A new day at the post office

The United States Postal Service (USPS) has had periodic changes to its structure and processes over 250 years. However, a new law, the Postal Service Reform Act of 2021 (PSRA) just passed by Congress and signed by the President, will enable this organization of 650,000+ employees to act more like its parcel freight competitors while maintaining the six-day mail service that consumers and businesses rely on today. That’s no small feat, as the USPS delivers to 159-million locations in the United States six days a week.

While the PSRA 2021 focuses on the people side of the business, you have to keep in mind that the USPS is in a unique position: It’s a private company owned directly by Congress and the U.S. citizens and governed by an appointed 11-member Board of Governors, while there’s pricing oversight by a separate Postal Regulatory Commission.

Earlier efforts to privatize USPS in 2006 included an onerous requirement that this “private” firm “catch up” to other private firms and fully pre-fund the retirement and health benefit for hundreds of thousands of current and future retirees.“The new law requires the post office to maintain six-day

In fact, that 2006 act required that the USPS “pre-fund” 100% of its retiree health benefit liabilities 75 years into the future at a cost of $5.5 billion a year over the first ten years. After 15 years, USPS “owes” the government over $35 billion of the unpaid portion of this legal obligation.

The USPS has not been able to fully pay off that legal debt despite cost cutting to the point of pain for employees and customers. Interestingly, the postal employees also contribute to Medicare, but unlike other organizations Medicare has been a secondary insurer for retirees. The new law does several key things to change the game.

Remarkably, these changes are supported by both political parties and the American Postal Workers Union, The National Rural Letter Carriers Association, The National Association of Letter Carriers, and The National Postal Mail Handlers Union.

First, the balance of the $75-billion debt, some $35 billion, is wiped away and Congress commits to covering any shortfall in any given year, if any. Retiree health care costs will return to the “pay-as-you-go” system that was in place before the 2006 act and was being successfully met by the USPS year after year. This greatly improves the operating budget for the USPS.

Second, the USPS will integrate the current Federal Employee Health Benefit Program (FEHBP) with Medicare in 2025. Future retirees, when Medicare eligible at age 65, will remain in the FEHBP in retirement, and they will also be required to be enrolled in Medicare Parts A and B as most private employees do.

Retiree health coverage will then become a combination of Medicare and FEHBP, putting the USPS on a competitive footing with unionized competitors who have a combination of private and Medicare insurance, with Medicare covering the larger portion. This reduces demand on FEHBP and simplifies claims processing. Further, it reduces anxiety for employees who are nearing retirement.

Third, the PSRA requires USPS to set up a public “dashboard” on their website that will publish weekly performance data. This data will allow the public to monitor any service failures, identify mail slowdowns, and pinpoint zip codes experiencing consistent diminished service performance. This was a demand from public advocacy groups and the postal unions.

Fourth, and certainly not least, the new law requires the post office to maintain six-day delivery and allows them to expand non-postal services—an example of which we witnessed with the national distribution of COVID-19 test kits.

It’s expected that the USPS will broaden its revenue base with new services, and that will offset the steady decline in first class mail volumes. It’s also expected that USPS will raise its competitive profile by delivering mail and other services to businesses and consumers.

In the end, this is all good news for customers and the hundreds of thousands of employees serving the public.