USPS proposal to leave federal health benefits program questioned

The U.S. Postal Service's proposal to withdraw from the Federal Employees Health Benefits Program likely will cost the cash-strapped agency more money, according to a health insurance expert.

"Pulling out of the FEHB is neither necessary nor sufficient to solve their problems," said Walton Francis, an independent author and consultant. "It can only make it worse."

Francis says the agency could save nearly $500 million per year simply by contributing less to premium costs; currently, the Postal Service picks up the tab for about 80 percent of the premiums while most other federal agencies pay 72 percent of employees' premiums.

If the Postal Service leaves FEHBP, its health care expenses would rise by about 10 percent, Francis said, largely because of the agency's aging workforce, which currently benefits from being in the larger and more age-diverse FEHBP pool.

The Postal Service's proposal to withdraw from FEHBP is gaining some momentum. The Senate Homeland Security and Governmental Affairs Committee on Wednesday approved a bipartisan postal reform bill that included a provision requiring USPS to negotiate with its unions to develop a new employee health care plan. The bill also would restructure prefunded retirement health benefits.

Under the Postal Service's proposal to create its own health benefits plan, postal retirees would continue to receive health insurance benefits comparable to those offered under FEHBP at equal or lower cost in addition to Medicare coverage. Active employees initially would be covered under a simplified plan with benefits similar in value and cost to FEHBP, though the agency going forward would shift to a private sector model. The Postal Service would establish a separate program following private sector best practices to cover all new hires. The agency is looking to recoup the $42.5 billion in assets currently in its retiree health benefit fund to offset the retiree health care costs assumed.

Without oversight from the Office of Personnel Management, which administers FEHBP, the Postal Service's board of governors would set plan benefits, eligibility criteria and premium costs. A management group composed of agency leaders, union representatives and Treasury Department employees would administer the program.

USPS Chief Human Resources Officer Anthony Vegliante has said that transitioning to a separate benefits program would help the agency cut pharmacy costs by using a systemwide drug benefits plan along with Medicare Part D. The program also would provide "menu choices," allowing participants to choose the benefits they need within a single plan -- a self-plus-one option, for example.

But Francis said the Postal Service has offered no evidence that leaving FEHBP would save the agency money over the long term. "The proposal is to leave current employees better off," he said. "You cannot do that without spending more." It's also not clear that FEHBP per se is the problem, according to Francis. Much of the agency's fiscal woes stem from its $5.5 billion annual payment to prefund its retiree health benefits account -- a congressional requirement.

If USPS leaves FEHBP, it will affect the rest of the program's federal enrollees, Francis said. In addition, premiums for the rest of FEHBP enrollees could possibly decrease in the short run in the Postal Service's absence, since the pool won't have to subsidize that agency's enrollees anymore. The Postal Service has 600,000 active employees and 480,000 retirees in FEHBP now. But insurance companies could end up leaving the program along with USPS, leaving federal workers with fewer options. "With a program of this size, if you make a big change, you will have all kind of ripple effects," said Francis.

The Postal Service has lost billions so far this year, largely due to labor costs, which account for nearly 80 percent of its expenses. The latest continuing resolutions to fund the government through Nov. 18 extends the Postal Service's deadline to make a $5.5 billion prepayment to its retiree health benefits account, originally due at the end of September. Officials have said they do not have the cash to meet that obligation and are hoping for legislative change that would allow USPS to restructure its finances and start digging itself out of its hole.