Medicare Advantage Reigns. So Who Still Buys Medigap?

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Low premiums, aggressive marketing and extras like dental care and prescription drugs have propelled Medicare Advantage plans to half of the retiree insurance market. Nevertheless, some people still prefer traditional Medicare combined with Medigap insurance.   

Medigap buyers on average use $12,200 in medical care annually –  $2,300 more than everyone else on Medicare – according to the first known study to capture all sources of spending over many years, including Medicare payments, the retirees’ out-of-pocket deductibles, copayments and coinsurance for tests and care, and payments by insurers and other public programs. (Premiums are excluded from the estimate.)

Since Medigap buyers spend more, a logical supposition is that they are less healthy. But the researchers found that they are actually healthier than other retirees. Their incidence of diabetes and of cardiovascular disease are lower. They even spend more on healthcare than comparable retirees with the same health profiles. 

Medigap is very different than the Advantage plans that dominate the market. Medigap is a separate insurance policy that supplements the federal government’s direct payments through Medicare Part A and Part B for hospital care and medical services. Under Advantage plans, the government pays insurers to provide all of the care under a private policy.

Medigap also allows retirees to choose their doctors. Advantage plans operate like HMOs, which control the cost of care by requiring policyholders to stay within an approved network of providers.

Since poor health doesn’t seem to be the reason Medigap buyers are using more medical services, the researchers considered another possibility: they have higher cognitive functioning and understand why receiving more care is important. Or perhaps low-income retirees often stay out of the Medigap market because they think they might qualify for Medicaid, with its large government subsidies, and don’t anticipate needing the protection that private Medigap provides. But neither of these explanations panned out in comparisons with other retirees.

So, the question remains: why do Medigap buyers spend $2,300 more on healthcare? The researchers argue that since the various characteristics of the retirees themselves cannot explain this additional spending, their findings are consistent with “moral hazard.” Moral hazard, which is difficult to quantify, is a situation in which individuals who have Medigap spend more simply because they face lower out-of-pocket costs under these policies.

The researchers conclude that moral hazard “may lead these individuals to demand more [care] than those without Medigap.”

In other words, Medigap buyers are essentially getting more but paying less out-of-pocket for doctor’s appointments, medical care, and tests.

To read this study by Karolos Arapakis, Erich French, John Bailey Jones and Jeremy McCauley, see “Insurance Purchases of Older Americans.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

Mick Langan

Retirees who have multiple homes or a traveler’s lifestyle can’t get locked in to a Medicare Advantage program and its constraints. That is why we use Medigap.

Also, Medicare Advantage constrains your choice of providers. For wealthier people who want the best in medical care, that is a consideration. We will stay on Medigap for that reason, even after we stop doing the snowbird lifestyle.


    I believe those constraints only exist for an Advantage HMO plan. PPO plans are also available through Medicare Advantage (obviously at a higher cost–but maybe not that much higher than Medigap?). With an Advantage PPO plan you can go to any provider that takes Medicare as I understand it.

    I think the true comparison is [Traditional Medicare + Medigap] versus [Medicare Advantage PPO]


Medicare co-pays exist not only to raise revenue but also to discourage frivolous use of care. Economists have long been concerned that Medigap, by eliminating co-pays, frustrates that purpose. The Arapakis study shows that this concern is well founded. The policy solution is obvious – if the government isn’t willing to prohibit Medigap policies, it should impose an appropriate excise tax. Eyeballying the Arapakis results, it should be in the order of 30-50 percent.

John McEneaney

Have you addressed the issues of authorizations? A person in need of surgery can be denied because the insurance person approving claims could deny any test they seem unnecessary. They work for insurer not the person in a hospital. This is why civil servants are aggressively fighting against MA.

Elizabeth Fairbanks

I suspect Mick Langan hit the nail on the head. We pay more for Medigap for those same reasons.


Medigap is by far the superior healthcare alternative for seniors. There are no referrals necessary–I can make an appointment with any specialist I need without having to go through a primary care physician. As the previous comment pointed out, there are no networks. No matter where I am in the US, I can go to any doctor who accepts Medicare. Increasingly, Medicare Advantage programs are being dropped by physician networks because doctors have to jump through so many hoops to obtain payment. Also, my medical costs are very predictable–I pay for the Medicare premiums, the Medigap premiums, and the Part D drug plan premiums. I have a Plan G Medigap policy, so the only thing I pay in addition to premiums all year is the Part B deductible, which is $240 this year. If a procedure is not covered by Medicare, Medigap will not cover it, but that is true with Advantage plans as well. And drug costs are separate from that, but that is also true of Advantage plans. I will keep my Medigap plan for as long as possible, but I fear certain elements in the government intend to close down traditional Medicare altogether and require all seniors to go to Advantage plans.

John Papa

Part of the answer may be here: (including payments to Medicare according to the first known study to capture all sources of spending over many years, including Medicare payments, the retirees’ out-of-pocket deductibles, copayments and coinsurance for tests and care, and payments by insurers and other public programs. (Premiums are excluded from the estimate.) You may be including the IRMAA this is most likely to apply to beneficiaries who can afford the Medigap plans less likely with beneficiaries who are in lower income brackets and in MAPD plans. The IRMAA can be several hundred dollars a month! Unless you excluded IRMAA, your numbers are skewed.
Also, many MAPD plans are PPO plans, which give the Beneficiary flexibility to choose doctors, yet include many of the ancillary benefits.
Jumping to a conclusion of a moral hazard is irresponsible and most likely inaccurate.

W. Vann

Perhaps the answer is that we prefer to manage our lives rather than hand our Healthcare to corporate marketeers. Advantage is a lot of marketing with no substance. We like our doctors. They actually recognize us walking in the door. And how about the fact that this article admits that only half the population uses Advantage Plans. That other half is nothing to scoff at! It’s the same size as the first half! Perhaps, as the author suggests, it’s the higher functioning “cognitive half?!” Maybe we don’t trust marketeers. What could be wrong with that!?

Robert Leinig

Not being constrained on your choice of doctors/providers. Not having to fight to get approvals to see specialists and certain medications. (Although medications fall under a different category for original Medicare.) Some Medical coverage while out of the U.S. Just not having to hassle with HMO type medical issues/processes. The so called dental, gym, eye exams, and other perks, are also restricted.

Edward Hoffer MD

Medicare Advantage is great for seniors who are healthy and are confident they will not need specialized care. Traditional Medicare is better for those like the Langans who spend significant parts of the year in a different location (your plan will probably refuse to pay for anything but clearly emergency care) and for those who want the freedom to choose the best doctors and hospitals for their needs, Note that you are generally locked into your choice – there is an open enrollment period once a year, but the medigap plans may refuse to cover pre-existing conditions.

Laura Halvorson

This study sounds like academia detached from the reality of medical care in the US. Moral hazard in the insurance world refers to a *reckless* risk taken in the belief that insurance will cover it. It’s quite a stretch to apply that concept to the choices of older people who unquestionably have the greatest healthcare needs of any demographic. There are actually far more rational reasons for choosing Medigap than those considered in the study, including those cited in the comment above.

1) The maximum annual out-of-pocket cost for Advantage plans is $8,850 in 2024. All it takes is a serious accident or illness to be saddled with bills that would far exceed the cost of Medigap plan premiums. Under Medigap plans, all covered costs are paid after meeting a small annual deductible.
2) Not having to deal with health insurance bureaucracy, restrictions, and denials, which have been reported even for care explicitly covered by Medicare. This is how insurers are able to offer lower or no premium Advantage plans.

Don in GA

I thought of moral hazard immediately as well. Then, after giving some thought to it and our current private insurance Easter egg hunt, I wonder if those without Medigap are doing a reverse moral hazard. Unless you’re getting a subsidy, private insurance is very expensive. Very. (“Affordable” care, my eye). So for those in Medicare who are price-sensitive, they may be avoiding care due to cost. The fact there’s a spending gap doesn’t mean one group is overspending. My wife is adamant that we get the care we need despite coverage restrictions. Not everyone can or does think that way.

When the time comes we’re going with Traditional Medicare and a Medigap plan. It will be very expensive (~$15k+/yr just for premiums) but it’s the most predictable way for us to continue to seek the care we want as we’ve done throughout our working lives. I certainly don’t want to be at the mercy of for-profit “healthcare” companies as I become more dependent on healthcare.

    Josh Scandlen

    How are you coming up with over $15k a year for just premiums? Part B is less than $200 a month per person. Part D is less than $50. Med Supp plan say $150 and if you live here in GA is cheaper, than what they pay in the North. Just talked to a guy today who is paying $83 a month for a Plan N.. Out of pocket, co-pays, dental etc. Say another $2k a year. So, roughly $500 to $550 a month per beneficiary is what I come up with. Where are you getting the $15k?

      Maureen Weber

      If you are a couple in the 2nd IRMAA group ($208 extra for Parts B & D), with Part G of $180 each, and $50 for Part D each, for 12 months, it would be $14,704.80 for 12 months, plus $480 for both Part B deductibles, you would be paying $15,184.80. It depends on the Part D premium, and what IRMAA group (if any) you are in.


I want to select my own providers and not be locked in to a plan group as I may not like the Dr they send me to. I don’t wait weeks for referrals to specialists. I can get multiple opinions. Comparing notes with friends, I get appointments faster than they do (with Advantage plans). I travel and need the go anywhere option. An employee waited about 3-4 months for gallbladder surgery (Advantage plan) and then only got 48 hrs notice. I had my surgery in a week.

Mike Dalton

I use Medigap because I can afford to pay the extra money and it affords more certainty and flexibility.
Imagine if you research that hypothesis.

    Paul Baxter

    You got that right Sir. For the certainty and flexibility, Medigap will always be by far the superior healthcare alternative for seniors. And I don’t see that changing anytime soon.

John Swaney

I have a Medigap policy because I strongly advocate for my care. Medicare Advantage plans access to care varies widely depending on the County in which you live and the care providers available. Original Medicare A and B with a Medigap policy do not have territorial limitations or network access to care limits.

samuel sprowls

Is there a possibility that the government may suspend the Medigap supplement program?

P Fuerte

I will repeat what I have seen often: “If you value your life, walk away from Advantage plans.”

Diane Young

I believe you’re comparing oranges to apples when comparing Medigap to Advantage plan choices & what each pays for what they get. One example, is Advantage plans include eyes, teeth & ears coverage… Medigap does not offer that, so these subscribers pay out of pocket (me, for eyes & teeth) for these services or have another coverage for
them. I don’t think you included these costs in your “study” making it very skewed indeed.
Also, I take offense that as Medigap subscriber, I seek more care. I don’t believe I seek any more medical care than those on Advantage plans. Thank you.

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