August 19, 2013
U.S. Postal Service employees may have to choose between higher costs and less coverage under a new health care plan being touted by the agency, according to a government audit.
The USPS plan to opt out of the Federal Employees Health Benefits Program would save the agency billions of dollars annually, the Government Accountability Office found in a new report, but it would likely put postal workers at risk of paying higher premiums, incurring more out-of-pocket costs and receiving less insurance coverage for a variety of procedures.
While most non-postal FEHB enrollees would likely not be affected by USPS’ withdrawal from the program, about 29,000 federal employees would have to select a new health plan, according to GAO, as some plans that primarily offer services to USPS workers would drop out of FEHB.
The proposal would offer three options to postal employees: high, middle and value. If all USPS health care beneficiaries chose the high-coverage option, 63 percent of the workforce would face similar or lower health care costs than their current FEHB contributions. If all employees chose the value options, however, 97 percent would face similar or lower costs.
In the latter scenario, employees “would generally have lower levels of in-network and out-of-network coverage” than they do in FEHBP. Even employees in the high-coverage option would receive less out-of-network coverage, and would face higher deductibles and out-of-pocket maximums, GAO found.
“The differences in deductibles and out-of-pocket maximums under the USPS plan -- on their own, or in combination with lower coverage levels for some services -- could lead to higher total costs for some postal employees and non-Medicare-eligible retirees, including those who would have lower premiums under the USPS plan,” GAO wrote in its report.
The Postal Service would reach a majority of its savings by shifting its retirees -- USPS currently pays for about 477,000 former employees’ health care -- to Medicare. Currently, eligible postal retirees have the option of enrolling in Medicare, but there is no penalty for not doing so. The USPS proposal would require all eligible-retirees to enroll in Medicare Parts A and B for their primary coverage, while the Postal Service would cover 100 percent of costs above and beyond what Medicare pays for.
This plan would erase the Postal Service’s $54.6 billion unfunded liability for future retirees, eliminating its current mandate to prefund their benefits. USPS’ share of retirees’ health benefits would no longer be tied to a formula currently used in FEHBP, thereby leaving postal retirees more vulnerable to increases in contribution rates.
Overall, USPS has estimated it can save $33.2 billion in health care costs over the first five years of implementation. However, the plan would also increase costs to Medicare by about $1.3 billion annually over the first five years it was in effect. GAO found this troubling, as the auditors have previously reported Medicare is “on a path that is fiscally unsustainable over the long term.”
The Postal Service plan would also achieve savings by using a Medicare subsidy for retirees’ prescription drugs, as well as workforce-specific demographic information for calculating various health care liabilities. These calculations, however, are one of several possible vulnerabilities GAO identified that could reduce the amount of money set aside for health care costs.
If USPS made bad demographic assumptions, GAO said, it could lead the agency to poorly estimating the size of its future liabilities, causing it to believe it has a larger surplus than it actually has. The Postal Service’s plan would allow the agency to transfer any such surplus out of its health care funds and into its operating budget.
The proposal could also expose USPS to the volatility of the market, as one proposal involves investing health care funds in stocks while another would invest in Treasury securities. These funds would not be guaranteed by the federal government, the Postal Service told GAO. Finally, USPS’ plan would open up more health care-related issues to collective bargaining, which would not factor in the agency’s financial situation and could lead to increased costs for the Postal Service.
GAO had several recommendations for Congress, which would have to approve virtually all aspects of the Postal Service’s plan. The auditors suggested lawmakers not allow USPS to invest too much of its health care funds in government bonds or stocks, and to bar the agency from assuming positive returns on its investments. It advised Congress to create standards for how to deal with surpluses, as well as protections to ensure all beneficiaries receive service comparable to that of federal workers enrolled in FEHBP. Finally, GAO said USPS should continue making whatever prefunding payments it can afford to finance retirees’ health benefits, with the amount determined by an “independent entity.”
A recent bipartisan Senate proposal to overhaul the Postal Service included a provision to allow the agency to create an independent health care benefits system for its employees. It generally accepted the Postal Service’s proposals and included the plan to shift retirees’ benefits primarily to Medicare. The Senate bill is awaiting committee markup when Congress returns from recess in September.
The Postal Service did not respond directly to GAO’s recommendations to Congress, but the agency defended shifting liabilities to Medicare by arguing its employees have contributed to the federally subsidized insurance program for their entire careers. USPS agreed with GAO’s findings that a significant number of postal employees could face higher health care costs, should Congress enact its proposal. It argued, however, “The great majority of participants will benefit economically from the proposed plan.”
August 19, 2013