US Postal Service 2015 Annual Report Download - page 58

2015 Report on Form 10-K United States Postal Service 56
An independent actuary assists in determining the liability for claims arising more than 15 years ago for years 1972 through
2000. The percentage increase in payments between 15 year old claims and closure of all claims is applied to the latest 15
years’ estimates directly calculated within the estimation model for both compensation and medical losses.
The liability calculation is highly sensitive to changes in discount rates. For example, a 1% increase in the discount rate would
decrease the September 30, 2015, liability and related expense by approximately $2.0 billion. Similarly, a 1% decrease in the
discount rate would increase the September 30, 2015, liability and related expense by approximately $2.4 billion.
The following table details inflation and discount rates used to estimate the liability as of September 30, 2015, 2014 and 2013:
2015 2014 2013
Compensation claims liability:
Discount rate 2.4% 2.8% 3.0%
Wage inflation 2.7% 2.9% 2.9%
Medical claims liability:
Discount rate 2.4% 2.7% 3.0%
Medical inflation 5.7% 9.0% 9.1%
The Postal Service’s total liability for workers’ compensation was $18.8 billion and $18.4 billion as of September 30, 2015,
and 2014, respectively. The current portion of the liability was $1.4 billion and $1.3 billion as of September 30, 2015, and
2014, respectively.
Workers’ Compensation Expense
The impacts of changes in discount rates and inflation rates, as well as the actuarial valuation of new cases and revaluation
of existing cases, are components of total workers’ compensation expense as recorded in the accompanying Statements of
Operations. As described above, the Postal Service pays an administrative fee to the DOL, which is also a component of
workers’ compensation expense.
Included in the 2015 workers’ compensation expense are prescription drug charges of which $99 million is for pharmacy-
compounding costs, an increase of $69 million over the 2014 expense. The Postal Service disputes these compounding cost
charges and withheld $69 million from its October 2015 payment to the DOL. The unpaid amount as of September 30, 2015,
is included as part of the current liability within Workers’ compensation costs in the accompanying Balance Sheets.
The following table details the components of workers’ compensation expense for the years ended September 30, 2015, 2014
and 2013:
(in millions) 2015 2014 2013
Impact of discount rate changes $ 809 $ 485 $ (1,745)
Actuarial revaluation of existing cases (886) 45 949
Costs of new cases 1,767 1,956 1,789
Administrative fee 70 68 68
Total workers’ compensation expense $ 1,760 $ 2,554 $ 1,061
Change in Estimate
The Postal Service revised the calculation used in its valuation model to determine the actuarial revaluation of existing cases
beginning in the first quarter of 2015. The impact of the change in estimate decreased the workers’ compensation liability and
corresponding expense by $353 million in the first quarter of 2015 and for the year ended September 30, 2015. This was
considered a change in accounting estimate under U.S. GAAP. Management believes this change better reflects current injury
trends and provides the best estimate of workers’ compensation liability.