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How Choosing A Medicare Plan Could Impact Your Finances and Health

Samuel Kina SVP of Economics & Research at Picwell, Inc

Health care is one of the biggest expenses that you will need to plan for in retirement, with recent estimates indicating that the average couple retiring today can expect to spend close to $300,000 on health care in retirement. 

This high price tag obscures the fact that health care costs can vary widely from one person to the next, and much of the variation in total health care costs that people experience can boil down to which health insurance plan they 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. 

Given this level of variation in costs, choosing the right Medicare coverage is an important step in ensuring both your financial and physical health in retirement. You want to make sure that your health plan will help you pay for the health care that you need, but you also don’t want to throw away money paying for more insurance than you actually need.

How Medicare ‘Choice Error’ Can Be Costly for Older Adults

Unfortunately, a growing body of research shows that seniors 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 seniors spent an average of $368 per year more than they needed to, and, while only 5 percent of seniors chose the lowest cost plan, more than 20 percent were overspending by more than $500 per year.1

These findings are echoed by numerous other studies, and researchers have also found that even when seniors 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.2

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 percent of seniors chose the optimal Medicare Advantage plan. People were overspending by more than $1,000 per year on average, and more than 10 percent of people were overspending by more than $2,000 per year! 3 Over time, these types of mistakes can really add up.

Using Online Tools to Help You Navigate Medicare Costs and Coverage

There may be several reasons that people spend more than they need to on Medicare, there is no denying the fact that choosing a Medicare plan is hard. The health insurance plans themselves are complicated and difficult to understand. Even if you do understand each health plan, you may have dozens of different options to choose from, and that’s not even considering the fact that you have to decide which type of coverage you want. 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 will depend on many factors, including what your health care needs are, where you live, and what your budget looks like.

These choices may seem overwhelming, but, on the bright side, effective options exist to get help. Tools like cost calculators and digital decision support tools have been shown to improve both Medicare Part D4 and Medicare Advantage5 plan selections, and high quality enrollment agents can also help their customers find the most cost effective Medicare plans. 

NCOA’s Age Well Planner has a Medicare Cost Estimator that will walk you through your costs, including premiums, copayments, and deductibles. And if you’re wondering what benefits you might qualify for to help you pay for health care and medications, NCOA’s BenefitsCheckUp can help. Choosing how and when to get Medicare is an important but difficult decision. If you need help sorting through your options, find out how NCOA can help.


1. 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, 2012, 31 (10). Available at https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2012.0087

2. Abaluck, J. and J. Gruber, “Evolving choice inconsistencies in choice of prescription drug insurance,” American Economic Review, 2016, 106(8), 2145-84. Available at https://www.aeaweb.org/articles?id=10.1257/aer.20130778

3. 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). Available at https://www.nber.org/papers/w27038

4. Bundorf, et. al. “Machine-Based Expert Recommendations and Insurance Choices Among Medicare Part D Enrollees,” Health Affairs, 2019, 38(3), Available at https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2018.05017

5. GHKK, 2021

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