Proposed Changes to USPS Health Benefits in the Postal Service Reform Act of 2022

Proposed Changes to USPS Health Benefits in the Postal Service Reform Act of 2022

INSIGHTi

Proposed Changes to USPS Health Benefits in
the Postal Service Reform Act of 2022
February 11, 2022
The Postal Service Reform Act of 2022 (PSRA; H.R. 3076) includes a number of provisions that would
alter the authority and operations of the U.S. Postal Service (USPS) and the Postal Regulatory
Commission. Section 101 of the PSRA includes reforms intended to reduce USPS’s future retiree health
liability by requiring eligible postal retirees to enroll in Medicare Part B and by providing retiree drug
coverage through Medicare Part D. This Insight provides an overview of how Section 101 of the PSRA
would change USPS worker and retiree health benefits.
USPS Health Benefits
Similar to most other federal agencies, the USPS offers health care benefits to its employees, retirees, and
their dependents through the Federal Employees Health Benefits Program (FEHB), which is administered
by the Office of Personnel Management (OPM). Although USPS health benefits are provided through
FEHB, the USPS is governed by arrangements that are unique within the federal government in regard to
its funding of these benefits.
For non-postal federal employees, the amount the federal government contributes to premiums is
determined according to a statutory formula and is paid out of the employing agencies’ appropriations for
salaries. For USPS employees, the USPS contribution to premiums is determined through collective
bargaining agreements and is paid out of USPS revenues. Although different methods are used to
determine federal government/USPS premium contribution amounts, contributions are generally the same
in 2022.
The amount of government contribution for postal and non-postal retirees is determined using the same
formula as for non-postal employees. In most federal agencies, the government contribution to retiree
health benefits is paid by OPM through an appropriated entitlement. The USPS pays the government
share of USPS retiree health benefits and, since 2017, has done so using the Postal Service Retiree Health
Benefits Fund (PSRHBF). (The PSRHBF is related to the USPS prefunding obligation for retiree health
care costs, which is addressed by Section 102 of the PSRA.)
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Medicare
Medicare is comprised of four parts. Part A (Hospital Insurance) covers inpatient hospital, skilled nursing,
hospice, and some home health services; Part B (Supplementary Medical Insurance) covers a range of
medical services, including physician and outpatient hospital services; and, Part D, which is provided
through private insurance plans, covers outpatient prescription drugs. (Medicare beneficiaries enrolled in
both Part A and Part B may elect to receive their coverage through a private Medicare Advantage [Part C]
plan.)
Most Medicare beneficiaries do not pay a premium for Part A and enroll when first eligible. Because
Parts B and D carry premiums, enrollment in these parts is optional, but the majority of beneficiaries
choose to enroll. The various parts of Medicare have different funding sources—Part A is primarily
funded through dedicated payroll taxes, while Parts B and D are primarily funded through beneficiary
premiums and federal general revenues.
When a retiree enrolled in Medicare also has FEHB coverage, Medicare pays claims for services first and
FEHB pays second. Federal retirees, including postal retirees, may continue their FEHB coverage into
retirement and pay the same FEHB premium amounts as current employees. Some federal retirees with
FEHB, including about 24% of postal retirees, choose not to enroll in Medicare Part B, because it can
duplicate some FEHB benefits and requires paying an additional premium. Because FEHB drug coverage
is considered creditable, federal retirees with FEHB do not need to enroll in Medicare Part D.
Postal Service Health Benefits Program
The PSRA Section 101 would require the establishment of the Postal Service Health Benefits Program
(PSHB), which would be administered by OPM and would provide health insurance to USPS employees,
retirees, and their dependents instead of FEHB starting in 2025.
Under the PSHB, USPS employees and retirees would be able to enroll in self-only, self-plus-one, or
family coverage. If a USPS employee/retiree were enrolled in FEHB in 2024 and did not select a PSHB
plan in 2025, OPM would automatically enroll the individual in a plan offered by the individual’s FEHB
insurer or, if not available, in the lowest-cost, non-high deductible, nationwide PSHB plan that does not
charge a membership fee.
The PSHB would generally be structured similarly to FEHB. OPM would contract with insurers to offer
plans, and the plans would need to meet specified statutory FEHB requirements. To the greatest extent
practicable, the PSHB would also be required to include plans offered by each FEHB insurer that had a
plan that enrolled at least 1,500 USPS employees or retirees in January 2023. (It also would include plans
offered by other insurers determined appropriate by OPM.) In 2025, insurers with plans in PSHB and
FEHB would be required to ensure that their PSHB and FEHB plans have equivalent benefits and cost-
sharing requirements, with certain exceptions, including the drug coverage of Medicare-eligible retirees
(see below).
PSHB premiums would be determined separately from FEHB premiums. As such, PSHB insurers would
determine premiums based on the amount of health care expected to be used by USPS employees,
retirees, and their dependents. The USPS contribution toward annuitant premiums would be calculated
using the same statutory formula currently used under FEHB but would be based solely on PSHB plan
premiums.
The PSRA would require all Medicare-eligible USPS annuitants and their Medicare-eligible covered
family members to enroll in Medicare Part B in order to maintain their USPS health coverage. Those
who, as of January 1, 2025, are current annuitants and current employees aged 64 and over, those with

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Department of Veterans Affairs (VA) or Indian Health Service (IHS) coverage, or those residing abroad
would not be subject to this requirement. The bill would provide for a six-month special enrollment
period, starting April 2024, during which Medicare-eligible postal annuitants or family members could
enroll in Part B; any late-enrollment penalties incurred by individuals enrolling during this period would
be paid for by the USPS. Prescription drug coverage for all Medicare-eligible annuitants (both current and
future) would be provided through a Medicare Part D Employer-Group Waiver Plan (EGWP).

Author Information

Ryan J. Rosso
Patricia A. Davis
Analyst in Health Care Financing
Specialist in Health Care Financing

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