Medicare Plan Selection: Why Most 65-Year-Olds Choose Wrong (And How to Fix It)
Medicare Plan Selection: Why Most 65-Year-Olds Choose Wrong (And How to Fix It)
You turn 65. You're suddenly eligible for Medicare. Your mailbox fills with brochures from UnitedHealthcare, Humana, Aetna, and fourteen other companies you've never heard of. Each one promises "comprehensive coverage" with "low premiums" and "your doctors included."
There are 3,834 Medicare Advantage plans available across the US in 2026. The average beneficiary in a metropolitan area has 43 options. And according to a Journal of Health Economics study, the majority of new Medicare enrollees choose their plan based on brand recognition and marketing — not on which plan actually minimizes their cost for their specific health needs.
The result: the average Medicare beneficiary overpays by approximately $1,200/year compared to their optimal plan. Over a 20-year retirement, that's $24,000 left on the table.
The Three Paths: Original Medicare, Medicare Advantage, or Both
The first decision — and the one most people get wrong — is the structural choice between:
Path 1: Original Medicare (Parts A + B) + Medigap + Part D
- Part A (hospital): Free for most people (you paid into it via payroll taxes)
- Part B (medical): $185/month standard premium (2026)
- Medigap (supplemental): $100-$300/month, fills the gaps in Parts A and B
- Part D (drugs): $15-$100/month, covers prescription medications
Total monthly cost: $300-$585/month depending on Medigap and Part D plan choice. You can see any doctor who accepts Medicare (93% of doctors nationwide). No network restrictions. No referral requirements.
Path 2: Medicare Advantage (Part C)
- Replaces Parts A and B (and usually includes Part D)
- Premium: $0-$150/month (on top of the $185 Part B premium you still pay)
- Trade-off: You get a network. HMO or PPO structure with copays, coinsurance, and an out-of-pocket maximum that Original Medicare doesn't have.
Total monthly cost: $185-$335/month — cheaper on paper, but with network and utilization restrictions.
Path 3: Original Medicare + Part D only (no Medigap)
- Cheapest monthly cost: $200-$285/month
- Riskiest: No out-of-pocket maximum. Part B coinsurance (20%) on all outpatient services with no cap. A $100,000 hospital stay could leave you with a $20,000 bill.
Arizona residents exploring Medicare options have 67 Medicare Advantage plans to choose from — one of the highest counts per capita in the country, which makes the selection problem particularly acute.
Why Most People Choose Wrong
The research on Medicare plan selection is consistent and damning:
1. Status quo bias. A CMS study found that 87% of Medicare Advantage enrollees stay in the same plan year after year, even when a cheaper plan with identical coverage enters the market. Plans know this — they price aggressively in year one to attract enrollees, then raise premiums in subsequent years, betting (correctly) that inertia will keep you locked in.
2. Premium anchoring. People fixate on the monthly premium and ignore total cost of care. A $0-premium Medicare Advantage plan with $50 specialist copays and 20% inpatient coinsurance can easily cost more annually than a $45/month plan with $20 copays and $250/day inpatient copays — depending on your utilization.
3. Formulary blindness. Medicare Part D formularies are even more complex than employer plan formularies. The same drug can be Tier 2 on one Part D plan and Tier 4 on another. As we detailed in our prescription drug coverage guide, formulary tier placement can swing annual drug costs by $2,000 or more — and that gap is amplified in Medicare because beneficiaries take an average of 4.7 prescriptions.
4. Network assumption errors. Medicare Advantage plans use provider networks. If your cardiologist isn't in-network, you either switch doctors or pay out-of-network rates (which some MA plans don't cover at all). HMO-type MA plans have no out-of-network coverage except for emergencies.
The Medigap Decision: Insurance on Your Insurance
Medigap (Medicare Supplement) plans fill the gaps in Original Medicare. There are 10 standardized plan types (A, B, C, D, F, G, K, L, M, N), and by law, each type offers identical coverage regardless of which company sells it. Plan G from UnitedHealthcare covers exactly the same things as Plan G from Mutual of Omaha.
The only difference between companies selling the same Medigap plan type is price. And the price differences are enormous:
| Medigap Plan G (65-year-old, nonsmoker) | Example Monthly Premium |
|---|---|
| Lowest-cost insurer in your ZIP | $95-$130 |
| Median insurer | $150-$200 |
| Highest-cost insurer | $250-$350 |
Same coverage. Same benefits. Up to $3,000/year difference in premium, purely based on which company you choose.
Most people buy Medigap from the company whose brochure arrived first, or from the agent who called them. That convenience can cost $1,000-$2,000/year compared to shopping across all available options.
The Part D Puzzle
If you choose Original Medicare (not Medicare Advantage), you need a separate Part D plan for prescription drug coverage. There are approximately 30 Part D plans available in each state, each with different:
- Monthly premiums ($0-$100)
- Deductibles ($0-$545 in 2026)
- Formulary tier structures
- Pharmacy networks (preferred vs. standard pharmacies)
- Coverage gap (donut hole) terms
The Inflation Reduction Act of 2022 capped annual Part D out-of-pocket costs at $2,000 starting in 2025 — a major change that makes high-tier drug costs less catastrophic but doesn't eliminate the importance of tier placement. A drug on Tier 4 still gets you to that $2,000 cap faster than the same drug on Tier 2.
The CMS Medicare Plan Finder tool lets you search Part D plans by your medication list, but it doesn't integrate Part D costs with Medigap premiums, Part B costs, and expected utilization into a single total-cost figure. That integration is what Pelandri's optimizer does — modeling total annual Medicare cost across all plan components simultaneously.
The Age-65 Timing Trap
Your Initial Enrollment Period (IEP) starts 3 months before your 65th birthday and ends 3 months after. During this window, you have guaranteed issue rights for Medigap — meaning insurers must sell you a policy regardless of health status, at standard rates.
Miss this window, and insurers can:
- Deny you coverage based on pre-existing conditions
- Charge you higher premiums based on health status
- Impose waiting periods for pre-existing conditions
There is no do-over. If you choose Medicare Advantage at 65 and want to switch to Original Medicare + Medigap at 70, you may not be able to get Medigap at any price if you have health conditions that developed in the interim.
This makes the initial Path 1 vs. Path 2 decision irreversible in a way that most 65-year-olds don't realize. As we explained in how Pelandri's optimizer works, modeling tail risk — the small-probability, high-cost scenarios — is critical for decisions with irreversible consequences.
A Framework for the Decision
| Your Situation | Likely Best Path |
|---|---|
| Healthy, few medications, flexible on doctors | Medicare Advantage (lowest cost, accept network) |
| Multiple chronic conditions, many specialists | Original Medicare + Medigap G (no network limits, predictable costs) |
| Expensive specialty medications | Original Medicare + Medigap + lowest-cost Part D that covers your drugs on Tier 1-2 |
| Travel frequently / snowbird | Original Medicare + Medigap (nationwide coverage, no network) |
| Budget-constrained, healthy now | Medicare Advantage HMO (lowest premium), but understand the Medigap lock-out risk |
| High income ($103K+ single / $206K+ joint) | Factor in IRMAA surcharges ($66-$396/month extra on Part B and Part D) |
The HDHP vs. PPO comparison framework from our HDHP vs. PPO calculator post applies a similar logic — the "cheapest" plan depends entirely on your utilization pattern, risk tolerance, and financial situation.
The IRMAA Surprise
If your Modified Adjusted Gross Income (MAGI) exceeds $103,000 (single) or $206,000 (joint) in 2026, you pay Income-Related Monthly Adjustment Amounts (IRMAA) on top of standard Part B and Part D premiums:
| MAGI (Single) | Part B IRMAA | Part D IRMAA | Total Monthly Surcharge |
|---|---|---|---|
| $103,001-$129,000 | $66 | $13 | $79 |
| $129,001-$161,000 | $165 | $34 | $199 |
| $161,001-$193,000 | $264 | $55 | $319 |
| $193,001-$500,000 | $363 | $76 | $439 |
| >$500,000 | $396 | $83 | $479 |
IRMAA is based on your tax return from two years prior — your 2024 income determines your 2026 IRMAA. If you had a high-income year due to a one-time event (selling a house, Roth conversion, stock windfall), you can file a Life-Changing Event form (SSA-44) to request a reduction.
Retirement financial planning intersects with healthcare cost optimization in ways most people don't anticipate. Similar to how WildFireCost helps retirees understand property risk exposure as they choose where to retire, understanding Medicare cost structures before retirement lets you make income-timing decisions that reduce IRMAA exposure.
Start With Your Medications and Doctors
The optimal Medicare configuration isn't the one with the lowest premium. It's the one that minimizes your total annual cost — premiums + out-of-pocket medical + out-of-pocket drugs + tax implications — for your specific health profile.
Start by listing your medications and doctors. Then run them through Pelandri's Medicare optimizer to see how Original Medicare + Medigap, Medicare Advantage, and different Part D plans compare for your specific situation. The difference between the optimal and default choice is typically $1,200/year — and the tool takes less time than reading one of those brochures in your mailbox.
Sources
- Medicare Plan Finder — Centers for Medicare & Medicaid Services
- Inertia in Medicare Plan Choice — Journal of Health Economics
- 2026 Medicare Costs — Medicare.gov
- Inflation Reduction Act: Part D Redesign — CMS
- IRMAA Thresholds 2026 — Social Security Administration