5 Reasons Medigap Plans Keep Getting More Expensive Every Year

Key Takeaways

• Medigap premiums continue to rise each year due to healthcare inflation, increased utilization, and administrative costs.

• Understanding why these costs increase helps USPS employees and retirees make informed decisions regarding their health coverage under the new Postal Service Health Benefits (PSHB) system.

The Ever-Rising Tide: What’s Behind Your Increasing Medigap Premiums?

As a USPS employee or retiree, navigating your healthcare options can feel overwhelming, especially with annual increases in Medigap (Medicare Supplement Insurance) plan premiums. You’re not alone if you’ve noticed that your monthly payments keep climbing each year, sometimes faster than expected. But what’s causing these continual hikes?

Here’s a detailed breakdown of the top five reasons behind the rising costs of Medigap coverage, so you can better understand your benefits under the Postal Service Health Benefits (PSHB) program.

1. Healthcare Inflation Keeps Marching Upward

Healthcare inflation consistently outpaces general economic inflation, making medical treatments, hospital stays, and physician services more expensive every year. This upward pressure directly impacts the costs associated with Medigap plans, as these supplements primarily cover out-of-pocket expenses like deductibles, copayments, and coinsurance.

• Why it matters to you: Even a modest yearly inflation rate of around 5% in healthcare means that costs double roughly every 14 years, significantly increasing your premiums over time.

2. Higher Utilization Means Higher Premiums

As more USPS retirees rely on their healthcare coverage, the utilization rate increases. This higher usage includes frequent doctor visits, increased medical tests, procedures, and longer hospital stays. With more people actively using healthcare services, insurance companies must raise premiums to cover the additional expenses.

• What’s behind the increased use?

  • An aging population

  • Longer lifespans, resulting in prolonged healthcare needs

  • Advances in medical technology, leading to more sophisticated (but costlier) treatments

When utilization goes up, costs are inevitably passed on through higher monthly premiums.

3. Rising Prescription Drug Costs Affect Overall Health Expenses

Even though Medigap policies don’t directly cover prescription drugs—that’s what Medicare Part D is for—the increasing cost of medications indirectly impacts your Medigap premiums. Here’s how:

• People with chronic conditions who take expensive medications typically have higher medical expenses overall.

• Insurers must set premiums at levels sufficient to cover these anticipated higher costs.

As prescription drug prices continue to climb, insurers factor these rising costs into their premium calculations, driving up your Medigap expenses indirectly.

4. Administrative and Operational Costs Are Climbing

Operating costs related to managing healthcare claims, regulatory compliance, customer service, and general administrative duties have increased significantly. These expenses might seem trivial individually but add up quickly at scale. Insurance companies integrate these rising operational expenses into the premium structures, passing the costs onto you.

• Factors pushing administrative costs higher:

  • Stricter regulatory oversight

  • Enhanced customer service expectations

  • Increased use of technology and software platforms for claim management

The more complex the healthcare landscape becomes, the higher your Medigap premiums tend to rise to accommodate these administrative demands.

5. Pooling Risk Among Smaller Groups Raises Costs

Medigap premiums are based on the health status and claims of their policyholders. If the group you belong to experiences high claims (often from severe or chronic illnesses), insurers respond by increasing premiums across the board. Smaller groups are especially vulnerable to significant premium spikes because a few large claims can disproportionately affect overall costs.

• Why small pools mean higher risk:

  • Claims from even a small number of individuals can substantially impact the premium structure.

  • Larger pools can spread the risk over more individuals, stabilizing premiums.

As a USPS retiree, it’s critical to evaluate the risk pool size of your chosen plan under PSHB to avoid unexpectedly large premium increases.

How the PSHB Program Impacts Your Medigap Choices

With the transition to the Postal Service Health Benefits (PSHB) program as of January 1, 2025, understanding the landscape of Medigap plans becomes even more crucial. PSHB offers tailored coverage options for USPS employees and retirees. Here’s what this transition means for your healthcare decisions:

• Special Enrollment Rules:

  • PSHB open enrollment runs from November 11 to December 13 each year, with coverage beginning January 1.

  • Evaluate your options during this period to ensure you select the most cost-effective plan.

• Medicare Integration:

  • Many PSHB plans provide cost-saving features, such as reduced copayments and deductibles for Medicare enrollees.

  • Carefully reviewing plan details can help you identify potential savings despite rising premiums.

• Prescription Drug Coverage:

  • PSHB plans automatically include Medicare Part D coverage through Medicare Employer Group Waiver Plans (EGWPs).

  • Better prescription coverage may indirectly help control overall healthcare expenses, potentially moderating premium increases in Medigap supplements.

Strategies to Manage Medigap Cost Increases Under PSHB

Even with inevitable premium hikes, you have options to manage your healthcare expenses more effectively:

• Regularly review your health needs and adjust your coverage during open enrollment.

• Consider switching to plans that balance coverage and costs effectively, especially if your health needs have changed.

• Take advantage of PSHB plans offering integrated Medicare cost savings.

• Consult with a licensed agent who specializes in Medicare and PSHB for tailored advice.

Empower Yourself With Information

While premium increases might seem unavoidable, staying informed about the factors behind these rises helps you better manage your healthcare budget. Consider:

• Regularly tracking healthcare inflation trends.

• Reviewing your annual healthcare utilization.

• Monitoring prescription drug cost trends.

This proactive approach enables you to anticipate increases and adapt your healthcare strategy accordingly.

Navigating Your Options Effectively

Understanding the underlying reasons for rising Medigap premiums empowers you as a USPS employee or retiree to make informed healthcare decisions. With the PSHB transition already in effect, you’re uniquely positioned to select coverage options that provide the best value while mitigating the impacts of escalating costs.

Don’t let rising premiums catch you off guard—actively managing your healthcare decisions today ensures you’re prepared for tomorrow’s inevitable changes. Connect with a licensed agent listed on this website for personalized guidance tailored specifically to your situation and needs.