Postal Retiree Health Benefits: Unsustainable Finances Need to Be Addressed

Approach

Description

Potential effects

Approaches that would shift costs to the federal government

Medicare integration

Various legislative proposals have been made to generally require postal retirees to participate in Medicare, which would increase their level of participation. Increased participation in Medicare would shift primary responsibility for covering certain health care services to Medicare for those who enroll.

Requiring retirees to use Medicare would decrease the U.S. Postal Service's (USPS) costs but increase Medicare's costs, according to analyses of past legislation by the Congressional Budget Office. The primary policy decision for Congress to make is whether to increase postal retirees' use of Medicare.

Supplemental federal appropriations

If the Postal Service Retiree Health Benefits Fund (RHB Fund) is depleted and USPS does not fill the financial gap, appropriations could be provided.

Using federal appropriations could help benefits continue at the same level if Congress so desires. However such an action could increase the federal budget deficit. In addition, supplemental appropriations for postal retiree health benefits would be inconsistent with USPS functioning as a self-financing entity that covers its costs with revenue it generates.

Approaches that would reduce benefits or increase costs to postal retirees and/or employees

Tighten eligibility/reduce or eliminate retiree health benefits

As some companies and state governments have done, eligibility restrictions could be tightened for postal retiree health benefits, such as making new hires ineligible to receive retiree health benefits, or other actions could reduce the level of benefits or even eliminate benefits.

Tightening eligibility would reduce USPS's liability for postal retiree health benefits, and thus reduce its unfunded liability. Effects on current and/or future retirees would depend on the specific actions taken.

Increase postal retiree and employee premium payments

As some companies and state governments have done, retirees could be required to pay a larger share of premiums, or employees could be required to pay for retiree health benefits before they retire.

Shifting costs to retirees and/or employees would reduce the expenses of the RHB Fund. Depending on how much costs are shifted to retirees, this approach could increase any financial challenges the retirees may face.

Change the federal contribution to a fixed subsidy

As some companies and state governments have done, benefits could be shifted to a defined contribution structure with a fixed amount subsidizing the benefit. This amount could be adjusted over time; any adjustments might or might not keep up with costs.

Using a fixed subsidy could decrease RHB Fund costs and required USPS payments and increase incentives for retirees to make less costly health care decisions. However, it also could result in greater cost exposure for retirees, costs that could lead to difficult decisions regarding health care.

Establish a non-federal voluntary employees' beneficiary association (VEBA)

As some companies have done to provide retiree health benefits separately from the employer, a VEBA outside the federal government could be established to provide postal retiree health benefits instead of the current federal program. The VEBA would determine what benefits would be provided to its members—which could include retirees and employees—what payments members would make, and how the VEBA's assets would be invested.

VEBA effects would depend on the VEBA's governance structure and its determinations of benefit levels, funding sources, level of funding, type of investments, and associated market risks. Such determinations would include the level of initial funding and its sources, such as whether it would come from the RHB Fund and/or the Treasury, as well what funds would be provided to the VEBA going forward.

Approaches that would change how benefits are financed

Reduce the required level of prefunding

Proposed legislation would reduce the prefunding target for the RHB Fund from 100 percent to 80 percent.

Reducing the required funding level would reduce USPS's required payments to the fund but could increase costs for future postal ratepayers and increase the risk that USPS may not be able to pay for these costs.

Outside investment

Proposed legislation would initially require 25 percent of RHB Fund assets to be invested outside U.S. Treasury securities, with the goal of seeking greater returns.

Allowing outside investment could lead to a higher rate of return on RHB Fund assets and reduce long-term funding needs. However, assets invested in non-Treasury securities may experience losses in a market downturn and would thus reduce assets available for health care.