Jonathan Foley, Westcott Partners LLC
The impending death of the U.S. Postal Service has been proclaimed so many times in the last decade that it is difficult to know whether to call the medics or the gravedigger this time around. The Coronavirus pandemic has led to an enormous financial downturn ($13 billion in expected losses this fiscal year due to Coronavirus) and human tragedy for the workforce (infection of more than 1,200 workers). Given the circumstances, it is difficult to imagine how the USPS will carry on without significant assistance from Congress and cooperation from the White House. The HEROES Act, recently passed by the House, contains $25 billion in crisis relief; however, the underlying issues affecting USPS’s viability remain.
Despite numerous hearings, proposals, and counter-proposals over the last decade or more, Republicans and Democrats in Congress have been unable to agree on structural reform that enables the USPS to walk the fine line between public service provider whose mission is defined in the U.S. Constitution and efficient business able to compete with the United Parcel Service and other private sector rivals. To hear the USPS talk (prior to the pandemic), the core business model is largely in good working order despite losses in revenue from declining first-class mail volume and stiff competition in the package delivery segment of their market.
However, based on 2019 statements before Congress by outgoing Postmaster General Margaret Brennan, USPS needs relief in three areas: the universal service obligation (requiring delivery to every address 6 days a week), price caps (which limit USPS’s ability to respond to declining mail volume), and legally mandated health and retirement benefit costs. The health benefit obligations have been characterized as particularly burdensome by the USPS and deserve more focus.
The Postal Accountability and Enhancement Act (PAEA) of 2006 requires health coverage for employees, retirees, and their dependents through the Federal Employees Health Benefits (FEHB) Program and pre-funding of retiree health payments. The pre-funding of retiree health coverage is not required of any other federal agency participating in the FEHB or state governments, nor is it generally required for any private business which continues to offer retiree health coverage (less than a quarter). Due to its declining financial position, the Postal Service has not met its pre-funding obligations since 2012, resulting in $33.9 billion owed to the Retiree Benefit Fund for pre-funding obligations from 2012 through 2016 and another $6.9 billion in payments for 2017 and 2018 due to a combination of retirement and retiree health pre-funding obligations.
In its 2018 report on USPS retiree health benefits, GAO concludes that “as long as USPS is required by law to pay its share of retiree health benefits premiums, it is important for USPS to prefund its retiree health benefit liability to the maximum extent that its finances permit.” GAO considers the merits of USPS pre-funding 80 percent versus 100 percent of its obligations, but does not consider the pre-funding obligation in and of itself. The premise is that USPS will not be able to meet its health obligations to retirees in the future because the USPS, as a viable business, is on shaky ground. Of course, USPS’s viability is made that much more tenuous due to the unique nature of the pre-funding requirement.
Lawmakers want the Postal Service to operate like a private business, yet they expect that the Postal Service can shoulder burdens such as pre-funding that no other private business is asked to carry. If USPS were a private business, it would have discontinued or curtailed retiree health benefits at least 8 years ago when it stopped making pre-funding payments. (Its main rival for package delivery, UPS, does not offer retiree health benefits, for example.) If Congress wants to guarantee health benefits for postal retirees, which is laudable, Congress should make additional contributions to the Retiree Benefit Fund. If the USPS is able to meet its ongoing retiree health obligations, absent pre-payment, then there will be no need to dip into the fund and the excess in the RBF can be returned to the Treasury.
USPS also differs from its competitors with respect to the structure of its retiree health benefit. Being a part of the FEHB, USPS retirees are part of single risk pool that includes postal employees, federal employees, federal retirees, and dependents. Unlike almost any other employer that offers retiree health coverage, the federal government (and by extension, USPS) does not require retirees to enroll in Medicare Part A or Part B, when eligible. For those who do not enroll (approximately one quarter of retirees), their FEHB plan is the only insurer, whereas, for those enrolled with Medicare, CMS is the primary payer and their FEHB plan secondary.
Following the principle that USPS should have the flexibility to act like its private competitors, lawmakers could require that postal retirees enroll in Medicare when eligible. Requiring postal retirees to enroll with Medicare will lower premiums for all employees and agencies that are part of FEHB. Some have characterized such a requirement as a “bailout” by the federal government to the USPS, simply shifting costs from USPS to CMS; however, postal retirees have paid into Medicare throughout their careers and are entitled to the benefit as much as other retirees.
Congress could go further by allowing a separate health plan for postal employees and retirees or simply a separate health plan for postal retirees. This could enable the USPS to offer benefits that have particular relevance for postal workers; for example, they could introduce wellness benefits that are tailored to the segment of its workforce that is on its feet all day. For retirees, they could offer benefits that are coordinated with Medicare – through existing Medicare Advantage plans or through a separate plan.
Unions have expressed concern that a health plan run by the Postal Service will be spare because USPS is financially strapped. Moreover, they decry the extra costs associated with USPS establishing and managing a health benefit program. For these reasons, there is a good case to be made for keeping a postal health plan within the FEHB. The Office of Personnel Management (OPM) can manage a postal health plan by augmenting its existing staffing and administrative structure far more cheaply than USPS could achieve by running its own plan. OPM has shown its ability to flex in the past – developing and managing ACA requirements such as the Preexisting Condition Insurance Plan and the Multi-State Plan Program.
The United States is not unique in grappling with the complexity of public-private partnerships. In its latest review of the Postal Service, GAO documents the varying postal business models of several western democracies, including United Kingdom, France, Germany, New Zealand, and Australia. Though each of these countries has strived to maintain a postal service that is self-sufficient, taxpayers provide some level of support to each of their arrangements. (Notably, health benefits are not a major concern because each of these countries has publicly-funded health coverage for its citizens – now there’s an idea!) Targeted assistance to USPS, as described here, is consistent with our peer countries and retains the public-private balance that is inherent to the model.
USPS: Don’t Speak to Press, Watch What You Say to Customers (May 7)
Jonathan Foley is a member and founder of Westcott Partners LLC. As Director of Planning and Policy Analysis for the Office of Personnel Management from 2010 to 2017, he managed OPM’s relationship with the U.S. Postal Service, including testifying before Congress in 2011 on postal reform.