The vast majority of Americans 65 and older get their medical coverage through Medicare, the federal retirement health insurance program.
However, as we have explained, Medicare does not pay for all your health care expenses during your golden years. Some retirees are surprised by the amount of out-of-pocket costs they accumulate despite being enrolled in Medicare.
As the Employee Benefit Research Institute (EBRI) notes, “health care costs in retirement can be considerable.” And such expenses might be especially high if you sign up for Original Medicare instead of Medicare Advantage, according to a recent EBRI analysis.
All retirees must choose between two main options — Original Medicare and Medicare Advantage — when signing up for Medicare coverage:
- Original Medicare is the traditional, fee-for-service health care coverage provided directly by the federal government. Many people with Original Medicare also purchase supplemental coverage, also known as a Medigap policy, to cover the things that Original Medicare does not cover.
- Medicare Advantage plans are all-in-one coverage offered by private insurers that are approved by the federal Medicare program.
For its analysis, the EBRI designed its own simulation model. It reflected 2025 cost data and accounted for provisions of the Inflation Reduction Act of 2022 that are designed to reduce Medicare drug costs.
The EBRI found that folks who enroll in Medicare Advantage typically do not need to save up as much cash to cover their out-of-pocket health care needs during retirement as folks who sign up for Original Medicare and a Medigap policy.
For example, to have a 90% chance of covering his health care spending needs during retirement, a man enrolled in Original Medicare and a Medigap policy with average premium costs will need to save $212,000, the EBRI says. For a woman, that amount rises to $252,000.
However, for those enrolled in Medicare Advantage, the numbers are lower. A man who has median prescription drug spending and an average use of health care services would need to save $106,000 to have a 90% chance of covering health care expenses during retirement. For a woman, the amount is $125,000.
The scenario is similar for couples. Couples enrolled in Original Medicare with a Medigap plan with average premiums would need to save $405,000 to have a 90% chance of covering their health care expenses in retirement.
By contrast, those enrolled in a Medicare Advantage plan would need to save just $203,000 to have a 90% chance of covering health care expenses in retirement.
The EBRI estimates don’t necessarily mean you should rush out and sign up for — or switch to — Medicare Advantage. As the EBRI notes in a summary of its findings:
“Medicare Advantage plans often have narrower provider networks or require prior approval for certain services or medications.”
However, those who are on tight budgets might want to give Medicare Advantage a second look.
Before you decide which Medicare option is right for you, make sure you educate yourself about the “4 Pitfalls That Every New Medicare Enrollee Should Know (Some Could Cost You for As Long As You Live).”
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