Postal Service Bailout: Claims and Responses

On July 12, 2016, the Oversight and Government Reform Committee (OGR) rushed to pass legislation bailing out the U.S. Postal Service (USPS)—the so-called Postal Service Reform Act (H.R. 5714)—without a cost estimate from the Congressional Budget Office (CBO) or a recorded vote. In the process, OGR released a rebuttal document in response to Heritage Action’s statement of opposition. The following are responses to those rebuttals.

 Rebuttal #1: “There is a lot for Conservatives to like in this bill. H.R. 5714 treats the Postal Service more like a private sector business. The bill cuts Postal Service costs while also taking away the strongest anti-reform argument: that the agency is only struggling because of an ‘unfair’ retiree health care requirement.”

Response: There is a reason liberal Democrats and USPS support H.R. 5714. It rewards the Postal Service, and its constituencies, with their number one priority for years—relief from their current health care contributions in exchange for few reforms. In fact, it is the important reform principle established in 1971 that USPS should be treated more like a business—responsible for both its assets and liabilities—that is grounds for opposition to the bill. The bill shifts liabilities to taxpayers.Rebuttal #2: “The bill maintains the requirement that Postal Service prefund 100 percent of its accrued retiree health care costs, based on actuarial calculations. The bill does give the Postal Service relief from previously missed Postal Service payments that would, if retained, require the agency to massively overfund its liability.”

Response: Interestingly, this “rebuttal” was in response to the following statement: “The federal government should not give USPS relief on its pre-funding requirement. This is what we define as a bailout.” The Committee’s response admits to giving USPS such relief. And the relief is substantial. As stated in our earlier post, while a CBO score has not yet been made public on the current proposal, USPS itself, in testimony, stated that the bill’s provisions (relief from the pre-funding requirement in conjunction with shifting costs to Medicare) would allow them to save $38 billion over the next ten years. Furthermore, even though the bill creates a new payment schedule—after shifting costs to Medicare to lower the payments—the recent history of “postal reform” legislation (and this bill itself) is evidence that these payments will likely be strenuously opposed by various stakeholders and never materialize.

Rebuttal #3: “There is no requirement to pay into Medicare Part B to earn eligibility; eligibility is earned through Medicare Part A contributions, which the Postal Service and its employees have paid for the last 33 years.”

Response: The issue has nothing to do with eligibility, but everything to do with compulsion. The issue is that elderly USPS retirees have not chosen to participate in Medicare Part B (physician and other medical visits), and this bill will force them into the program and to pay $1,460 annually in premiums (after a three year phase in), and even more in future years. If they refuse to join Part B, they can no longer receive coverage under the Federal Employee Health Benefit Program (FEHBP), which is their main source of healthcare. These retirees have paid into Medicare Part A (hospital care) and already have such coverage.

Rebuttal #4: “The Postal Service has paid $29 billion into Medicare over the last 33 years. If the Postal Service were fully privatized, there would be little argument to require retirees to use earned Medicare benefits. Allowing a self-funding agency to act more like a private-sector business is not a bailout. The Postal Service Reform Act would add 76,000 new Medicare enrollees, about a week’s worth of enrollments (at the current rate of more than 10,000 Medicare enrollments per day.”

Response: Again, these postal retirees have paid into Medicare Part A and already receive Part A coverage. There are no “earned Medicare benefits” that they are not already using. H.R. 5714 is pushing healthcare costs of the USPS onto taxpayers by mandating they receive coverage under Medicare Part B or lose their retiree health benefits. This violates the oft-abused principle that USPS should be treated as a private-sector business, in charge of its own assets and responsible for its liabilities. If it were privatized—a real reform of the Postal Service that conservatives would support—that principle would hold true.

Rebuttal #5: “The Committee’s goal is to prevent a taxpayer bailout of the Postal Service following a complete breakdown of the agency due to spiraling debt. Today, the agency is solely funded through ratepayer, not taxpayer, money. Currently since the Postal Service is not able to take full advantage of Medicare benefits it has paid for, private sector mailers are being forced to subsidize Medicare, in what arguabl[ly] amounts to an additional tax on these mailers. Medicare undoubtedly needs reform, but we should not oppose fair treatment while we wait for that reform.”

ResponseYou don’t prevent a taxpayer bailout by shifting costs from ratepayers to taxpayers because that is a taxpayer bailout. What is needed to prevent a taxpayer bailout is for USPS to control its costs, and CBO has consistently argued that “lowering health care expenses for the USPS would lead the agency to modify its ongoing efforts under current law to reduce spending…including closing administrative offices, halting construction of new facilities, and freezing salaries for certain employees.” Furthermore, it relieves USPS pressure to aggressively negotiate in its labor negotiations over compensation packages that exceed those found in the private sector (and other federal agencies).  As for the argument that mailers are subsidizing unused Medicare coverage, this claim is not true. Retirees currently receive coverage under Medicare Part A, which they have contributed to until retirement.

Rebuttal #6: “Mailers support the Medicare provisions and do not want the rate increase included in the bill without it.”

Response:  This rebuttal is in response to the claim that, “We are concerned about using increased fees/revenues to offset increased entitlement spending (the Medicare expansion).” Notice that this claim is not being rebutted at all, but explained as acceptable because K Street desires it. It is no surprise that mailers support offloading their costs as ratepayers to taxpayers, but this is not governing based on principle and should be rejected.

Conclusion: Congress should reject H.R. 5714. It bails out the Postal Service and does not include enough reforms. It is unfortunate that OGR abandoned the promising reform effort started under former chairman Darrell Issa whose bill moved through the committee in 2012. Among many reforms, that bill (H.R. 2309) would have placed USPS under a financial control board to force the renegotiation of union contracts and other measures to cut costs. It would also have included a BRAC-style commission to identify and close post offices and given USPS the option of moving to five day delivery. Importantly, it did not bail out USPS with relief from its healthcare liabilities. This is the sort of postal reform that Congress needs to consider.

Further Reading:
Post Office Needs Transformational Reform to Survive, But Hope for Reform is Fading – James Gattuso, Senior Research Fellow for Regulatory Policy at The Heritage Foundation
Can the Postal Service Have a Future? – James Gattuso, Senior Research Fellow for Regulatory Policy at The Heritage Foundation
Why the “Postal Overpayment” is Really A Taxpayer-Funded Bailout – House Oversight and Government Reform Committee (2011)

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