparisons easier.

You also need to remember that premiums rise over time.

There are different pricing methods, including age-rated and community-rated policies. Those differences can affect what you pay as you get older.

If two policies are close in price, that is when I would look more closely at how the premiums are calculated.

When can you switch Medigap plans without underwriting?

Powell: We have talked about what happens when a Medicare Advantage plan ends. Are there other situations where someone can get guaranteed-issue rights?

Votava: Yes. There are situations involving initial Medicare eligibility, leaving employer coverage and losing certain other coverage.

Some states also offer extra protections.

New York, Connecticut, Massachusetts and Maine have special rules. Other states have what are sometimes called birthday rules or other opportunities to change coverage.

But you need to know exactly what your state allows.

And even if you do not have guaranteed-issue rights, that does not necessarily mean you cannot buy Medigap. You may still qualify through underwriting.

The important thing is to look into your options before dropping existing coverage.

What happens if you move to another state?

Powell: Many retirees relocate after they stop working. Could moving create another chance to get Medigap?

Votava: It can, depending on the circumstances.

I have worked with people who moved from Rochester, New York, to Florida and found that their Medicare Advantage coverage was not accepted by the providers they wanted to see.

They had missed their chance to use certain enrollment rights and were facing medical underwriting if they wanted Medigap.

That is why I tell people to shop for health insurance before they move.

You are not only shopping for a home. You are shopping for access to health care.

The same advice applies when adult children move an older parent or relative closer to them. Find out which plans are available and which doctors and hospitals accept them before making the move.

What does Medigap not cover?

Powell: Medigap can offer major protection against out-of-pocket medical costs. But what does it leave out?

Votava: One of the biggest misunderstandings involves prescription drugs.

Medigap does not cover prescription medication costs. You need a separate Medicare Part D plan.

Medigap also generally does not cover routine dental care or provide an eyeglasses allowance.

Some Medigap insurers add extras such as fitness memberships, including programs similar to SilverSneakers.

But those extras should not be the main reason you choose a policy.

Are Medicare Advantage’s extra benefits worth it?

Powell: Medicare Advantage plans advertise dental, vision, hearing and fitness benefits. How much weight should people give those extras?

Votava: I see them as icing on the cake.

First, make sure your medications are covered and your doctors and hospitals are in the plan’s network.

Then look at the extra benefits.

A couple of dental cleanings or an eyewear allowance can be attractive, but those benefits often come with limits.

You do not want to choose a plan because it has all the bells and whistles and then discover that the doctors or hospitals you need are not covered.

That is when people regret their decision.

Should you insure against catastrophic expenses or routine costs?

Powell: You have described this as a risk-management decision. How should people think about paying more for Medigap when they may not need much medical care?

Votava: Think about homeowners insurance. You buy it, and you are glad when your house does not burn down.

With health insurance, we combine two different ideas.

One is protection against catastrophic expenses. The other is discounts on routine services.

Those are not always the same thing.

People sometimes focus on dental coverage or eyewear because they know they will use those benefits. But the far bigger financial risk may be the medical care they do not expect to need.

That is why I focus on total out-of-pocket exposure.

Medigap is expensive, and not everyone can afford it. Medicare Advantage may be the right choice for some people.

But consumers need to understand what they are buying and the financial risks they are accepting.

Can you leave Medicare Advantage between January and March?

Powell: There is also a Medicare Advantage enrollment period during the first three months of the year. Could that give someone another chance to move to Original Medicare and Medigap?

Votava: It can be a helpful time to review your options.

If you are in Medicare Advantage and find that your doctors are not covered, you may be able to switch to another Medicare Advantage plan.

You can also look into moving to Original Medicare and applying for Medigap.

But remember, you may have to go through medical underwriting.

I recommend finding out whether you can get Medigap before dropping your Medicare Advantage coverage.

You also need to arrange prescription drug coverage.

Does Medigap cover medical care overseas?

Powell: Many retirees travel internationally. What protection does Medigap provide if someone gets sick or injured overseas?

Votava: Some Medigap plans offer limited foreign travel emergency coverage.

There may be a $250 deductible and a lifetime benefit limit of $50,000, along with restrictions on when coverage applies.

Generally, you pay for care overseas and then file a claim after you return.

But travelers should also think about another cost: medical evacuation.

That can run $100,000 or more, depending on the situation.

If you become seriously ill overseas and need to be flown home, a regular commercial flight may not be possible.

That is why I recommend considering separate medical evacuation coverage when planning international travel.

Where can consumers get unbiased Medicare advice?

Powell: With so many plans, different enrollment rules and changes in the insurance brokerage business, where should people turn for help?

Votava: Some insurance brokers are very good, but the business is changing. Commissions have been reduced in parts of the Medicare market, and that has made things more difficult for brokers.

I recommend getting a referral from a trusted financial adviser or from someone who has had a good experience.

Another strong resource is your State Health Insurance Assistance Program, or SHIP. In Massachusetts, it is called SHINE.

These programs provide counseling without insurance commissions.

You can also call Medicare directly or use Medicare.gov.

When you seek help, have your medication list ready. You need to know whether your prescriptions are covered and what you will pay for them.

Do not forget that if you choose Original Medicare with Medigap, you will generally want a separate Part D prescription drug plan.

How can you compare Medigap plans based on your own costs?

Powell: finStream, of which I am a founder, also developed a tool called MedigapLens to help consumers evaluate these decisions.

Instead of comparing premiums alone, MedigapLens lets people compare standardized Medigap plans based on what they might spend during a year of medical care.

You choose your state and when you first became eligible for Medicare. Then you select a light, moderate or heavy year of care, or enter your own assumptions.

Next, you enter the actual premium quotes for the plans you are considering.

The tool estimates total cost, including premiums and out-of-pocket expenses, and compares the results with Plan G.

It is not meant to tell you which plan to buy. It is meant to help you understand the trade-offs and have a more informed conversation with an insurance professional or SHIP counselor.

What is your most important advice for the Medicare enrollment season ahead?

Powell: You have worked in Medicare for decades. How would you describe the changes we are seeing as we head into the next enrollment season?

Votava: This is one of the most challenging periods I have seen.

We are seeing major changes in prescription drug coverage, insurance premiums and Medicare Advantage plans.

Some PPO plans are disappearing, and networks are getting narrower.

Prescription drugs are another concern. There are more effective medications, but many are extremely expensive. Changes in how drug plans are financed are also affecting the market.

Consumers need to be especially careful when shopping for Part D coverage.

And if you are considering Medicare Advantage, do not be drawn in only by a lower premium or extra benefits.

Look at your medications. Look at your doctors and hospitals. Understand your network restrictions and your possible out-of-pocket costs.

And know your rights to appeal coverage decisions.

It takes effort, but doing your homework gives you the best chance of finding coverage that works for you.