Plan to Fix Postal Service Shifts New Retirees to Medicare — Along With Billions in Costs

Yves here. Lordie. As most readers know, Medicare solvency is not a real issue, since the US as a currency issuer can always fund it. And it could easily be fixed in a way that would satisfy deficit scaredy-cats, by ending the salary cap on FICA contributions. But instead the latest plan is a budgetary three card monte to make the Postal Service look better, when its funding crisis is the result of bogus accounting, by loading more costs onto Medicare.

By Michael McAuliff. Originally published at Kaiser Health News

A congressional effort to fix the nation’s deteriorating mail service may come at the expense of an even bigger and more complicated problem: Medicare solvency.

The Postal Service Reform Act of 2022 would help shore up post office finances by ending the unusual and onerous legal requirement to fund 75 years of retirement health benefits in advance. In return, it would require future Postal Service retirees to enroll in Medicare.

According to the Congressional Budget Office, the move could save the postal retirement and health programs about $5.6 billion through 2031 while adding $5.5 billion in costs to Medicare during that span, and probably much more in later years.

Considering the massive size of Medicare — it spent $926 billion in 2020 — the costs don’t amount to much. That small financial impact, and the ongoing immediate crises with mail delivery, probably account for the strong bipartisan support the postal bill has received in Congress, with 120 Republicans joining Democrats to pass the bill in the House on Feb. 8.

But late in the process, some lawmakers are raising alarms over the move, arguing that maybe Congress should look more carefully at the financial impact to Medicare’s trust fund, which is expected to run dry in 2026.

“This bill simply shifts risk to Medicare recipients by adding billions of new costs to Medicare,” Sen. Rick Scott (R-Fla.) said Feb. 14 in blocking requests on the Senate floor to expedite passage of the bill. Scott’s objection delayed consideration of the bill until early March, after the Senate returns from its Presidents Day break.

Currently, Postal Service employees are covered by plans offered in the Federal Employees Health Benefits program. When they retire they have several choices for health care, including staying in their original plan or switching to Medicare as their primary coverage and having an FEHB plan serve as supplementary coverage. About 20% of postal retirees do not sign up for Medicare, preferring their current federal plan. Under this legislation, they would have to switch to Medicare, but they would keep a new Postal Service version of the FEHB plan as secondary coverage.

Since the change wouldn’t fully take effect until 2025, and the Congressional Budget Office’s cost estimate doesn’t capture a full decade, Scott wants to know the price tag for the next 10- and 20-year periods, as well as the specific impacts on the various components of Medicare, such as premiums for Medicare’s Part D drug plan and the Part B program, which covers a variety of outpatient services.

The overall cost is likely to be much more significant than the shorter-term analysis found, said Robert Moffit, a senior fellow at the conservative Heritage Foundation, who has also raised concerns.

“There is a total cost that’s being ignored,” Moffit said. “You basically have a situation where you have unfunded liabilities in the Postal Service Health Benefits Program, retiree benefits, that amount to about $75 billion.”

That projected cost doesn’t vanish. It falls on Medicare, though the exact impact is unclear. Moffit agreed with Scott that Congress should be looking at longer-term implications, including effects on premiums and the costs borne by taxpayers and beneficiaries.

“We ought to step back, take a deep breath, and look at what we’re doing here,” Moffit said.

Postal Service unions are not worried about the change, however, with all of them supporting the switch, noted Democrats who responded to Scott earlier this month.

Senate Majority Leader Chuck Schumer argued that the bill would save the government money overall, and that moving postal retirees into Medicare would ensure that they receive benefits they’ve paid for but were not using.

For Schumer and most other lawmakers, the comparatively small impact on Medicare is simply not as pressing as getting the mail delivered on time.

“We will pass this bill because America needs it. Rural people need it. Senior citizens need it. Veterans need it — 80% of the veterans’ prescriptions are sent through the mail,” Schumer said. “Nobody should be standing in the way of this bill.”

Scott is now among a minority objecting to the latest effort and pointing to Medicare.

Others who remain concerned about Medicare’s poor finances also thought fixing the problems with postal delivery was worth the cost to Medicare.

“I would let Congress have a small win here and, really, this is not just a small win,” said Mary Johnson, a Social Security and Medicare policy analyst at the Senior Citizens League advocacy group.

She said the failures of the mail system also have health consequences, with payments for insurance and shipments of prescriptions going missing, which has happened to her.

The shift to Medicare envisioned in the legislation could add to the sense of urgency — all those retired postal workers would be joining Medicare just in time for a solvency crisis if Congress drags its feet. “It’s inaction in Congress that would cause that,” Johnson said.

Johnson noted it will be difficult to reach a bipartisan consensus on something as momentous as Medicare reform. “You’re going to have to pass something, and it depends on who’s the majority. It may not be very pretty when it happens.”

Print Friendly, PDF & Email


  1. Dave in Austin

    The post office again…

    For decades both the postal union and the U.S. government played a game. The union wanted higher pay and benefits and if that meant not noticing that the whole retirement program was drastically underfunded… well, that’s next year’s problem.

    There are post offices in every town- as there should be. But that means higher costs while the pressure is to keep the first class stamps cheap and, more to the point, keep the junkmailers from having to pay the real cost of junk mail. So Congress turned a blind eye to the obvious underfunding of the retirement program in order to keep postal rates low and postal workers happy. Like the Puerto Rico electric system and the Soviet economy, you can hide the problems for a long time but that just builds up a bigger cost to set them right. We tried to “privatize” which both the workers and Congree pretended would be the magic sauce. It wasn’t. Worse, the post office fell behind other nation’s post offices and competing services like Amazon plus we abandoned the postal savings option (remember buying savings bond at the post office?).

    The institutional constituencies prevailed and now the bill is due. So we get the latest vervion of hide the pea… transfer the liability to the Medicare retirement fund.

    1. Darius

      The ridiculous and uniquely punitive retirement prefunding requirements for the USPS have nothing to do with the needs of the program. Congress needed a line item in 2006 to make budget legislation pencil out. The idea was they would fix it later. Then, the neoliberal privatizers in both parties (coughs Obama coughs) realized it was a dagger aimed at the heart of the the system and weren’t going to give it up without a fight.

    2. John Zelnicker

      Dave in Austin – The US is a currency issuer, unfunded liabilities are irrelevant.

      Also, it is retiree health benefits that were being prefunded, not retiree income benefits.

      Darius may be right about Congress needing to pencil in something to make the budget work, or at least that was the excuse. The underlying motivation was to cripple the Post Office so full privatization would look like a good idea.

      Back in the 1980’s many LBO’s were partially financed by over-funded pension plans. The buyer would take the pension plan of the target company and fob it off on the Pension Benefit Guaranty Corp (PBGC), a federal agency. The buyer had to fund the PBGC pension, but only at the level of benefits guaranteed by the PBGC. These benefits were, IIRC, on average about 55-60% of the original promises of the transferred pension. That created a large over-funding pool of money that the buyer could use to finance its purchase.

      IMNSHO, this is a big reason for the over-funding of the Post Office’s retiree health benefits. Whoever gets to take USPS private will have a substantial part of the purchase price waiting for them.

      I love the Post Office; I worked for them between high school and college. The people who work there are great. I humbly request readers to call or write their congresscritters and ask them to get Dejoy out, end the health benefit payments, and fund the Post Office adequately. Thank you.

  2. John Beech

    So why is Scott doing this? He has a background in healthcare, CEO type, so he isn’t going to be bamboozled by numbers. I am interested in a followup to this briefing on NC. Well done.

      1. orlbucfan

        Rick Scott aka Sick Rott is a piece of something we don’t mention on this site. Take it from a long-time resident Floridian.

  3. Telee

    Keep in mind that traditional Medicare may be a thing of the past. The Physicians for a National Health Policy have raised the issue of privatization of Medicare through Direct Contract Entities. The administration has felt the pressure, but instead of Biden reversing his decision to support the privatization of Medicare the reaction was to change the name of the program from DCE to ACO Reach while retaining the essential features of the DCE program. Biden really wants to privatize Medicare!

    Just like it’s evil twin, Direct Contracting, the proposed REACH program would:

    • Pay third-party middlemen a flat fee to “manage” seniors’ health, allowing them to keep up to 40% of what they don’t spend on health care as profit and overhead.

    • Automatically enroll Traditional Medicare beneficiaries into REACH without their full understanding or consent.
    • Require beneficiaires to change primary care providers if they wish to opt out of the program.

    • Allow virtually any type of company to be a REACH middleman, including those owned by commercial insurers and private equity investors, as well as every company currently participating in the DC program.

    Wall Street is betting on Medicare privatization as their next big score, and it will take a movement to stop them.

    1. Stillfeelinthebern

      I just don’t understand…. why not just pay our primary care Doctor to manage our health?

      Deeply grateful to PNHP for all their advocacy.

      1. Lisa Oldendorp

        Because primary care doctors as “gatekeepers” can limit one’s ability to take charge of our access to healthcare and to see the specialists we choose.

  4. tegnost

    She said the failures of the mail system also have health consequences, with payments for insurance and shipments of prescriptions going missing, which has happened to her.

    So now that we have used financing to decay/deteriorate/disrupt the postal service, we should throw some of that mess at Medicare so we can do the same to that program. Then after we ruin it completely, well then you can have medicare for all! See! We’re Geniuses! Sure, it’s hardly any impact now…but the wrecking ball is just gaining momentum…

  5. Eureka Springs

    fund 75 years of retirement health benefits in advance

    Where is all that money now and what happens to it? That fund must be enormous. Shouldn’t it be returned to those who paid into it?

    1. John Zelnicker

      Eureka Springs – See my comment above at 2:13 pm.

      The money was paid in by the Post Office, not individuals. However, some of it surely could have gone to pay raises otherwise.

  6. Rolf

    @Telee Thank you for these notes.

    My question: when does this crap stop? Does Biden think he really has a mandate for this? Does he really think that he was voted in only to continue Trump’s destruction, just without the golfing? There seems little defensible argument to keep the Democratic Party in office — they don’t provide a real alternative to the shit that preceded them. Democracy requires alternatives, and they ain’t delivering.

    I grow angrier and more morose every day.

  7. LizinOregon

    If you look at the full cost estimate CBO did for the bill last year it sets up a new USPS health benefits plan (PSHB) and pulls current USPS employees and most annuitants out of FEHB which shifts things from on-budget to off-budget accounts. Unlike the current annuitant choice of whether to enroll in Medicare Part B and/or D, the new USPS plan requires annuitants to do both if they want to keep their PSHB insurance which sets up the increase in Medicare spending though it should also reduce the PSHB premiums. Currently, annuitants pay the same non-retiree premium share for FEHB plans whether or not they elect Part B or D. The PSHB could be a test run for getting more federal annuitants out of FEHB.

  8. John

    Three card monte indeed. If I read Jamie Galbraith correctly, not a certainty by any means. Congress as an entity does not understand budgets, taxation, or spending so why should they understand this. Privatize medicare so that more little birdies can dip their beaks. That would please many who already are doing quite well and throw those living paycheck to paycheck under the bus, which might also please some. I grow weary of these overly complicated schemes to accomplish nothing.

    I have an idea. Cut “defense” by 10%. That would free up c.$80 billion and fund this gimmick for about 15 years.

  9. Felix_47

    One way to help the post office would be to give it back its monopoly on mail and package delivery. Amazon uses the Post office when a location is not near one of their warehouses or delivery routes and it will be a high cost delivery. Why not just let the Post Office do delivery of everything in the US? Why let the private sector profit off mail and package delivery? I thought the original idea was that in return for servicing rural areas and remote areas which never can make money the post office would service cities and suburbs where mail delivery might well make money. And why does that not apply to packages as well. It is kind of like letting the water company dwindle and just letting the private sector service high bulk water users where the profit might be. And the post office has long been a haven for disabled veterans, and minority workers that would have difficulty competing in the open labor market. In the past we would often recommend to applicants that they look at working at the Post Office. Without it these people would join the ranks of the homeless. Of course nationalizing all delivery would lead to crappier service but the social benefits of supporting the work force would certainly make me more than happy to wait a week for whatever Chinese gadget or junk I impulse bought. The Post Office should be a public utility. Just wondering.

  10. anon y'mouse

    all retirees in this country should be eligible for medicare.

    allowing too many different little side programs and exemptions is why it’s so easy to whittle these programs away.

    same for SSI.

  11. politicaleconomist

    Yves, There is no income limit on the Medicare FICA tax (only only the social Security FICA tax).

    Notably, there is a higher Medicare tax rate on incomes above a certain point which was part of the Obamacare legislation since Obama felt it necessary to “fund” spending on programs that improve the general welfare. Not that the improvements in care were all that beneficial.

Comments are closed.