The 2006 and 2022 USPS Reforms: A Financial Breakdown

The 2006 Postal Accountability and Enhancement Act (PAEA)

In 2006, Congress passed the Postal Accountability and Enhancement Act (PAEA), which imposed a unique financial burden on the United States Postal Service (USPS). It required USPS to pre-fund retiree health benefits for employees, current or yet to be hired for 75 years in advance, something no other federal agency or private company was required to do. This law forced USPS to set aside $5.6 billion annually from 2007 to 2016, severely straining its finances.

Significance and Impact:

  • The law took effect just before the Great Recession (2008-2009), further amplifying its financial impact.

  • USPS, already facing declining mail volume due to digital communication, was forced to pay billions it didn’t immediately need, causing massive financial losses.

  • Between 2007 and 2020, USPS lost over $87 billion, with the pre-funding requirement being one of the biggest contributors. They used cash reserves to cover this loss.

  • To cope, USPS borrowed $15 billion from the U.S. Treasury, hitting its statutory debt limit.

The 2022 Postal Service Reform Act (PSRA)

In 2022, Congress passed the Postal Service Reform Act (PSRA) to eliminate the pre-funding mandate and replace it with a pay-as-you-go system for retiree health benefits. This reform meant that USPS would only pay for retiree health benefits as employees retire, similar to how other agencies operate.

What the 2022 Reform Did:

  • Eliminated the pre-funding requirement, erasing billions in artificial debt.

  • Created the Postal Service Health Benefits (PSHB) Program, which requires most USPS retirees to enroll in Medicare Part B starting in 2025.

  • Did not provide direct taxpayer funding, but instead shifted future retiree healthcare costs onto Medicare, indirectly impacting taxpayers.

Debunking the "USPS Bailout" Narrative

While some have labeled the 2022 reform as a bailout, it did not inject taxpayer money into USPS. Instead, it relieved an artificial financial burden created by the 2006 law and required USPS retirees to rely more on Medicare, a program already funded by taxpayers. The biggest shift is that future USPS retirees will be required to enroll in Medicare, potentially increasing Medicare spending.


Sources:

Brookings Institution. “How is the U.S. Postal Service Governed and Funded?” 2022, https://www.brookings.edu/articles/how-is-the-u-s-postal-service-governed-and-funded/.

USPS Office of Inspector General. “What Did the Postal Service Reform Act of 2022 Do?” 2022, https://www.uspsoig.gov/focus-areas/did-you-know/what-did-postal-service-reform-act-2022-do.

Federal Register. “Postal Service Reform Act; Establishment of the Postal Service Health Benefits Program.” 2024, https://www.federalregister.gov/documents/2024/05/06/2024-09565/postal-service-reform-act-establishment-of-the-postal-service-health-benefits-program.

Office of Personnel Management. “Postal Service Health Benefits Program.” 2024, https://www.opm.gov/about-us/reports-publications/agency-plans/fy-2024-congressional-budget-justification/postal-service-health-benefits-program/.