A retiree pays more now so he can keep Medigap later, and the IRS stops a popular way to swap appreciated stock into an ETF without paying tax.
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A retiree is dropping his cheap employer Medicare plan and paying $2,250 more a year for Medigap, because his doctor of 20 years leaves the network in 2027. story 1 ↓
Why now: he passes Medigap's health screening today, so he can keep it later. But he can never get the old employer plan back. story 1 ↓
The lesson: in most states, switching from Medicare Advantage to Medigap is hard to undo, so keeping your options open has a price. story 1 ↓
New IRS guidance stops investors from moving appreciated stock into a newly formed ETF under Section 351 without paying capital gains tax.
1/1HumbleDollar· John Katz· Nov 1
Retiree drops cheap employer Medicare plan to pay $2,250 more for Medigap
A HumbleDollar reader in his late 60s is leaving a subsidized Medicare Advantage plan for Original Medicare plus Medigap Plan G. His expected costs rise from about $1,750 to $4,000 a year. In return he gets any doctor and almost no prior authorization.
Why it matters · Most retirees choose between Medicare Advantage and Medigap once, and in most states that choice is very hard to reverse. This case shows the real price of keeping your options open.
Know this first
Context from the editor, not the article · 32 sec
1 · Two ways to get Medicare
Original Medicare (Parts A and B) is run by the government and accepted by any doctor who takes Medicare. Medicare Advantage (Part C) is the same coverage sold by private insurers. It's often cheaper, but it uses networks and prior authorization.
2 · What Medigap fills in
Original Medicare leaves 20% coinsurance with no annual cap. Medigap policies, sold privately, cover those gaps. Plan G covers nearly everything except the yearly Part B deductible. Drug coverage needs a separate Part D plan.
3 · The underwriting trap
Federal law guarantees Medigap acceptance mainly in the six months after you first enroll in Part B at 65. After that, insurers in most states can ask about your health and turn you down. A few states, such as New York and Connecticut, don't allow this.
Image: HumbleDollar
Remember
Leaving Medicare Advantage is easy. Getting back into Medigap later can require passing health screening in most states.
Plan G's expected cost here (about $4,000) roughly equals the Advantage plan's worst-case medical year (about $4,100).
Advantage networks change every year, so a doctor who's in network now may not be next year.
John Katz and his wife, both in their late 60s, are giving up a retiree health plan that most people would envy. It's a 1 plan, heavily subsidized by his former employer. Together they pay $1,100 a year in premiums, and each has a $1,500 annual out-of-pocket maximum. They are replacing it with 2 plus a 34 policy and a standalone 5 drug plan. In a HumbleDollar forum post he asks whether he's crazy.
Why leave a cheap plan
Medicare Advantage plans are private insurers' version of Medicare. They keep costs down partly with doctor networks and 6, which means the insurer must approve some care before it pays. Katz has felt both. Two years ago the plan dropped his dermatologist. Now it has told him that his primary care doctor of 20 years will be out of network in 2027. He also wants to avoid approval delays as he and his wife get older.
Original Medicare works with any doctor in the country who accepts Medicare, and it rarely requires prior approval. Its weak spot is 20% coinsurance with no annual cap. Medigap, a private supplemental policy, covers that gap. Plan G pays nearly everything except the 7, the amount you pay each year before Part B coverage starts.
The numbers
Katz estimates that their combined costs will rise from about $1,750 a year (Advantage premiums plus typical copays) to about $4,000 (Plan G and Part D premiums plus Part B deductibles). That's roughly $2,250 more each year.
There's another way to read those figures, and the post doesn't make it. In a bad year under the Advantage plan, the couple could pay $1,100 in premiums plus $1,500 each in out-of-pocket costs, or about $4,100. So their worst medical year under Advantage costs about the same as their expected year under Plan G. Plan G costs more in typical years and turns medical spending into a mostly fixed bill. One caveat: in many states Medigap premiums go up with age, so the gap is likely to grow.
Why now, and why it's permanent
The timing comes from 8. After the first six months of Part B enrollment, insurers in most states, including Katz's, can turn down Medigap applicants because of their health. Both of them are healthy now. They applied, passed, and were approved. If they wait until a serious diagnosis, they could be shut out of Medigap for good.
The cost is that they can't go back. Once they drop the employer plan, they can't rejoin it. Katz calls the extra spending "insurance on our medical freedom." That makes sense if the option to choose any doctor is worth about $2,000 a year to you, and if you can pay for it for decades.
John Katz posted a question to the HumbleDollar reader forum: is he crazy to give up a cheap, subsidized retiree health plan and pay more than $2,000 a year extra for 1? He and his wife are in their late 60s. Their new coverage is already approved, so his post explains a decision more than it asks for advice. It's still a clear example of a choice most American retirees face once.
The plan they're leaving
Their current coverage is a 2 plan from his former employer. Medicare Advantage, also called Part C, is Medicare benefits delivered by a private insurer. Medicare pays the insurer a set amount per enrollee. The insurer makes money by managing care, which means steering patients to a contracted network of doctors and requiring 3 (its own approval before paying for certain treatments). Employers often use these plans for retiree benefits because they cost less to subsidize.
This plan is generous. The couple pays $1,100 a year in combined premiums, and each of them has a $1,500 annual out-of-pocket maximum. Katz puts their typical yearly total, premiums plus usual copays, at about $1,750.
What went wrong
The network keeps shrinking. Two years ago the plan dropped his dermatologist. A few weeks ago it told him that his primary care doctor of 20 years will be fully out of network in 2027. Advantage networks are negotiated each year, so a doctor who is in network now may not be next year. The couple also wants to avoid the "administrative hoops and coverage delays" of prior authorization as they age and need more care.
What they're switching to
They are moving to three pieces:
4 (Part A for hospitals, Part B for doctors and outpatient care). It's run by the government and accepted by any provider nationwide who takes Medicare, and it rarely requires prior approval. On its own, though, it leaves you paying 20% coinsurance on Part B services with no annual cap.
The article doesn't say whether the Advantage plan included drug coverage, or whether the Part B premium shows up in either set of numbers. Everyone in Medicare pays the Part B premium under either option, so the comparison works if it's left out of both.
The cost comparison
Katz estimates about $4,000 a year under the new setup (Plan G premiums, Part D premiums and two Part B deductibles), compared with about $1,750 now. The difference is roughly $2,250 a year.
The figures he gives allow a second comparison, which is my arithmetic rather than his. In a bad year on the Advantage plan, both spouses could hit their caps. That's $1,100 in premiums plus $1,500 × 2 in out-of-pocket costs, or about $4,100. Plan G's expected cost of about $4,000 is close to the Advantage plan's worst-case medical cost. In other words:
Under Advantage, costs range from about $1,750 in a typical year to about $4,100 in a very bad one.
Under Plan G, the bill stays near $4,000 almost every year, plus whatever drug costs Part D doesn't cover.
So the couple pays more in typical years, and gets a predictable bill, free choice of doctor and almost no approval process. Two caveats go against Plan G. Medigap premiums in many states rise as you age, so $4,000 is the starting point. And the Advantage plan's low cap depends on the employer keeping its subsidy, which the article doesn't discuss.
Why the timing matters: underwriting
The most important part of the post is about timing. Federal law guarantees that you can buy any Medigap policy without health questions only during a six-month window that starts when you first enroll in Part B at 65 or older. There are narrow exceptions, such as a trial right in your first year on Advantage, or losing certain coverage. Outside those cases, insurers in most states can use 8. They can ask about your health and charge more or turn you down. A few states, including New York and Connecticut, require insurers to accept applicants at any time. Katz says his state isn't one of them.
That turns a reversible choice into a one-way door. Switching from Original Medicare to Advantage is easy at any annual enrollment period. Switching back is the hard part. A retiree who gets cancer or heart disease while on Advantage may never pass Medigap underwriting, and then stays in managed care right when doctor choice matters most. Katz and his wife are healthy now, so they applied, passed and were approved. In his words, they "had to pounce while we could pass underwriting."
What they give up
The switch can't be undone in two ways. Once Katz leaves the employer-sponsored retiree plan, he can't rejoin it. And the Medigap approval is only worth something if they keep the policy. If they drop it later, they would have to go through underwriting again.
Katz frames the extra spending as "insurance on our medical freedom," meaning access to any Medicare-accepting doctor in the country, without network limits or approval friction, for life. Seen that way, it's an option premium. They pay about $2,000 a year now to keep a choice they couldn't buy later at any price.
What the post leaves open
The post doesn't name the state, the actual Plan G and Part D premiums, the couple's prescriptions, or whether the Medigap premium is priced by attained age (rising every year) or issue age. Those details decide how fast the $2,250 gap grows. Whether the choice is wise depends on two things the numbers can't settle: how much they value keeping their own doctors, and whether $4,000 or more a year will stay affordable into their 80s.
Medigap 5, a standardized supplemental policy from a private insurer that pays most of what Original Medicare doesn't. Plan G covers the 20% coinsurance and hospital deductibles. The main thing it leaves to you is the yearly 6, a few hundred dollars per person.
A standalone 7 plan for prescription drugs. Original Medicare and Medigap don't cover drugs.
