The Wrong Way to do Postal Reform

Blog Articles · Jul 10, 2016 · Budget and Spending

This week the House Oversight and Government Reform Committee will hold a markup of the 2016 Postal Service Reform Act. Postal reform has been a priority of the Heritage Foundation since at least 2003, and Heritage Action since its formation. Heritage Action is opposed to this legislation. Below is run down of the major concerns with the legislation as drafted.


The bill provides the Postal Service (USPS) with relief from pre-funding its unfunded healthcare liabilities. To begin, the current pre-funding requirement is extremely important. The pre-funding requirement was and remains good policy, as it is either USPS or taxpayers on the hook. Even if USPS refuses to meet the requirement, keeping the debt on their books is important to understanding the true fiscal picture of USPS as we go forward.

Furthermore: The relief provided is a massive amount of money. 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.

The federal government should not give USPS relief on its pre-funding requirement. This is what Heritage Action defines as a bailout.

Shifting Costs to Medicare

As mentioned, the bill requires USPS postal retirees to enroll in Medicare and thus shift USPS costs to taxpayers.

USPS's problems are a microcosm, or a "canary in the coal" mine, of the entire federal government's budget problem with long term retiree costs. Medicare is already going broke. We should not be moving more people on to the program, especially as a form of relief for a separate, mismanaged and unfunded program.

Also, it is not clear why it is appropriate to credit USPS employees with $29 billion in Medicare contributions. CBO makes it clear that the net effect of the Medicare conversion is a $5.3 billion spending increase. Further, the cited $29 billion figure represents payments to the Medicare HI trust fund for Part A, yet this bill would also require seniors to participate in Part B and then absorbs a portion of their premium costs.

Unfortunately, it appears the bill simply tries to dump USPS into Medicare so that it can hide those very real USPS costs as just one small needle in the overall Medicare unfunded liability haystack.

Rate increase

The bill allows USPS to increase the cost of stamps. Increased revenues, which will accrue to USPS, should not be used to offset increased entitlement spending (the Medicare expansion) that will need to be absorbed by all taxpayers. Otherwise USPS could simply spend the increased revenue, and taxpayers would not be made whole.

Delivery reforms, Use of Savings

While many of the delivery reforms are good and necessary and technically generate savings on a CBO score, as we've written before:

"These savings are not automatically realized by taxpayers. They do provide additional funds for USPS to meet their payments to taxpayers, but anything in excess can be used to defer rate increases or increase spending. The reforms are important to help USPS control its costs, but they are not an appropriate offset for other federal spending."

Conservatives should oppose the bill as it fails to address the Postal Service's main problems and shifts responsibility onto the taxpayers. Heritage Action opposes the current proposal.

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