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Expert: USPS pullout would jeopardize federal health insurance program

Mar. 26, 2012 - 06:00AM   |  
By STEPHEN LOSEY   |   Comments
U.S. Postal Service letter carrier Juan Padilla arranges mail in his truck while on his delivery route in San Francisco.
U.S. Postal Service letter carrier Juan Padilla arranges mail in his truck while on his delivery route in San Francisco. (Justin Sullivan / Getty Images)

Postmaster General Patrick Donahoe will testify Tuesday that the U.S. Postal Service could save nearly $7 billion in the first year of running its own health care plan, largely through eliminating the need to prefund retiree health benefits.

But a leading federal health care expert will blast the Postal Service's plan as unrealistic and disastrous. Walt Francis, who writes the annual Checkbook guide to health plans, will say the Postal Service would "massively disrupt or destroy" the Federal Employees Health Benefits Plan by withdrawing nearly a quarter of the 8 million enrollees in the federal government's employee health care plan, according to his written testimony to the House Oversight and Government Reform Committee. And it could drive the Postal Service's own costs up by at least $1 billion a year, Francis says. The committee posted the written testimonies of Donahoe and Francis online on Monday.

The desperate and bankrupt Postal Service last August proposed pulling out of FEHBP and setting up its own health care plan as part of an aggressive proposal to cut $22.5 billion in costs by 2016.

A large part of this plan would push postal retirees onto Medicare, which Donahoe said would save as much as $565 million in the program's first year. He said it would also cut $5.5 billion to $5.8 billion in retiree health benefits prepayments during the first year.

"The Postal Service and its employees have paid over $28 billion in Medicare taxes since 1984, and we need the return on investment for that expense," Donahoe said.

Donahoe also said the Postal Service would be able to take advantage of Medicare Part D prescription drug benefits. The Postal Service wants to use an Employer Group Waiver Plan to save an average $1,300 a year for each retiree's drug costs, or $568 million in the program's first year.

The Postal Service also wants to have a national plan with high, middle and value options, and four tiers of coverage self-only, self-plus-spouse, self-plus-children and a family plan. FEHBP plans only offer self and family plans.

Donahoe said if Congress acts quickly, the Postal Service could offer its health plans by January.

Donahoe said the Postal Service will offer lower premiums and comparable benefits to FEHBP insurance plans.

"More expensive plans should always provide more generous benefits," Donahoe said. "That does not happen now with FEHB."

But Francis said in his prepared testimony that FEHBP is a respected plan that has successfully held down costs and served as a model for numerous health care reforms. He doubts the Postal Service would be able to do better.

"Only the USPS sees it as an albatross to be abolished," Francis said.

Francis said the Postal Service is wrong in its claims that FEHBP doesn't offer wellness benefits and programs to manage chronic diseases such as diabetes.

And he said the Postal Service's employee pool is older and would be much more costly to insure than the overall government population.

"Just to break even, the USPS will have to reduce benefits or increase premiums by about one-tenth," Francis said. "The costs of a pullout to the USPS will exceed $1 billion annually just to maintain current levels of benefits and premiums. And over time, as the postal workforce ages further, the costs will rise sharply."

Francis said it is a "pipe dream" to think offering self-plus-spouse or self-plus-children options would save money, and said the Office of Personnel Management's actuaries have dismissed such suggestions for years.

"But the postal bureaucrats who designed these ‘reforms' are not health insurance experts and would not be expected to know such things," Francis said.

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