USPS plan to set up own health plan faces lawmakers' skepticism

Tuesday - 3/27/2012, 12:57pm EDT

Postmaster General Patrick Donahoe testifies before a House Oversight subcommittee on March 27, 2012. (Video still from Thomas.gov)

The Postal Service's plan to withdraw from the federal health insurance program and set up its own health program for postal employees and retirees faced skepticism from lawmakers.

Postmaster General Patrick Donahoe testified today before a House subcommittee, saying a USPS-sponsored plan would save $7 billion a year. Such a plan, Donahoe said, would offer equal or better coverage for current employees and retirees.

What's in the USPS health plan proposal?

Currently, the Federal Employees Health Benefit Program has about 8 million participants and offers 18 health plan options nationwide to all federal employees.

The Postal Service proposal would offer a simplified plan structure with high, middle and value options and four tiers within the options: self, self and spouse Self and child(ren), self and family.

Donahoe said the Postal Service is currently the second-largest contributor to Medicare, which would be a key to cost-savings. The USPS is proposing Medicare be the participants' primary provider and have a backup plan for "wraparound" coverage, he said.

Currently, USPS pays $13.2 billion in annual health care costs, according to Donahoe's testimony. He said the savings would be passed to employees and retirees as well, who would see $650 million in reduced contributions.

Additional savings would come from offering wellness incentives and disease management programs.

USPS would not manage the program itself but bid competitively for one of the large health care providers, such as Blue Cross Blue Shield or United Healthcare, Donahoe said.

The plan also would eliminate the need for USPS to prefund its retiree health benefits, he said.

"We are asking for the ability to better manage our costs," Donahoe said. "Without this fundamental change to dramatically reduce health care spending, there is no assurance we can afford our health care commitments to Postal employees and retirees."

Without action, the Postal Service projects deficits that exceed $21 billion annually by 2016.

Members of the House Committee on Oversight and Government Reform questioned the cost and effectiveness of a USPS-negotiated plan.

"You're making me nervous" said Rep. Stephen Lynch (D-Mass.). Lynch said the Mail Handlers Benefit Plan within FEHBP is a popular choice among USPS employees. "You know, people hate change, especially if they have something that works for them," Lynch said.

Committee Chairman Darrell Issa (R-Calif.) said he would probably support the Postal Service proposal to pull out of FEHBP, but added, "Let's have no illusion. You're just cost-shifting. There's no real cost-savings to the American people. The money will be paid out of one hand in order to save out of the other hand."

Others had more forceful words, like Rep. Gerry Connolly (D-Va.). "I just want to cite H.L. Mencken, who once said for every human problem, there is a solution that is simple, neat and wrong," Connolly said. "The postmaster general's proposal on health care fits that description."

Impact on FEHBP

One health care expert said the USPS health plan proposal would "massively disrupt or destroy the FEHBP."

Walton Francis, author of the Checkbook's Guide to Health Plans for Federal Employees, said FEHBP is a "winning model." But carrying out the Postal Service plan would "decimate" any plan that enrolls half or more postal employees, Francis said in his testimony.

"Their proposal isn't going to save money. It's going to cost money," Francis said.

The health plan proposal is part of the Postal Service's five-year plan that would reduce the workforce by 155,000 through attrition, cut back delivery to five days, and close up to 252 mail-processing centers and 3,700 post offices.

The House subcommittee hearing comes as the Senate was set to debate a postal reform bill this week but has postponed a procedural vote to start debate. The legislation would allow the agency to spread out its $5.5 billion annual payments for future retiree health benefits. The next payment is due in November, and without action, the USPS will be unable to make that payment, Donahoe said today.

Donahoe urged immediate action from Congress. "Doing nothing is not an option," he said.

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