Would a USPS health-care plan really work?

Joe Davidson
Columnist August 23, 2011

If the U.S. Postal Service is successful in its plan to withdraw from the Federal Employees Health Benefits Program (FEHBP), tremors will be felt throughout the federal workforce.

Pulling out is one of the key elements in a radical new set of proposals by the Postal Service, whose financial foundation has been badly shaken by $20 billion in net losses over four years, including an $8.5 billion loss for fiscal 2010.

Joe Davidson writes the Federal Diary, a column about the federal workplace that celebrated its 80th birthday in November 2012. View Archive

In addition to quitting the FEHBP in order to create its own health insurance plan, the Postal Service wants to develop its own retirement program and permission to circumvent no-layoff provisions in labor contracts. All of this would require legislation.

Regarding employee health insurance, Postmaster General Patrick R. Donahoe said in an interview that a key question for USPS is, “How do you control health-care costs going forward?” Currently, the Postal Service spends $7.3 billion on heath care for employees, retirees and their dependents.

The FEHBP, which is administered by the Office of Personnel Management, has a reputation for providing employees a choice among a broad range of private insurance plans while keeping costs in check. Implicitly acknowledging the FEHBP’s success, Donahoe said the large number of people in the plan’s postal contingent holds the prices down for everyone else. “And we’d rather take advantage of that going forward.”

“If we take over our own plan, cover 1 million people, employees and retirees, the experts tell us you can cut your costs by somewhere between 8 to 10 percent.”

Any savings to the Postal Service, however, could mean greater costs to postal employees, through higher insurance premiums or lower benefits.

Donahoe’s assertions do not go unchallenged, with one expert calling them nonsense.

Walt Francis, a health economist and primary author of Checkbook’s annual Guide to Health Plans for Federal Employees, predicted that the Postal Service “will be less competent and less efficient than OPM, by far, in trying to run their own insurance program.” He added: “Anything they propose to do, if it will help them financially, will necessarily involve reducing benefits, reducing their share of premiums or playing some financial game like stripping reserves.”

But if the postmaster general is correct, then it could open the FEHBP up to much greater scrutiny, particularly by members of Congress looking for ways to save federal workforce dollars.

Donahoe recognizes that a Postal Service withdrawal from the FEHBP would cause a reexamination of the entire program, which serves about 8 million people.

“If we were successful pulling out, they would have to look at how they run the plan from a cost perspective and they have to take a look at something similar to what we are proposing, a more limited number [of plans], a more competitive environment,” he said.

“To maintain all the plans, it’s a fairly expensive administrative process, plus you’ve got to keep reserves for all those plans. So there’s a lot of money that gets tied up in that.”

But according to Francis, “The administrative costs of the FEHBP are incredibly low. ” The reserves come from plan premiums, and the cost to administer them is “essentially zero,” he added.

And the large number of private health insurance companies, more than 200, that compete each year to sign up federal employees often is credited with keeping down FEHBP premiums.

In a document detailing its plan that was released this month, USPS said FEHBP does not meet “the private sector comparability standard,” meaning it is more generous that private-sector insurance offerings.

The Postal Service argued that “a legislative change that allows the Postal Service to establish its own health benefits program would allow the Postal Service to fully incorporate private sector best practices, saving money while also providing comparable benefits to employees.”

But according to Francis, “There is no evidence to support any of the FEHBP conclusions of the so-called ‘White Paper’ of the USPS. Anyone who is expert in health insurance will recognize that it is nonsensical propaganda, written by someone who didn’t even know what he or she was talking about.

“This proposal is not about better health insurance,” he added. “It is about finding ways to get money from someone, whether that be the public, the Treasury or the employees. It is not about delivering an equivalent health insurance product at lower costs, since that is not within their competency.”

Follow the Federal Diary on Twitter: @JoeDavidsonWP.

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