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74–456 PDF 2012

CAN A USPS-RUN HEALTH PLAN HELP SOLVE ITS 

FINANCIAL CRISIS? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. 

POSTAL SEVICE AND LABOR POLICY 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

TUESDAY, MARCH 27, 2012 

Serial No. 112–147 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND LABOR

POLICY

DENNIS A. ROSS, Florida, Chairman 

JUSTIN AMASH, Michigan, Vice Chairman 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

TREY GOWDY, South Carolina 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

GERALD E. CONNOLLY, Virginia 

DANNY K. DAVIS, Illinois 

(III) 

C O N T E N T S 

Page 

Hearing held on March 27, 2012 ............................................................................ 1 

WITNESSES 

Patrick R. Donahoe, Postmaster General/CEO 

Oral Statement .......................................................................................... 4 

Written Statement .................................................................................... 6 

Walton Francis, Author and Federal Health Care Expert 

Oral Statement .......................................................................................... 45 

Written Statement .................................................................................... 49 

APPENDIX 

The Honorable Elijah E. Cummings, A Member of Congress from the State 

of Maryland: Written Statement ......................................................................... 70 

United States Postal Service Retiree Health Benefits ......................................... 71 

(1) 

CAN A USPS–RUN HEALTH PLAN HELP SOLVE 

ITS FINANCIAL CRISIS? 

TUESDAY, MARCH 27, 2012 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE AND LABOR POLICY, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittee met, pursuant to call, at 9:35 a.m., in Room 

2154, Rayburn House Office Building, Hon. Dennis Ross [chairman 

of the subcommittee] presiding. 

Present: Representatives Ross, Amash, Issa (ex officio) Jordan, 

Gowdy, Lynch, Norton, Connolly, Davis and Cummings (ex officio). 

Staff Present: Ali Ahmad, Majority Deputy Press Secretary; Michael R. Bebeau, Majority Assistant Clerk; Robert Borden, Majority 

General Counsel; John Cuaderes, Majority Deputy Staff Director; 

Adam P. Fromm, Majority Director of Member Liaison and Floor 

Operations; Linda Good, Majority Chief Clerk; Seamus Kraft, Majority Director of Digital Strategy and Press Secretary; Justin 

LoFranco, Majority Press Assistant; Jeffrey Post, Majority Professional Staff Member; Peter Warren, Majority Policy Director; Kenneth John, Majority Detailee; Jaron Bourke, Minority Director of 

Administration; Kevin Corbin, Minority Staff Assistant; Ashley 

Etienne, Minority Director of Communications; Angela Hanks, Minority Counsel; Jennifer Hoffman, Minority Press Secretary; Adam 

Koshkin, Minority Staff Assistant; and Adam Miles, Minority Professional Staff Member. 

Mr. ROSS. Good morning. I would like to welcome everyone to the 

Subcommittee on Federal Workforce, U.S. Postal Service and Labor 

Policy. Our hearing today is, Can a USPS–Run Health Care Plan 

Survive its Financial Crisis? 

I will call the Committee to order and begin with the tradition 

of Oversight Committee and its subcommittees with the mission 

statement of the Oversight Committee. 

We exist to secure two fundamental principles: first, Americans 

have a right to know that the money Washington takes from them 

is well spent and, second, Americans deserve an efficient, effective 

government that works for them. Our duty on the Oversight and 

Government Reform Committee is to protect these rights. 

Our solemn responsibility is to hold government accountable to 

taxpayers, because taxpayers have a right to know what they get 

from their government. We will work tirelessly in partnership with 

citizen watchdogs to deliver the facts to the American people and 

bring genuine reform to the Federal bureaucracy. 

2 

This is the mission of the Oversight and Government Reform 

Committee. 

I will begin with my opening statement. After we do some opening statements, I may have to either suspend or turn the gavel 

over to run and do a vote over in Judiciary, but it would just be 

three to five minutes. I respect everybody’s time and I am grateful 

that you are here. 

I will now recognize myself for an opening statement. 

A vibrant, healthy Postal Service is critical to our economy. Virtually everyone in the mailing industry, paper manufacturers, 

printers, catalog companies, and advertisers, rely on the Postal 

Service. These jobs, and many others, are directly tied to a healthy 

Postal Service. The mailing industry as a whole accounts for nearly 

8.7 million employees and generates $1 trillion in economic activity 

each year. 

Unfortunately, the United States Postal Service continues to inadequately respond to Americans’ transition to digital communication and the related decline in first class mail volume, in large part 

due to an oversized workforce whose labor costs account for approximately 80 percent of the Postal Service’s operating expenses. 

As a result, today the Postal Service is facing the most significant financial challenge in its history and is on the brink of default, 

threatening the existence of hundreds of thousands of jobs all 

across America. Under the leadership of Postmaster General 

Donahoe, the Postal Service has made recent strides in improving 

the fiscal standing of the USPS. While I commend Mr. Donahoe for 

his commitment to implementing cost-cutting measures, the financial situation of the Postal Service remains untenable. 

In response to this fiscal crisis, the Postal Service recently presented its five-year business plan to profitability. The USPS plan 

details a need to cut $22.5 billion in annual expenses by 2016 in 

order to keep pace with diminishing consumer demand for mail. 

The plan contains elements USPS can implement on its own and 

those that would require congressional approval. 

The centerpiece of this plan involves shifting USPS employees 

and their retirees from the Federal Employee Health Benefits Plan, 

FEHBP, to a new USPS-run health plan. Today’s hearing will examine many of the aspects of the Postal Service’s business plan, 

and I thank the witnesses here today for testifying. 

On a personal note, I do want to thank Mr. Donahoe, who I have 

come to deal with over the last 18 months and appreciate your efforts in trying to do all that you can to save the Post Office. When 

we met a couple of weeks ago, you indicated that you came from 

Pennsylvania and saw the occurrence of the rust belt, and that action there was not taken quick enough to save an industry. You are 

committed to saving this industry and I, along with you, am committed to saving this industry and making sure that the Post Office 

is around for well over another 200 years, that it is running efficiently, effectively at the service level the American public deserve 

and expect. So I thank you for being here. 

With that, I will now recognize the Ranking Member of the full 

Committee, Mr. Cummings, for an opening statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I want to 

thank you for calling this hearing. 

3 

The Postal Service recently issued its five-year plan of profitability in which it proposes achieving $20 billion in savings by 

2015. The Postal Service estimates that it can achieve $10 billion 

in cost savings without legislation, but it will require congressional 

action to realize the remaining $10 billion in savings. 

According to the Postal Service’s plan, the bulk of those savings, 

$7 billion, would be realized if Congress authorized the Postal 

Service to take its employees and retirees out of the Federal Employees Health Benefit Plan and put them into its own health care 

plan. 

Currently, the FEHBP covers more than 9 million Federal employees and their families nationwide. Employees enrolled in 

FEHBP can choose from among 200 different health care plans. 

The Postal Service contends that it could manage employee health 

insurance better than the Federal Government as a whole. 

I want the Postal Service to succeed in the long run. I believe 

the Postal Service serves a unique and irreplaceable function in our 

society; that it is a necessary part of our Nation’s economic and social future. But I am quite skeptical that the Postal Service can or 

should manage its own health insurance system. I suspect that the 

achievable cost savings will come not from shrinking health care 

costs, but from shifting them onto employees. Postal employees 

would likely receive less coverage under the Postal Service plan 

and they would pay a greater share of their health bills. Postal annuitants would also pay more, as they would be faced with paying 

an increasing share of their health care from their fixed retirement 

incomes. 

I look forward to hearing from the Postmaster today about his 

proposal and about these concerns. 

I am also concerned with regard to the issue of possibly raising 

rates. One of the things that we have seen is a decrease in first 

class usage of the Postal Service. When we raise rates, which we 

may very well have to do, the question becomes will we continue 

to lose business. I think that is a very important thing that I know 

Mr. Donahoe will address. 

I also want to hear from him as to how he is going to grow the 

Postal Service business and what new authority he needs from 

Congress in order to make the Postal Service as relevant to America’s future as it was to our past. 

So, Mr. Chairman, I want to thank you for your courtesy, and 

I yield back. 

Mr. ROSS. Thank you, Mr. Cummings. 

When Mr. Lynch, the Ranking Member of the Subcommittee, arrives, I will also allow him an opportunity to have an opening 

statement. 

With that, members may have seven days to submit opening 

statements and extraneous material for the record. 

We will now welcome our first panel. Mr. Patrick Donahoe is 

Postmaster General and CEO of the United States Postal Service. 

Mr. Donahoe, as you are aware, pursuant to Committee rules, all 

witnesses will be sworn in before they testify. If you don’t mind, 

please stand and raise your right hand. 

4 

Do you solemnly swear or affirm that the testimony you are 

about to give this Committee will be the truth, the whole truth, 

and nothing but the truth? 

[Witness responds in the affirmative.] 

Mr. ROSS. Let the record reflect the witness answered in the affirmative. 

Thank you. As you know, your written testimony is before the 

Committee. We like to limit it to five minutes. This is a crucial 

issue. I am grateful for you being here. With that, Mr. Donahoe, 

you are recognized for an opening statement. 

STATEMENT OF PATRICK DONAHOE, POSTMASTER GENERAL 

AND CEO, UNITED STATES POSTAL SERVICE 

Mr. DONAHOE. Thank you, Mr. Chairman. Mr. Chairman and 

members of the Subcommittee, good morning. Thank you for scheduling this important hearing. I appreciate the opportunity to testify 

about the financial state of the Postal Service, about our five year 

plan to restore the Postal Service to profitability and long-term financial stability, and about our proposal to manage health care insurance for Postal employees and retirees. 

America depends on a financially strong Postal Service. The 

Postal Service provides a vital national delivery platform that is 

part of the bedrock infrastructure of the American economy. It supports a $900 billion mailing industry that employs 7.5 million people. Every American residence and business depends on a regular, 

secure, and affordable delivery of mail and packages. 

Nevertheless, due to a rise in electronic bill payment and the economic recession that began in 2008, the Postal Service has been in 

a financial crisis. In response to a 25 percent decline in the use of 

first class mail, the largest and most profitable part of our business, the Postal Service has aggressively cut costs and taken the 

responsible steps to return to profitability. We have generated cost savings of $10.5 billion since 2008 and 

have reduced the size of the workforce by 106,000 employees, and 

done so without layoffs or disruption in service. Indeed, our service 

levels have never been higher. 

Unfortunately, we cannot emerge from our financial crisis within 

the current legal framework. Absent a legislative remedy, the Postal Service will default this fiscal year on mandated prepayments to 

the Postal Service Retiree Health Benefit Fund. And as troubling 

as our current cash crisis is, these near-term shortfalls pale in comparison to our long-term financial challenges. 

Mr. Chairman, the Postal Service has put forth a comprehensive 

five-year plan that provides a clear path towards financial stability. 

Our plan would enable the repayment of all existing debt and fully 

fund future health care obligations. Our plan will also position the 

Postal Service to better meet the changing mailing and shipping 

needs of the American public. 

The plan we have developed is the result of an exhaustive process of evaluating every appropriate option to reduce costs and retain or grow revenue. We have worked with Evercore Partners, one 

of the Nation’s leading restructuring firms, to validate our approach. At the core of the plan is a reduction in annual costs of 

$22.5 billion by the year 2016. Our plan calls for, and we are agVerDate Aug 31 2005 11:23 Jun 22, 2012 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\74456.TXT APRIL
5 

gressively pursuing, the realignment of our mail processing, retail, 

and delivery operations. This realignment of the operational network is expected to yield more than $9 billion in annual cost reductions. 

Among the major legislative reforms we are recommending, the 

most significant includes enabling the Postal Service to provide employee and retiree health benefits independent of the Federal programs. This has the potential to produce approximately $7 billion 

in annual cost reductions and eliminate the need for any further 

scheduled prefunding of retiree health benefits. If provided the authority to do so, we believe that we can provide our employees and 

retirees with the same or better health cover for significantly less 

cost. Both our employees and retirees and the Postal Service would 

end up paying lower premiums. 

Mr. Chairman, without legislative reform that quickly enables 

meaningful operational changes in cost reductions, the Postal Service could incur annual losses as great as $21 billion by the year 

2016. As a result, it is not inconceivable that the Postal Service 

may soon require appropriations greater than $20 billion a year. 

Fortunately, such an outcome is entirely avoidable. The Postal 

Service does not want to become a burden to the American taxpayer. 

The Postal Service is currently recording a loss of $25 million a 

day. If our plan is fully implemented, we could record a profit of 

$6 million per day by 2016 and be debt free. We believe the plan 

we have proposed for the consideration of Congress is a strong one. 

Our plan would restore the Postal Service to profitability and financial stability; it would enable the Postal Service to meet its universal service obligations and continue to provide secure, reliable, 

and affordable service to the American public. 

We believe it is a responsible approach that is fair to our customers and fair to our employees, as well as fair to the American 

public to which we serve. 

I look forward to discussing this with you today and would be 

more than pleased to take any of your questions. Thank you very 

much. 

[Prepared statement of Mr. Donahoe follows:] 

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Mr. ROSS. Thank you, Mr. Postmaster. 

With that, I will recognize myself for five minutes for questioning. 

Mr. Donahoe, 150 million homes and businesses each day rely on 

the effectiveness and efficiency of the Postal Service to deliver their 

mail; 8.7 million employees are somehow or another, indirectly or 

directly, dependent upon the Postal Service for success. So today I 

think there are many that are hanging on your words as you give 

your testimony and answer the questions today. 

To go straight to one of the points that I think is most glaring 

at us is the cost of doing business for the Postal Service, and we 

know that over 80 percent of that cost is labor. With your plan for 

profitability that includes sustaining your own health care benefits, 

what have been your efforts and your results in dealing with the 

APWU, the Letter Carriers, and others in trying to sell this particular package? 

Mr. DONAHOE. Thank you, Mr. Chairman. First of all, let me just 

say that I agree wholeheartedly with your concerns about the entire postal industry. This is a major issue for us. Sending the right 

message to this industry in terms of people who use us to present 

bills and manage their cash flow, as well as advertising and shipping their packages, is extremely important, so the quicker we act 

and get ourselves back on firm financial footing, the better for the 

entire industry. 

In regard to the unions, we have had a lot of, I think, very productive discussions, and we are still in the discussion phase with 

these proposals. The goal in the short-term has been to get to the 

point where everybody understands what the proposals are, to listen and make sure that, going forward, everybody is on the same 

page. We are not at the point where we are in agreement yet, but 

we are at the point where we are discussing and getting a good 

knowledge base on these issues. 

Mr. ROSS. Let me ask you this. In getting to that point, is it a 

catalyst that your financial situation is such that you may run out 

of money soon? 

Mr. DONAHOE. I think that the unions realize the financial situation that we are in. 

Mr. ROSS. And when do you think is there a risk of the Postal 

Service running out of money this year? 

Mr. DONAHOE. Here is where we are from a cash perspective. 

Our finances this year have been a little bit better than projected; 

we are about $600 million ahead of our finance plan right now. In 

October of this year we will be required to make a payment of $1.3 

billion to the Department of Labor. At that point we will be at 

about $100 million in cash on hand. That is razor thin. Our operating cash for a day is $200 million a day. We will be able to go 

as long as the finances hold up this year, but in October 2013 we 

would be in a cash crisis. 

Now, that also precludes us not making the prefunding payments 

this year. 

Mr. ROSS. Okay, so right now it doesn’t look likely that you are 

going to be able to make the prefunding payments for 2012. 

Mr. DONAHOE. No. No, we are not. 

Mr. ROSS. Which come due in November. 

22 

Mr. DONAHOE. Yes. 

Mr. ROSS. And you are thinking, then, that if we stay on this 

course with inactivity of this Congress, then you are going to be out 

of cash to operate the United States Postal Service by October of 

2013? 

Mr. DONAHOE. We would be out of cash as it stands now. There 

are some options that we could take, that we have taken before, 

to conserve cash, like suspension of payment into the FERS fund 

that we are overfunded by $11 billion, but I would strongly encourage Congress to move now. This is much more of an issue of a crisis of confidence about the postal industry than it is just our cash 

flow. The faster we can resolve this and get focused moving forward on growing this industry—— 

Mr. ROSS. Quick question about the reduction in workforce. I 

laud you and the Postal Service over the last few years in trying 

to respond to the decline in revenues because of first class mail not 

being utilized as much. There has been a decrease in the number 

of employees in the United States Postal Service. I recognize that; 

I think that is tremendous. I also understand that we have probably close to 150,000 employees that, by way of attrition, will be 

necessary in order to right-size the expenditure side of the Postal 

Service. 

Do you have any plans or suggestions for those that are currently 

eligible for retirement to incentivize retirement? 

Mr. DONAHOE. We think that by the year 2015 we need to be at 

about 400,000 current employees. Presently there are about 

155,000 people that can retire, with another 100,000 eligible over 

the course of the next five years. We do plan on issuing some incentives based on the fact that we make some changes in our operations. As we shrink the network, as we move to six to five day delivery, we would put some incentive money to move people along. 

It is critical for us to move the headcount down, but at the same 

time we have a lot of non-career people on the rolls that are less 

expensive to work with, but they are also younger people, and if 

we had to take them off the workforce, they would end up unemployed, and I don’t want to do that. 

Mr. ROSS. One real quick question; I am running out of time. The 

impact on Medicare under your health care plan, could you expound on that? 

Mr. DONAHOE. The way that we are looking at the entire plan, 

what we would like to be able to do is take full advantage of Medicare, just like any other organization. Right now the Postal Service 

is the second largest contributor into the Medicare system. We 

think it is only fair that our employees and our retirees get to take 

advantage of Medicare and enjoy the savings of a wraparound plan 

that is more affordable for them, just like any other private corporation. 

Mr. ROSS. I appreciate that. My time is up. 

I now recognize the Ranking Member from Massachusetts, Mr. 

Lynch, for an opening statement and then we will move right into 

questions for you. 

Mr. LYNCH. Why don’t we go right into the questions? 

Thank you, Postmaster General. Good morning. 

Mr. DONAHOE. Morning. 

23 

Mr. LYNCH. You are making me nervous. I am just trying to figure out and we have been dealing with FEHBP for a while now. 

There are some colossal inefficiencies in that whole system. 

So I can see where the opportunities for savings within that plan 

exists, and I have fought for some of those plans, especially with 

the pharmaceutical side. I think we are losing about $1 billion a 

year, honestly, on the drug plans offered by the pharmacy benefit 

managers. We are not getting the value that we should be getting 

for the taxpayer or for the employee. We are being ripped off, I 

think. So I am pretty frustrated because we haven’t been able to 

move. I have legislation to try to save that. 

So, on one hand I do see some opportunities for savings, but how 

many members, we have 8 million in the wider system for Federal 

employees? 

Mr. DONAHOE. I think it is around 9 million total. 

Mr. LYNCH. Okay. 

Mr. DONAHOE. Total employees, retirees, and their families. 

Mr. LYNCH. Okay. So you have, admittedly, or at least in theory 

there is a certain amount of leverage that we have having 9 million 

participants in the Federal Employee Health Benefit Plan. Now 

you are suggesting we are going to extract about 600,000, if you 

add survivors and what-not, by extracting the Postal employees 

from that wider plan, and I am just concerned about the lack of 

leverage, the lack of our ability to capitalize on savings opportunities as a separate group. 

I also know that the mail handlers’ plan, which is very popular 

among Postal employees, I think my mom and dad are in that, two 

of my sisters, all 55 of my cousins. I am kidding. I am kidding. I 

am kidding. There are only about 17 of them. 

[Laughter.] 

Mr. LYNCH. But there is a lot of popularity in that plan and I 

am just nervous that you are going to make it unaffordable. People 

hate change. 

Mr. DONAHOE. Sure. 

Mr. LYNCH. Especially when they have something that works for 

them; it is stable, it is reliable, it is fairly efficient. So what happens to my folks that are in the mail handlers’ plan? Now, if you 

were suggesting that we are going to give people another opportunity here and we are going to give them another plan, and there 

was an opt-in opportunity where, if you ran a good plan, you ran 

a low-cost plan, you ran an effective plan, people would opt into 

that by their own volition, because I think there are a lot of people 

that you could convince that you could do a better job. I think there 

are some people that are unhappy out there. 

If that were the case, I would have less problem with it. However, what you are suggesting here, I think, is we are going to pull 

our people out and that there is not a whole lot of choice there for 

the employees who would like to stay with the plan they have now. 

Could you address some of that? 

Mr. DONAHOE. Absolutely. I would be more than happy to. 

The key thing from our perspective is to find the best plan for 

all of our employees and retirees, and what we have been doing 

over the course of the last year is working on that with consultant 

Ayon Corporation and Hay Corporation to put together an excellent 

24 

plan. So the first thing I would assure you is whatever we would 

present to employees and retirees would be something they would 

be interested in. 

The idea is not to run it ourselves, per se. What we would do is 

go out on the market and actually bid competitively for one of the 

large health providers like a Blue Cross or United Healthcare, one 

of those companies out there, to run the plan. What we would offer 

in the plan would be a number of different options. 

Number one, you would have a couple of different tiers, a high 

value, a medium value, and a low value plan A young person, 25 

years old, they may pick the low value. We would also give people 

options: single, single plus one, plus family, family. So that gives 

people some options there too. 

What has happened with your mom and dad, if they are Medicare age, and I don’t know if they are, they have actually already 

done what we are proposing to do. They have measured the value 

of the mail handler plan and said I will sign up for Medicare A and 

B, and I can save money taking this mail handler plan. 

That is exactly what we propose. We would like to have a plan 

for the current employees and then a wraparound plan for the 

Medicare-eligible employees that gives them excellent value at a 

low cost, so they would use Medicare as their primary provider and 

have this backup plan from a wraparound. That saves a lot of 

money, because today what happens is a person like me or other 

people who would be retiring may never change their health care, 

and the Postal Service and the retirees end up paying full health 

care plan for the rest of their lives, when in fact they could get 

much better value at that lower cost. 

So we have looked at this from a total top to bottom perspective 

and making sure that the good value is there for the employees 

and the retirees. 

Mr. LYNCH. Well, I have enormous respect for you and I also understand how difficult the environment is right now. But as a lawmaker we need to drill down. I need to know every last detail about 

this if this is something that you are serious about, and I think you 

are. And we need to talk to the employees and let them know that 

this is what is being suggested, and we need to be poking at this 

thing and testing it, and whether or not this is really going to help 

the taxpayer and is going to help the Postal customer. Obviously 

this is really primarily going to impact Postal employees and their 

families. So we will keep talking. 

Mr. DONAHOE. Thank you. 

Mr. LYNCH. I am not convinced. I am not convinced. 

Mr. DONAHOE. That is fine. 

Mr. LYNCH. But we will keep talking. Part of it is I need to know 

more. But thank you, I appreciate your testimony today. 

Mr. DONAHOE. Thank you. 

Mr. ROSS. Thank you, Mr. Lynch. 

I now recognize the Chairman of the full Committee, the gentleman from California, Mr. Issa, for a round of questioning. 

Mr. ISSA. Thank you. 

I want to thank you, Mr. Postmaster. The work you do I won’t 

say it is thankless, but it is pretty close. And I know that your program is not being well received in some quarters, particularly, well, 

25 

the real austerity is not being well received, but even the shift to 

using Medicare in a primary position is not being well received, 

and one of the not well received people could perhaps be me. 

I am probably going to support your doing this, but let’s have no 

illusions: you are just cost-shifting. There is no real cost savings to 

the American people. The money in fact will be paid out of one 

hand in order to save out of another hand. Now, if you didn’t have 

a projected $22.5 billion loss in just three years from now if no 

change is made, we probably would say no thank you, but suck it 

up and keep it in the rate base. 

I think the questions today that I have is even if we do this, 

where with inaction is the rest of the savings going to come from? 

If we do this, how much more do we have to do? You have given 

us a program that makes an assumption that you will be $60 billion in revenue in 2015, is that correct? 

Mr. DONAHOE. That is correct. 

Mr. ISSA. Do you really believe you will be at $60 billion without 

some change in the trajectory in 2015? 

Mr. DONAHOE. And I think the exact number is about 61 and 

change by 2016. I think that based on the fact that a lot of our research has shown that is the direction that mail is going, predominantly driven by first class, as well as a CPI-based rate change, we 

think that we will be right in that vicinity. We have been talking 

to customers, as I had mentioned here before. 

My biggest fear is not so much diversion, electronic diversion 

that is happening with bill payment; my biggest fear is the electronic diversion of bill presentment if we don’t stabilize the finance 

of the Postal Service. We have to get our finances stabilized. I 

think then that will keep bill presenters, first class mail in the 

mail. That is the best way for them to still communicate with their 

customers. 

Mr. ISSA. Well, because I am a member of Congress and have extensive reporting, I want you to know that I am doing my share. 

I do get electronic presention, is that the word. 

Mr. DONAHOE. Presentation. 

Mr. ISSA. Presentation. But I also get the paper copy so that I 

can absolutely be sure that I can do my reports properly. So I am 

doing my share to make sure that is happening. 

Mr. DONAHOE. Thank you. 

Mr. ISSA. But let’s be honest, it will be a cold day in hell before 

I would voluntarily write a check and put it in the envelope again. 

My regular bills are all paid electronically, as probably, if not everyone on the dais now, in the near future will be. So again, it is 

a rosy scenario to be at $61 billion in revenue. If the continued decline in other forms, magazines and the like, if they continue to 

have more robust online services and less current, you are going 

to have challenges, aren’t you? 

Mr. DONAHOE. Well, here is what we are looking at towards the 

future. We think that the Postal Service has three major products 

that will grow, either stay steady or grow going into the future: 

first class commercial mail bill presentment; advertising we know 

can grow. Advertising through the mail is the most effective way 

you can do it. And the package business. We are growing package 

business right now at a very brisk rate. Our final model delivery 

26 

is running 15 percent over last year, and that is over the year before. 

Mr. ISSA. Let me follow up on that, because it is true that that 

is one of the areas, and when I speak to many of your partners, 

most notably FedEx and UPS, you are critical to them, you are 

teamed. You are teamed on the back end, you are teamed on the 

final mile. 

Isn’t the future of the Post Office an efficient, effective delivery 

system that often carries, in greater amounts, all of the above, 

meaning that you are the last mile in many, many, many cases, 

and that allows you to continue to be more efficient while it allows 

them to save money? Isn’t that, to a great extent, where you are 

going to be? 

Mr. DONAHOE. That is where we are going to be and that is 

where the Country is going with the growth in e-commerce. 

Mr. ISSA. Now, today, in rural areas, you are the last mile for 

newspapers in many cases, aren’t you? 

Mr. DONAHOE. Yes. Yes. 

Mr. ISSA. And those newspapers choose to deliver on Saturdays, 

and you are planning, for major cost savings, to no longer deliver 

on Saturdays, is that correct? 

Mr. DONAHOE. That is correct. 

Mr. ISSA. Do you find it odd that the vast majority of these newspapers do not want a rate increase, say they cannot tolerate a rate 

increase, but they want you to continue delivering on Saturday? 

Mr. DONAHOE. Well, right now we are still working through trying to get all stakeholders on the same page, but I think we can 

work with the newspaper industry too, if they are interested on 

Saturday delivery. But to your point, we feel we have to reduce it 

at this point. 

Mr. ISSA. You have a very bold proposal that you offer Saturday 

delivery, but that it be self-paying, in other words, to the extent 

that people still want a Saturday delivery, for example, pharmaceuticals, where, for a smaller premium than FedEx or UPS, you 

can in fact still roll out that delivery. 

Does that system in some way translate to other areas? For example, is it possible to maintain, if you are given the flexibility to 

make it pay its own way, maintain, for example, those newspapers 

on Saturday in rural areas? You have rural letter carriers. Is there 

any way that is going to pencil out if you are given complete flexibility, as long as it pays for itself? 

Mr. DONAHOE. What our proposal is for Saturday is to keep post 

offices open, post office boxes, run the network, and deliver packages with an extra fee. To your point, with the technology today, 

with intelligent mail bar codes, we could actually deliver mail if a 

customer asks, again, making sure that we would charge the 

amount that would cover. So if a person absolutely needed delivery 

on Saturday of their letter mail and newspapers, I am sure the 

flexibility is there for us to work that out. 

Mr. ISSA. So as Senator Lieberman and others in the Senate are 

reaching cloture on their bill and we are preparing for a date on 

the floor, should we have a sensible manager’s amendment that 

would include greater flexibility, or does the current bill give you 

the flexibility you need for a modernized Saturday delivery, in adVerDate Aug 31 2005 11:23 Jun 22, 2012 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\74456.TXT APRIL
27 

dition to what we all understand to be historic Saturday delivery 

ceasing? 

Mr. DONAHOE. I think any language that gives the Postal Service 

more flexibility is good, because with all the financial issues that 

we are facing, we could certainly use that flexibility for the customers, and I think working with our unions we can get more flexibility in the workforce to make sure that we can deliver that mail. 

Mr. ISSA. Well, thank you. I note an esteemed former chief staff 

member here behind you. He knows how that should be written. 

I also see Mr. Clay, Sr. He certainly knows how the Committee 

works. I won’t name everybody, but we would look forward to that. 

Obviously, it is probably on our side of the Capitol that we are 

going to have to put additional language in. We would like to work 

on making sure that language is flexible enough for your proactive 

proposals, which I think are every bit as important as the cost-cutting. 

Mr. DONAHOE. Yes. 

Mr. ISSA. I thank the Chairman and yield back. 

Mr. ROSS. Thank you. 

I now recognize the Ranking Member of the full Committee, the 

gentleman from Maryland, Mr. Cummings, for five minutes. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

I want to go back a moment to some things Mr. Lynch was saying. When you are talking about, and I agree with everything he 

said and I agree with his skeptical comments, about this health 

care plan, when you think about something like health care, it is 

so very, very important and vital to people, particularly in today’s 

world. Have you had a discussion with the unions about the proposed health care plan? 

Mr. DONAHOE. Yes. We have been talking with the unions and 

the management associations for the better part of about three or 

four months. What we have been trying to do is go through a process so everyone understands what is being proposed. So we talked 

about the original how we would set it up, the Medicare requirements. We have actually mocked up some proposals based on taking a set of private industry plans, averaging them together and 

comparing some costs with what we have today, and we have discussed those. 

Mr. CUMMINGS. So you are saying that they have had some input 

into your thinking and your planning there with regard to the program? 

Mr. DONAHOE. We have had discussions, but we have not come 

to an agreement. To your point, this is probably the most critical 

issue that people worry about, their health care, so we don’t want 

to push them. We want to try to work through so that we understand. We listen at the same time. 

Mr. Lynch mentioned the question about the mail handlers. One 

of the things that we have said to the unions is if you want to still 

maintain your plan, because some of them have a number of people 

and the rest of the Federal Government, we are fine with that. 

Mr. CUMMINGS. One of the reasons why I mentioned unions is 

because they have, in my estimation, bent over backwards and 

have been very understanding, trying to work things out. It is just 

incredible the lengths that they have gone to try to work things 

28 

through and understanding that sacrifices have to be made, and I 

would hate to see you coming up with these kinds of plans without 

having some type of input, because you are going to have to come 

back to them at some point anyway, and I think it is better to have 

people onboard as you go along and they feel as if they have been 

a part of the process, as opposed to going and trying to shove something down their throats. 

Mr. DONAHOE. I agree 100 percent. We want to make sure we 

work with the unions on this and also the communication of the 

employees, and just as much so the communication with retirees, 

because there is a lot of concern, there is a lot of fear of the unknown out there, and it is just as important for us to listen to what 

the recommendations are and build that into the plan. 

Mr. CUMMINGS. Now, let me go back to revenue. Packages rose 

some 8 percent? 

Mr. DONAHOE. Priority mail, yes. 

Mr. CUMMINGS. Priority mail. And why is that? Why do you 

think that is? Because I think whenever we find a sweet spot we 

need to kind of zero in on that to try to figure out how we increase 

it. Go ahead. 

Mr. DONAHOE. I agree 100 percent. Couple things on priority 

mail. Number one, priority mail is an excellent value. That is the 

flat rate box, if it fits, it ships. 

Mr. CUMMINGS. Oh, yes, that commercial. I like that commercial. 

Mr. DONAHOE. There you go. And returns the same thing. We 

have really priced these well so that you have small users, small 

business, home business, it is very easy for them and large businesses to use priority mail. 

The other thing we have concentrated on this year is visibility, 

so good scanning the whole way through. Our people have done a 

tremendous job improving that, so I think that is where you are 

seeing a lot of value and that is where you are seeing growth. 

The other area that we have seen tremendous growth is that last 

mile, parcel select, that our letter carriers and rural carriers deliver. That is growing at almost 15 percent a year. So we are very 

excited about packages and that is why we would like to get a resolution around some of these issues, so we can get back and focus 

on growing advertising and marketing mail, packages, stabilizing 

first class mail. 

Mr. CUMMINGS. Now, you are familiar with the Senate bill, are 

you not? 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. And what are your feelings about it? Any concerns that you have? Because I think it is quite possible that may 

very well be the vehicle that we may end up sort of using to try 

to figure this out. That is my opinion, though. 

Mr. DONAHOE. Sure. 

Mr. CUMMINGS. Mine only. 

Mr. DONAHOE. We think there are some very good points in the 

Senate bill. We have had a number of discussions with Senators 

Lieberman, Carper, Brown, and Collins. We think there are some 

very good points in there. There are some suggestions we have 

made. We have said to them the biggest concern is the length of 

time. If we can move up some of the proposals to match up more 

29 

with our plan, we will get back to a profitable nature quickly and 

then be able to focus on growth. 

Mr. CUMMINGS. One last question. There have been discussions 

and you have said that maybe you would not have to close as many 

as 250, 200 and some processing centers. Can you talk about that 

for a moment, please? 

Mr. DONAHOE. Sure. One of the questions that has come back 

from the Senate has been, rather than moving to the full phase of 

the network consolidation, is there a halfway point to keep more 

overnight service for local businesses and customers, and we think 

that there is an opportunity. We have done some studies around 

there, and it would require us closing about half as many facilities 

as we propose. 

In order to stay true to the finances, we have pitched the idea 

that we would like to raise the price of single piece first class eventually up to 50 cents. That is about a billion dollar tradeoff each 

way; provide service, keep more of the network up, but we would 

need the finances on the revenue side of the house to stay true to 

the numbers. 

Mr. CUMMINGS. Thank you, Mr. Chairman. 

Mr. ROSS. Thank you, Mr. Cummings. 

I now recognize the Vice Chairman of the Subcommittee, the 

gentleman from Michigan, Mr. Amash, for five minutes. 

Mr. AMASH. Thank you, Mr. Chairman, and thank you, Mr. 

Donahoe. It is good to see you again. 

Mr. DONAHOE. Good to see you. 

Mr. AMASH. I have a few questions. When was the last year the 

Postal Service had a profit? 

Mr. DONAHOE. I think we had a profit in 2006, maybe 2007. I 

can’t be 100 percent sure, one of those two years. 

Mr. AMASH. How much money did the Postal Service lose in the 

first quarter of 2012? 

Mr. DONAHOE. With our requirement to prefund, about $3.3 billion. 

Mr. AMASH. And how much do you expect to lose for the entire 

fiscal year? 

Mr. DONAHOE. Depending on how we finish the year, probably in 

the vicinity of about $14 billion. We are a little ahead of our revenues right now and people have done a great job holding costs. The 

prefunding for this year accounts for both this year and last, so 

that is 11 billion of those dollars. 

Mr. AMASH. Now, last year Congress acted at the last second to 

give you some temporary relief from the prefunding. What does the 

lack of certainty of whether or not you will have to make your payment each year do for your plan for profitability in your overall 

business model? 

Mr. DONAHOE. We have to get that resolved. That is what we are 

proposing right now in terms of the health care proposals in the 

overall plan. But I will tell you it is much larger than us. This is 

an industry issue. To give you an example, if you are worried about 

the Postal Service being able to deliver your bills and statements, 

and you are worried about your cash flow as a large company, you 

are going to start thinking about alternatives. The faster we get 

30 

this resolved, the faster people don’t have to worry about alternatives to the mail. 

Mr. AMASH. That goes nicely with my next question. In November 2011, you addressed the National Press Club and, according to 

the transcript, you said, ‘‘You know that phrase speed kills? Well, 

the lack of speed will kill the Postal Service. There is a stark 

choice: a more flexible business model that allows us to control 

costs quickly or very large losses that will ultimately burden the 

taxpayer.’’ 

If immediate action is needed to return the Postal Service to solvency, why did it decide to self-impose a five-month moratorium on 

closures and consolidations of its facilities? 

Mr. DONAHOE. We were approached by members of the Senate 

and they asked us, in order to keep some stability with the employees and the customers, if we would agree to wait to give them an 

opportunity to get legislation out and over to the House, and get 

the legislation through the House and up to the President for signature. I didn’t think that was an unreasonable ask. 

As we work through these processes to consolidate facilities, it is 

not going to happen all at once. The way we consolidate will be 

done in a very thoughtful and careful method so we don’t disrupt 

service. We are looking for the bottom line cost reductions, and we 

will get those, but these consolidations will happen over the course 

of the next year. 

Mr. AMASH. So you were supportive of the Senate’s request, 

then? 

Mr. DONAHOE. They asked me for that consolidation; I had no 

issue with that. 

Mr. AMASH. Chairman Ross and Chairman Issa wrote a comprehensive Postal reform bill last year that was passed by this 

Subcommittee and the full Oversight Committee. It is full of costsaving measures that will revitalize the Postal Service. What parts 

of H.R. 2309 does the Postal Service support? 

Mr. DONAHOE. We support the FERS refund; we support the ability to move and consolidate the network; we support the ability to 

move to consolidate from six day to five day delivery. Practically 

everything in the bill we are in support. 

Mr. AMASH. In your written testimony you mentioned establishing a Postal Service-sponsored health care program represents 

the largest part of the plan for profitability savings, accounting for 

over $7 billion of annual savings. Does the Postal Service have the 

resources to maintain its own health care plan? 

Mr. DONAHOE. What we would do for a health care plan is what 

any other company does; you go out into the free market, you bid 

that, you find the best health care provider to act as pretty much 

an overall health administration firm, say a Blue Cross or United 

Healthcare. 

We would also expect to use HMOs or other health care to fill 

the gaps, because there are gaps out there, and that is the way 

that we would manage it. We would go out through a regular competitive request for proposal, and once we are able to secure the 

health care, the provider would manage the plan for us. 

Mr. AMASH. And how long do you think it would take to implement such a plan? 

31 

Mr. DONAHOE. We have had some discussions with health care 

companies to understand that, to actually test out our ideas and 

see if they are sound. We would have to go through a request for 

information, an RFI, to get more and then go out with an actual 

bid. We think that we would be able to have a health care plan 

ready by 2014. 

Mr. AMASH. All right. Thank you, Mr. Donahoe. 

Mr. DONAHOE. Thank you. 

Mr. ROSS. Thank you, Mr. Amash. 

I now recognize the gentlelady from the District of Columbia, Ms. 

Norton, for five minutes. Good morning. 

Ms. NORTON. Good morning, and thank you very much, Mr. 

Chairman. This is an important hearing we are having. 

First, Mr. Donahoe, I just want to congratulate you and your 

union for what you have done so far. Never in the history of the 

Federal Government has a Federal agency downsized, saved billions of dollars without a single layoff. 

And I must say that that could never have been done if there 

were not a union at a table. All hell would have broken loose if any 

private corporation or if the Federal Government had tried to make 

these billions of dollars in savings singlehandedly as a management matter. I also note that the fact that the Postal Service is 

doing better seems to me to be a sign of recovery. You are a virtual 

barometer about the economy itself. 

Now, if you look at the top line of what you are proposing, there 

is a part of it that is counterintuitive because of the notion adopted 

by every country in the world, that the larger the pool, the less the 

cost of health care. That is what is before the Supreme Court now. 

That is what every country in the world does, it creates the largest 

pool it can. Every country in the world creates a pool of the nation 

itself. That is what we are trying to do with the Affordable Health 

Care Act. 

Moreover, I am sympathetic to the Postal Service in this respect: 

we ask you to do what we ask no Federal agency to do. It is mindboggling that what we do, including providing services, and yet we 

want to treat you as a private corporation. We haven’t made up our 

minds how to treat you. 

So I look at what might motivate this new idea of yours and I 

want to ask you, candidly, if you would have felt compelled to put 

forward this proposal if the post retiree fund contribution the Postal Service must make today was eliminated or substantially reduced. If that were not the case, would you feel compelled to come 

forward here today? 

Mr. DONAHOE. One of the things, to your point, that we have 

looked at over a number of years is to actually own our own insurance plan, and your point of the size of the pool is critical. The size 

of the pool for the Postal Service would be about one million participants, retirees plus the—— 

Ms. NORTON. Compared with how many in the FEHBP? 

Mr. DONAHOE. Well, compared within the FEHBP it is a smaller 

pool, but if you took that and you went out into the private market 

and bid that, that would be the largest single health care group or 

pool out there. And that is the exact thought behind what we have 

been looking at. 

32 

My feeling is that, not that we have any arguments with the 

FEHBP, I am sure that everybody tries to do their best there, they 

run a pool of 200-plus different plans, and there is no real way to 

get out and compete to get the best price. And we have had companies come in to talk to us about how they are saving in health care 

costs and providing better benefits through making the health care 

companies go out and compete and provide better pharmaceutical 

plans, et cetera, and we look at that and say, jeez, with a million 

people we should be able to get some of those same benefits. 

Ms. NORTON. So the post retiree contribution issue is not what 

motivates the proposal? 

Mr. DONAHOE. That is one of them. We have looked at this beforehand. However, with the retiree health benefit requirement, 

having our own health insurance does give us the opportunity to 

reduce those costs and manage Medicare at the same time. So what 

we are doing is looking at a number of things. 

There is a potential that, as we work through these changes, we 

won’t be at the point where we are fully resolved with the health 

care, and we will have to continue to work with the unionson that 

which will be—— Ms. NORTON. Mr. Donahoe, the first thing that any member of 

Congress will think about when a new proposal of this kind comes 

forward, and you have mentioned stakeholders, is what the OMB, 

and you say this plan has been vetted, what the OMB, what the 

OPM, what your own inspector general have said precisely about 

this plan. 

Mr. DONAHOE. Yes. We have asked them, to your point, please 

look at that, shoot holes. Are we missing anything? So we have 

asked the IG to audit it and they have, and they have told us it 

looks good. We have been to the OPM; I have been there with Mr. 

Barry on a couple of occasions and actually have sent a number of 

our people back to look at it to make sure that any issues that were 

not covered we thoroughly vetted. 

I think to Mr. Lynch’s point and Mr. Cummings’ point, we need 

to continue with that. We need to continue to examine—— 

Ms. NORTON. And what about the OMB? 

Mr. DONAHOE. We have talked to the OMB, but in terms of really 

digging in, probably not to the same level. We have had discussions—— 

Ms. NORTON. Do you have anything in writing from those 

three—— 

Mr. DONAHOE. I have from my IG, and I have asked Mr. Barry 

at the OPM to please provide back in writing what his thoughts 

are. 

Ms. NORTON. Mr. Chairman, could I ask that what Mr. Donahoe 

has in writing from the OMB, the inspector general, and who else 

did you say? 

Mr. DONAHOE. We have to get something back from the OMB. 

We have asked—— 

Ms. NORTON. The other two you have something in writing? 

Could you submit that to the Chairman so it can be—— 

Mr. ROSS. Without objection. 

Mr. DONAHOE. Absolutely. 

Ms. NORTON. Thank you very much, Mr. Chairman. 

33 

Mr. ROSS. Thank you. 

We now recognize the gentleman from Illinois, Mr. Davis, for five 

minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Thank you, Mr. Donahoe. I want to go back a little bit to the 

number of mail processing plants that we might be arriving at in 

terms of closure. I think some rethinking has been done from what 

was initially indicated. 

Mr. DONAHOE. Yes. 

Mr. DAVIS. Where are we now in terms of that? 

Mr. DONAHOE. The original proposal was to move from approximately 487 down to around 200. We came back after we did our 

studies and proposed that we would go from 487 down to about 

232. 

Mr. DAVIS. Could I ask that, in light of the potential job impact 

and the uncertainties in the minds of individuals who would be affected greatly in terms of where they might end up working or having the opportunity to work, do we expect to have that maybe close 

to finalization by the 15th of May? That is a date that we have 

been talking about some things happening. 

Mr. DONAHOE. We have been working through that with our employees. One of the things that we have continued to do, even 

though we have held the date for closings until after May 15th, 

was to continue to work with customers and employees. So we 

would know by then which employees would be affected. 

What we are trying to do is go person by person, that is how important this is, so we can sit down with an employee and have a 

discussion if they want to retire, if they want to take a different 

job, if they want to do something different in their career, because 

as we have reduced headcount in the organization, we have always 

been very conscious to try to do the right thing as a responsible 

employer. 

Mr. DAVIS. Do we have any round numbers in terms of how 

much we are likely or would like to be able to save as a result of 

this process? 

Mr. DONAHOE. We think that the network reductions as proposed right now would save us about $2.5 billion. We also have actually 

taken about $400 million in revenue off of there based on feedback 

we have gotten from our customers. So the net would be about $2.1 

billion. 

Mr. DAVIS. Then let me shift over a little bit back to the line of 

questioning from Representative Norton. Did I glean that we are 

very comfortable from the responses that we have gotten from the 

stakeholders who vetted the proposed system that the Postal Service would run itself, in terms of health benefits and—— 

Mr. DONAHOE. I think comfort would probably not be the right 

word. I think that our feeling is, with our work with our IG, we 

have asked them, as we have gone along, make sure we are doing 

this the right way. We don’t want to put something out that is incorrect. So we have kept them abreast. 

The OPM, we are waiting back for answers in writing from them. 

We have been working with them and asking them again, as we 

make these proposals, does it make sense? What we are saying, is 

this legal? Does this make sense from a health care perspective. 

34 

I think any time you get into a big change like this, there is no 

real comfort level, it is just trying to reassure and ask the questions to make sure we are doing this the right way. 

Mr. DAVIS. Let me ask what are we getting back from the unions 

as we interact with them around this proposed change? 

Mr. DONAHOE. I think that the unions, as we have worked to 

communicate and explain what we are thinking, there have been 

a number of questions come back. From some of the unions they 

have said, jeez, you know, we have our own health care plan; what 

would happen with that? And that is something that has to be resolved. Of course, some of the other concerns have been what happens in the long-run if there is any problem with the Postal Service 

from a financial perspective. 

Our proposal also includes putting together a trustee group like 

representatives of the unions, as well as management, and a third 

party like the Treasury or the OPM, somebody else in there that 

could oversee and make sure that all decisions were proper decisions going forward. And this has come about through all the discussions and looking at how other people have gone through those 

processes. But to your point, we have to be very careful and make 

sure everybody knows exactly what is on the table and what is 

being proposed. 

Mr. DAVIS. Have you looked at or explored or thought about a 

Postal only plan within the Federal Employees Health Benefits 

Program? 

Mr. DONAHOE. We have talked to the OPM about that and that 

is something we have said to them if you could come back to us 

and say how, managed within there, we could get the same benefits, the same savings and flexibility, we would certainly be open 

to something like that. 

Mr. DAVIS. So we still have a number of options open relative to 

how we close the loop on providing these benefits. 

Mr. DONAHOE. Yes. 

Mr. DAVIS. Thank you very much. 

And thank you, Mr. Chairman. 

Mr. ROSS. Thank you, Mr. Davis. 

For those who want to hang around, I would like to do another 

round with you. 

Specifically, I want to recognize myself for five minutes, but also 

ask you about rates. You have talked about increasing postal rates 

from 44 cents to 50 cents. My concern is even though I was a lawyer by trade, I had an undergraduate degree in business, and some 

of the business models we would deal with when I was in school 

would be that if nobody is buying your product, one of the last 

things you do is raise your rates. And my concern here is that the 

assumptions upon which you are basing your increase in revenues 

with an increase in rates, does that take into the cause and effect 

a declining user base of first class postage? 

Mr. DONAHOE. This would be the way we would approach this: 

our prices are broken out right now competitive and market dominant. 

Mr. ROSS. Right. 

Mr. DONAHOE. For the most part, we would follow the pricing 

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35 

dominant products. The only portion of mail that we would look at 

to increase the price would be specifically the single piece, the blue 

mailbox mail that you or I might use to send a card or mail a bill 

in. That is a volume that has continued to shrink. 

Mr. ROSS. Right. 

Mr. DONAHOE. And as that has shrunk, that has generated the 

recommendations of shrinking our network down. Now, there have 

been some suggestions that have been made to slow the shrinking 

down to some extent over the course of the next couple years, not 

be as drastic, and our approach to that has been if that is an option, if that is the will of the Congress, if that is where people want 

to go, that we would propose to increase just that single piece 

stamp rate to make up the difference of the savings that we would 

lose. 

Mr. ROSS. But wouldn’t logic and reason and, quite frankly, laws 

of economics dictate, then, that you might actually have an even 

further decline in revenues because of a lack of buyers, if you will? 

Mr. DONAHOE. That revenue is going, whether we like it or not, 

because of electronic diversion. It is kind of an interesting situation 

because the revenue of single piece is going away and we project 

it to continue to drop based on bill payment online and electronic 

diversion. But there are other portions of that mail that are very 

inelastic. So we have looked at—— 

Mr. ROSS. Inelastic. Even if you went from six to five days it 

would still be inelastic? 

Mr. DONAHOE. Yes, because it is convenient. Even today with 

Forever stamps, you can buy a book of Forever stamps and pay 45 

cents apiece and use those five years from now when the postage 

rate might be 50 cents. So it is a good deal for people. 

Mr. ROSS. Real quickly on your charts there, because I want to 

go to the second part there, operational initiatives. It looks as 

though you have formulated a $9 billion savings with those three 

particular areas. Could you identify those? You are talking about 

the reduction there, I guess, in the network and sortation and 

transportation? 

Mr. DONAHOE. Right. 

Mr. ROSS. If you could go over each one of those three in the middle part there. 

Mr. DONAHOE. Sure. Here? 

Mr. ROSS. Right there, yes, sir. 

Mr. DONAHOE. Okay. What we have laid out here are three basic 

approaches. We have legislative initiatives, that is the prefunding 

result in five day. That is worth about $8.5 billion. The network 

itself, that is the facilities, retail, post offices, and then our delivery 

routes. We think there is about $9 billion worth of savings there. 

And then the final is compensation and benefits. That is health 

care savings plus more flexibility with the union contracts. 

Mr. ROSS. And specifically on the middle part there, when you 

say the savings in network, that is through consolidation, correct? 

Mr. DONAHOE. That is consolidation of—— 

Mr. ROSS. How would that affect the geographic delivery of mail, 

if any, when those changes are made? 

Mr. DONAHOE. What we are proposing is changing service standards today from one, two, and three days, to two and three days. 

36 

What that would allow us to do is to consolidate substantially into 

the smaller number of plants, going from 487 down to the 232 we 

proposed. What that allows you to do is to use those buildings for 

20 hours a day, versus the 8 to 9 hours a day that we use now and 

save substantial amount of money; a lot of overhead, a lot of maintenance costs. That is the area that we would be able to get 

this—— 

Mr. ROSS. And the retail would be the consolidation or closure? 

Mr. DONAHOE. The retail would be the consolidation and/or 

change in the cost of post offices. 

Mr. ROSS. So you are talking about village post offices, that concept? 

Mr. DONAHOE. We have four proposals right now that we think 

are very viable for post offices. One is to consolidate small ones into 

larger ones. And, again, we want to be very careful with the customers. That is only a mile or two. We are not proposing for people 

to have to drive 25 miles. Second is some type of a contract unit 

available at a local store that is open 7 days a week. 

Another is to serve people off of the rural routes, and we have 

had people actually ask us, as we have had these 3700 community 

meetings, to move to rural delivery. But another solution is to 

match up the cost of the office with the revenue we bring in. 

Mr. ROSS. Right. 

Mr. DONAHOE. What we face right now is we have thousands of offices that cost us, on average, $70,000 to operate and bring in 

somewhere between $15,000 and $20,000. We think that there is 

a happy medium there. We are working with our postmaster associations. We will also go back to the community to work on this, 

too. Keep the flag flying, but we will be able to do it—— 

Mr. ROSS. And one last one—I am out of time—on the delivery. 

Are you going, then, from door to curb, is that—— 

Mr. DONAHOE. No, that does not include door to curb, that is improvements in what we call flat sequencing and also in the way 

that we have the route structured. That is something that we are 

working with the—— 

Mr. ROSS. So this doesn’t include door to curb. 

Mr. DONAHOE. No. 

Mr. ROSS. And what is that estimated as annual savings? 

Mr. DONAHOE. Door to curb varies. There are savings and there 

is also investment, and I would be more than happy to give you a 

paper on that. We have done a lot of research on that. That is also 

something, I will tell you, of all the research that we have done 

from a customer satisfaction standpoint, that is the one thing that 

customers don’t want changed; they don’t want their mailbox 

changed. So we did not include that in there. 

Mr. ROSS. But isn’t it true that only about 25 percent of Postal 

customers really get door-to-door anymore? 

Mr. DONAHOE. It is about 30 million people. 

Mr. ROSS. Okay. 

Mr. DONAHOE. So we want to be sure we don’t have 30 million 

people really mad at us. 

Mr. ROSS. And I will follow up with you on that. Thank you very 

much. My time has expired. 

Mr. DONAHOE. All right. 

37 

Mr. ROSS. I now recognize the Ranking Member, Mr. Lynch from 

Massachusetts, for five minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Postmaster General, in your proposal here, as Chairman Issa 

identified, there is a cost shift over to Medicare. How do you propose to do that in terms of just mechanically? Are you going to tell 

your Postal employees, okay, now it is mandatory? Are you going 

to ask Congress for the power to say to you that you can tell your 

Postal employees the first dollar has got to be from Medicare, you 

have to go to that first? Or are you going to have some type of option to have people go, or how is that going to work? 

Mr. DONAHOE. We would prefer the mandatory requirement for 

Medicare. We are the second largest payer into Medicare, the Postal Service is, and we feel it balances the playing field with everybody else that uses Medicare. So we would ask to require Medicare 

A, B, and D, and that we would provide, as part of the health care 

proposal, a very good value, low-cost option to provide Medicare 

wraparound for B when our retirees sign up for that. 

Mr. LYNCH. Okay, here is my problem. Right now on the Medicare side I am seeing a lot of docs refusing Medicare. So let’s just 

say I have a Postal employee wants to go to that doc, now you it 

is mandatory that they go Medicare. 

Mr. DONAHOE. Yes. 

Mr. LYNCH. Their doc doesn’t accept Medicare because reimbursement rates are pathetically low. So under your plan my person couldn’t go to their doctor, right, they would have to go to some 

other doctor that accepts Medicare? 

Mr. DONAHOE. I don’t know the answer. That is something I 

would have to get back to you on. I am not sure how that works. 

With the wraparound, I don’t know the answer to that on Medicare 

A and B, that if a person could actually choose to use that wraparound to cover some of that. I will have to get back to you on that. 

Mr. LYNCH. Okay. Well, that is an important question because, 

ideally, I would like the opportunity, if you are going to require a 

person, in the first instance, to go Medicare, if their doctor, their 

existing doctor, current doctor does not accept Medicare, I would 

like there to be some other option. They have gone first, if it is rejected, then they can still go to the same doctor. There is this promise out there with the Affordable Care Act that everyone would still 

be able to go to their own doctor. 

Mr. DONAHOE. Right. 

Mr. LYNCH. That is not necessarily what is going on right now. 

And as this folds out over the coming years, I am concerned about 

even people being able to go to their own hospital. 

Mr. DONAHOE. Yes. 

Mr. LYNCH. Because I am seeing some hospitals are getting very 

shaky, so they may not be in existence. So I am concerned about 

that. 

The number you have up there for five day delivery shows a sav- ings of $2.7 billion. 

Mr. DONAHOE. Yes. 

Mr. LYNCH. We have had some analysis on this that shows it to 

be half of that. 

Mr. DONAHOE. Yes. 

38 

Mr. LYNCH. Does this properly account for the fact, if you are not 

delivering on Saturday, and most people talk about the five day, 

eliminating Saturday, do you factor in the drop-off in volume? Because if I am mailing an important package on Thursday and I 

know it is not going to get there Friday because we have lower delivery standards, and it is not going to get there Saturday because 

the post office is closed, and it is not going to get there on Sunday 

because the post office is closed, and God forbid Monday is a holiday, there is going to be a drop-off in volume there. Have you 

factored that in fully because of the fact that you are not working 

Saturday? 

Mr. DONAHOE. We did market research on that and I will tell 

you, off the top of my head, I can’t remember the exact number, 

but I can give you that number. We have done some market research and that is why we picked Saturday, because it was by far 

the lowest volume day. 

One of the proposals that we also have working through the Saturday delivery, to your point, is on non-widely observed holidays 

that fall now on Monday, we would deliver on Saturday. That is 

part of our proposal. So that closes that loop. 

Mr. LYNCH. Okay, I only have about 30 seconds here, so let me 

just squeeze in this last one. I had an opportunity to meet with the 

folks from Pitney Bowes, and they are running a program in Denmark where they have a virtual mailbox now. So on your iPad or 

on your computer at home or on your laptop you can pull up a virtual mailbox, and what they do there is, as the mail comes into the 

processing center, it takes a picture of your mail. What you can do 

is you can click on the mail you want delivered and you can click 

off on the mail you don’t want delivered. So it eliminates what 

some people call junk mail. We call it direct mail. I understand it. 

We call it jobs, right. 

Now, that technology, are you looking at anything like that, 

where folks could use this virtual mailbox to click off on mail? 

Look, I have two girls at home; I get a ton of this stuff. They probably like to get it, but I sure don’t. I am just thinking about looking 

down the road. Have we factored that in here? If they are doing 

it in Denmark now, number one, are we looking at that and have 

we factored that in? What is our plan? 

Mr. DONAHOE. Well, I want to make sure your daughters get 

their mail, because then they will buy something and we will deliver it. 

[Laughter.] 

Mr. LYNCH. I bet you do. You are saving me money. 

Mr. DONAHOE. We are. Right now we are looking at digital. In 

fact, we are in the process of establishing a group to take the lead 

on that, and we think there are big opportunities in the digital 

world from a digital transmission because we provide the safety 

and security of first class mail. We think that there are some opportunities to transition that into the digital world. But we also 

think that there are plenty of opportunities to grow revenue within 

the current products that we have now, employing some of those 

same technologies. So plenty to report out on that and we would 

like the opportunity to cover more of these digital areas. 

39 

The one thing that we will need from a legislative standpoint is 

just some clarity around the fact that we can get into those areas. 

That is part of the non-Postal we are looking for. 

Mr. LYNCH. Okay. Just one yes or no question. I am abusing my 

time, I understand that, and I appreciate your patience with me. 

Have you been talking with Kevin Tally from the Rural Carriers 

and Jennifer Walburton from the National Association of Letter 

Carriers on this five day thing and where the numbers might be 

on this? 

Mr. DONAHOE. I talked to Fred Rolando and to Jeanette. I don’t 

know the other people. 

Mr. LYNCH. Okay. All right, thank you. 

Mr. DONAHOE. Thank you. 

Mr. ROSS. Thank you, Mr. Lynch. 

We now recognize the Ranking Member from the full Committee, 

Mr. Cummings from Maryland, for five minutes. 

Mr. CUMMINGS. Mr. Donahoe, what went into the development of 

this plan? How did you come about it? You are dealing with some 

pretty exact numbers and projections, and I am just wondering, 

trying to get to the integrity of the plan. 

Mr. DONAHOE. Sure. Here is how we approached this. To Mr. 

Darton’s point earlier, facing the problems that we face with the 

retiree health benefit payment, rather than throwing our hands up 

and saying we can’t do anything about it, we started to look at 

what actually made up the requirements of that retiree health benefit, and there were a number of things that came up. Number one 

was the requirements for health care for employees who weren’t in 

the Medicare plan. There were some accounting issues and, of 

course, the cost of FEHBP plans that don’t give you the value of 

the wraparound. So we have historically looked at having our own 

health care plan. 

This goes back, I think we made some original studies right after 

the 2000–2001 time frame. So we went back and sat down with a 

couple of groups, Ayon Corporation and the Hay Group, two outside 

firms who are expert in this area, and we actually assembled a 

health care plan based on what we thought one would look like in 

the size and scope of an organization the size of the Postal Service. 

We designed it based on what other companies are doing today, 

looking for a number of value levels plus a number of different 

groups, the single payer, single plus one, family. The other thing 

we did was made sure that we had pharmaceutical coverage in that 

too. 

So we sat down and pretty much built a health care proposal 

based off of all this information, and that is where we are right 

now. Taking that, then, and then comparing that to what we spend 

currently in FEHBP and the same way what we are doing in terms 

of Medicare today, and that is where we have arrived at the point 

where we are today. So we have done a lot of studies on this. 

To the point we made before, we have talked to the OPM, the 

OMB, we have had our IG, we have had people come in from the 

outside, all the big health care providers, not on RFIs, but for discussion to understand how we can manage health care, how you 

can manage pharmaceuticals. A lot of work has been done. 

40 

Mr. CUMMINGS. And would the employee have to give up anything if going into your program? 

Mr. DONAHOE. I can provide you all the detail. We have gone 

through and stratified every plan that every employee is in. I 

would say, for the most part, probably 95 percent of our employees 

would benefit from a better plan at a better cost. There are people 

who choose some very, very low value plans. They would probably 

have to pay a little bit more. But I can provide you all that data. 

Mr. CUMMINGS. And I take it that when you have a plan where 

you have the four categories, I think it is four? 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. As opposed to two? 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. That allows for more precise measurement as to 

what it would cost the insurance company, is that right? 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. And therefore, hopefully, tailoring of the premium too. 

Mr. DONAHOE. It gives you a better choice in terms of what you 

actually offer, and I will get you this information too, but I think 

that it actually ends up costing us a little bit more to give that actual flexibility. But I can provide you with that information. We 

think it is fair that a person shouldn’t have to buy family if there 

is only two of them. 

Mr. CUMMINGS. Sure. 

Mr. DONAHOE. But I think that, as you shake all the numbers 

out, that is something that would fall back as more expensive for 

the Postal Service, but it is fair for the employees. 

Mr. CUMMINGS. Now, someone asked you, I think it may have 

been the Chairman of the Subcommittee, asked you whether you 

were comfortable with the House bill, the one that we have developed so far, and you said just about everything. 

Mr. DONAHOE. Yes. 

Mr. CUMMINGS. Are you comfortable with the control board type 

system that is in there? 

Mr. DONAHOE. That is the one area that I will tell you that I am 

not very comfortable with, and it is kind of a philosophical thing. 

I felt very strongly about the fact that, as a group of stakeholders, 

being the unions and the mailers, we should be able to figure out 

how to get these issues resolved working with Congress, working 

with the Administration, getting the right laws passed so that we 

don’t have to go to a control board type of environment. What we 

have proposed in this plan, if we can get that through and everybody have a little bit of skin in the game, we can get the Postal 

Service back on good firm financial footing, clear that issue up with 

the mailers that were ‘‘going out of business,’’ and really be strong 

for the next decades to come. 

Mr. CUMMINGS. Thank you, Mr. Chairman. 

Mr. ROSS. Thank you, Mr. Cummings. 

We now recognize the Vice Chairman of the Subcommittee, the 

gentleman from Michigan, Mr. Amash, for five minutes. 

Mr. AMASH. Thank you, Mr. Chairman, and thanks again, Mr. 

Donahoe. 

41 

In a March 2010 USPS action plan, USPS stated diversification 

to non-Postal activities, such as logistics, banking, and consumer 

goods, would not be viable due to high operating costs and relatively light customer traffic in post offices. Is this still your opinion? 

Mr. DONAHOE. Yes. 

Mr. AMASH. And could you elaborate on that? 

Mr. DONAHOE. Here is the thing. The way we look at it is this. 

The Postal Service has a tremendously strong core business and we 

think that, looking out to the future, commercial first class mail, 

advertising mail, and packages provides us big opportunities to 

grow the business itself, as well make some additional money on 

new services. So our focus should be on being the best at what we 

do the best right now. 

When you look at things like banking, there are banks on every 

corner. When you look at cell phones, AT&T is trying to merge 

with T Mobile because they can’t make any money independently. 

Even if you study what the foreign posts do, if you look at what 

Germany does today, Germany makes their profits off of the mail. 

Of course, they charge 85 cents for a stamp to deliver the size of 

a territory like Ohio and Pennsylvania, but they don’t make money 

on logistics. And it would be foolish for us, especially in a situation 

we are, to take our eye off the ball and get into something we are 

not good at. 

Mr. AMASH. I have a slide up here which I think really emphasizes this point. This is from 2009. It shows a $7.8 billion shortfall. 

In order to make up that sort of shortfall, you need to run revenues 

of almost $150 billion. And to show you how big a deal that is, that 

would equate to creating 13 Fortune 500 companies, it would be 

more than twice the combined revenue of FedEx and UPS, it would 

be equal to capturing 5 percent market share of the total U.S. savings market, and it would be equivalent to building an e-commerce 

business eight times the size of Amazon.com. Do you have any comments on this? 

Mr. DONAHOE. Well, I agree with that. It is better for the Postal 

Service to focus on the core mission. We have people that do an excellent job every day out there. We have the best network in the 

world, the house-to-house, business-to-business network. And with 

the growth in e-commerce that we can see coming up, we think 

there are definitely opportunities for us to grow that business. 

Mr. AMASH. Thank you. I have a few questions about the health 

care plan. 

Mr. DONAHOE. Sure. 

Mr. AMASH. Currently, the taxpayer provides a backstop for Postal employees retiree health care benefits. Would you expect the 

backstop to continue if USPS leaves FEHBP? 

Mr. DONAHOE. Backstop meaning that if we left FEHBP and the 

Postal Service was out of business, that there would be no—— 

Mr. AMASH. If you were running the plan yourself. 

Mr. DONAHOE. Right. Here is the way we look at it. First of all, 

by implementing a plan like we are projecting now, we do not plan 

on going out of business. We plan on getting stronger and being 

strong out into the future. That is the goal right there. 

42 

Secondly, by working through how we actually set up the health 

care plan and how we manage the retirees and how we manage the 

prefunding money that is already in there, $45 billion, we think 

that will be enough to cover retiree health care benefits going out 

to the future. The key critical thing for us, though, is, again, a 

good, viable, financially strong Postal Service going out into the future. 

Mr. AMASH. And would the premiums and benefits of a USPSrun health care plan be subject to collective bargaining? 

Mr. DONAHOE. They could be. We have not really spent a lot of 

time on that, but it would be an area that would be open for collective bargaining. That is pretty much the way that the rest of American business does it today. Currently, the legislative issues cover 

retiree benefits and the retirement portion of the FEHBP. I think 

many years ago there was actually some collective bargaining done 

around benefits and, of course, we consider that going out to the 

future. 

Mr. AMASH. And how would USPS prefer to have its separate 

health plan funded? 

Mr. DONAHOE. We would fund it just like we do now. It is part 

of the business of running the organization. There is no government money coming our way. We want to be self-sufficient, like I 

said in my opening statement, and that is exactly how we would 

fund this. 

Mr. AMASH. And would you immediately want to draw on the 

current Retiree Health Benefits Fund managed by OPM? 

Mr. DONAHOE. There are a couple different options on that. We 

would have to sit down and walk through those with you. I think 

that as you go out there will be a need to start to use those funds, 

probably three or four years from now, but I don’t know that we 

would be doing anything in the next couple years. But I would like 

to sit down with you. We have some people that know that stuff 

a lot better than me. I would be more than happy to cover that. 

Mr. AMASH. Thanks for your time. I yield back. 

Mr. DONAHOE. Thank you. 

Mr. ROSS. Thank you, Mr. Amash. 

We now recognize the gentlelady from the District of Columbia, 

Ms. Norton, for five minutes. 

Ms. NORTON. Thank you, Mr. Chairman. 

I have two questions I want to get in in my five minutes. 

Mr. Donahoe, are you aware of the experience of agencies that 

have done exactly what you propose to do, like the FDIC have tried 

to do their own health care plan, only to come right back a couple 

years later? 

Mr. DONAHOE. I am familiar with it. I understand that some of 

those changes were due to accounting changes the FDIC decided 

they—— 

Ms. NORTON. What do you mean by that? 

Mr. DONAHOE. The prefunding requirements. From what I understand, when the FDIC moved off to have their own health care 

plan, once they were faced with law changes that required 

prefunding, they chose to move back with the FEHBP. 

Ms. NORTON. Because the Federal Government required 

prefunding in their plan. 

43 

Mr. DONAHOE. Yes. And it was smarter for them to move back 

in. 

Ms. NORTON. They didn’t have prefunding before. 

Mr. DONAHOE. I know. 

Ms. NORTON. Because they were a Federal agency and these Federal agencies don’t have to prefund, which, of course, goes back to 

my original question to you, would you be here if you did not have 

that requirement. And, Mr. Donahoe, I am not quite sure you 

would. There is every private employer who moves first to insurance because we are the only country where employers pay for insurance and that, of course, is the biggest part of what they have 

to take care of, even with the tax issue for them, which you don’t 

even have. 

Mr. DONAHOE. Yes. 

Ms. NORTON. Let me ask you a question. I think the record 

would benefit from knowing how you are proceeding on the closings. We had a number of closings here, then some of them were 

taken off apparently by the Postal Service. How do you decide what 

post offices will be closed? I recognize they have been suspended 

after the Senate intervened, but I assume they are going to resume. 

Mr. DONAHOE. Here is the way we would approach that. Post offices and stations and branches in, say, a city like Washington, we 

think there are a number of options. Number one, consolidation, 

which we are doing in some cases. Where we just don’t have the 

foot traffic in a place, we would consolidate one into the other, 

maintain the zip code so customers would have no ill effects of 

changing an address. 

In the rural areas we are looking to do some contracting with 

local stores that are open 24/7. In many cases our contract with 

them keeps the lights on in a place like that, and it is also convenient for customers. One of the other considerations in rural areas 

is what is called extension of rural delivery so that we deliver to 

a person’s house, rather than having them to come to the post office. 

But I think the key thing going forward, and this is something 

we have been working with our Postmaster Associations on, and 

that is being able to provide a better match up of costs and revenues for small post offices going forward. Maybe instead of opening 

for eight hours a day, we would be open for six hours a day. That 

matches the revenues up with the costs and it allows us to keep 

the lights on, the flag up there for customers to have access to the 

Postal Service. 

Ms. NORTON. Shorter hours? 

Mr. DONAHOE. In some cases, yes. 

Ms. NORTON. Well, actually, your notion of partnering with a 

commercial establishment was part of an amendment I introduced. 

I couldn’t imagine why this wouldn’t have passed; it would help the 

private sector, it would help the Postal Service. But, believe it or 

not, that amendment did not pass, and it shows we are not looking 

always for win-wins. 

But I have to tell you, in my own district, I got some information 

back that intrigued me that said that at a post office that was due 

to be shut, perhaps because of your other troubles, there was only 

44 

one Postal clerk there. This was a neighborhood which people regard as very busy, very much in need of postal service. People 

would walk in and they would see these humongous lines with only 

one little person there, and they would just walk out again. So that 

is why I need to know what are your criteria when your own 

downsizing may have been inadvertently chasing people away from 

the Postal Service. 

Mr. DONAHOE. That is a concern. One of the things that we pride 

ourselves on is customer service, and long lines is something we 

want to avoid. Years ago, when I worked in Washington, D.C., that 

was one of my major impetus, was to work better with customers, 

make sure that we provide a great service. Offline you can tell me 

what office that was, and I will make sure that we take care of 

that. But one of the things we are looking at is making sure that 

not only we have access to post offices, we are looking at putting 

more self-service in so the people have the opportunity to either go 

to the line or—— 

Ms. NORTON. How much are you going to save if you were to 

close every post office that is on your list? And I recognize that 

there is an appeal process. So if you are going to have savings, that 

appeal process is going to continue operative, isn’t it? And if so, 

what would be the savings in the end, assuming that you prevailed 

in every appeal? 

Mr. DONAHOE. We think that as we balance up the hours and the 

revenues, we will probably save about half a billion dollars, and 

that is keeping the majority of places open, it is just trying to make 

sure that we have the right number of resources there with the 

revenue that comes in the door. 

Ms. NORTON. Thank you, Mr. Chairman. 

Mr. ROSS. Thank you. 

We now recognize the gentleman from Illinois, Mr. Davis, for five 

minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Mr. Donahoe, as we experience this era of declining mail volume, 

do you think that the current cap is reflective of your actual cost, 

or should maybe the PRC look at possibly reconfiguring the cap? 

Mr. DONAHOE. Well, the cap, there is a good side and a bad side 

for the cap. The cap, from a Postal Service perspective, puts some 

discipline into the costs of the system and makes us work hard to 

stay efficient, which is a good thing. From a customer perspective, 

it provides a lot of predictability, which is a very good thing and 

helps us keep people in the mail. 

To the discussion that we had earlier, we think that there is 

some ability for the Postal Service to raise single piece mail prices 

over the course of the next couple of years. Right now, by law, single piece and commercial mail is linked. We would like, by law, 

that to be changed and have some flexibility. The fact that we have 

Forever stamps out there, customers can buy them and use them 

forever, that gives them a little bit of a discount that way. But it 

would certainly help us generate a little bit of money with what we 

think even 45 cents is a pretty good bargain. 

Mr. DAVIS. In his last round of questioning, Chairman Ross 

raised the issue of rates. Let me ask what do you see or what do 

45 

you think might be in store for nonprofit or not-for-profit mailers 

under the proposals that we are looking at? 

Mr. DONAHOE. The nonprofit revenues continue, from a standpoint of volume, continue to be strong in the organization. We have 

not come out, from a Postal Service perspective, and asked to 

change that. I know there has been some discussion about increasing the not-for-profit rates. Those people depend on the mail. They 

will tell you that even though they advertise a lot online, I don’t 

think they get many donations online. The majority of the donations that come in to the not-for-profit come through the mail, and 

the good thing about those, a lot of those donations are mailed back 

with a 45 cent stamp, which is good for us. 

Mr. DAVIS. I have no further questions. Thank you very much, 

Mr. Chairman. 

Mr. ROSS. Thank you, Mr. Davis. 

Mr. Donahoe, I appreciate your being here today. I am looking 

forward to continuing to work with my colleagues on both sides of 

the aisle and with you in making sure we do what is necessary to 

preserve this age-old institution, and make sure it is run efficiently 

and effectively. Thank you for time. That will conclude this first 

panel. 

Mr. DONAHOE. Thank you. 

Mr. ROSS. We will now take a few minutes and get ready for our 

second panel, Mr. Francis. 

[Pause.] 

Mr. ROSS. I will now reconvene the Subcommittee on Federal 

Workforce, U.S. Postal Service and Labor Policy, and welcome our 

next panel, our witness, Mr. Walton Francis, who is an author and 

a health care expert. 

Mr. Francis, it is customary for those who testify before the 

Oversight Committee and its subcommittees that they be sworn in 

under oath, so if you wouldn’t mind stand and raise your right 

hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give this Committee will be the truth, the whole truth, 

and nothing but the truth? 

[Witness responds in the affirmative.] 

Mr. ROSS. Thank you. 

Let the record reflect that the witness answered in the affirmative. 

Please be seated. We do have your opening statement by way of 

a written testimony before us, but please, I would like now to recognize you for five minutes for an opening statement. 

STATEMENT OF WALTON FRANCIS, AUTHOR AND FEDERAL 

HEALTH CARE EXPERT 

Mr. FRANCIS. Thank you, Mr. Chairman, members of the Committee. I am going to just try to summarize very briefly. 

First, the proposal before you is essentially a proposal to dismantle the Federal Employees Health Benefits Program. That program covers 8 million people. Probably half the plans in that program will be forced out effectively. All the people in all those plans 

will be forced to move to new plans. A lot of these people are elderly, don’t want any change. They are going to be faced with massive 

46 

change. And all that proposal is unnecessary, which I will explain 

in a second. So that is the issue before you. 

Let me just say, first, I happen to agree strongly with virtually 

the entire Postal plan that I heard described by the Postmaster 

General, and I cannot urge on you too strongly that it is incumbent 

on the Congress to fix the flawed legislation which the Postal Service now works and give it a chance to solve its problems. This part 

of it, however, isn’t part of the solution, it is part of the problem. 

Second general point, the FEHBP model, multiple plans competing for consumer business, is a widely adopted and copied 

model, and has been the winning model in the Congress of the 

United States and with the last two or three administrations for 

very good reasons, and I won’t go through the whole list. The 

Breaux-Thomas proposal was to copy the FEHBP for Medicare. The 

Medicare Advantage program and the Part D programs, when enacted, were explicitly modeled after the FEHBP, with improvements, Okay? But that was the model. And both have been hugely 

successful. 

The original Paul Ryan proposal, Ryan-Rivlin, Rivlin-Domeneci, 

Ryan-Wyden, which I think is maybe the best of that group. Just 

the budget resolution that the House passed a few days ago, the 

Medicare part of that is modeled on the FEHBP. 

The Obama Administration’s health reform, whichever side of 

that issue you are on, the State exchanges where multiple plans 

compete for people is modeled on the FEHBP. 

Now let’s talk about the prefunding issue. There is a reality here. 

The prefunding is not going to be paid, ever. The $5.4 billion is 

toast. It may be carried on the books as a debt owed the U.S. Government; it may be written away by legislation you pass. I don’t 

know how it is going to be solved. The only thing I am sure of is 

it is not going to be paid. 

So now the question is why are we going to destroy the FEHBP 

to create what amounts to a fig leaf for not paying the $5.4 billion? 

I just find that Kafkaesque. It is driven in part by the budget rules 

that control you to some degree in how you account for things, but 

that is the reality. And a part of that reality is the money in the 

trust fund, okay, actually, every trust fund, Social Security trust 

fund, but the prefunding retirement thing, that trust fund is a 

paper fiction, it is an accounting exercise. Any money spent out of 

that fund will actually be spent by taxing the American public or 

borrowing money to be paid by our children some years hence 

through taxes. The money is taxed, it is not there. Remember the 

Clinton Administration, all the lockbox talk about Social Security? 

That was essentially a debate over this same issue. 

I will stop there, but merits of the proposal. I have to tell you 

I have read one of the consultant reports that the Postal Service 

got and I have read several of their own reports. They are full of 

errors, false assumptions, misstatements, and so on. I won’t go 

through all the examples, but I have one simple one. They are talking about saving money on prescription drugs because they are 

going to operate a single plan that is going to enroll 2 million people. Well, the FEHBP has a single plan that enrolls 5 million people, it is called Blue Cross. Funny thing. How are they going to 

47 

save more money covering 2 million people than we can save covering 5 million people? It is unreal, okay? It is made up. 

They have never recognized, but I have given you in my testimony details, on it is going to cost at least half a billion dollars because the Postal employees are subsidized by the GS and other 

non-Postal employees who are much younger, on average, and 

healthier, and it is all one pool. So there is a half billion dollarplus subsidy every year going into the Postal Service. Okay, they 

pull out, they are going to have to spend an extra half billion just 

to maintain existing benefits and premiums. They start a half billion a year behind. 

The other point I want to emphasize is a lot of what is going on 

here is shifting costs from FEHBP to Medicare. That is not real 

savings, that is moving it from one pot to another. And when you 

get some real analysis from CBO or others, and I don’t count the 

Postal Service Inspector General in this group, you are going to 

hear what I am telling you. 

The Postal Service, unlike most Federal agencies, has a lot of 

flexibility right now under current law. One of the suggestions I 

made in my testimony, kind of buried near the end, is they could 

offer to pay its employees a bonus for signing up for Part B. Just 

say we will pay you $100 if you sign up. Or they could say we will 

pay you $100 if you switch from higher cost plans to lower cost 

plans. They have the ability to create employee incentives right 

now. They are not bound by the general pay schedule and all the 

rest. 

Their record, I won’t go through their record in the past. They 

have bargained with the unions quite improperly. The unions have 

sought the best possible benefits for their members. That is their 

job. But one of the prices paid by that has been overpaying premiums relative to the non-Postal side and relative to the private 

sector. 

The good news in all this is they are focused like a laser on the 

biggest single defect in the FEHBP, the interface with Medicare. 

And I cannot commend to you too much how important it is to address that issue, but not for the Postal Service alone, for the entire 

program. It is crazy the way it is done now. And it is going to get 

worse. People are going to bail out more and more from Medicare. 

I might add, this Committee, I don’t think, has the jurisdiction 

to solve this problem alone. For one reason, they are proposing 

mandatory enrollment in Medicare Parts A and B. Well, I am going 

to tell you something. There are tens of thousands of 80-year-old 

widows, Postal Service widows who do not have coverage for Medicare Part A due to their work or their husband’s work, and who 

opted out of Part B. The premium cost for one of those widows to 

join Parts A and B, right now under current law in the Social Security Act, is over $8,000 a year. That is what it would cause to mandate that that widow leave the Postal plan she is now in and sign 

up for A and B. 

There are several ways to reform this. Part of the question will 

be who is how the saving is going to be shared between the Medicare program, the employing agencies, and the FEHBP system, and 

the retirees themselves. A lot of options here, but the basic idea, 

I think, is to provide positive incentives to retirees to join, first 

48 

place, Medicare Part A is automatic. It is illegal to collect Social 

Security in this Country if you are not in Medicare Part A at age 

65. 

So this stuff about people aren’t signing up for Part A or all 

these taxes that have been paid, all the taxes paid are Part A 

taxes. Anyone who is not in the 80s or 90s of Postal Service retirees already is in Part A once they hit 65. So that is a false issue 

and it has been misdescribed. Again, I am sure it not the Postmaster General’s fault, but the people who write his speeches, the 

people who prepare these consulting documents aren’t getting it 

right. 

Part B, where the premium for most is $1200 a year, the right 

model is the employer or the plan, directly or through the employer, subsidize people, incentivize them to join Part B, and you 

don’t have to give them 100 percent, complete wraparound benefits, 

which is what they now get if they have Part B, because that induces massive waste. And there are real savings to be made by reducing overutilization of medical care. 

Thank you very much. 

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Mr. ROSS. Thank you, Mr. Francis. I appreciate your energy, especially your expertise in this area, and I will now recognize myself 

for five minutes. 

I want to talk about prefunding for a quick second because you 

touched on that. Are you suggesting then because it is simply not 

true that everything is being set aside that it is really an obligation 

to pay an IOU, if you will, in a trust fund, that we all just call it 

what it is and eliminate it entirely and tell the American taxpayers 

that they are going to be on the hook for the unfunded liabilities 

of health care and retirement benefits? 

Mr. FRANCIS. I don’t know the best answer to that, Mr. Chairman. A couple of points. First, if we reform the Medicare interface, 

that alone will substantially reduce. The part of what you heard 

from the Postmaster General is correct. So the unfunded liability 

can be greatly reduced if you can get more Federal retirees to enroll in Medicare Part B. That is sort of Point A. 

Point B, a lot of this may hinge on scoring rules and so on. I 

think the Congress enacted this prefunding requirement about four 

or five years ago, as I understand it, in the expectation that the 

Postal Service might go insolvent, so we better get these funds before it is too late. And then it has turned out that the prefunding 

itself has been the single biggest cause of the Postal Service’s budget hemorrhaging—— 

Mr. ROSS. Which, of course, it isn’t. There are systemic—— 

Mr. FRANCIS. Well, you are right. 

Mr. ROSS. Given the $5 billion or the $5.8 billion, they are still showing over a $5 billion annual loss. It has nothing to do with 

prefunding. 

Mr. FRANCIS. Right. 

Mr. ROSS. But be that as it may, also on the Medicare issue, Mr. 

Donahoe mentioned that he is the second largest employer that 

contributes to Medicare and, therefore, there should be some benefit for that contribution. How do you reconcile that? 

Mr. FRANCIS. Well, it just sounds like strange writers to me. 

First, he is not the second largest. How about the civilian side of 

the Federal Government? I mean, don’t they count for something. 

View from a business perspective I am not going to argue with his 

point, but what he is doing and the employees are doing—and, by 

the way, economists all believe that the entire burden of the Medicare Part A tax is paid by employees. It effectively comes out of 

wages, okay? 

The Postal employees are paying into a Medicare Part A trust 

fund and they are going to get free Medicare Part A when they retire. That is the deal. There are problems with that deal, but they 

are not Postal Service problems. There is nothing special about 

what the Postal Service is doing; that is the system for every employer in America. 

Mr. ROSS. Obviously, we are here because we want to talk about 

the proposal on the health care benefits, but that is more of a 

symptom of the major problem. The major problem is that there is 

a problem within the Postal Service that requires reorganization 

and reformation. One of the issues that we have to address, of 

course, is their labor costs. Over 80 percent of their cost is labor. 

How do you recommend that we handle that? 

63 

Mr. FRANCIS. This is a similar problem, no, actually, it is a common problem. 

Mr. ROSS. It is the $60 million question. 

Mr. FRANCIS. This is what Rhode Island faced and had to take 

really drastic action to reduce public employee pensions and health 

benefits. I don’t know the right answer. Is the Postal Service—— 

Mr. ROSS. But you would agree we have to address the labor 

cost, right? 

Mr. FRANCIS. Oh, absolutely. No question about it. 

Mr. ROSS. Because if the revenue side of the equation continues 

to decline, even if it stays static on the expense side, we are going 

to have further and further shortfalls. 

Mr. FRANCIS. Yes. And I have no sense of whether Postal employees are overpaid or underpaid by any metric, but clearly reducing 

labor costs is a vital thing for them to do. But I want to be clear. 

For employees they are going to increase labor costs. Their proposal is not going to save money, it is going to cost money. 

Mr. ROSS. Let me throw out something. In your written testimony you talk about a health savings account and a contribution. 

So you believe that maybe there is even a more innovative way to 

stay within FEHBP and just change the way we do it, and have 

the Postal Service contribute less but more by ways of an HSA? 

Mr. FRANCIS. Absolutely. They could go ahead and give health 

savings accounts to employees who sign up for Part B. That is another area we might have to change the law—— 

Mr. ROSS. So, in other words, we could reduce the cost because 

the premium would be reduced, and yet increase the amount we 

put into an HSA and have a net decrease of what we are investing 

in health care? 

Mr. FRANCIS. Yes. That could be done tomorrow, assuming there 

is no legal impediment on the Ways and Means side. I don’t know 

of any other legal impediment. 

Mr. ROSS. One last thing. You indicate that the USPS finds itself 

in a predicament that is primarily the result of one flawed statute 

that enables the Congress of the United States to micromanage 

what should be a business decision. Any suggestions in the next 30 

seconds that you would offer how we make that a more flexible 

statute so that there would be more flexibility to the Postal Service? 

Mr. FRANCIS. I think the proposals that were discussed, that are 

in the bill that you discussed with the Postmaster General, all 

sound to me perfectly reasonable. I think the flexibility to close 

processing centers and post offices is very important, but it is not 

probably as important as some of the other things discussed. I 

think he has a great plan, and I hope the Congress enacts all of 

it but this piece. 

Mr. ROSS. One last quick question. Have you had a chance to 

consult with the Postmaster General on any of his proposals? 

Mr. FRANCIS. Only a few seconds before and after his testimony, 

sir. 

Mr. ROSS. Thank you, Mr. Francis. 

Mr. CONNOLLY. There are a lot of us in Congress in the same position. 

64 

Mr. ROSS. Okay, I recognize the gentleman from Virginia, Mr. 

Connolly. 

Mr. CONNOLLY. Thank you, Mr. Chairman, and thank you, Mr. 

Lynch, for your courtesy. I have to run to the steps of the Capitol, 

so I really appreciate it. I have a middle school group of 200 kids. 

I want to welcome Mr. Francis, who deservedly has the reputation for being the walking expert on these matters, and I thank 

you, Walt, so much for being here today. If I understood your testimony, let me get this straight, now. If we were to adopt, whole and 

entire, the Postmaster General’s proposal with respect to health 

care here, it would actually cost the Postal Service a half a billion 

dollars, that transition, because they are now beneficiaries of being 

in a larger pool and, therefore, they are subsidized? 

Mr. FRANCIS. Correct. 

Mr. CONNOLLY. Would it be a half a billion every year or just a 

one-time hit? 

Mr. FRANCIS. It would grow over time, because—— 

Mr. CONNOLLY. Grow over time? 

Mr. FRANCIS. Yes, sir. Because they already have an aging workforce that is much more aged. The crucial point is a 50-year-old, 

on average, in this Country costs something like $8,000 a year in 

health care, and a 20-year-old costs something like $2,000 a year 

in health care. They aren’t going to be hiring any more 20-year-olds 

for at least a decade to come. Leave aside those retiring. The existing workforce will keep aging, will be more expensive every year. 

The best thing they could do is stay in that FEHBP pool. It affects 

the cross-subsidy from the younger and healthier ones being hired. 

Mr. CONNOLLY. So, golly, gosh darn, a proposal allegedly designed to save money will cost money. And, by the way, as we discovered in the study the Postmaster General and his senior management team commissioned and then deep-sixed because they 

didn’t like the results, it is a similar situation where some of the 

other so-called reforms that apparently would cost $5 billion in lost 

revenue, more than offsetting the savings. So here we have another 

example. 

Let’s assume, let’s stipulate good intention, but the analysis does 

not hold up. We are going to lose money, and I am shocked. That 

loss of a half a billion grows over time because of the aging workforce and the fact that newer, younger folks aren’t come in because 

of the shrinking of that workforce. 

Mr. FRANCIS. That is the case. 

Mr. CONNOLLY. Now, you also said a second problem with this, 

I am sure also unintended, is that we are going to have one heck 

of a penalty on widows and other survivors who currently aren’t 

signed up for Medicare A and B. And the reason there is an $8,000 

per person penalty or cost is because they actually have to pay a 

certain penalty, don’t they, under Social Security? 

Mr. FRANCIS. Yes, sir. Let me just be clear. Under current law, 

if you do not have Part A through the normal post-employment 

way that you get it, and there is a large number of people in this 

Country, several hundred thousand, who don’t have it you get to 

pay the princely premium for signing up for Part A of around 

$5,000 a year. Now, I have never heard of anyone paying that, actually, I have, but there aren’t many who would pay that. But the 

65 

proposal, as written, says they are going to force, now, actually hidden in—— 

Mr. CONNOLLY. So it will be an individual mandate. 

Mr. FRANCIS. Oh—— 

Mr. CONNOLLY. My goodness, Mr. Chairman. I can’t imagine the 

Subcommittee—— 

[Laughter.] 

Mr. FRANCIS. Part B has a penalty of 10 percent a year for every 

year you could have signed up after age 65. So say you are an 80- 

year-old widow. You have 15 years of 10 percent a year penalty if 

you sign up for Part B. And, again, you could change the Social Security Act to get rid of those penalties—— 

Mr. CONNOLLY. So, given my brief time, Walt, it is going to cost 

a half a billion dollars a year to the Postal Service, hardly saving 

money, and that grows over time. We are going to penalize widow 

ladies to the tune of about $8,000 per widow, and there are tens 

of thousands of them because, again, of the nature of the workforce 

and the retiree demographics. 

Now, a third consequence from this proposal, of course, is an 

FEHBP itself, is it not? It reduces the risk poll rather considerably, 

given the size of the Postal Service. 

Mr. FRANCIS. It will be a cosmic change. 

Mr. CONNOLLY. Cosmic? 

Mr. FRANCIS. Well, to give you a simple example, two examples. 

A lot of the HMOs that participate in the FEHBP are in cities 

where the main part of the Federal workforce is Postal, okay? 

Guess what happens in those cities? Insurance is going to say it 

is not worth doing business. We used to have 1,000 enrollees, now 

we are going to have maybe zero or maybe a few hundred. So they 

are going to pull out. 

So a lot of people who are not Postal employees are going to lose 

that access. I think it is unlikely that any of the Postal plans would 

survive this. It is possible, but almost all the Postal plans predominantly enroll either current Postal employees or retired Postal employees, and they are not going to be allowed to enroll either group. 

Mr. CONNOLLY. So other than that it is a great idea. 

My time is up, Mr. Chairman, but I just want to cite H.L. Mencken, who once said that for every human problem there is a solution that is simple, neat and wrong. The Postmaster General’s proposal on health care fits that description. 

Mr. ROSS. Thank you. 

I now recognize the Ranking Member of the Subcommittee, the 

gentleman from Massachusetts, Mr. Lynch, for five minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Thank you, Mr. Francis, for your willingness to come and help 

this Committee with its work. The idea of insurance usually or generally is that you spread the risk of harm or illness over a wide 

population so that what happens is the healthy folks, which is the 

majority of people, subsidize the cost to those of us who get sick. 

That is how insurance generally works. 

The way the Postmaster General was describing it today was 

that we were going to concentrate the risk. In other words, if an 

individual participant was just by themself, they would pay less. 

They would pay less. A husband and wife would not have to pay 

66 

a family plan, they would pay less. And it would, by its nature, 

concentrate more of the risk on the very individuals who might be 

the sickest. 

Have you looked at that aspect of the proposal? 

Mr. FRANCIS. Yes, I have, sir. The key factor here is that people 

pose very different risks at different ages. By the way, the OPM 

actuaries have actually looked at this question because it has many 

times been proposed that, for example, there be a rate for couples. 

I counsel thousands of people very year and they will raise their 

hand and say we are a married couple, we are 50 years old, we 

don’t have all those kids; why can’t we get a rate just for us? And 

the answer is because that young couple with kids is cheaper than 

you, and if you were in a separate pool you would pay more, a lot 

more. And I give an example in my testimony of how it could be 

double. 

The FEHBP pool of 8 million people, the 20-year-olds are paying 

a lot more than they would if they were in a separate category, 

okay, to be sure. And it is very interesting how this all plays out. 

And, by the way, back to the Medicare point, 65-year-olds with 

Medicare Parts A and B, they often complain why can’t we get a 

lower rate because we are cheaper? And they are right, because 

Medicare is primary and they cost less than those 64-year-olds. 

So the FEHBP says we are going to spread it across everybody 

and we are not going to try to chop it up in pieces, and the Postal 

proposal would not only reduce the pool from 8 million to 2 million 

people, it would, by creating four premium paying categories, may 

make a lot of people pay more than they pay today; others would 

pay less. 

Mr. LYNCH. Okay. Thank you. Thank you for that. The other 

question I had is regarding the Affordable Care Act. Under the Affordable Care Act, one of the key funding provisions for the Affordable Care Act is that in 2018, if you have an expensive health care 

plan, then in 2018 you are going to be hit with a 20 percent tax 

on the value of your health care plan. Not how much you use, but 

the value of your health care plan. Now, just for the record, I voted 

against the Affordable Care Act, and that was one of the key reasons why, because we never used to tax health care because we 

wanted people to have it. It is kind of like taxing food. We would 

never taxed food in this Country because you would starve without 

it. 

Well, the way it looks right now, what the framework of FEHBP 

and, most likely, this Postal plan that the Postmaster General has 

suggested, it would a Cadillac plan based on the costs now and the 

estimated increases until we reach 2018. And there is a reason it 

comes into effect in 2018, because the folks that pushed it will all 

be gone and they won’t have to answer for this. So have you 

thought at all about this 20 percent tax on expensive high-end 

health care plans and what it might mean for this Postal plan if 

it is separated from FEHBP? 

Mr. FRANCIS. I hadn’t, Congressman, but you are absolutely 

right, it is a potential problem of significant proportions. That provision of the law, by the way, in the Affordable Care Act ties that 

number to the cost of the Blue Cross plan in the FEHBP. What will 

happen, I think, and I am just thinking on my feet on this, actuVerDate Aug 31 2005 11:23 Jun 22, 2012 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\74456.TXT APRIL
67 

ally, the high value Postal plan, the one they say is equal to, it 

isn’t, it is actually inferior. For example, it has lower benefits than 

Blue Cross standard option. 

Nonetheless it is pretty close in benefits to that. It is going to 

disproportionately attract the older and sicker Postal employees. 

They are all going to be in that group by then, pretty much, and, 

yes, that plan will cost more than Blue Cross standard option in 

that year, I think, that would be a reasonable projection, and that 

tax will hit Postal employees. 

Mr. LYNCH. Okay. 

Mr. FRANCIS. Or the Postal Service. 

Mr. LYNCH. All right. I see I have exceeded my time. I appreciate 

you coming before the Committee and helping us with our work. 

Thank you, Mr. Francis. 

I yield back. 

Mr. ROSS. Thank you. 

I now recognize the gentleman from Illinois, Mr. Davis, for five 

minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Mr. Francis, do you see any redeeming value in the Postmaster 

General’s self-run plan or do you see anything about it that you 

like? 

Mr. FRANCIS. Well, I hope I am clear. There is one huge redeeming value, sir, and that is the focus on the need to reform the interface between Medicare and the FEHBP. And while he wants to 

make it compulsory and I would quibble with some other details of 

it, he innovatively includes Part D in that calculus. I was pleased 

to see that. I hadn’t, even myself, focused on the Part D side. But 

the thinking there is good, it is a basis for thinking about the entire FEHBP, and that is the part that is most important to the 

Postal Service. 

I find it hard to believe that they really think running their own 

plan is going to save any money, but, regardless, it won’t. But fixing the interface between these two programs, they have been 

going along side-by-side for 50 years and no one has ever adjusted 

either program, Medicare or the FEHBP, to take account of the 

other. It is almost bizarre. No administration, no OPM director. I 

am not criticizing Mr. Barry in particular, this Administration in 

particular. It is time for the Congress to take a hard look at reform 

angles. So that is where I see the positive in this. 

Mr. DAVIS. But you answered the other question that I had relative to cost savings, and it is your position that it would not save 

any money. 

Mr. FRANCIS. It is my position that it not only would not save 

money; it would cost more. Quite apart from the extra cost of the 

older and sicker enrollees, Mr. Lynch had stepped out and didn’t 

hear my point about the premium thing for prescription drug point, 

which I know is of particular interest to you, sir. They are saying, 

and if you look at this Hay report, they will say, I forget the number, the bulk of their projected savings come from they are going 

to bargain better for prescription drugs in their 2 million enrollee 

plan. 

Well, the Blue Cross carrier with two plans today enrolls 5 million people. So the notion that mere size, that is illusory. It is preVerDate Aug 31 2005 11:23 Jun 22, 2012 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 C:\DOCS\74456.TXT APRIL
68 

posterous to say that just because they have a plan with 2 million 

people they are going to save money. In fact, I am, frankly, skeptical. I think OPM does a superb job in managing the FEHBP in 

terms of keeping the plans honest and frugal, and I have no reason 

to think the Postal Service has that competence. 

Mr. DAVIS. I must admit that with a limited pool and with not 

as many subscribers or beneficiaries or individuals in the pool, it 

is difficult for me to see how, unless you had a pool that you could 

select out or cherry pick, I just couldn’t see the money saving. So 

let me just thank you for coming to share your views with us. I appreciate it. 

I have no further questions, Mr. Chairman, and I yield back the 

balance of my time. 

Mr. ROSS. Thank you, Mr. Davis. 

Just real quickly. I will go briefly and then I think Mr. Lynch 

wants to go also. 

As I understand it, if the employees of the United States Postal 

Service had paid for their health care at the same amount that the 

other Federal employees had, then the Postal Service would be 

showing a half a billion profit? 

Mr. FRANCIS. Yes. But let me restate it, sir, if I may. Yes, they 

have been, if you will, I hate to say overpaying because these were 

union negotiated rates. 

Mr. ROSS. Right. 

Mr. FRANCIS. But they have been paying about 10 percent a year 

more than the rest of the Federal Government every year for the 

last 20 years or so. 

Mr. ROSS. The Postal Service has been paying that. 

Mr. FRANCIS. The Postal Service has. They could have saved 

multiple hundreds of millions of dollars every year. 

Mr. ROSS. If we had just let them pay—if we let the employees 

of the Postal Service pay what the Federal employees were paying. 

Mr. FRANCIS. Exactly. 

Mr. ROSS. Which begs the question that it is such a sweetheart 

deal that it is almost killing the goose that is laying the golden egg. 

Mr. FRANCIS. Yes. And it doesn’t give one confidence that they 

know what they are doing, though I must say this Postmaster General is a bright light compared to—— 

Mr. ROSS. I agree with you. I agree with you. I think he has done 

an outstanding job in recognizing the problems and realizing that 

something has to be done. He is very innovative. 

Mr. Francis, I am grateful to you for your testimony today. I 

hope that you do get a chance to work with Mr. Donahoe on this 

because I think you bring a lot of things to the table. 

With that, I will recognize Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Recently, Mr. Barry, the Director of OPM, has suggested that the 

9 million people, Federal employees, who are right now in the 

FEHBP, the Federal Employee Health Benefit Plan, prescription 

drug program, he has suggested that that 9 million be taken out 

of that program so that they be allowed to use a competitive process to pick a plan, pick their own drug benefit plan and could probably get a better deal, because they are being overcharged right 

69 

now in the FEHBP, but they are a captive group. What do you 

think about that proposal? 

Mr. FRANCIS. Congressman, I know it is probably near and dear 

to your heart, but I am against it, and let me tell you two reasons. 

One, let’s assume it is correct that there somehow OPM could bargain better than Blue Cross. I am not at all convinced with—— 

Mr. LYNCH. Well, no. They are suggesting that individuals be 

given the power. 

Mr. FRANCIS. Oh, I thought they were talking about a single 

drug contract. But let me just say, assume some money could be 

saved. The problem is this: you want to have a drug benefit integrated with the hospital and doctor benefit. It is less important 

that you may be paying $21 for a certain pill instead of $20, or vice 

versa. That is a lot of money for a lot of people, but compared to, 

hey, if this plan is able to make sure you take that pill and stay 

out of the hospital, that is where the big savings are. 

So you really want the health plan to be managing all the pieces 

at once. That is disease management; it is done quite well, I think, 

by many health plans, but not by all, and that is the wave of the 

future. All the Medicare reforms that this Administration is making, accountable care organizations and so on are all aimed at that 

same idea. We want people to look at the totality of costs and services that a person gets and minimize cost and maximize their 

health. 

Mr. LYNCH. Well, thank you, Mr. Francis. Not the answer I was 

looking for, but I certainly give you credit for that. Thank you. 

Mr. ROSS. Thank you, Mr. Francis, for being here. 

That concludes our witnesses’ testimony today. I appreciate your 

taking the time from your busy schedule. Thank you for your input 

and the Committee now stands adjourned. 

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.] 

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