Government Bytes

Commentary 

The healthcare bill you don't know about at the Postal Service

by Pete Sepp, kristina rasmussen / /

Pundits are chalking up the recent one-cent increase in first-class postage as the latest business decision to be devoured by rising gasoline prices, but the truth is that the U.S. Postal Service -- and South Florida's taxpayers -- have more at stake than piles of undelivered mail because of unfilled fuel tanks. The USPS is accruing expensive retiree healthcare bills amounting to billions and growing at a rapid rate. And with the sore fingers and knees caused by repetitious sorting and delivery movements, it's a safe bet that mail carriers will use their promised insurance benefits to the fullest.

But until recently, not a dime was being set aside to pre-pay those future costs, even though the unfunded healthcare liabilities are estimated to be $64 billion and are projected to balloon to over $1 trillion in 2045. Imagine a mail box stuffed with unpaid IOUs -- a box whose unwelcome contents have been swelling unchecked for decades and can't be returned to sender.

Since the federal government isn't likely to default on retiree health coverage promises (active postal unions and political friends would stave off even slight reductions in payouts), someone is eventually going to have to pay for the Postal Service's mounting liabilities. That can mean either higher taxes or rising stamp prices -- or both.

Retirement-benefit woes are certainly not confined to the public sector. For an example close to home, Plantation-based package delivery service and USPS competitor DHL also has financial troubles will make it more difficult for parent company Deutsche Post to keep up with employee benefits promises in the future. Although Uncle Sam generally provides a backstop against total failure of pension plans, private companies, which face pressure from competition and shareholders, tend to be more motivated than governments to fix their benefit programs.

Thankfully, reformers in Congress and the Bush administration decided to take a swing at the Postal Service's pressing problem. A provision contained in the otherwise modest postal reform bill of December 2006 aims to pre-fund retiree health benefits with money that was overfunding the USPS's contribution to another government account. For the next 10 years, the Postal Service is required to direct more than $5 billion annually into pre-funding retiree health benefits. That's not enough to wipe clean the tab for taxpayers, but it is enough to make a prudent down payment.

The action comes not a moment too soon, because USPS isn't the only entity facing billions of dollars in unfunded retiree benefits. According to research carried out by the Cato Institute's Chris Edwards and Jagadeesh Gokhale, state and local government retiree health benefits are already underfunded by $1.4 trillion nationwide, on top of state and local pension plans that are shorted by roughly $700 billion.

These figures are just about impossible to comprehend, but they break down to roughly $7,000 for every man, woman and child in the United States. Remember too that Social Security and Medicare are facing finance problems of their own that will heap on much, much more.

Some governments are already responding, especially since new federal accounting rules require them to report long-term cash flows in employee medical costs. Still others are attempting to pre-fund current workers' benefits. Florida and Michigan are phasing in 401(k)-style retirement plans whose contributions from the government would be made up front. This way, there should be no huge fiscal surprises for taxpayers in the future.

The city of San Francisco, meanwhile, has placed the issue squarely in the hands of the people -- a voter referendum is required for any expansion of city employee retirement perks.

Compared to DHL, the Postal Service isn't a great source of innovation, but if this immense bureaucracy can manage a transformation to paying for now what we'll owe later, states and localities should be able to do the same. Then postal customers everywhere could focus on their own bills in the mailbox without worrying about more to come from the mailman or public employees.

This article appeared in the Miami Herald online.