Healthcare can be a budget-buster in retirement. How much you’ll need to save is a mix of math and guesswork—ranging from an estimated $189,000 to $351,000 for a couple.

Those numbers come from a new report by the Employee Benefit Research Institute, or EBRI.

According to the research, a couple enrolled in traditional Medicare plus a Medigap supplement plan will need $351,000 to have a 90% chance of covering their medical expenses in retirement. A couple enrolled in Medicare Advantage—plans run by private insurers—will need $189,000.

Many people don’t focus on Medicare until they’re on the cusp of enrolling, so they don’t appreciate its costs in advance. EBRI’s estimates exclude long-term-care costs such as assisted living and home health aides for routine support, which Medicare doesn’t cover.

Still, “being aware of that number helps you be more prepared,” says Jake Spiegel, co-author of the report.

What accounts for the stark difference? A big component is the steadily rising cost of Medigap supplemental coverage, though other factors are also at play.

The estimates include premiums for Medicare Parts B and D, including the Part B deductible and out-of-pocket spending for outpatient prescription drugs. Most Medicare enrollees, whether on traditional Medicare or Medicare Advantage, pay the standard Part B premium of $174.70 in 2024, or more if they are high earners. For Medigap, the estimate includes premiums for Medigap Plan G, the most comprehensive option available to new members.

For Medicare Advantage, the calculations assume the plan has a $0 premium. Some 73% of Medicare Advantage enrollees were in a $0 premium plan in 2023, according to KFF, a health policy organization.

Medicare Advantage now enrolls just over half of Medicare enrollees, or more than 30 million Americans. In addition to the $0 premiums charged by many plans, attractions include extras such as gym memberships and limited coverage for services that traditional Medicare doesn’t cover, such as dental and vision care.

With traditional Medicare and Medigap Plan G, you generally incur no out-of-pocket costs when you visit the doctor, once you’ve paid the annual Part B deductible of $240 for 2024. (Plan G covers the Part A deductible for hospitalizations, which is $1,632 per benefit period in 2024.) Even if you get a serious illness, your costs will generally be capped at the monthly premiums you pay for Part B and Plan G. 

By contrast, costs under Medicare Advantage can mount considerably. For 2024, the out-of-pocket maximum for in-network care in Medicare Advantage plans is $8,850, though plans can set their own lower limits. Plans may set copays for specialist visits at $50, and copays for items like MRIs can run higher.

What’s more, if you venture out of your plan’s network to see a doctor who doesn’t take your insurance, you may be responsible for the full cost, outside of emergencies. (Traditional Medicare doesn’t have provider networks, and most doctors accept it.)

All of this makes budgeting for healthcare quite tough. One way to think about it is the difference between unpredictable and predictable expenses under Medicare Advantage versus traditional Medicare plus a Medigap plan. Under Medicare Advantage, your costs will typically vary based on your health status. That variability can hard to budget around. 

Though it looks like Medicare plus Medigap is costlier up front, your expenses will generally be capped at your premium, even under a catastrophic scenario.

One certainty is that your costs under Medigap will go up as you age. A 65-year-old woman who pays $1,571 in annual premiums for Plan G Medigap would pay $4,172 for the same coverage at age 85, a 166% increase, according to projections by HealthView Services, a retirement healthcare data company.

While that may sting, it’s still a budgetable increase. The average Medigap inflation under HealthView’s illustration is an annual 7.85%, including both a regular inflation bump and what’s known as an “age rating.” (In most states, Medigap is age-rated, meaning that older beneficiaries pay more due to the expectation that they will use more medical services.)

Medicare Advantage might look cheaper on the surface, and it could wind up costing less. It’s also a bigger gamble.

Write to Elizabeth O’Brien at [email protected]