US Postal Service healthcare reforms ‘makes Medicare unsustainable’

21 Aug 13

Plans by the government-owned US Postal Service to reform employee healthcare provision are likely to save the firm more than $33bn over five years, but will weaken the sustainability of public sector health funding, auditors have warned.

By Richard Johnstone | 21 August 2013

The Government Accountability Office said that USPS’ plan to ensure that retirees, who had previously had the support of a company health plan, make claims under Medicare would eventually eliminate its unfunded retiree health benefit liability. This currently stands at $54.6bn.

Such a change would also reduce USPS’s required total annual health care payments by an estimated $7.8bn in the first year, and save $33.2bn over the first five years.

However, auditors highlighted that USPS’ own calculations estimate the plan will increase the government’s existing $550bn spending on Medicare – which provides subsidised healthcare insurance to pensioners – by $1bn in the first year and around $1.3bn each year thereafter.

The GAO said this would increase the ‘fiscally unsustainable path’ Medicare is currently on.

‘Additional costs resulting from USPS’s proposed plan have to be weighed alongside those already faced by Medicare,’ the auditors warned.

Under the plan, USPS intends to create a company health care plan outside the existing Federal Employees Health Benefits Program. This would result in the withdrawal of all postal employees and retirees (about 1 million people) from the federal programme. Under its proposal, USPS’s and postal employees’ and retirees’ share of premiums for the new scheme will be established by USPS, but retirees will also be required to make full use of Medicare.

Auditors said that Congress, which needs to approve the plan, must determine if this switch is wise given that Medicare ‘is already facing funding challenges’.

‘This is because USPS’s proposal would essentially decrease USPS costs but increase Medicare costs,’ the report stated. ‘If Congress does not act on USPS’s proposal for a new USPS health care plan, GAO continues to believe that Congress and USPS need to reach agreement on a comprehensive package of actions to improve USPS’s financial viability.’

If Congress does approve the reform, it should insist on various safeguards against additional costs, the report stated, such as ensuring the firm’s health insurance fund purchases particular assets, including government gilts.