FEDweek

Postal Reform Bill Projected to Lower FEHB Premiums

Following is the section of a Congressional Budget Office cost analysis of a House postal reform bill assessing the bill’s impact on the FEHB program.

Under current law, USPS employees and annuitants receive health insurance benefits through the FEHB program, which also covers nonpostal civilian federal employees and annuitants. Insurance plans that participate in the FEHB program charge premiums that are the same for all participants, regardless of whether the participant is affiliated with the USPS or not, or is an employee or an annuitant. The Postal Service is obligated to contribute to the health insurance premiums of its current and retired employees who participate in the FEHB program. (Postal Service payments to FEHB are recorded in the budget as off-budget increases in direct spending.) In 2016 the agency made direct payments for retirees’ premiums to the FEHB fund totaling nearly $3.5 billion. Starting in 2017, the Postal Service will no longer make payments directly to the FEHB fund for its annuitants; rather, the Postal Service Retiree Health Benefits Fund (PSRHBF) will make those payments.

H.R. 756 would change how the federal government provides health insurance for USPS employees and annuitants. The legislation would direct OPM to establish a new Postal Service Health Benefits (PSHB) program in 2018 (similar to the FEHB program), under which Postal Service employees and annuitants could enroll to receive health insurance from qualifying plans. Premiums in the PSHB program would be set based on the expected health care costs of only those USPS employees, annuitants, and dependents who participate in the program. (Premiums in the FEHB program would be set based on the expected health care costs of the nonpostal enrollees that remained in that program.) In addition, the bill would require all eligible postal annuitants who participate in the PSHB program to enroll in Medicare. Finally, PSHB plans would be required to participate in Medicare Part D and would thereby receive subsidies related to prescription drugs.

Postal Service employees and annuitants would be in the same risk pool, so premiums would be the same for both groups; however, H.R. 756 would change the basis for providing funds to and making payments from the PSRHBF to cover the cost of health care claims of Postal Service annuitants. CBO expects that the cost of health care claims would be lower for annuitants than for USPS employees because the bill would effectively shift some spending to Medicare Parts B and D. Thus, that change would reduce both the amount that the USPS would have to pay into the PSRHBF and the amount that the PSRHBF would pay to PSHB plans.

Medicare. Because H.R. 756 would require Medicare-eligible annuitants who had been employed by the Postal Service to participate in Medicare Part B, Medicare would become the primary payer for certain services. The PSHB plans would pay cost-sharing for those beneficiaries’ health care services. In addition, the bill would require the USPS to contribute towards the Medicare Part B premiums of annuitants that newly enroll in Medicare under the legislation. The mechanism by which the Centers for Medicare and Medicaid Services (CMS) would collect those premium payments is not specified, but for purposes of this estimate, CBO assumes that the USPS would make the required payments for Medicare premiums and that CMS would collect the remaining premiums from USPS annuitants. Finally, H.R. 756 would require PSHB plans to participate in Medicare Part D.

Based on an analysis of Medicare spending and an estimate of the number of annuitants who would gain Medicare coverage under the legislation, CBO estimates that enacting H.R. 756 would:

• Increase on-budget direct spending for Medicare by about $10.7 billion over the 2018-2027 period, net of Medicare Part B premiums that would be paid by postal annuitants;

• Increase off-budget direct spending by $0.2 billion over the 2018-2027 period for the portion of Part B premiums that the USPS would pay under the bill; and

• Decrease on-budget direct spending by $0.2 billion, reflecting receipts of Part B premiums paid by the USPS.

PSHB. CBO anticipates that shifting the primary responsibility for covering certain health care services from PSHB plans to the Medicare program would decrease costs to the Postal Service. Additionally, under the bill, PSHB plans would be required to participate in the Employer Group Waiver Plan (EGWP) through Medicare Part D and would receive subsidies from Medicare and discounts from manufacturers of brand name prescription drugs. As a result of both that shift to Medicare and the subsidies and discounts for prescription drugs, CBO estimates that PSHB premiums for postal employees and annuitants would be lower than the FEHB premiums those people would face under current law. Enacting H.R. 756 would:

• Decrease net off-budget direct spending for the Postal Service by $2.2 billion over the 2018-2027 period because of a reduction in premiums for current postal workers; and

• Decrease on-budget direct spending $2.5 billion over the 2018-2027 period for payments from the PSRHBF because of a reduction in premiums for annuitants in the Postal Service.

Under the bill, Medicare would pay most of the health care costs for eligible beneficiaries and PSHB plans would pay for the cost sharing (for example, copayments and deductibles) when those beneficiaries receive health care services. Consequently, the health claims paid by PSHB plans would be less for annuitants than for postal employees. Because premiums would be based on the expected claims for all people participating in PSHB plans (current USPS employees and annuitants), the premiums would be higher for annuitants and lower for employees than their expected health claims. Under the bill, payments from the PSRHBF would only cover the health claims of USPS annuitants; therefore, the total payments into the PSHB fund would not be sufficient to cover the required payments for premiums for annuitants. Insurance plans probably would not agree to participate in the PSHB program if premiums were not paid in full—consequently, CBO expects that the USPS would have to make additional payments to cover the difference. For purposes of this estimate, CBO assumes the USPS would make those payments to OPM, and that OPM would make premium payments to PSHB plans. Based on an analysis of FEHB premiums and the health care spending of USPS annuitants, CBO estimates that enacting the bill would:

• Decrease on-budget direct spending by $6.6 billion over the 2018-2027 period, for payments from the PSRHBF to PSHB plans; and

• Increase off-budget direct spending by the same amount—$6.6 billion over the 2018-2027 period—for payments from the USPS to OPM.

FEHB. Creating two different groups of federal employees for the purpose of calculating health insurance premiums (FEHB and PSHB) would effectively lower the cost of providing insurance to the nonpostal enrollees who remained in the FEHB program. Premiums charged to nonpostal enrollees in the FEHB program would be based on expected health costs of the employees, annuitants, and dependents remaining in the FEHB program. Because nonpostal enrollees cost FEHB plans slightly less than postal enrollees, on average, CBO estimates that premiums in the FEHB program would be lower than under current law.

The estimated reduction in federal costs results from lower federal payments for the government’s share of FEHB premiums. In 2016, the federal government contributions to the premiums of the nonpostal enrollees in the FEHB program averaged 71 percent of premiums. In total, CBO estimates that:

• Enacting the bill would reduce on-budget direct spending for the premiums of nonpostal annuitants by about $1.4 billion over the 2018-2027 period (premium payments for annuitants are classified as direct spending); and

• Implementing the bill would reduce federal outlays for health insurance premiums for nonpostal employees by about $1.9 billion over the 2018-2027 period (the government’s contributions for premiums for active employees are subject to appropriation and thus classified as discretionary spending).