Choosing between Medicare Advantage and Original Medicare is a critical financial decision for retirees. This analysis moves beyond simple premium comparisons to project total costs over a decade, from 2025 to 2035.
The two paths present a fundamental trade-off: Original Medicare with Medigap front-loads costs through higher, predictable premiums for budget certainty. In contrast, Medicare Advantage minimizes upfront premiums by transferring the financial risk of high healthcare utilization to you, capped only by a large out-of-pocket maximum.
Ultimately, who pays less depends on your future health and tolerance for financial risk, a choice this report will illuminate.
Executive Summary: The 10-Year Verdict on Medicare Costs
The decision between enrolling in a Medicare Advantage (MA) plan or adhering to the traditional, fee-for-service Original Medicare (OM) supplemented by a Medigap policy represents one of the most significant financial choices a retiree will make.
An analysis of the cost structures, projected inflation, and embedded risks over a 10-year horizon from 2025 to 2035 reveals that this is not a simple comparison of monthly premiums but a strategic decision about long-term risk allocation.
The central finding of this report is that the two pathways present inverted financial philosophies: Original Medicare with Medigap front-loads costs through higher, predictable premiums to insure against unpredictable, high-cost medical events.
Conversely, Medicare Advantage minimizes upfront premiums, thereby transferring the financial risk of high healthcare utilization to the beneficiary, contained only by a substantial annual out-of-pocket maximum.
This analysis will demonstrate through quantitative modeling that:
A healthy individual with low and predictable healthcare needs is highly likely to experience lower total out-of-pocket costs over 10 years with a Medicare Advantage plan. The primary financial drag in this scenario is the compounding inflation of Medigap premiums, which is avoided.
An individual who develops a significant acute illness or manages multiple chronic conditions will almost certainly face lower total costs and fewer barriers to accessing specialized care with Original Medicare supplemented by a Medigap policy. For this individual, the high maximum out-of-pocket limits of MA plans represent a recurring and substantial financial threat.
Given the inherent uncertainty of health, the decision is best framed not by attempting to predict future medical needs but by assessing one’s own tolerance for financial risk. This report provides a detailed framework to guide that assessment, moving beyond superficial cost comparisons to illuminate the profound, long-term financial consequences of this critical choice.
Deconstructing the Two Medicare Pathways: A 2025 Cost Baseline
To project long-term costs accurately, it is essential to first establish a granular, data-driven baseline of all known costs for a new beneficiary in 2025.
This baseline reveals the fundamental structural differences in how each Medicare pathway allocates costs between fixed premiums and variable, usage-based out-of-pocket expenses.
The Predictable Path: Original Medicare with Medigap Plan G and Part D
This pathway is engineered for financial predictability. It combines government-administered Original Medicare (Parts A and B) with two private insurance products: a Medigap plan to cover cost-sharing gaps and a standalone Part D plan for prescription drugs.
The result is a high-premium, low-exposure model where the majority of costs are fixed and known in advance.
Fixed Monthly Premiums
The monthly premium is the primary and most significant cost component of this structure. For a standard-income retiree in 2025, these costs are:
Part B Premium: The mandatory foundation for medical coverage is the standard Medicare Part B premium, which is $185.00 per month in 2025.
Income-Related Monthly Adjustment Amount (IRMAA): The standard Part B premium is a floor, not a universal price. Higher-income beneficiaries, based on their modified adjusted gross income from two years prior, pay a surcharge.
In 2025, this adjustment begins for individuals with incomes over $106,000, adding between $74.00 and $443.90 per month to the base premium. This can elevate the total Part B premium to as high as $628.90 per month for the highest earners, a critical and often underestimated cost.
Medigap Plan G Premium: Medigap Plan G is the most comprehensive plan available to new Medicare beneficiaries, covering nearly all out-of-pocket costs after a small annual deductible. The average monthly premium for a 65-year-old enrolling in Plan G in 2025 is approximately $144.17.
This figure varies significantly based on geographic location, gender, tobacco use, and the chosen insurance carrier, but serves as a robust baseline for modeling.
Part D Premium: A standalone Prescription Drug Plan (PDP) is required for drug coverage. The national average monthly premium for a standard Part D plan in 2025 is $38.82. Similar to Part B, Part D premiums are also subject to IRMAA for higher-income individuals, which adds an additional $13.70 to $85.80 per month to the plan’s specific premium.
Annual Out-of-Pocket Costs
The defining feature of the OM+Medigap pathway is the near-elimination of variable medical costs.
Part B Deductible: The only significant out-of-pocket medical expense a beneficiary with Plan G will face is the annual Medicare Part B deductible, which is $257 in 2025. Once this amount is paid, Medigap Plan G covers the 20% coinsurance for all subsequent Medicare-approved services for the remainder of the year.
Part A Deductible: Original Medicare includes a substantial deductible of $1,676 per benefit period for inpatient hospital stays in 2025. However, Medigap Plan G covers this deductible in its entirety, neutralizing this potentially recurring and significant cost for the beneficiary.
Part D Costs: The prescription drug cost structure was fundamentally changed by the Inflation Reduction Act. For 2025, beneficiaries face a maximum plan deductible of $590 and, most importantly, a hard annual out-of-pocket cap of $2,000 for all covered prescription drugs.
Once this cap is reached, the beneficiary pays $0 for covered drugs for the rest of the year.
The Managed Path: Medicare Advantage (MA-PD)
The Medicare Advantage pathway, also known as Part C, is a managed care alternative offered by private insurance companies. It bundles Parts A, B, and usually D into a single plan. This model is designed to minimize fixed premiums by introducing variable, usage-based cost-sharing for services.
Fixed Monthly Premiums
The primary appeal of MA plans is their low upfront cost.
Part B Premium: As with the other pathway, MA enrollees must first be enrolled in Parts A and B and are required to pay the standard monthly Part B premium of $185.00 (plus any applicable IRMAA). This payment is made to the federal government, not the MA plan.
MA Plan Premium: This is where the models diverge dramatically. In 2025, an estimated 76% of MA enrollees are in plans with a $0 monthly premium. The enrollment-weighted average premium for all MA plans that include drug coverage (MA-PDs) is just $13 per month.
Variable Out-of-Pocket Costs (Cost-Sharing)
The trade-off for eliminating the plan premium is the introduction of cost-sharing for nearly every medical service. Instead of Medigap covering these costs, the beneficiary pays them directly in the form of copayments (a fixed dollar amount) or coinsurance (a percentage of the cost) for doctor visits, hospital stays, diagnostic tests, and specialist consultations.
Maximum Out-of-Pocket (MOOP) Limit: The most critical financial feature of any MA plan is its MOOP. This is a federally mandated consumer protection that limits the total amount an enrollee must pay in cost-sharing for Part A and Part B services in a calendar year. For 2025, the legal maximum for in-network services is $9,350.
This limit acts as a catastrophic cap, but it is a substantial amount that is far higher than the potential out-of-pocket medical costs under an OM+Medigap Plan G arrangement.
Integrated Part D Costs: Because most MA plans include prescription drug coverage, these costs are also governed by the plan’s structure. However, they are subject to the same federal regulations as standalone plans, including the $2,000 annual out-of-pocket cap for covered drugs in 2025.
The foundational cost structures of these two pathways are inverted. The OM+Medigap approach front-loads expenses through high, predictable premiums to virtually eliminate back-end, unpredictable medical costs.
The MA approach minimizes or eliminates front-end plan premiums, shifting the bulk of the financial risk to the back end in the form of usage-based cost-sharing, with the MOOP serving as a high-limit safety net. This structural difference means that any meaningful long-term cost comparison must be based on projected healthcare utilization.
Modeling the Decade: A 10-Year Total Cost Projection (2025-2035)
A single-year snapshot of costs is insufficient for a decision with decade-long implications. To understand who truly pays less over time, it is necessary to project these costs forward, incorporating key inflationary pressures that affect each pathway differently.
This section models the cumulative financial impact from 2025 to 2035 for two distinct beneficiary profiles, revealing how initial cost advantages can erode or amplify over time based on health status.
Modeling Assumptions & Methodology
This projection relies on a set of transparent, data-driven assumptions about the primary cost drivers for each pathway.
Medigap Premium Inflation: This is the most significant and volatile variable for the OM+Medigap path. Medigap premiums are not federally regulated and are subject to increases based on rising healthcare costs and the aging of the plan’s risk pool.
Recent trends show a marked acceleration in these increases. This analysis will use a dual-scenario model to capture the range of possibilities:
Baseline Scenario: A conservative 8% annual increase. This reflects a blend of historical averages with the more recent inflationary environment.
High-Inflation Scenario: A 15% annual increase. This reflects the upper range of recent projections, which cite common yearly premium hikes of 10–20%, driven by factors like post-pandemic demand for delayed procedures and hospital expenses growing faster than general inflation. This scenario demonstrates the primary financial risk of the OM+Medigap pathway.
Medicare Advantage Cost Inflation: While MA premiums often remain stable, the underlying cost-sharing (copays, coinsurance) and the MOOP limit are expected to rise.
This model assumes these elements will increase annually, pegged to the projected per-enrollee Medicare spending growth rate, which is expected to range between 5.3% and 7.2% from 2026 to 2033. A midpoint of 6.25% will be used for this projection.
Part B Premium Inflation: The growth of the Part B premium is directly tied to the growth in Medicare spending. Therefore, its annual increase is also projected using the 6.25% midpoint of the per-enrollee spending growth rate.
Persona 1: “Healthy Hal” (Low Utilization)
Profile: A 65-year-old in good health with no chronic conditions. His annual healthcare utilization is assumed to be minimal: four primary care visits, two specialist visits, annual lab work, and one low-cost generic prescription. He experiences no hospitalizations or major medical events during the 10-year period.
Original Medicare + Medigap Projection: For Hal, the vast majority of his healthcare costs are the fixed monthly premiums. Each year, his only out-of-pocket expenses are the Part B deductible ($257 in 2025) and minimal Part D costs.
His primary financial burden is the relentless, compounding increase of his Medigap premium. Over 10 years, this escalating premium will constitute the bulk of his spending, making this pathway appear increasingly expensive despite his low usage.
Medicare Advantage Projection: Hal’s costs under an MA plan are exceptionally low. He pays his Part B premium and a series of small, predictable copayments for his few doctor visits and labs. Since his utilization is low, he never comes close to approaching the plan’s MOOP.
Over the 10-year projection, his total outlay is significantly less than under the OM+Medigap path, as he avoids the high and inflating Medigap premium. For a healthy individual, the MA model delivers substantial savings.
Persona 2: “Chronic Chloe” (High Utilization)
Profile: A 65-year-old actively managing multiple chronic conditions, such as diabetes and a heart condition. Her annual utilization is high and includes six primary care visits, eight specialist visits (e.g., cardiology, endocrinology), multiple diagnostic tests (e.g., echocardiograms, MRIs), several brand-name and specialty drugs, and one 5-day inpatient hospital stay every three years.
Original Medicare + Medigap Projection: Despite her extremely high healthcare utilization, Chloe’s out-of-pocket medical costs are capped at the annual Part B deductible. Medigap Plan G covers her hospital deductible and all 20% coinsurance for her numerous tests and specialist visits. Her prescription drug costs are capped at $2,000 per year. Consequently, her total annual healthcare spending is almost entirely composed of her escalating premiums. While the total cost is high, it is remarkably stable and predictable, insulating her completely from the financial shock of her medical needs.
Medicare Advantage Projection: Chloe’s experience in an MA plan is starkly different. Her costs are volatile and driven by her usage. Each of her 14 annual doctor visits and multiple diagnostic tests generates a copay or coinsurance payment. In the years she is hospitalized, a single stay can trigger thousands of dollars in cost-sharing.
She is at extremely high risk of reaching her plan’s MOOP—$9,350 in 2025 and rising annually—in any year that includes a significant medical event.
Over the 10-year period, her cumulative costs are likely to be significantly higher and far more unpredictable than under the OM+Medigap pathway. The MOOP, intended as a safety net, becomes her expected annual cost in high-utilization years.
Beyond the Premiums: Critical Non-Monetary Factors and Hidden Financial Risks
A purely quantitative cost projection, while essential, fails to capture the full spectrum of financial risk. The structural differences between Medicare Advantage and Original Medicare introduce qualitative factors that carry significant, and often hidden, financial consequences.
These factors—provider access, utilization management, and long-term flexibility—are not mere inconveniences but systemic risks that are priced into the lower premiums of MA plans.
The Flexibility Premium: Provider Networks and Access to Care
The most fundamental trade-off between the two pathways is freedom of choice versus a managed network. Original Medicare allows beneficiaries to see virtually any doctor or visit any hospital in the United States that accepts Medicare.
Medicare Advantage plans, in contrast, achieve cost efficiencies by contracting with a limited network of providers within a specific service area.
This distinction has profound financial implications. An analysis reveals that, on average, MA networks include less than half (46%) of all physicians in a given county. Access to certain specialists can be even more constrained; for example, MA networks typically include only 23% of psychiatrists in a county.
For an enrollee who develops a complex, rare, or serious condition, the foremost expert or specialized treatment center may not be part of their plan’s network. Seeking this care out-of-network can result in either a complete lack of coverage or exposure to significantly higher cost-sharing, potentially thousands of dollars for which the plan’s MOOP offers no protection.
The “Mother, May I?” Cost: Prior Authorization as a Financial Barrier
To control utilization and costs, Medicare Advantage plans rely heavily on a process known as prior authorization, which requires providers to obtain pre-approval from the insurer before delivering a service.
While Original Medicare requires this for only a very limited set of services, it is a ubiquitous feature of MA plans, applying to expensive procedures, hospital stays, skilled nursing facility care, and advanced imaging.
This administrative layer creates a significant risk of delay or denial of medically necessary care. In 2023 alone, MA insurers issued 3.2 million denials of prior authorization requests, representing a 6.4% denial rate across nearly 50 million determinations.
The data on appeals is particularly revealing: while over 80% of denials that are appealed are ultimately overturned in favor of the beneficiary, only a small fraction—approximately 11.7%—of all denials are ever appealed in the first place.
The Point of No Return: The Medigap “Lock-In” Effect
Perhaps the single most critical and least understood long-term financial risk is the asymmetrical flexibility between the two systems. Federal law grants every new Medicare beneficiary a one-time, six-month Medigap Open Enrollment Period that begins when they are both 65 and enrolled in Part B.
During this protected window, they have a guaranteed issue right to purchase any Medigap policy sold in their state, regardless of their health history. Insurance companies cannot use medical underwriting to deny them coverage or charge a higher premium based on pre-existing conditions.
A limited “trial right” also exists. If an individual joins an MA plan when first eligible for Medicare, they have the first 12 months to disenroll, return to Original Medicare, and exercise their guaranteed issue right to buy a Medigap policy.
The Long-Term Financial Verdict and Strategic Recommendations
The cumulative evidence from both the quantitative 10-year cost modeling and the qualitative analysis of systemic risks leads to an unequivocal conclusion: the choice between Medicare Advantage and Original Medicare with Medigap is a classic risk-reward trade-off.
It is not a question of which is universally “better,” but which is strategically aligned with an individual’s financial circumstances, health profile, and tolerance for risk.
Medicare Advantage offers the reward of lower initial costs in exchange for assuming higher long-term financial and access-to-care risks. Original Medicare with Medigap requires a higher upfront investment (in premiums) to secure long-term cost stability, predictability, and flexibility.
A Framework for Self-Assessment: Which Retiree Profile Are You?
To translate this analysis into an actionable decision, a retiree should assess which of the following two profiles more closely aligns with their personal and financial priorities.
The Risk-Averse Planner
Characteristics: This individual prioritizes predictable monthly budgeting and seeks to minimize financial uncertainty in retirement. They may already have chronic health conditions or a family history of significant illness, making them acutely aware of potential future healthcare needs.
Verdict: For the Risk-Averse Planner, Original Medicare supplemented by a Medigap Plan G is the superior financial instrument. This pathway functions as comprehensive insurance, insulating the retiree from the financial shocks of high medical bills and from the systemic risks of network restrictions and care denials.
The higher premium is a known, budgetable expense that purchases near-certainty regarding future healthcare costs.
The Cost-Conscious Optimist
Characteristics: This individual is in excellent health with no chronic conditions and a lifestyle that supports continued wellness.
Minimizing fixed monthly expenses is a primary financial goal. They are comfortable with the concepts of managed care, such as using a provider network and obtaining referrals, and have a higher tolerance for financial risk and potential volatility in their annual spending.
Verdict: For the Cost-Conscious Optimist, a Medicare Advantage plan is highly likely to be the less expensive option over a 10-year period, provided their health remains good.
This choice, however, must be made with a full and sober understanding of the risks involved, particularly the Medigap “lock-in” effect. They are accepting the risk that their health could change, potentially trapping them in a high-cost-sharing plan at a time when they can no longer qualify for Medigap.
Final Strategic Considerations
Beyond this primary framework, several final factors should inform the decision:
The Irreversibility Factor: The significance of the Medigap “Point of No Return” cannot be overstated. The choice made during the initial six-month enrollment period carries more weight than any subsequent annual decision.
It is a foundational choice that dictates the scope of options available for the remainder of one’s life.
Location, Location, Location: The viability of Medicare Advantage as an option is highly dependent on geography.
Urban and suburban areas often feature robust, competitive MA markets with multiple insurers and broader networks. In contrast, rural counties may have few or no MA plan choices, and those that exist are often more highly concentrated under one or two insurers, limiting choice and competition. An assessment of the local MA landscape is critical.
The Annual Review Imperative: For those who select the Medicare Advantage path, passive enrollment is a significant financial hazard. MA plans can and do change their benefits, cost-sharing structures, provider networks, and drug formularies every year.
It is absolutely essential for MA enrollees to conduct a thorough review of their plan’s “Annual Notice of Change” each fall and compare it with other available options during the Annual Enrollment Period to avoid unexpected costs or disruptions in care.
The following matrix distills the entire analysis into a final, at-a-glance summary to aid in this critical decision-making process.
