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Postal Service Bill Cuts Spending on Health Care for Retirees

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Members of Congress are considering H.R. 756, a bill that could cut U.S. Postal Service spending on health benefits for retirees.

(Related: Federal Workers Seek Long-Term Care Insurance Rate Hearing)

Analysts at the Congressional Budget Office estimated last week that H.R. 756, the Postal Service Reform Act of 2017, could produce more than $6 billion in spending cuts on health benefits over the 10-year period from 2018 through 2027.

If the bill becomes law and takes effect as written, it could affect any financial professionals who sell annuities to Postal Service workers by increasing the amount the workers need to budget for post-retirement health care expenses.

The bill could also serve as a model for efforts to change struggling public and private retiree health benefits programs, both inside and outside the United States.

Benefit Cuts

The authors of H.R. 756 hope to save money by:

  • Taking active postal workers, retirees and dependents out of the Federal Employees Health Benefits Program, and putting them in a new Postal Service Health Benefits Program, with the costs for the active employees based solely on the medical costs for active postal workers and their dependents.

  • Requiring all Postal Service retirees who use postal service retiree health benefits to enroll in Medicare health coverage.

  • Requiring all Postal Service retirees who use Postal Service retiree health benefits to sign up for the Medicare Part D prescription drug program, and get Medicare Part D prescription drug subsidies.

The Federal Employees Health Benefits Program already gives private insurers a chance to sell coverage to federal employees and retirees. The Postal Service Health Benefits Program would also use plans from private insurers.

Some of the other provisions in the bill would raise revenue by, for example, increasing the cost of a first class stamp by 1 cent and by eliminating direct-to-the-door mail delivery for businesses. Business mail recipients would have to have a mailbox on the sidewalk or get their mail from a central mailbox area.

Current Postal Service Benefits

The Postal Service spent $5 billion in 2016 on health benefits for its 509,000 active employees, and $3.3 billion on health benefits for its 490,000 retirees, and survivors of retirees, according to the Postal Service Form 10-K financial report.

The Postal Accountability and Enhancement Act of 2006 is supposed to require the Postal Service to prefund retiree health benefits by making contributions to a Postal Service Retirement Health Benefits Fund. In practice, because the Postal Service has done worse than expected since 2006, it has been able to make only partial payments since 2010.

(Related: Inspectors General Wrestle Over Postal Service Trust Funds)

The retiree health benefits fund now has $52 billion in unfunded liabilities.

The CBO’s H.R. 756 Budget Predictions

The health benefits changes could require the Postal Service to spend about $11 billion on Medicare premiums over 10 years, according to Congressional Budget Office analysts.

The National Active and Retired Federal Employees Association has estimated the 76,000 retirees who would have to sign up for Medicare would pay at least $1,600 more per month for health coverage.

CBO analysts predict the changes would cut direct spending on premiums for active postal workers by $2.2 billion over 10 years, and on retirees by $2.5 billion over 10 years.

Rep. Jason Chaffetz, R-Utah (Photo: Chaffetz)

Rep. Jason Chaffetz, R-Utah (Photo: Chaffetz Office)

The analysts also predict that carving benefits for postal workers out from benefits for federal employees would cut on-budget federal spending for postal retiree health benefits by $1.4 billion over 10 years.

The Bill’s History and Future

H.R. 756 is a new version of a bill, H.R. 5714, that was considered during the last session of Congress.

Rep. Jason Chaffetz, R-Utah, chairman of the House Oversight and Government Reform Committee, developed H.R. 756 together with a bipartisan group of committee members. The drafting team included Rep. Elijah Cummings, D-Md., and two other Democrats as well as two other Republicans.

House Oversight revised and approved the bill in March. The CBO analysts scored the House Oversight version bill.

The House Ways and Means Committee and the House Energy and Commerce Committee are now have jurisdiction over the bill.

The American Postal Workers Union is supporting the bill, arguing that it’s needed to help reduce the effects of what the union sees as a retiree health benefits funding crisis created by the 2006 retiree health benefits funding act.

The National Active and Retired Federal Employees Association opposes the bill. The association argues that requiring current Postal Service retirees to spend $1,600 more per year on health benefits is unfair.

“NARFE does not believe that postal reform should be achieved by placing the full burden of balancing the Postal Service’s books on these retirees,” the association say in a comment.

Walton Francis, an analyst at the Heritage Foundation, wrote in an analysis in September that proposed Postal Service benefits changes might work differently than drafters expect, because postal employees tend to be older than other federal employees and have higher medical costs.

The Postal Service retirees would end up with coverage with low out-of-pocket costs, and that could encourage high use of medical service, Francis said.

Francis pointed to another potential problem: The Federal Employees Health Benefits Program pays for care for retirees living outside the United States. Medicare generally does not. That means moving Postal Service retirees into Medicare could cause problems for the retirees who live abroad, Francis said.

— Read Retirees Could Lose Their ‘Guaranteed’ Health Care Benefits on ThinkAdvisor.


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