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Life Health > Health Insurance > Medicare Planning

Congress Sends Biden U.S. Postal Service Retiree Health Rescue Bill

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What You Need to Know

  • The Postal Accountability and Enhancement Act of 2006 required the U.S. Postal Service to pre-fund retiree health benefits.
  • H.R. 3076 is set to repeal the pre-funding requirement and make Medicare the main health benefits provider for most future retirees.
  • About 1.1 million Postal Service employees and retirees may need help understanding the implications.
  • The bill could add pressure on Congress to restructure Medicare.

Members of the Senate voted 79-19 to pass H.R. 3076 — a bipartisan bill that is the product of a 16-year effort to revamp the U.S. Postal Service retiree health benefits financing system.

The Postal Service now provides health coverage for most of its 650,000 active employees and dependents, and many of its 500,000 retirees and survivors, through the Federal Employees Health Benefits Program.

H.R. 3076 — the Postal Service Reform Act of 2022 — calls for the Postal Service to move most of its active employees and their dependents into a new Postal Service Health Benefits Program inside the main federal employee plan. Most retirees will have to use the Medicare program as their retiree health benefits coverage provider.

The House passed the bill by a 342-92 vote Feb. 8. The administration of President Joe Biden has expressed strong support for the bill, and Biden appears to be likely to sign it soon.

The signing of the bill could have a direct effect on any health insurance or retirement planning specialists who work with middle-income and moderately affluent clients, and it could have big, indirect effects on all U.S. financial professionals and clients.

The History

Groups with an interest in government spending transparency and efforts to hold down government spending have argued for decades that public employers have been promising to provide defined benefit pensions and generous retiree health benefits plans without understanding the full cost of those obligations.

The groups pushed to require public employers to report on any retiree health benefits promises made and to explain how they would come up with the cash to make good on the obligations.

In 2006, Congress acted on the effort to increase retiree health benefits transparency and funding discipline by passing the Postal Accountability and Enhancement Act of 2006. The act required the Postal Service to pre-fund retiree health benefits.

The Postal Service was struggling to compete with UPS, FedEx, the internet and cell phones.

The U.S. Government Accountability Office reported in 2018 that the Postal Service had not put cash in the Postal Service Retiree Health Benefits Fund since 2010. The fund held $50 billion in assets on Sept. 30, 2017, and it needed $112 billion in assets to fund all retiree health benefits liabilities, according to the GAO.

The Postal Service reported a $4.9 billion net loss in the fiscal year ending Sept. 30, 2021, on $77 billion in revenue. It said it had defaulted on $57 billion in payments to the retiree health benefits fund.

The Bill Details

About 90% of Postal Service retirees and survivors now have Medicare Part A hospitalization coverage, and about 80% of Medicare Part B outpatient and physicians services coverage, according to a National Association of Letter Carriers analysis of H.R. 3076.

If the bill takes effect as written and is implemented as written:

1. Most active Postal Service employees and their dependents will move into new plans inside the Postal Service Health Benefits Program that will be similar to the plans — provided by carriers such as Blue Cross Blue Shield and Kaiser — inside the federal employee plan.

The premiums might be somewhat higher, because postal employees tend to be somewhat older and more expensive to insure than other federal employees, according to NALC.

2. Current retirees, their dependents, the survivors of workers or retirees who are currently eligible for retiree health benefits, and active employees ages 65 or older can decide whether to sign up for Medicare coverage or stick with the Postal Service Health Benefits Program plan that’s the most similar to their current plan.

Current “annuitants” who have not signed up for Medicare Part B will get a one-time chance to enroll in Part B without paying a late-enrollment penalty.

3. Most employees who are active today and who retire on or after Jan. 1, 2023, will flow into Medicare A plans. They can choose whether to sign up for Medicare Part B.

4. Some employees who are active today and who retire on or after Jan. 1, 2023, can decline to enroll in Medicare, and can use the Postal Service Health Benefits Program as a backup source of coverage, if they have coverage from another program, or if they live in a location, such as a foreign country, without Medicare providers.

What This Means

For insurers, other financial services companies, and financial professionals, identifying and understanding all of the implications of H.R. 3076 could take decades.

Here are some of the immediate effects.

1. The Postal Service can still handle correspondence between financial services players and customers. Retiree health benefits obligations will not force the service into liquidation this year.

2. The changes could create opportunities for some health insurers to lure Postal Service employees away from existing federal employee health program coverage providers. The new program could create one especially big health insurance sales opportunity: for a default plan, for participants who do not choose a plan and cannot easily be mapped from their current plan into a similar one.

The default plan must be the “lowest-cost nationwide plan option within the program that is not a high deductible health plan and does not charge an association or membership fee,” according to the H.R. 3076 text.

3. More than 1.1 million Postal Service employees, retirees and survivors need help understanding what just happened. H.R. 3076 requires the U.S. Office of Personnel Management to set up a navigator program to raise employee and annuitant awareness of the changes. The navigators cannot receive compensation from any of the insurers involved in providing the Postal Service program coverage.

But life insurance agents, financial planners, and insurance and planning firms that aren’t selling health insurance might be able to get contracts to supply Postal Service health benefits navigator services.

4. Some of the people who need help understanding the Postal Service retiree health benefits changes might need help with other financial and retirement planning matters. Active employees who know they will have to pay for Medicare Part B coverage and, possibly, Medicare supplement insurance might want to set aside more savings to cover those additional premium costs. Some might realize that they need more life insurance, critical illness insurance or ideas about long-term care planning.

5. Worries about Medicare will grow. The GAO estimated in the 2018 report that the Postal Service had about $75 billion in unfunded retirement health benefits obligations. Robert Moffit, a government health program watcher at the Heritage Foundation, has argued that H.R. 3076 will pass those unfunded obligations on to Medicare, at a time when Medicare is facing a total of $48 trillion in unfunded benefits obligations over the next 75 years.

(Photo: Raychel Lean/ALM)