The Government Accountabilty Office released a report Thursday endorsing the U.S. Postal Service's idea to withdraw its retirees and current employees from the Federal Employee Health Benefit Program and start its own health plan.
The GAO said the Post Office would save a great deal of money in doing this and eliminate its unfunded retiree health benefit liability.
The Postal Service has been plagued by financial problems over the past few years as more communication goes digital and first-class mail volumes fall. But the two areas that have contributed the most to the financial crisis within the USPS are retiree and health benefits — both of which have drowned it in unfunded liabilities. Under a 2006 congressional mandate, the Postal Service is required to make billions of dollars in advance payments to cover expected health care costs for future retirees.
The GAO found that the USPS’s proposal to start its own health plan would help. “These gains would significantly reduce its health benefits expenses and eliminate its unfunded retiree health benefit liability — with increased use of Medicare by retirees comprising most of the projected liability reduction,” the GAO said.
Currently, 77 percent of Postal retirees draw on some form of Medicare for their health coverage, according to the GAO. Moving the remaining 23 percent out of FEHBP entirely and into a separate plan integrated with Medicare would help reduce the amount USPS spends on health care from 20 cents of every revenue dollar to 8 cents — or about $8 billion annually through 2016, compared to current expenses.
That said, Medicare spending would increase under the proposal.
A proposal that has been raised in the past would have the Federal Employees Retirement System return any surplus it has to the USPS. The GAO, however, said that option wouldn’t work because estimates of retirement benefits liabilities contain a significant degree of uncertainty and can change over time. Returning these surpluses would eventually lead to unfunded liabilities in the future, the report said.
An alternative option is to reduce the Post Service’s annual retirement system contribution either by amortizing the surplus over 30 years, or by offsetting the contribution against the full surplus each year until the surplus is used up.
Postmaster General Patrick Donahoe said Thursday the Postal Service had no choice but to ask for an emergency rate hike given the agency's dire finances.
One day after his cash-strapped agency proposed raising the first-class stamp price to 49 cents, Donohoe urged swift action by Congress to overhaul the Postal Service and fix its finances.
The post office expects to lose $6 billion this year. It wants to raise stamp prices by 3 cents next year. The request must be approved by the independent Postal Regulatory Commission.
"We did not want to take this step, but we had no choice due to our current financial position," Donahoe said.
Donahoe appeared before the Senate Homeland Security and Governmental Affairs Committee to press for approval of bipartisan legislation that would allow his agency to end Saturday delivery after one year and cease door-to-door delivery for new residential and businesses addresses. Many lawmakers and postal worker unions say the delivery changes would inconvenience customers.
The bill also would change how health costs for future retirees are calculated. The Postal Service is seeking to reduce its $5.6 billion annual payment for future retiree health benefits. It missed two of those payments in 2012, deferred one from the previous year and is expected to miss another at the end of this month, when its fiscal year ends.
Wrapping supplementary insurance plans around Medicare and other changes could help to reduce the Postal Service's health care costs by up to $8 billion annually, Donahoe said. That could help ease pressure on the agency to raise its postal rates, he added.
The panel's chairman, Sen. Tom Carper, D-Del., said that if Congress acts quickly "the collapse of the Postal Service is avoidable."
The committee's top Republican, Sen. Tom Coburn, R-Okla., who co-sponsored the bill with Carper, said he was optimistic that the Senate could agree on compromise legislation.
Postal officials have said they would reconsider the agency's rate hike request if Congress passes comprehensive postal overhaul legislation.
The Associated Press contributed to this report.