Medigap vs. Medicare Advantage: the money tradeoffs

At 65 you face one of the most consequential — and least reversible — financial decisions in retirement: Original Medicare plus a Medigap supplement, or a Medicare Advantage plan. The marketing makes Advantage look like free money ($0 premiums! dental! gym memberships!) while Medigap looks expensive. The real comparison is about who bears risk when your health turns, and about a one-way door most people don't see until it closes.

The two architectures

Original Medicare + Medigap: Medicare pays 80% of Part B costs, your Medigap policy (Plan G is the modern standard) covers nearly all the rest. You pay a real premium — often $120–$250/month depending on age and state, plus a Part D drug plan — but then face almost no bills: with Plan G, your annual exposure beyond premiums is roughly the Part B deductible. Any doctor or hospital in America that takes Medicare takes you, no networks, no referrals, no prior authorization for most care.

Medicare Advantage (Part C): a private insurer replaces Original Medicare. Premiums are low or $0 and most plans bundle drug coverage plus dental/vision/hearing extras. In exchange: provider networks (often local), referrals and prior authorization requirements, cost-sharing on most services, and an annual out-of-pocket maximum that can run $5,000–$9,000+ for in-network care. Healthy years are cheap; sick years cost real money.

The one-way door: Medigap underwriting

Here's the asymmetry that should dominate the decision. When you first enroll in Part B, you get a 6-month Medigap open enrollment window with guaranteed issue: no health questions, no denials. Miss that window — say, because you started with Advantage — and in most states, switching to Medigap later requires medical underwriting. Develop diabetes, heart disease, or a cancer history in the meantime, and insurers can charge you more or simply refuse. Only a few states (New York, Connecticut, Massachusetts, and Maine among them) guarantee year-round or annual access.

The costs the brochures skip

• Prior authorization: Advantage plans deny a meaningful share of requests (many overturned on appeal), which can delay care — a cost measured in stress, not just dollars.
• Networks narrow over time, and top cancer centers are frequently out-of-network for Advantage plans.
• Advantage's dental/vision extras often have low annual caps ($1,000–$2,000) — nice, but not a reason to pick a health plan.
• Snowbirds and travelers: Medigap works nationwide; Advantage networks mostly don't travel with you outside emergencies.
• Medigap premiums rise with age and inflation — budget for increases, and check whether your state's pricing is 'community-rated,' 'issue-age,' or 'attained-age.'

A decision framework

1. Cash-flow constrained and can't absorb $200/month in premiums? Advantage may be the only realistic option — pick one whose network includes hospitals you'd actually want, and check its out-of-pocket max.
2. Can afford the premium and value flexibility, travel, or have family health history? Take Plan G (or high-deductible Plan G for a cheaper middle path) during your guaranteed-issue window.
3. Whatever you choose, compare Part D plans annually at Medicare.gov — the wrong drug plan quietly costs more than most of the differences above.
4. In a guaranteed-issue state? The lock-in argument weakens and trying Advantage first is more defensible.
5. Talk to your state SHIP counselor before deciding — free, unbiased, and they know your local plans.

The bottom line

This is a risk decision disguised as a premium comparison. Medigap costs more every month and almost nothing when everything goes wrong; Advantage is cheap until it isn't, and the door back mostly locks behind you. If you can afford Medigap during your guaranteed-issue window, buying it is buying certainty for the decades when you'll want it most.

The tradeoffs on one page

One more dollars-and-cents lens worth applying: total expected cost over a decade rather than a year. Take the example plans above and assume three heavy-use years out of ten. The Medigap route costs roughly $2,700 every year — about $27,000 across the decade, almost perfectly predictable. The Advantage route costs perhaps $500 in each of seven healthy years and $7,000 in each of three bad ones — about $24,500, but with the bad years arriving unscheduled and possibly consecutively. The averages are close; the experience is not. Medigap converts healthcare into a fixed subscription; Advantage converts it into a deductible-shaped lottery with a lower average ticket price. Which one is 'cheaper' depends less on the math than on whether your retirement budget can absorb a $7,000 year without selling investments at a bad time.

Whichever architecture you choose, revisit the drug plan every single fall. Part D and Advantage drug formularies reshuffle annually, and the plan that was optimal for your medication list two years ago is frequently $400–900 per year off the mark today. Medicare.gov's plan finder does the comparison in twenty minutes with your actual prescription list — a chore that pays better per minute than almost anything else on a retiree's calendar, and one that four out of five beneficiaries skip every year out of inertia.