If the U.S. Postal Service is successful in its plan to withdraw from the Federal Employees Health Benefit Program (FEHBP), it would have ramifications for the entire federal workforce.

Pulling out of the program was one of the key points in a new set of proposals the Postal Service is pushing to deal with structural financial problems that have led to $20 billion in net losses over four years, including an $8.5 billion loss for fiscal year 2010.

A key question for USPS is “how do you control health care costs going forward,” Postmaster General Patrick R. Donahoe said in an interview. “Currently, the Postal Service spends $7.3 billion on heath care for about 1 million employees, retirees and their dependents.”

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. Acknowledging FEHBP’s reasonable fees, Donahoe said the large number of people in the postal contingent of FEHBP “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 the Postal Service “will be less competent and less efficient than OPM, by far, in trying to run their own insurance program. 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 up FEHBP 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 FEHBP would cause a reexamination of the entire program that 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 Francis said, “The administrative costs of the FEHBP are incredibly low. ” The reserves come from plan premiums and the cost to administer them is “essentially zero,” according to Francis.

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 the cost of FEHBP plans competitive, if not lower than those in the private sector.

In a document released earlier 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.”


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