Beware Federal Employees: Mandatory Medicare First Step to Eliminating FEHB Coverage for Retirees?

Postal reform legislation may impact the rest of the federal workforce by changing Medicare eligibility and increasing FEHB costs.

As is often the case in Congressional bills, the bill’s title does not reveal the real impact of the proposal. In this case, “Postal reform” legislation has been introduced in the House of Representatives. The title is accurate but the real impact may be the potential to increase health care premiums for federal employees and retirees enrolled in Federal Employees Health Benefits (FEHB) plans. The legislation could also turn out to be the first step in removing federal retirees from the FEHB.

The full title of the bill (HR 3076) is The Postal Service Reform Act of 2021. It was introduced by the House Committee on Oversight and Reform Chairwoman Carolyn Maloney (D-NY). The bill has five co-sponsors from both parties and appears to have a decent chance of passing in the House.

Creating the Postal Service Health Benefit Plan (PSHB)

The bill would create separate health plans for Postal employees and retirees. These plans would be separate from the current Federal Employee Health Benefit (FEHB) plans. For example, there would be a Blue Cross Blue Shield Standard plan for Feds and a separate one for Postal employees and retirees.

Here is how it would work.

Each plan in the Postal Service and in the FEHB would cover a similar amount of anticipated costs.

The Postal Reform bill would preserve a choice for Postal retirees with regard to Medicare Part B enrollment. An employee who decided not to enroll in Medicare would remain in the FEHB program. If a Postal retiree enrolls in the Postal Service Health Benefits Program (PSHB) program, that retiree would be required to enroll in Medicare Part B. 

For those 65 and older who have not enrolled in Medicare, the bill would create a new opportunity to enroll in Medicare Part B without a late penalty. Postal retirees younger than 65 could enroll in either an FEHB or PSHB plan.

Once a retiree is eligible for Medicare (age 65), enrolling in Medicare would be required when enrolling in a PSHB plan. That retiree would be restricted from returning to an FEHB plan. Current Postal employees would be required to enroll in Medicare once they turn 65 and are retired.

How the Reform Bill Would Impact FEHB

In effect, Postal retirees not enrolled in Medicare Parts A and B would remain in FEHB once they turn 65. This would be important for the federal health benefits program because retired former employees who are not on Medicare often cost the program more money. As we age, people who are older use more health care, on average.

If this older group stays in the FEHB, while the rest of the Postal employee and Postal retiree population goes into the new postal service program, the average cost of coverage for FEHB plans could increase.

As a practical matter, it is easy to predict FEHB premiums for the rest of the federal workforce would go up and the rest of the federal workforce would foot the bill under the terms of the new Postal reform legislation. How much expenses would increase and how much the FEHB premiums would go up is unknown.

Ending Prefunding of Health Insurance Benefits

In addition to creating a new Postal Service health benefits program, the bill would end the requirement that USPS fully prefund the future health insurance benefits of its retirees.

Reaction of NARFE

Federal employees are likely to have a personal financial interest in this legislation. Here is a summary of how the National Active and Retired Federal Employee’s Association (NARFE) reacted to the proposal:

NARFE represents the interests of both federal and postal employees and retirees. Postal retirees make up a substantial portion of NARFE’s 170,000 members. As stewards of our members’ health and financial well-being, our views focus the legislation’s effect on the earned health benefits of the entire federal and postal community.

While this bill is styled as postal reform legislation, it implicates substantially the Federal Employees Health Benefits (FEHB) program, which serves more than 8 million federal and postal employees and retirees and their families, and Medicare. In fact, the first half of the bill focuses entirely on changes to FEHB (creating an entirely new parallel program to it) and is designed around the concept of “Medicare integration” for postal retirees.

NARFE suggests that if Congress permits the creation of a new PSHB program, the program should retain all postal employees and retirees, rather than single out and exclude retirees without Medicare. This would prevent the type of cherry-picking the FEHB program has long opposed, a move that could set a dangerous precedent for the future of the FEHB program.

First Step In Removing Federal Retirees from FEHB?

What is not mentioned in the bill, but a possibility that could impact the rest of the federal workforce is the possibility that this “reform” package could become just the first step in removing federal retirees from the FEHB.

Forcing Postal retirees to participate in Medicare may open the path to making Medicare mandatory for all federal retirees. While many Federal retirees who are 65 and older already voluntarily participate in Medicare, removing the option would be easier if this legislation should pass.

In 2018, 18% of large companies offered health benefits to their workers after retirement, a significantly smaller percentage than in recent years. In 1988, for example, 66 percent of large firms offered this benefit.

While previous efforts to implement these changes have not been successful, a new administration in office and a different Congressional structure increase the likelihood of success with the latest effort.

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