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2004 annual report united states postal service | 27
WebelievethattheseproposalsrespondtothestatedSense
of Congress regarding the use of the“savings”. Each of
theseproposalsbalancetheneedtomeetourobligationto
fundhealthcarebenefitsforprospective,currentandretired
employeesagainsttheinterestsofcurrentandfuturecustom-
ersinavoidinglargeanddisruptiveratechanges.
PendingLegislation
Legislationaddressingtheuseof“savings”after2005was
introducedintheHouseofRepresentativesandtheSenate
inthe108thCongressandisexpectedtobereintroduced
in the 109th Congress. Either piece of legislation would
profoundlychangethePostalService’sregulatoryprocesses
aswellasthefundingoftheCSRSandretireehealthbenefit
obligations.Bothlegislativeproposalsrequirecontinuationof
universalserviceandgreatlystrengthentheroleoftheregula-
tor,grantingitauthoritytocreateanewsystemofrateand
serviceregulation.Eachbillwouldalsoreturnresponsibilityfor
fundingCSRSobligationsarisingfrommilitaryservicetothe
U.S.Treasury.Bothpiecesoflegislationcontainanumberof
othercomplexprovisionstoprovideforadequatefundingof
retirementhealthcarebenefits.
Ifthereisnolegislativechange,beginningin2006wewill
berequiredtoescrowtheCSRSpostalreform“savings”and
recognizetheirfullamountasanoperatingexpenseforthe
purposeofdeterminingpostageratesandfees.Basedon
OPM’smostrecentestimate,wewouldhavetoplace$3.1
billioninescrowandincludethatamountinthedetermi-
nationofpostageratesandfeesin2006.Weestimatea
doubledigitrateincreasewouldthenberequiredtofund
these“savings.”
HealthBenefits
We participate in the Federal Employees Health Benefits
Program(FEHBP).Eligiblepostalemployeeswithatleastfive
consecutive yearsparticipationin theFEHBP immediately
precedingretirementareentitledtocontinueFEHBPcoverage
intoretirement.Weaccountforemployeeandretireehealth
benefitcostsasanexpenseintheperiodourcontributionis
dueandpayabletotheFEHBP.Thisexpenseisincludedin
compensationandbenefits.
Themajordriversofouractiveemployeehealthcarecosts
arethenumberofemployeeselectingcoverage and the
premiumcostsoftheplanstheyselect.Premiumsforeach
plan participating in FEHBP are determined annually by
OPM.In2004healthbenefitsexpensesforactiveemploy-
eeswere$4,845million,anincreaseof$319millionover
2003.This was 7.3% of our total expenses.The 2003
expenseof$4,526millionwas7.0%ofourtotalexpenses
andincreasedby$325millionover2002whenemployee
healthbenefitswereonly6.2%ofourexpenses.
Retireehealthbenefitscostsof$1,313millionin2004repre-
sent 2.0% of our total expenses, up from $1,133 million
(1.7%)in2003and$987million(1.5%)in2002.Thiscost
hasrisensteadilyoverthelastthreeyears,drivenbydouble
digitincreasesinFEHBPpremiumcosts,anincreasingnumber
ofannuitantsenrolledintheplan,andthedecliningnumberof
annuitantsforwhomaportionofthepremiumcostisallocable
toPostOfficeDepartmentservice.Thecombinedeffectof
thesedriversincreasedretireehealthbenefitcostsby15.9%
($180million)in2004,14.8%($146million)in2003and
15.0%($129million)in2002.
OPMrecentlyannounceda7.9%averageincreaseinaverage
health benefit premiums, to take effect in January 2005.
Comparedtothedoubledigitincreasesinaveragepremiums
overthelastseveralyears,thisisanencouragingdevelop-
ment.However,thepoolofcoveredannuitantswillcontinueto
growrapidlyintothefuture.Asoftheendof2004,therewere
approximately438,000PostalServiceannuitantsandsurvi-
vorscomparedto430,000in2003.Weestimatethatover
250,000ofourcurrentemployeeswillbeeligibleforretire-
mentby2008.Asaresultofthegrowingpoolofretirees,we
projectthatretireehealthbenefitscostswillcontinuetogrow
ata10%orgreaterannualrateoverthenextseveralyears.
Ifwewerenotconsideredaparticipantofamulti-employer
plan,wewouldberequiredtorecordanddiscloseourobli-
gationforfuturecostsundertheprogram.Becausethereare
severalareasofjudgmentinvolvedincalculatingthisobli-
gation,estimatescanvarywidelybasedontheassumptions
used.BasedonSeptember30,2004,data,weestimated
the2004presentvalueoffuturepremiumpaymentstobe
between$48billionand$59billion.BasedonSeptember
30, 2003, data, we estimated the 2003 value of future
paymentstobebetween$47billionand$57billion.Inboth
cases,therangeintheestimateexistsonlybecauselong-
termmedicalinflationassumptionsdifferedby1%.
In December 2003, President Bush signed into law the
Medicare Prescription Drug Modernization Act of 2003.
TheActwilladdavoluntaryprescriptiondrugbenefittothe
Medicareprogram.TheprovisionsoftheMedicarelegisla-
tioncouldhaveasignificantimpactonfuturePostalService
healthcarecosts.
AsthePostalServiceisaparticipantintheFederalEmployees
HealthBenefitsProgram,theavailabilityoftherebateprovision
ofthisActmaybeaffectedbyhowitisimplementedbyOPM.
Part II
206,000,000,000.Wedelivered206
billionpiecesofmailin2004.In1971
wedelivered87billionpiecesofmail.