Postal Service Retirees, Medicare, and Implications for Other Federal Retirees

The Postal Service wants to put all retirees under Medicare in order to save billions of dollars. When this is considered by Congress, look out for a similar change proposed for the remainder of the federal workforce.

A common question from readers who are retiring in the near future is “Do I still get FEHB benefits or do I have to go into Medicare?”

The answer, as most people know, is that you can keep your federal employee health insurance after you retire assuming you meet the basic eligibility requirements. And, with the exception of those who receive an extra agency contribution to their FEHB premiums, you do not pay any more as a retiree than you do as a current federal employee although you will pay for your insurance out of after-tax dollars. (See Retirement Myths: FEHB Premium Increases After Retirement)

Changes in the Wind

The Postal Service is a large organization. It is unique in that it acts both as a federal agency and as a private company. It resembles the rest of the federal workforce in many ways but unions negotiate on many topics that are out of reach of most federal employee unions. This dichotomy that defines the Postal Service is reflected in a recent interview published in the Wall Street Journal with the Postmaster General, Patrick Donahoe.

Those who do not work for the Postal Service may shrug and not read any further. But, if you are a federal employee, particularly one who is nearing retirement, the Postmaster General made several observations that could foreshadow changes for federal employees who are retired or plan to retire after a federal career.

The workforce in the Postal Service is changing. The nature of the mission of this organization is changing and unique but having part-time, non-career employees is cheaper and gives the agency more flexibility. This is Mr. Donahoe’s observation about the workforce in the Postal Service today:

“Twenty percent of all our employees today are ‘noncareer flexibles’ [part-time], up from about 8% two years ago. We’ve saved billions of dollars there….We negotiated it with one union. We had to take the others through arbitration. Labor is 80% of our costs, and it will always be that high. [But] if you’re able to operate the organization with a $60 billion cost basis versus a $72 billion cost basis, you’re better off.”

From the standpoint of a manager who wants to run an efficient organization, changing the nature of the workforce in this way makes sense. It is less expensive, retirement and benefit costs are much less, and the organization stays in business despite a huge drop-off in the use of first class mail. As implied by his answer in the interview, however, employees have a different perspective as their major concerns are not necessarily related to running a cost-efficient organization.

The Postal Service is also much smaller than it was, at least in terms of the number of employees. The agency employs about 200,000 fewer people than it had in 2006 despite adding between 15 and 16 million deliveries a day. But the reduction in numbers is not over. “We think that in the near term, if we’re able to eliminate Saturday delivery and do some facility consolidations, the numbers allow 400,000, plus another 60,000 noncareer workers.”

But cutting costs can involve more than just reducing the number of employees. There is another way to cut costs as well. As noted by the Postmaster General: ”

The Postal Service wants to integrate Medicare into our health benefits for retirees. We are the second largest payer into Medicare behind the U.S. government, and we don’t get to take full advantage of its offerings [such as requiring retirees to use Medicare as their primary insurance]. Just that change would save $8 billion a year.

People say, ‘You’re going to hurt Medicare.’ Well, fix Medicare. Don’t penalize us for Medicare’s problems.”

So how will the Postal Service look in 10 years? ”

“The postal model of the future is mail delivery Monday to Friday, package delivery seven days a week in ZIP codes that can support Sunday, and Saturday operations for retail so that you can go to the post office and mail something.”

Implications for the Federal Workforce

The implications of this are obvious. No one knows if Congress will move to allow the Postal Service to have all retirees use Medicare as their primary insurance. But, if this would save $8 billion a year, chances are it will happen sooner or later.

Moreover, if moving Postal Service retirees into Medicare will save $8 billion, there are even greater savings to be achieved by putting all federal retirees into this system as well.

There are already some small steps in that direction. In addition to proposed legislation to put federal employees into the health care exchanges, In the annual “call letter” to insurance carriers for 2014, OPM wrote: ”OPM is encouraging proposals for pilot programs where participating carriers offer a sub-option for Medicare eligible annuitants as an alternate choice.”

While the Postal Service is different from other agencies in many ways, there are also many similarities. Economic realities are forcing changes to the Postal Service. The same realities are also having an impact on federal employees including provisions that were unthinkable a few years ago including a pay freeze, increases in retirement contributions by new employees, as well as furloughs during a government shutdown.

With huge federal deficits accumulating each year, a way that would prevent spending billions of dollars, would not impact current federal employees but would only impact federal employee retirees is likely to become a big target in future budget negotiations. With the Postal Service actively seeking this option, and the publicity that effort will receive in the halls of Congress, do not be surprised to see similar proposals for the remainder of the federal workforce.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47