Medigap vs. Medicare Advantage

Medicare basics: what Original Medicare leaves exposed

Original Medicare has no annual out-of-pocket limit, which is the gap both Medigap and Medicare Advantage exist to close. Part A covers hospital and skilled nursing care, Part B covers doctors and outpatient care, and Part D covers prescriptions through a private plan.

Source: CMS 2026 fact sheet. CMS typically announces 2027 Part A and B amounts in November.

Three gaps drive most of the risk:

• The 20% Part B coinsurance has no ceiling. Chemotherapy, dialysis, or a run of outpatient surgeries can produce five-figure bills.

• The Part A deductible is per benefit period, not per year. Two separate hospitalizations can mean two deductibles.

• Routine dental, vision, and hearing are not covered by Original Medicare or Medigap. They must be budgeted separately or bought as standalone coverage.

How Medigap works

Medigap is private insurance that pays the costs Original Medicare leaves behind. Plans are standardized by letter, so Plan G from one insurer has the same medical benefits as Plan G from any other; only price and service differ. Medicare still pays first, and any provider in the U.S. who accepts Medicare must accept the claim. There are no networks and no prior authorization from the Medigap insurer.

The plans most people consider

Premium ranges are national averages and broker data for a 65-year-old non-smoker (MoneyGeek, MedicareSupplement.com); high-deductible amounts from CMS. Local quotes vary widely by state and insurer; in New York, average Plan G rates run above $300 a month.

Under the high-deductible G, Medicare still pays its normal share while you work toward the deductible. Your real exposure is the 20% coinsurance and Part A deductibles until you reach $3,050 in 2027.

How premiums change over time

The pricing method matters as much as the starting premium, because it decides how the bill grows.

All three still see annual rate increases from medical inflation and claims experience. When comparing quotes, ask for the insurer’s rate history over the last five years, not just today’s price.

Pairing Medigap with Part D

Medigap does not cover outpatient prescriptions, so a standalone Part D plan is needed. The average standalone Part D premium was about $35 a month in 2026, and CMS projects about $36 for 2027. Delaying Part D without other creditable drug coverage triggers a lifetime late-enrollment penalty.

How Medicare Advantage works

Medicare Advantage replaces Original Medicare with a private plan that Medicare pays a fixed monthly amount per member. About 55% of eligible beneficiaries chose this route in 2026 (KFF). You still pay the Part B premium, and the plan sets its own copays, network, and rules within federal limits.

Plan types

• HMO (about 6 in 10 individual-plan enrollees): In-network care only, except emergencies; usually requires a primary care physician and referrals. Lowest premiums and out-of-pocket limits.

• PPO (about 4 in 10): Covers out-of-network care at higher cost sharing, with a higher combined out-of-pocket limit.

• Special Needs Plans (SNPs): Restricted to people with Medicaid, certain chronic conditions, or institutional care needs.

• PFFS and MSA plans: Rare; MSA plans pair a high deductible with a deposit to a medical savings account.

The out-of-pocket limit

Every plan must cap annual in-network costs for Part A and B services. Drugs are capped separately under Part D.

Sources: KFF, MA in 2026; CMS CY 2027 limits as reported by BenefitsUSA. About 1 in 5 enrollees are in plans with limits above $7,000 (KFF).

What the low premium buys, and what it costs

• Premiums: 75% of enrollees in plans with drug coverage paid nothing beyond Part B in 2026; the average was $15 a month.

• Extra benefits: Nearly all enrollees have some dental, vision, hearing, and fitness coverage. Scope varies widely; dental is often preventive only or capped at a low annual dollar amount.

• Part B giveback: About a third of enrollees (31%) are in plans that reduce the Part B premium; the amount varies by plan.

• Networks: Enrollees have access to about half the physicians available in Original Medicare in their area, on average.

• Prior authorization: 99% of enrollees are in plans that require it for some services, most often hospital stays, skilled nursing, home health, and Part B drugs. Insurers denied 7.7% of 53 million requests in 2024. Only about 1 in 9 denials was appealed, yet over 80% of appeals succeeded (KFF).

• Annual change: Premiums, copays, networks, drug lists, and extra benefits can change every January. Medigap benefits cannot.

A market in contraction for 2027

After years of growth, insurers are pulling back. UnitedHealth Group will offer plans in about 70% of U.S. counties in 2027, down from nearly 80%, and 1% of beneficiaries will have no Advantage drug plan available at all (KFF). Humana’s 2027 exits cover about 600,000 members (Becker’s), and supplemental extras such as over-the-counter allowances and transportation were cut back in 2026.

A plan exit gives affected members a guaranteed right to buy certain Medigap plans without health questions. Members whose plan simply raises costs or drops their doctor get no such right.

Side by side

Medigap wins on access, predictability, and stability; Medicare Advantage wins on premium and bundled extras.

Enrollment windows and the one-way door

Medicare Advantage can be joined or left every fall, but Medigap is only guaranteed during a few federal windows. Outside them, in most states, an insurer may ask health questions and decline you or charge more. That asymmetry is the single most important planning fact in this paper.

The federal windows

Returning to Original Medicare during these windows is always allowed. Buying Medigap after leaving Advantage is not, unless a guaranteed-issue right applies.

Guaranteed-issue rights that reopen the door

• Plan exit or network change: Your Advantage plan leaves your area, stops serving Medicare, or its network changes significantly.

• Move: You move outside your plan’s service area.

• Trial right, first-time joiner: You joined Advantage when first eligible at 65 and leave within 12 months.

• Trial right, Medigap dropper: You dropped Medigap to try Advantage for the first time and leave within 12 months; you can return to your old policy if still sold.

• Loss of coverage: Employer or union coverage that paid after Medicare ends.

• Insurer misconduct: Your plan misled you or broke its rules.

These rights usually limit you to Plans A, B, C and F, or Plans A, B, D and G if you became eligible for Medicare in 2020 or later. The first-year trial right for new joiners allows any Medigap policy sold in your state. Deadlines are short, generally 63 days.

State exceptions

Some states give far more flexibility. Confirm current rules with your state insurance department or SHIP before relying on them.

Source: NAIC state Medigap rules chart, May 2026. Birthday rules apply only to Medigap-to-Medigap switches. They do not help someone leaving Medicare Advantage. Minnesota, Massachusetts, and Wisconsin use their own standardized Medigap plans. Pennsylvania and Vermont also have their own switching rules. Confirm current rules with your state insurance department.

What each path costs in a good year and a bad one

Medicare Advantage is cheaper in a healthy year by about $2,400, but a single serious-illness year costs $2,700 more than Medigap, and $6,600 more in a plan set at the federal maximum.

Assumptions behind the illustration:

• Medigap path: Plan G at $180 a month, a standalone Part D plan at $36 a month, and the $283 Part B deductible. The total is $2,875 in every scenario because Plan G covers everything after the deductible.

• Advantage path: A $15 monthly plan premium. Copays of about $300 in a healthy year and $2,500 in a moderate year (an outpatient surgery, imaging, and physical therapy). A serious year reaches the plan’s in-network limit: $5,421 on average in 2026, or $9,250 in a plan at the federal maximum.

• Excluded: The Part B premium, which is the same on both paths, and drug cost sharing, which Part D caps at $2,100 (2026) on both paths.

Two things the single-year view hides. First, attained-age Medigap premiums rise every year, so the gap in healthy years widens with age. Second, a serious illness rarely lasts one year: a cancer diagnosis or chronic condition can put an Advantage enrollee at the out-of-pocket limit year after year, while the Medigap holder’s cost stays flat. Out-of-network care, or a PPO’s combined limit of $13,900, would raise the Advantage figures further.

Other planning factors

Income-related surcharges (IRMAA)

Higher-income retirees pay more for Parts B and D on either path, so IRMAA does not favor one option. It does raise the stakes of tax planning around Roth conversions, capital gains, and required distributions. Surcharges use income from two years earlier.

Source: CMS 2026 fact sheet (November 14, 2025). A life-changing event such as retirement can be used to appeal with Form SSA-44.

Part D in 2027

The Part D out-of-pocket cap rises from $2,100 in 2026 to $2,400 in 2027, and the standard deductible from $615 to $700 (MedPAC). The cap applies on both paths, so heavy drug users are protected either way. The bigger difference is the plan’s formulary and pharmacy network, which should be checked drug by drug each fall.

Travel and second homes

Snowbirds and frequent travelers are usually better served by Medigap, which works with any Medicare provider in all 50 states. Most Advantage HMOs cover only emergency and urgent care outside the service area. PPOs help, but out-of-network costs count toward a higher limit.

Working past 65 and HSAs

• Employer coverage: With coverage from a large employer, delaying Part B may make sense. The 6-month Medigap window starts only when Part B begins, so the right is preserved.

• HSA contributions: Contributions must stop once you enroll in any part of Medicare. Part A enrollment backdates up to 6 months, so stop contributing about 6 months before you apply.

• Retiree health plans: Dropping an employer retiree plan for Medicare Advantage or Medigap can be permanent. Confirm with the plan administrator first.

Veterans and military retirees

VA health care does not coordinate with Medicare, but it can serve as a backstop. TRICARE For Life requires Part B and works much like a Medigap policy, so most military retirees need neither Medigap nor Advantage.

Dental, vision, and hearing

These are the most common reasons people choose Advantage. On the Medigap path they can be covered with a standalone dental and vision plan, a dedicated savings line in the retirement budget, or both. Compare the actual annual benefit caps before treating extras as a deciding factor.

A decision framework

The best choice is the one whose worst year your plan can absorb and whose rules fit how you actually use care.

Questions to answer before you choose

1. If you had a $10,000 medical year, where would the money come from, and what would it displace?

2. Are your current doctors, hospital, and any cancer or heart center in the plan’s network, and how likely is that to last?

3. What are your state’s Medigap rules if you change your mind in five years?

4. How does the Medigap insurer price its policy, and what has its rate history been?

5. Will you be away from home for more than a few weeks a year?

6. What are the plan’s star rating, prior authorization list, and out-of-pocket limit?

Red flags

• Choosing Advantage at 65 mainly for a $0 premium or a gift card, without testing the worst-case year.

• Picking the cheapest Medigap quote at 65 without asking how the insurer prices policies as members age.

• Assuming you can switch to Medigap “later if needed.”

• Letting an Advantage plan auto-renew without reviewing the Annual Notice of Change each fall.

• Receiving advice only from someone paid by commission on one option.

How Wealth Balance Advisors helps

Healthcare is one of the largest and least predictable costs in retirement, and the Medicare path you choose shapes it for decades. Wealth Balance Advisors does not sell insurance and is not paid by insurers, so the analysis is not tied to which option you choose.

We help clients:

• Model premiums and worst-case years for each path within their full retirement income plan.

• Coordinate Medicare timing with retirement dates, employer coverage, HSAs, and Social Security.

• Manage income to limit IRMAA surcharges, including around Roth conversions and required distributions.

• Build a reserve or budget line sized to the risk they choose to keep.

• Revisit the decision each fall as plans, rules, and health change.

To see how your Medicare decision fits your full retirement plan, book a Retirement Ratio Session at wealthbalanceadvisors.com/retirement-ratio-session. You can also call 205-301-7690 or email hello@wealthbalanceadvisors.com.

Important disclosures

This paper is for educational purposes only and is not insurance, tax, legal, or individualized investment advice. Figures are current as of the date above and change annually; 2027 Part A and B amounts had not been released at publication. Medigap and Medicare Advantage rules vary by state, and premiums vary by insurer, age, location, and health. Before enrolling, confirm details with Medicare.gov (1-800-MEDICARE), your State Health Insurance Assistance Program (SHIP), or a licensed insurance professional. Wealth Balance Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. This content is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.

Sources

• CMS: 2026 Medicare Parts A & B Premiums and Deductibles

• CMS: CY 2027 Medigap High-Deductible Options F, G & J

• KFF: Medicare Advantage in 2026: Premiums, Out-of-Pocket Limits, Supplemental Benefits, and Prior Authorization

• KFF: Medicare Advantage Out-of-Pocket Limits: Variation and Trends

• KFF: Medicare Advantage Insurers Made Nearly 53 Million Prior Authorization Determinations in 2024

• KFF: Medicare Advantage Plan Availability Varies Widely by County for 2027

• KFF: Medicare Advantage Plans Cover 55% of Eligible Beneficiaries in 2026

• NAIC: State Medigap Rules: Birthday Rule and Coverage Under 65 (May 2026)

• BenefitsUSA: Medicare Advantage Out-of-Pocket Max 2027

• Becker’s: Humana to Exit Medicare Advantage Plans Covering 600,000 Members in 2027

• MedPAC: Part D Payment System Basics (October 2026)

• Medicare.gov: Get Ready to Buy (Medigap guaranteed issue rights)

• Medicare.gov: Compare Medigap Plan Benefits

• MoneyGeek: Medicare Supplement Plans Cost

• MedicareSupplement.com: Average Cost of Medicare Supplement by Age

• KFF: Medicare Advantage 2026 Spotlight: A First Look at Plan Premiums and Benefits