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Plan to fix Postal Service shifts retirees to Medicare, along with billions in costs

A US Postal service employee unloads mail at a facility on February 10, 2022 in Houston, Texas. On February 8, the House of Representatives passed the Postal Service Reform Act of 2022 (H.R. 3076). The legislation will address operational and financial issues that the agency has been grappling with for years.
Brandon Bell/Getty Images
A US Postal service employee unloads mail at a facility on February 10, 2022 in Houston, Texas. On February 8, the House of Representatives passed the Postal Service Reform Act of 2022 (H.R. 3076). The legislation will address operational and financial issues that the agency has been grappling with for years.

A long-awaited bill to fix the nation's deteriorating mail service is on the verge of passage in the Senate, but it could 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."

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. It's an editorially independent operating program of KFF (Kaiser Family Foundation).

Copyright 2022 Kaiser Health News. To see more, visit Kaiser Health News.

Michael McAuliff