Postal Labor Pains and Protecting Medicare Advantage - TPA Weekly Update: March 8, 2024

Most of us at TPA are sports fans. Something we’re not fans of, however, is using taxpayer dollars to subsidize wealthy sports franchise owners. The economic literature is exhaustive and virtually unanimous in the conclusion that stadium subsidies are a horrific use of taxpayer funds. That’s why we’re delighted to report that the most expensive taxpayer-backed stadium deal ever proposed, to relocate the Washington Wizards and Capitals to Alexandria, Virginia, is dead (for now). Virginia lawmakers, led by Senator L. Louise Lucas (D.), removed language related to the proposal from the Commonwealth’s budget agreement, closing off its most viable path. TPA opposed the egregious deal from the start, when Executive Director Patrick Hedger protested outside the announcement ceremony late last year. TPA went on to fund a bus full of taxpayers from Alexandria down to Richmond, where they voiced their displeasure directly to Virginia lawmakers. TPA also made Senator Lucas our latests Profile in Courage. TPA is beyond proud to have played a significant role in the cross-partisan coalition to sink this latest stadium scam.

Postal Labor Pains

For the first time in nearly two years, the U.S. Postal Service’s (USPS) Board of Governors (BOG) is poised to add a new member. On February 29, President Biden announced that he was nominating former Labor Secretary Marty Walsh to serve on the Board. Two BOG seats have been vacant since December and lawmakers have urged President Biden to hasten the nomination process and push for postal reform. Given the USPS’ soaring labor costs, nominating a union official such as Walsh to a postal leadership role presents significant risks. However, labor groups such as the American Postal Workers Union have some sensible ideas for America’s mail carrier to reduce costs, and Walsh can help bring these promising proposals to the table. It’ll take a variety of perspectives to keep the USPS delivering for taxpayers and consumers. The USPS desperately needs a change in leadership. The agency reported a $6.5 billion loss for fiscal year (FY) 2023 and has lost more than $100 billion over the past fifteen years. As if those figures weren’t concerning enough, the USPS expects to shed another $60-70 billion by 2030. One key culprit of this fiscal malaise is the agency’s inability to keep labor costs under control. According to the USPS Inspector General (IG), the USPS spends more than $50 billion per year on labor compensation and benefits. Tacking on retiree health benefits, workers compensation, and pension payouts adds another $10 billion in annual costs.

Labor costs comprise nearly 80 percent of agency expenses, with transportation costs coming in a distant second at 10 percent. Despite being billed as a callous business executive hostile to labor groups, Postmaster General DeJoy has been pushing for the conversion of part-time workers into (far more expensive) career employees. Cost-effective temporary holiday hiring has fallen by the wayside in favor of focusing on full-time hiring. While it’s hard to say exactly how Walsh feels about current USPS hiring practices, his tenure as Labor Secretary under the Biden administration offers insight. Walsh clearly disliked companies using independent contractors and pushed for costly reclassifications to force businesses to treat contractors as employees. Slated to take effect on March 11, Walsh’s proposed rule would not only raise costs on consumers but make it far more difficult for contractors to take advantage of flexible working conditions that come with filing a 1099 form. It’s unlikely, then, that Walsh will suddenly do a 180 and champion low-cost, temporary hiring initiatives at the USPS.

Postal unions have long been critical of “workshare discounts,” or about $15 billion-worth of discounts on postage the USPS extends to private businesses that perform mailing-related work (e.g., pre-sorting and bar-coding mail) on behalf of the USPS. The basic idea of farming out postal operations and allowing private players to pocket the savings is a solid one, but only if the postage discounts correspond to actual savings. Even though nearly 90 percent of market dominant mail (i.e., letters and marketing mail) is workshared, the IG has found documented savings to be sorely lacking. According to a February 2024 IG report, the USPS “does not have detailed procedures that document responsibilities for calculating avoided costs and workshare discounts for First-Class Mail and Marketing Mail letters and enable management to effectively monitor those control activities.” In addition, the USPS fails to regularly monitor data inputs that go into its workshare discount pricing models. In other words, the USPS is asking taxpayers and consumers to take a leap of faith and trust that it is properly extending $15 billion in discounts based on mailing companies saving the USPS money. As a union leader, Walsh is far more likely than his predecessors to push for more transparency in postal outsourcing.

Having Walsh on the BOG will be a mixed bag for America’s mail carrier and postal customers. The former Labor Secretary should look for ways to keep compensation costs under control and push for greater workshare accountability. Taxpayers and consumers deserve new postal leadership free from old, bankrupt ideas.

Protecting Medicare Advantage

In January, the Medicare Payment Advisory Commission (MedPAC) released a very under-the-radar report about Medicare Advantage. Medicare Advantage constitutes Part C of the Medicare program. In it, private insurance plans can compete – with the approval of the government – for the business of Medicare enrollees, offering them similar services. The plans have become so popular that more than half of Medicare enrollees are a part of a Medicare Advantage plan. However, government central planners don’t like the looming influence of free market competition. Last year, the Biden administration announced a plan to cut $4.7 billion from Medicare Advantage, even as more seniors are flocking to the program. Further, the Centers for Medicare and Medicaid Services (CMS) will release a rate notice, potentiating further cuts to the program. This is in line with the aforementioned MedPAC report, which conveniently glossed over many of the positive aspects of Medicare Advantage – which include very low premiums – in its findings. The competition model of Medicare Advantage is winning the day over the traditional government-run Medicare program. This is what makes it one of the first targets for government cuts when the time comes.

It should be noted that a hard look at Medicare is sorely needed. The program is approaching insolvency within the decade and is one of the largest budget line items year after year. It is unsustainable. No criticisms of these cuts to Medicare Advantage or the underhanded tactics used to usher them in should be construed as an opposition to all Medicare reforms. These cuts are not an indication that the Biden administration and its bureaucrats have, at long last, embraced fiscal responsibility. In fact, the opposite is true. The administration is zeroing in its focus to the one part of Medicare that incorporates market competition and seems to be functioning well enough to continually attract a growing share of enrollees.

If the bitter clingers insist on continuing to ride the Medicare train as it barrels towards insolvency, perhaps the best use of their time would be to focus on substantive reforms. Instead, these barely publicized reports are being used to usher in cuts to the one vestige of market economics left in this wasteful behemoth. To focus on Medicare Advantage is to miss the point entirely.