Postmaster General Patrick Donahoe is fighting for the right to get U.S. Postal Service employees out of the Federal Employees Health Benefits Program (FEHBP) as critics whether the service has the expertise to build a better plan.
Donahoe talked about health benefits today during a Postal Service hearing organized by the House Oversight and Government Reform Committee’s federal workforce subcommittee.
The Postal Service now gets health coverage for active employees through the FEHBP, and a federal law requires it to pay in advance to fund future retiree health benefits. The organization is facing big, growing deficits, in part because of the effects of the retiree health benefits prefunding requirement and in part because of customers’ increasing reliance on electronic communications, Donahoe said, according to a written version of his remarks posted on the committee website.
The Postal Service is spending about $13 billion per year — 20% of its revenue — on health care, with $5.6 billion per year going toward prefunding retiree health benefits, $4.4 billion for premiums for active employees, and $3.2 billion for premiums for current retirees, Donahoe said.
Today, because of the way the FEHBP and the retiree health benefits rules work, “cost fluctuations in this large component of our total operating costs, second only to wages, are largely out of our hands,” Donahoe said.
Donahoe says letting the Postal Service set up its own health plan could help it save about $7 billion in the first year and about $22 billion by 2016.
The Postal Service would achieve those savings by offering just a few levels of coverage, rather than the long list of choices that the FEHBP offers; eliminating the retiree health benefits prefunding requirement; and adding better wellness and condition management programs, Donahoe said.
Now, for example, the Postal Service has little ability to get retirees to shift into the Medicare program rather than relying mainly on Postal Service-provided benefits, Donahoe said. He reported that getting retirees to make as much use of Medicare as possible would save about $565 million in the first year.
Walter Francis, an independent consultant and the author of a book on the FEHBP, said during his testimony that the Postal Service has demonstrated no ability or real desire to run a health plan, and that he believes the organization is simply looking for a solution that would give it access to billions of dollars in taxpayer subsidies.
The Postal Service “would do so by claiming that its new plan would enable it to eliminate or vastly reduce the contributions to FEHBP reserves for retirees that it is forced to make under present law,” Francis said. “The motives for this are perfectly clear and transparent. Indeed, in some sense the logic of the USPS proposal is impeccable. If a debt is onerous, make whatever changes are needed to write it off.”
The Postal Service “has proposed a massive reduction in health insurance benefits to current employees in the name of modernization and value purchasing,” Francis said.
Francis said the Postal Service is suggesting that it might offer a “Value Option” with a $4,000 deductible — without making arrangements to offer health savings account or health reimbursement arrangement contributions.
The Postal Service has more discretion than other agencies over the percentge of FEHBP premiums it pays, and the result is that it has inflated its costs by agreeing to collective bargaining deals that require it to pay an unusually big share of the premiums, Francis said.
This year alone, the cost of that funding differential will be about $400 million, Francis said.