Choosing the right Medicare coverage is an important step in ensuring both your financial and physical health in retirement. You want to make sure your health plan will pay for important services, but you don’t want to throw away money paying for more insurance than you actually need.
Learn how your Medicare coverage choices can impact your finances, and where to get help choosing the right plan for your needs.
Why is choosing the right Medicare plan so important?
Health care is one of the biggest expenses you will need to plan for in retirement, with recent estimates indicating that the average couple retiring today can expect to spend close to $345,000 on health care in retirement.1
This high price tag obscures the fact that health care costs can vary widely from one person to the next, and much of this boils down to which health insurance plan you choose. Within Medicare, the typical retiree has a ton of options to choose from, and the cost of these options can vary by hundreds, and in some cases, thousands of dollars per year.
What is the biggest mistake seniors make when enrolling in Medicare?
Unfortunately, a growing body of research shows that older adults routinely make mistakes when they select Medicare plans and these mistakes, or “choice errors”, can be costly.
For example, in one study, researchers found that older adults spent an average of $368 per year more than they needed to, and, while only 5% of older adults chose the lowest cost plan, more than 20% were overspending by more than $500 per year.2
Another study confirmed that early Medicare enrollment decisions may have lasting consequences for both affordability and health.3
These findings are echoed by numerous other studies. Researchers have also found that even when older adults are enrolled in plans that cost too much, they are unlikely to switch—and the magnitude of these choice errors can actually increase over time.4
Medicare Part D plan selection has received the most attention among researchers, but the types of choice errors that are present in the market for Part D plans extends to other types of Medicare.
In fact, the magnitude of choice errors related to Medicare Advantage can be even higher. A team of economists who analyzed Medicare Advantage plan selections found that only about 10% of seniors chose the optimal Medicare Advantage plan. People were overspending by more than $1,000 per year on average, and more than 10% of people were overspending by more than $2,000 per year.5 Over time, these types of mistakes can really add up.
How do I determine which Medicare plan is best for me?
Choosing a Medicare plan can be challenging. Even if you do understand each health plan, you may have dozens of different options to choose from. Should you get all of your health insurance through a Medicare Advantage plan that will cover your medical and drug costs, or will you be better off piecing together coverage through a Medicare Part D plan and a Medigap policy? The right answer depends on many factors, including your health care needs, where you live, and what your budget looks like.
On the bright side, help is available. Tools like cost calculators and digital decision support tools have been shown to improve both Medicare Part D6 and Medicare Advantage7 plan selections, and Medicare experts can also help you find the most cost-effective Medicare plan.
To get help choosing a Medicare plan:
- Contact your local State Health Insurance Assistance Program (SHIP) for free, one-on-one Medicare counseling. A trained SHIP counselor can help you compare Medicare plans, find coverage that fits your health needs and budget, and explain enrollment deadlines and help you avoid late penalties.
- Call 1-800-MEDICARE (1-800-633-4227) to talk to a Medicare representative.
if you're wondering what benefits you might qualify for to help you pay for health care and medications, NCOA's BenefitsCheckUp® can help. Visit the site and enter your ZIP code to get started.
Sources
1. Fidelity. Keys to covering health care in retirement. April 24, 2026. Found on the internet at https://www.fidelity.com/learning-center/wealth-management-insights/how-to-prepare-for-health-care-costs-in-retirement
2. Zhou, C and Zhang, Y. The Vast Majority of Medicare Part D Beneficiaries Still Don’t Choose the Cheapest Plans That Meet Their Medication Needs. Health Affairs. October 2012. Found on the internet at https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2012.0087
3. Shelley A. Jazowski, et al. Estimating financial and health burden by initial Medicare plan choice and history of cancer. Health Affairs Scholar. January 21, 2025. Found on the internet at https://pmc.ncbi.nlm.nih.gov/articles/PMC11747364/
4. Abaluck, J. and J. Gruber. Evolving choice inconsistencies in choice of prescription drug insurance. American Economic Review. August 2016. Found on the internet at https://www.aeaweb.org/articles?id=10.1257/aer.20130778
5. Gruber, J., B. Handel, J. S. Kina and J. Kolstad. Managing Intelligence: Skilled Experts and Decision Support in Markets for Complex Products. NBER Working paper No. 27038 (GHKK, 2021). Found on the internet at https://www.nber.org/papers/w27038
6. Bundorf, et. al. Machine-Based Expert Recommendations and Insurance Choices Among Medicare Part D Enrollees. Health Affairs. March 2019. Found on the internet at https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2018.05017
7. GHKK, 2021
