S. 1486, Postal Service Reform Legislation

9/26/2013

Senate Homeland Security and Governmental Affairs Committee

Chairman Carper, Ranking Member Coburn, Members of the Committee, on behalf of the 150,000 federal employees and retirees represented by the National Treasury Employees Union, I appreciate this opportunity to provide testimony on S.1486, the Postal Reform Act of 2013.

For 2014, OPM has just announced that premiums for health insurance plans under the Federal Employees Health Benefits Program (FEHBP) will increase an average of 3.7%. In 2013, premiums increased an average of 3.4%, following an increase of 3.5% in 2012. These are average increases -- some plans’ premiums increased by substantially larger amounts. During this same time period, and continuing through today, federal pay has been frozen. Federal employees have gone three years without a pay increase. In addition, many of the employees represented by NTEU have been subjected to numerous unpaid furlough days this year. Despite federal employees’ contributions to reducing the deficit -- which to date exceed $114 billion dollars, the legislation before this Committee today seeks to shift additional costs on to the federal workforce. This time, federal employees are being called on to pay extra for their health benefits in an effort to bail out the Postal Service.

The Postal Service claims that it can operate its own health insurance plan more efficiently and at less cost than the FEHBP. There is no evidence to support this conclusion and in fact, the opposite may well be true. Typically, the annual increase in FEHB premiums is lower than the increases experienced by large private sector employer plans. Any savings the Postal Service would likely reap would come not from shrinking costs, but rather from shifting costs onto employees and retirees by requiring them to pay higher premiums for their coverage, by reducing their benefit packages and/or by increasing employee and retiree copayments and deductibles. S.1486 has the potential to disrupt the health insurance benefits of 8 million federal employees, retirees and their dependents and NTEU cannot support the legislation in its current form.

Section 104 of S.1486 sets in motion the adoption of a separate Postal Service employee health benefit program. It would mandate negotiations between the Postal unions and the Postal Service over a separate health benefits plan and subject the process to arbitration if/when negotiations did not bear fruit. Postal employees forced into a new Postal-only plan would no longer be part of the FEHBP and therefore would be stripped of their ability to carry FEHBP coverage into retirement. Under the legislation, it seems this would apply even to employees who worked most of their careers in federal executive branch agencies and earned the right to carry FEHB coverage into retirement long before working for the Postal Service. Moreover, instead of the 230 plan choices currently offered in the FEHBP, Postal employees could be left with one health benefit choice under this scenario.

This same provision threatens the stability of the FEHB by potentially stripping the FEHBP of active Postal employees and Medicare-eligible Postal retirees. Only the most expensive Postal retirees would remain in the FEHB -- those without Medicare coverage under Parts A and B. It is not even clear under the legislation whether the family members of Postal employees and retirees would be eligible for health insurance coverage through either the FEHBP or a new Postal-only plan.

In its July 2013 report on the Postal Service’s health benefits proposal, the Government Accountability Office (GAO) found that the Postal Service’s withdrawal from the FEHBP would reduce the FEHBP program’s enrollment by 25% and could lead those plans with primarily Postal enrollment to withdraw from the program. This would have the unintended effect of forcing over 3 million non-Postal enrollees to choose a new health plan and possibly new service providers as well. In addition, because the Postal Service would be permitted to invest its health plan assets in stocks and other assets outside of Treasury securities, losses in a market downturn could mean that the Postal Service would have reduced assets available to fund health care benefits for its employees and could jeopardize their ability to provide those benefits to their employees and retirees in the future.

Section 105 of S.1486 would establish Medicare wrap-around plans for Postal employees and retirees who are enrolled in Medicare Parts A and B. Because these are the least expensive individuals to insure under the FEHBP, removing them from the overall FEHBP risk pool would inevitably lead to increases in premiums for those remaining in the FEHBP. The Office of Personnel Management has in the past estimated that as a result of this provision alone, premium increases for employees and retirees would be two percent across the board and could be as high as 35% for some plans.

Section 105 also allows for a waiver of late enrollment penalties for those Postal retirees who failed to enroll in Medicare when first eligible. Shifting costs to Medicare to stabilize the Postal Service does not seem to be the best answer. If Postal retirees who declined Medicare Part B enrollment at eligibility are relieved of late enrollment penalties, at a minimum, other federal employees who must pay these penalties each month and those who have not signed up for Medicare Part B because of the penalties should also be given this opportunity.

Federal and postal employees show up for work each day expecting to perform their duties diligently and professionally in service to their country and then safely return home to their families. Nevertheless, some will suffer workplace injuries that make it impossible for them to return to work for short or long periods of time and, regrettably, in some cases to never be able to return to work at all due to permanent injury or even death.

Workers’ Compensation insurance is a recognition of the responsibility of employers and society to take care of those who are injured in the workplace. It was our nation’s first social insurance program. Today, Workers’ Compensation stands as an important protection for the benefit of all Americans. Almost 98% of the workforce is covered by workers’ compensation insurance. The Federal Employees’ Compensation Act (FECA) provides federal employees with workers’ compensation coverage for injuries and diseases sustained while performing their duties. The program seeks to provide adequate benefits to injured federal workers while at the same time limiting the government’s liability strictly to workers compensation payments.

NTEU would support a review of the FECA program and has in fact worked with both Republican and Democratic administrations in the past toward this goal. However, I want to state our strong opposition to insurance benefit cuts, particularly for those employees who came to work one day ready to serve their country but suffered a workplace injury that resulted in them never being able to return to work. We are strongly opposed to the provisions in S.1486 that would cut benefits for older, injured beneficiaries and for those injured workers with family obligations.

An employee who is injured on the job and unable to work receives FECA payments equal to only 67% of wages at the time of injury (75% if he has family obligations). This reduction in income makes it impossible for an injured employee to fund a retirement plan. Once workplace injured workers are on FECA, they receive no further step/grade increases or retirement contribution matches, nor are they able to make elective contributions to the Thrift Savings Plan. They also earn no further Social Security credits. Forcing a worker to take reduced FECA benefits at some age deemed to be retirement age would cause grave economic hardship to many disabled employees. According to a GAO Report released earlier this year (GAO 13-108) the government-wide FECA cuts proposed in this legislation would have a disproportionate impact on the lowest wage workers and those injured early in their federal service careers.

NTEU also opposes elimination of the FECA family benefit. This is not a complicated program to administer. It does not compensate for the tragic emotional burden a head of household must suffer having lost his or her ability to continue as the breadwinner for his or her children. But it does provide some modest additional payment so a former family breadwinner can still provide some material support for his dependents.

NTEU is committed to a safe and healthy federal workplace where employees are less likely to suffer the injuries that lead to FECA claims. Our union has also been one of the strongest forces for innovation in the federal workplace, often working with management on bold new programs and sometimes dragging management forward over its reluctance. We have received reports from our members about management resistance or disinterest in light duty assignments, alternative worksites, disability accommodations and other actions that could allow FECA recipients to return to work. A change in management practices and culture is needed. While this is not something Congress can legislate, the first step is to end the myth that able bodied workers are receiving FECA payments and accept the fact that many injured workers would like to return to work and could do so with open minded and innovative agency practices.

Further, NTEU is willing to work with policymakers to improve program integrity methods. We support the cost savings provisions included in the bi-partisan legislation that was considered in the House in the last Congress including the anti-fraud and program integrity provisions. We strongly believe these are the types of reforms that should be explored before Congress moves to cut these social insurance benefits to injured federal workers.

S. 1486 would also allow the Postal Service to bargain with its unions to eliminate the Federal Employees Retirement System (FERS) defined benefit annuity for new Postal Service hires. This would strip these employees of a major element of their FERS retirement package and sets a dangerous precedent for the rest of the federal workforce. In addition, the bill would make changes to the employer contributions to the Thrift Savings Plan (TSP) for postal employees. This could lead to increased costs for all TSP participants and should not be enacted into law.

When FERS was created in the 1980s, it was designed to provide a modest pension for federal workers, and to replace the earlier Civil Service Retirement System (CSRS) which provided a defined retirement benefit. FERS has been referred to as a model by pension experts as diverse as David John, senior research fellow at the Heritage Foundation, Norman Stein, pension consultant and professor at Drexel University and Leigh Snell of the National Council on Teacher Retirement. (Diane Rehm Show, NPR, 10/8/10). In addition to being a model plan, the creation of FERS helped to shore up the ailing Social Security System by adding federal employees and their contributions to the system for the first time.

There are three parts to FERS: the defined annuity, Social Security and the Thrift Savings Plan which is similar to a 401(k) plan. All three are necessary to provide an adequate income in retirement. The average FERS annuity is about $1300 per month or approximately $15,600 a year. No one is getting rich on a FERS annuity. Eliminating the defined benefit portion for new postal hires is a slap in the face to postal workers who like their federal employee counterparts; seek a safe and modest retirement, like every American. NTEU will not support efforts to eliminate the defined benefit portion of FERS annuities for postal workers.

Thank you again for the opportunity to provide testimony on S.1486.