Elimination of Postal Service Pre-Funding Requirement

Dec 12, 2016

Elimination of Postal Service Pre-Funding Requirement

pre-fundingUnions are encouraging that the Postal Service pre-funding requirement be eliminated altogether. Initially, in 2006, the Postal Service pre-funded retiree health benefits for 10 years. That limit quickly rose to 40 years. That’s quite a jump. This pre-funding is completely unique to the United States Postal Service. It also accounts for about 90 percent of their reported loss since 2007.

Over the last few years, plans to remove the pre-funding requirement have fallen through. However, there have been fears of a possible taxpayer bailout, and that has driven reform talks once again.

What’s Included in the Most Recent Plan Proposal

The most recent plan proposal is to have a required enrollment in Medicare. Jessica Clement, the Legislative Director of the National Active and Retired Federal Employees Association said, “The mandate to enroll in Medicare Parts A, B, and D would allow the liability to be so reduced that it almost doesn’t exist anymore.” Required enrollment in Medicare at age 65 is standard in the private sector and it nearly eliminates the cost of pre-funding by reducing future health care costs. When an employee or retiree has both Medicare and FEHBP, Medicare pays first and becomes the primary.

narfe_logo_smallNARFE does see a problem with requiring everyone to enroll. Clement said, “What NARFE objects to in the context of these bills in the mandate to take Part B for current retirees and their spouses. You’re changing the rules of the game; you’re adding an additional heath care benefit that these people did not plan for when they retired.” The late enrollment fees of Medicare would be waived because the cost of enrollment isn’t something most retirees budgeted for.

Jim Sauber, chief of staff of the National Association of Letter Carriers said, “We support this idea conceptually. It’s going to be a way to solve a thorny problem, the pre-funding problem. In general, we think it’s in our members’ best interests to enroll in Medicare Part B.”

pre-fundingReasons NALC Hasn’t Endorsed the Bill

NALC hasn’t officially endorsed the bill for a couple of reasons.

  • They want to see if they can maximize enrollment in Medicare.
  • Also, they want to see a hardship exemption for those who can’t afford the added cost.

“Premiums for FEHBP plans covering Postal employees would actually go down on a net basis because of the savings from Medicare integration and from getting access to low-cost drugs through the Medicare modernization act and other reforms included in this would drive premiums down,” Sauber said. NALC frequently hears from members that wish they had signed up for Medicare Part B when they had the chance.

Sauber also went on to say, “You’ve got to put this in context…you’ve got to ask ‘compared to what?’. The US government is one of the largest employers in the country, and really the proper comparison is other large national employers. And if you look at large national employers, a 75 percent contribution to health premiums is standard. In fact, more than 50 percent of Fortune 1000 companies pay 75 percent or more. You really can’t compare the US government and the millions of people it employs to the mom-and-pop shop down at the corner. It’s a different kind of labor market.”

The Best Way Forward

NARFE believes that most federal employees pass up opportunities to change their health plans, even if they’re overpaying for insurance. They believe because of this; automatic enrollment could be the best way to go. “Given the nature of the federal community, given the decisions they’ve made up until this point, we feel that if you automatically enroll them in Medicare, as the House bill does…and allow them a very short window to opt out—hardship or otherwise; maybe they have an HMO that covers their costs, Medicare would just be an additional cost with very little benefit—give them this short time period to opt out, we believe very few would do so.”

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