Key Elements of the Proposed U.S. Postal Service Health Care Plan:
Element: 100% participation of eligible retirees in Medicare Parts A and B;
Description: The U.S. Postal Service’s (USPS) plan is designed so that all Medicare-eligible retirees would enroll in Medicare Parts A and B. Those who do not enroll would have their benefits reduced by the amount Medicare would have paid had the individual enrolled. As is the case under the Federal Employees Health Benefits Program (FEHBP), Medicare would serve as the primary payer of health care costs, and for existing retirees, the USPS plan would cover 100 percent of any costs above the amounts covered by Medicare Parts A and B.
Element: Prescription drug benefits that qualify the plan for federal subsidies and drug discounts; Description: USPS would design the prescription drug benefits under its plan to qualify as an Employer Group Waiver Plan (EGWP) under Medicare Part D. This would qualify USPS to receive–for those eligible for Medicare–a federal subsidy from the Medicare program for drug costs, a discount from pharmaceutical companies for brand name drugs, and federal coverage for drug costs above a catastrophic limit.
Element: Introduction of two new tiers of coverage;
Description: The proposed plan would include four coverage tiers: self only, self and spouse, self and children, and self and family. Premiums for each tier would be set according to the claims experience of the group. USPS’s proposed addition of two tiers (self and spouse and self and children) to the options available under FEHBP would be to reflect the various stages of family status that participants may experience over the course of their career and retirement.
Element: Purchasing plan administration services from a single vendor through a competitive bidding process; Description: USPS would contract with a single vendor to administer its plan; that vendor would negotiate with providers for payment rates, process claims, and provide wellness and disease management
programs.
Element: Requirement that future retirees be subject to plan deductibles and cost-sharing upon enrolling in Medicare; Description: For employees retiring a year or more after the USPS plan becomes effective (i.e., “future retirees”), Medicare would be the primary insurer once the enrollee becomes eligible, and the USPS plan would cover costs above what Medicare pays. However, future retirees would be required to meet the USPS plan deductible and pay coinsurance.
Element: USPS Health Benefits Fund;
Description: Under one option of USPS’s proposal (which USPS refers to as “Scenario 2”),a its health plan would be financed by a newly created fund called the Health Benefits Fund (HBF) that would include: (1) the entire Postal Service Retiree Health Benefits Fund that would be abolished upon its transfer to the HBF; (2) the balance of the fund that finances FEHBP allocable to contributions by USPS, postal employees and retirees, including any reserve fund amounts; (3) USPS contributions under its health plan; (4) contributions of postal employees and retirees under the USPS health plan; (5) any interest on HBF investments; (6) any other USPS receipts allocable to the USPS health benefits plan; and (7) appropriations based on the service of officers and employees of the former U.S. Post Office Department. Under its proposal, USPS would be authorized to invest HBF assets without the approval of the Secretary of the Treasury in non-Treasury securities, such as stocks and bonds, as well as commodities, foreign currency, and real property. Also, USPS indicates that HBF assets could not be used for (1) loans to USPS, such as to enable it to remain solvent; (2) USPS payments to the federal government, such as for pensions and workers’ compensation; or (3) to finance USPS investments or USPS nonpostal initiatives to generate revenue. In any year when the amount of HBF assets exceeds USPS’s estimated actuarial liability for retiree health benefits, USPS could authorize the surplus amount to be transferred to the Postal Service Fund that finances most USPS expenses, provided that such authorization is made
pursuant to a recommendation by a majority of the Committee overseeing the HBF.
Element: USPS funding of retiree health benefits;
Description: USPS would continue to prefund retiree health benefits, but under a purely actuarial approach, without the fixed (non-actuarial) payments required under current law through 2016. Payments to the HBF would be based on the “normal cost” and amortization of any unfunded liability or surplus of its retiree health care liabilities over an amortization period ending at the later of 40 years after implementation or 15 years from the then-current year.
Source: GAO analysis of USPS information.
[A] USPS has also proposed another option for financing its health plan (which USPS refers to as “Scenario 1”) under which retiree health benefits would continue to be financed from the Postal Service Retiree Health Benefits Fund (PSRHBF).
What GAO Found
GAO has reported that Congress needs to modify the U.S. Postal Service’s (USPS) retiree health benefit payments in a fiscally responsible manner. GAO also has reported that USPS should prefund any unfunded retiree health benefit liability to the maximum extent that its finances permit. Deferring funding for postal retiree health benefits could increase costs for future ratepayers and increase the risk that USPS may not be able to pay for these costs. Key considerations for funding postal retiree health benefits include:
Trade-offs regarding USPS’s current and long-term financial condition: One rationale for prefunding is to protect USPS’s future viability by paying for retirement benefits as they are being earned. However, USPS currently lacks liquidity to fund required payments for prefunding retiree health benefits. To the extent prefunding is postponed, larger payments will be required later, when they likely would be supported by less First-Class Mail volume. No prefunding approach will be viable unless USPS can make the payments.
Possible consequences to USPS employees and retirees: Fully funded benefits protect against an inability to make payments later and make promised benefits less vulnerable to cuts.
Allocating costs between current and future ratepayers: Deferring payments can pass costs from current to future postal ratepayers. Allocating costs among different generations of ratepayers is complicated by the unfunded liability that was not paid for in prior years.
Funding targets: An 80 percent funding target for postal retiree health benefits would effectively lead to a permanent unfunded liability of roughly 20 percent. An option could be to build in a schedule to achieve 100 percent funding in a later time period after the 80 percent level is achieved.
GAO has reported that USPS would likely realize large financial gains from its proposal to withdraw its employees and retirees from the Federal Employees Health Benefits Program (FEHBP) and establish its own health plan. According to USPS’s estimates, these financial gains would significantly reduce its health benefits expenses and eliminate its unfunded retiree health benefit liability–with increased use of Medicare by retirees comprising most of the projected liability reduction. USPS also has projected that its proposal will increase Medicare spending. As Congress considers proposals for a USPS health care plan, it should weigh the impact on Medicare, which also faces fiscal pressure, and other issues, including establishing safeguards for assets of the USPS health plan and ensuring protections for plan participants are comparable to those in FEHBP.
GAO has also reported on key considerations regarding the release of any Federal Employees Retirement System (FERS) surplus to USPS. First, estimates of retirement benefits liabilities contain a significant degree of uncertainty and can change over time. Second, returning surpluses whenever they develop would likely result in an eventual unfunded liability. Alternative options to address funding surpluses include reducing USPS’s annual FERS contribution either by amortizing the surplus over 30 years (which would mirror the treatment of deficits) or by offsetting the contribution against the full surplus each year until the surplus is used up.
Why GAO DId This Study
USPS continues to be in a serious financial crisis, with little liquidity in the short term and a challenging financial outlook in the long term as profitable First-Class Mail volume continues to decline. Critical decisions by Congress are needed on postal reform legislation that has been proposed in both the U.S. Senate and the House of Representatives. Various proposals would restructure the financing of postal retiree health benefits, including required payments to prefund these benefits; enable USPS to introduce a new health plan for postal employees and retirees; and restructure the funding of postal pensions, including addressing a potential surplus in funding postal pensions under FERS.
This testimony discusses (1) funding USPS retiree health benefits; (2) USPS’s proposal to withdraw its employees and retirees from FEHBP and establish its own health plan; and (3) a potential surplus in funding postal pensions under FERS. This testimony is based primarily on GAO’s past work.
@ Joe Quinlan
Well said. Please don’t confuse Capt Jack with the facts as his mind is already made up – he hates Obama and Democrats. Probably racist based. Nothing to contribute to the dialogue really; just attack, make up stuff out of whole cloth and name call.
@ w c todd
To expect Donahoe and his senior execs to include themselves into his new, proposed plan is to assume they are capable of leadership by example. PCES execs have always acted to take care of themselves first. Up until OIG and Congress got on their butts, they were paying nothing for their health plans. They rigged the annual merit pay system so that if USPS had a good year, they got double what the lower level, EAS supervisors in field got, although I realize there is no sympathy there for either. The people in the trenches made it happen, not them, but they reap the benefit at double the rate. These are folks that already make 200K salaries. They fully believe in “rank has its priviledges”, do as I say, not as I do. So much for “we’re all in this together”.Also, the Board of Gov. also salts away extra, deferred compensation in special accts for them, so they retire millionaires, like Potter and Vegliante. You don’t see any other federal, executive branch agency doing this.
SO they will invest the Health care monet in stocks and other things. That should work out well
Captn Jack, our nation needs single payer health care, as Canada has! Why are we forced to pay taxes for school sports, while people must plead for health care? Now back to Postal health care! why is it that Postal employees must give up FEHBA while his royal majesty King DOWNTHEHOLE and his band of jesters can keep FEHBA? Seems that his royal majesty doesn’t want the BERNY MADOFF health plan. Looks like the king knows that his plan isn’t anything but a big joke! Why not just give us Vaseline when we are given the shaft?
Hey Captn Jack:
Pop quiz: Which of the following countries has the highest rate of
infant mortality? France, South Korea, Great Britain, the
United States, Cuba or Sweden?
And the answer is: USA! With capitalist medicine for profit instead of
a single payer system, USA already has third world level health care for all but the rich.
obie-care will ensure our grandchildren will have health care on par with 3rd world countries. Our great grandchildren will wish their care was on par with Angolia and Zambia. Y’all voted for that boy just as the unions told you to as you are not able to think for yourselves.
Mongo has made a very good argument above. I would only add that because Obamacare is now the law of the land, that within 10-15 years our Congress will most likely move to a single-payer system across the land. This will be the result of too many still left uninsured, the fiscal mess of Medicare and Medicaid, and the private insurance companies gradually leaving the medical insurance field, due to continual and growing regulations imposed upon them by future elected Congresses. For Congress to continue to insist on onerous pre-payments by the USPS, will only hasten the financial disaster they have created for the USPS. Our elected Congressmen need to wake up to what they have created and take off their rose-colored glasses or lead helmets, whichever they have chosen to wear.
GAO is no friend of USPS. Still insisting that USPS hit 80% retiree health benefit prefunding right away, and 100% shortly thereafter. No other federal agency or private sector company pre-funds at that level. The few corporations that pre-fund at all, do so at about a 45% level. Double standard. Whatever happened to the well worn argument to follow the private sectors “best practices”? USPS already has $46 billion in this kitty, more than enough to pay for the next 10 plus years if no more money was put in. Once again, USPS is being held to an unrealistice standard which continues the artifical financial “crisis” and generates dire looking, phony budget shortfalls. Fred Rolando calls it like it is, in this regard.
If USPS is allowed to create any new, “in house” plans, they should be required to have them inside FEHB and sign up s/b voluntary, not mandatory. Their proposal is unilaterally taking away employees right to choose their plan while underminding the viability of FEHB itself. If they are really going to save USPS and retirees so much money as they claim, people will naturally grativate toward them. Keep in mind that during the last Senate hearing, the fact came out that 74% of retirees already sign up for Medicare. If Donahoe can come up w/ a decent “wrap around” plan, not one that screws retirees, it would be a win win. The plan should pick up 100% of what remains after Medicare pays 80%, not apply deductibles and co-pays. Some plans currently in FEHB like GEHA already do this. You join Medicare and they waive all co-pays and deductibles. It must be kept in mind that retirees will each have to cough up and additional $100 a month or so, out of pocket, for Medicare A & B, over and above what they already have to pay for their health plan. So there is a cost shift there, onto the employee, not just Medicare. Plus Medicare will be the primary payer, and eat the first 80% of medical costs. Only 20% remains for the USPS “new plan”. USPS should share the significant savings with its employees and retirees; don’t be greedy by trying to stick them with co-pays and deductibles. You would still be way ahead. Any new proposed USPS plan should have to compete in the market place for members, just like the 200+ other plans in FEHB, based on its merits. Just don’t unilaterally shove a dog plan down everyone’s throats and ask Congress to bless it.