Postal retiree health benefits are provided as part of the Federal Employees Health Benefits Program (FEHBP). FEHBP covers federal employees and retirees, including postal and nonpostal retirees, who receive health insurance from companies that contract with OPM. Retiree participation is voluntary; in fiscal year 2018, about 500,000 postal retirees have participated in FEHBP. Funding requirements for postal retiree health benefits are established by law, which divides responsibility among USPS, the federal government, and postal retirees. USPS is responsible for a specific percentage of premiums, the federal government is responsible for paying a prorated share, and retirees are responsible for the rest. The funding requirements for these benefits changed in 2006. Before then, a “pay-as- you-go” system governed USPS’s payments, which required USPS to pay its share of premiums for current postal retirees. The 2006 Postal Accountability and Enhancement Act (PAEA) required USPS to start fully “prefunding” retiree health benefits. This meant that USPS was required to make annual prefunding payments to a newly established fund to build up funds to cover USPS’s share of future postal retiree health benefit costs. PAEA also established the RHB Fund as a new fund in the U.S. Treasury for USPS to deposit money into, and specified that beginning in fiscal year 2017, the fund would be used by OPM to pay USPS’s share of postal retiree premiums for health benefits. Under PAEA, the first 10 years of prefunding payments were fixed—ranging from $5.4 billion to $5.8 billion annually from fiscal years 2007 to 2016. From fiscal years 2007 through 2016, USPS was also required to continue “pay-as-you-go” payments for its share of premiums for current retirees. The permanent schedule for USPS payments to prefund postal retiree health benefits under PAEA started in fiscal year 2017. We have reported that USPS’s financial condition continues to deteriorate and its outlook is bleak. We have separately issued reports and testimonies that examined USPS’s financial condition, including its liabilities, and identified strategies and options for USPS and Congress to reduce postal costs, generate revenue, and restructure the funding of USPS’s pension and retiree health benefits. Looking forward, we have reported that USPS is facing unsustainable financial challenges as First- Class Mail volume continues to decline. USPS has recently reported that its revenue generation options are constrained, including by the price cap on market-dominant mail, and that any cost-cutting opportunities within its control are “relatively limited and dwindling.” USPS stated that the opportunity for further cost savings within its control will not come close to filling its financial gap. With respect to actions taken by companies and state governments, we have previously reported on the long-term trend for these organizations to eliminate or reduce retiree health benefits. Factors contributing to this decline include financial challenges for companies and states, current and expected retiree health benefit costs, and the legal ability to change retiree health benefit programs. The RHB Fund is on an unsustainable path and is projected to be depleted in 12 years under the status quo. USPS has missed approximately $38 billion in payments to the fund since fiscal year 2010, and the fund’s balance is declining. Beginning in fiscal year 2017, OPM started drawing from the fund to pay USPS’s share of premiums for postal retirees’ health benefits. OPM’s payments in that year exceeded the fund’s income from interest, and OPM projects that, based on the status quo, future payments will continue to exceed the fund’s income from interest. As long as USPS continues to miss its annual payments—which were nearly $4.3 billion in fiscal year 2017 and are $4.5 billion in fiscal year 2018—the fund is on track to be depleted in fiscal year 2030 based on OPM projections requested by us (see fig. 1). We reported similar results in our December 2012 report on postal retiree health benefits. At our request, OPM conducted a sensitivity analysis in which alternative projections were made that assumed USPS made payments to the fund of $1 billion per year or $2 billion per year; these alternative projections extended the fund’s projected depletion date from fiscal year 2030 to fiscal years 2032 or 2035, respectively (see fig. 2). OPM estimates the number of postal retirees eligible for federal retiree health benefits will remain near the current level of 500,000 through fiscal year 2035. The outlook for the RHB Fund is poor as USPS has inadequate resources to cover its required payments to the RHB Fund and, in our view, based on past practices and USPS statements, appears unlikely to make partial payments. USPS has repeatedly testified that its required payments to the RHB Fund are “unaffordable” relative to its current financial situation and outlook. In this regard, USPS accumulated net losses of more than $65 billion in the last 11 years and has budgeted for a net loss of about $5 billion in fiscal year 2018. Further, USPS reached its statutory borrowing limit of $15 billion in 2012. Although USPS accumulated liquid assets (cash and cash equivalents) of about $10.5 billion at the end of fiscal year 2017, it did not make $6.9 billion in required payments for retiree health and pension benefits. According to USPS officials, USPS did not make these payments in order to preserve liquidity and cover operational costs. If the RHB Fund is depleted, PAEA requires USPS to fill the resulting financial gap by resuming “pay-as-you-go” payments for its share of retiree health premiums that are currently being paid by the fund. However, PAEA does not address how funding will be provided or whether benefits will be provided if the fund becomes depleted and USPS does not make payments to cover its share of premiums. OPM and USPS have identified the following issues should the fund be depleted: According to OPM: (1) The RHB Fund is the initial funding source for USPS’s share of postal retirees’ health insurance premiums as long as money remains in the fund. (2) If the fund is depleted, then USPS becomes the funding source responsible for paying USPS’s share of these premiums. (3) Regardless of whether funds are available to pay USPS’s share of premiums, postal retirees are statutorily entitled to remain enrolled in their FEHBP plans. (4) Therefore, if the fund is depleted and USPS does not pay its share of premiums, the providers of these FEHBP plans would be underpaid. According to USPS: (1) Current law does not appear to contemplate a situation in which USPS itself is unable to make payments to the RHB Fund after the fund is depleted. (2) The law does not condition postal retirees’ eligibility for health benefits upon the fund or the payment of government contributions by USPS and the federal government. (3) Therefore, USPS stated it is reasonable to expect that postal retirees would remain eligible for health coverage even if USPS is unable to make payments to the RHB Fund after it is depleted. Regarding who would pay for their health coverage at this point, USPS stated that ultimately, it would be up to Congress to legislate a resolution to the funding issue. As the above projections show, the RHB Fund could be depleted in as little as 12 years—and USPS may be unable to cover its share of retiree health insurance premiums should its financial condition remain precarious. Depletion of the fund could affect postal retirees—who have provided a vital service to the nation—as well as USPS, postal customers and other stakeholders, including the federal government. Survey data we reviewed indicate that most companies do not offer retiree health benefits and that the number of companies providing such benefits is decreasing over time. For example, the percentage of all private and public organizations (e.g., state or local governments) with more than 200 employees that offer employee health benefits and that also offer retiree health benefits is estimated to have declined from 40 percent in 1999 to 25 percent in 2017, according to annual surveys conducted by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust (Kaiser/HRET). Focusing specifically on the results for private for-profit companies, the 2017 Kaiser/HRET survey estimated that only 11 percent of companies with at least 200 employees that offered health benefits to active employees also offered retiree health benefits in 2017, the smallest percentage since comparable data were measured in 2012. The 2017 Kaiser/HRET survey also estimated that the percentage of companies offering retiree health benefits was greater among companies with at least 5,000 employees (35 percent) than those with 1,000 to 4,999 employees (18 percent) and those with 200 to 999 employees (9 percent) (see fig. 3). Surveys sponsored by the Agency for Healthcare Research and Quality (AHRQ) have estimated similar trends for private sector establishments with at least 1,000 employees and with 100-999 employees. According to the AHRQ surveys, an estimated 25 percent of private sector establishments with at least 1,000 employees offered health insurance coverage to retirees age 65 and older in 2016, down from 41 percent in 2003. For retirees under 65, an estimated 32 percent offered such coverage in 2016, down from 42 percent in 2003 (see fig. 4). Based on reports we reviewed and experts we interviewed, many companies that have retained their retiree health benefits have done so by making changes to control costs, including tightening eligibility and restructuring benefits. Depending on the company, the changes have applied to new hires, current employees, or retirees. Specific changes have included the following: Tightening eligibility: Some companies have made new employees and/or employees hired after a given date ineligible to receive retiree health benefits, while other companies have increased the minimum age and/or length of service requirements for eligibility, according to reports and experts we interviewed. Restructuring benefits: Many companies have restructured retiree health benefits to reduce the level of the benefit, to shift costs to retirees, and to change how the benefits are provided. For example, some companies have shifted from an approach under which a company pays a percentage of premiums for a selected health benefit plan, to an approach under which a company pays a fixed dollar amount that employees may put toward health care costs. The 2017 Kaiser/HRET survey estimated that 30 percent of private and public organizations with 200 or more employees that offer retiree health benefits provide a fixed dollar amount that the retiree can use to purchase a retiree health plan they choose. Experts on retiree health benefits that we interviewed told us such companies often shift costs to retirees by maintaining defined contributions at the same level over time, even as overall health care costs increase. Based on multiple reports and experts, nearly all state governments continue to offer retiree health benefits to at least some state government retirees but generally have shifted some costs from the state to retirees and/or active employees in various ways. For example, in 2016, the Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation reported on the following recent changes at the state level related to eligibility for retiree health benefits, benefit levels, and aspects of how the benefits coordinate with Medicare: Tightening eligibility or limiting benefit levels: Most states varied eligibility for retiree health benefits based on factors such as age and years of service, and varied benefit levels based on factors such as date of hire, date of retirement, or vesting eligibility; some states varied benefit levels based on years of service. Between 2000 and 2015, more than a dozen states changed the minimum age or the number of state service years required for retirees to be eligible for health benefits. During that timeframe, at least 10 states adopted formulas for prorating benefits that required different premium-sharing amounts based on years of service, or altered existing prorating formulas, bringing the total to 31 states that used prorating in 2015. At least 5 states stopped making any contributions to health premiums for certain retirees. Medicare coordination: Thirty-five states provided employer- sponsored Medicare Advantage or Medicare Part D plans, known as Employer Group Waiver Plans, to provide health or prescription drug benefit coverage for Medicare-eligible retirees since these options were authorized in 2003. According to the report, “These cost- saving programs provide states with financial subsidies from the federal Medicare program to provide Medicare plus wraparound benefits.” We identified eight potential policy approaches to address the financial sustainability of postal retiree health benefits, primarily based on a review of legislative proposals and pertinent literature on actions that were taken by private companies and state governments and are discussed above. These approaches fall into three categories: (1) approaches that shift costs to the federal government; (2) approaches that reduce benefits or increase costs to postal retirees and/or postal employees; and (3) approaches that change how the benefits are financed. These eight approaches are not mutually exclusive, nor are they an exhaustive list of possible approaches. Each approach could include a range of specific options; thus, even if successfully implemented, no one approach would necessarily be sufficient to make postal retiree health benefits financially sustainable. Although our discussion of the various policy approaches specifically addresses postal retiree health benefits, most approaches could address federal retiree health benefits more broadly, as both postal and non-postal federal employees participate in the same federal health benefits program. All approaches we identified have different potential effects and would require congressional action because current law establishes certain requirements for postal retiree health benefit plans, including basic rules for benefits, enrollment, and participation, and how benefits are to be paid for. Because the RHB Fund has a large and growing financial gap, any approach that would have a significant financial impact could affect the federal government, postal retirees, postal employees, USPS, and customers to varying degrees. Medicare Integration: Various legislative proposals have been made to increase postal retirees’ participation in Medicare—a shift that would decrease USPS’s costs but increase Medicare’s costs, according to analyses by the Congressional Budget Office (CBO). These proposals would establish a program within FEHBP for active postal employees and postal retirees. Under these bills, Medicare-eligible postal retirees enrolled in this program would generally also be required to be enrolled in Medicare Parts A, B, and D. According to CBO analyses, the bills would have resulted in USPS savings, in part because increased participation in Medicare would shift primary responsibility for covering certain health care services to Medicare for those who enroll. As we have previously reported, the primary policy decision for Congress to make is whether to increase postal retirees’ use of Medicare. Supplemental federal appropriations: If the RHB Fund becomes depleted and USPS does not fill the financial gap, supplemental federal appropriations could be an alternative if Congress wants benefits to continue at the same level. As previously noted, OPM officials told us that regardless of whether funds are available to pay USPS’s share of premiums, postal retirees are statutorily entitled to remain enrolled in their FEHBP plans. However, supplemental federal appropriations for postal retiree health benefits could increase the federal budget deficit. In addition, supplemental appropriations for postal retiree health benefits would be inconsistent with USPS functioning as a self-financing entity that covers its costs with revenue it generates. Tighten eligibility or reduce or eliminate retiree health benefits: As some companies and state governments have done, eligibility restrictions could be tightened for postal retiree health benefits, or other actions could reduce the level of benefits or even eliminate benefits, such as making new hires ineligible to receive retiree health benefits. The effects would depend on the specific changes and whether they were made to apply to current retirees, current employees, or future hires. Depending on the extent of the changes, this approach would reduce USPS’s liability for postal retiree health benefits and thereby reduce its unfunded liability. Increase premium payments by postal retirees and/or postal employees: As some companies and state governments have done, premium payments for postal retiree health benefits by postal retirees and/or postal employees could be increased. For example, as others have reported, some companies and state governments have required retirees to pay 100 percent of the health insurance premium for their retiree health benefits. Similarly, a larger share of retiree health premiums could be borne by postal retirees or postal employees could be required to pay for retiree health benefits before they retire. Such changes would require changes to current law that allocates specific financial responsibility for payments among USPS, the federal government, and retirees participating in FEHBP, as active postal employees make no payment for retiree health benefits under current law. The expenses of the RHB Fund could be decreased by these approaches that shift costs to postal retirees, postal employees, or both. Depending on how much of the costs are shifted, the additional costs could increase the challenge for retirees to ensure their accumulated resources last throughout retirement, or for postal employees to save for retirement. Further, as we have reported, rising health care costs can increase the overall amount individuals may need to save to ensure they have an adequate income once they retire. Change the federal contribution to a fixed subsidy: As some companies and state governments have done, postal retiree health benefits could be shifted to a structure with a fixed amount subsidizing the benefit. This amount could be adjusted over time; any adjustments might or might not keep up with costs. Depending on the initial size of the fixed subsidy and any adjustments over time, this approach could reduce the expenses of the RHB Fund and USPS’s required payments. RHB Fund expenses could be reduced over time if the fixed subsidy increases less than postal retiree health premiums. This approach would require changes to current law and regulations that prescribe the federal government’s financial contribution to FEHBP. For example, CBO recently identified one option to change FEHBP’s statutory structure from a premium-sharing structure that is required by law to fixed subsidies for health benefits. Under this option, the fixed subsidies would grow at the rate of inflation rather than at the average rate of growth for FEHBP premiums; CBO stated this change would be expected to slow the growth of federal contributions to FEHBP. A fixed subsidy for retiree health benefits could increase incentives for retirees to make less costly decisions with respect to health care. However, this approach could result in greater cost exposure for retirees, who may face difficult decisions regarding their health care, particularly if their financial resources are limited. As we have reported, individuals face the risk that rising and unpredictable health care or long-term care costs may lead them to draw down their retirement savings faster than expected. Establish a non-federal voluntary employees’ beneficiary association (VEBA) for postal retiree health benefits: As some companies have done to provide retiree health benefits separately from the employer, a VEBA outside the federal government could be established to manage postal retiree health benefits. This approach means that postal retiree health benefits would be provided through the VEBA instead of through the OPM-administered FEHBP. The non-federal VEBA would administer the postal retiree health benefits program, including determining the specific benefits that would be provided and the level of contributions from the VEBA members—who could include retirees and employees—and the investing of its assets. Such an approach would require determining the VEBA’s governance structure, funding sources, level of funding, type of investments, and associated market risks. One issue could be determining the source and level of initial funding for a new VEBA for postal retiree health benefits, such as whether initial funding would come from the RHB Fund, the Treasury, or both. Other issues could be what funds would be provided to the VEBA going forward, including the source(s) and level of funding, and what the benefit levels would be. If the entire RHB Fund were transferred into a VEBA, the current level of benefits would ultimately not be sustainable unless further funding is provided from one or more sources, such as from USPS, retirees, active employees, or the federal government. Thus, trade-offs would involve what level of benefits would be provided, who would bear the costs, and what might happen if VEBA assets decline or become depleted. Reduce the required level of prefunding: Proposed legislation includes an 80 percent funding target for postal retiree health benefits instead of the 100 percent target established by current law. This would reduce USPS’s required payments to the RHB Fund but could increase costs for future postal ratepayers and increase the risk that USPS may not be able to pay for these costs. As previously discussed in this report, state governments either do not prefund their retiree health benefits or generally have a low level of prefunding. We have expressed concern about a proposed 80 percent funding target for postal retiree health benefits that would have the effect of carrying a permanent unfunded liability equal to roughly 20 percent of USPS’s liability, which could be a significant amount. As we previously reported, an alternative could be to build in a schedule to achieve 100 percent funding in a later time period after the 80 percent level is achieved. Although USPS payments with an 80 percent funding target would reduce USPS’s required payments, fully funded benefits protect against an inability to make payments later, make promised benefits less vulnerable to cuts, and protect USPS’s long-term viability. Further, reducing the funding target is unlikely to have any effect as long as USPS continues to make no payments to the RHB Fund, as discussed earlier. We continue to believe that as long as USPS is required by law to pay its share of retiree health benefits premiums, it is important for USPS to prefund its retiree health benefit liability to the maximum extent that its finances permit. We recognize that multiple options exist to prefund benefits and amortize unfunded liability and that no prefunding approach will be viable unless USPS can make the payments and maintain liquidity. As we have reported, making affordable prefunding payments would protect the viability of USPS by not saddling it with bills later on, when employees are already retired and no longer helping it to generate revenue; making payments can also make the promised benefits more secure. We also have reported that deferring payments can pass costs from current to future postal ratepayers. To the extent prefunding is postponed by using a lower funding target, larger payments will be required later, when they likely would be supported by lower levels of profitable First-Class Mail volume. Outside investment: Proposed legislation would initially require 25 percent of the RHB Fund to be invested in index funds modeled after those used for federal Thrift Savings Plan investments. The objective of investing RHB Fund assets outside of U.S. Treasury securities would be to seek a greater rate of return on these assets in an attempt to reduce unfunded liabilities and the amount of required prefunding payments. Such outside investment would require legislation because current law limits RHB Fund assets to U.S. Treasury securities that are backed by the full faith and credit of the federal government. A higher rate of return on RHB Fund assets could reduce long-term funding needs. However, there are other considerations. For example, we have reported that if fund assets were invested in non-Treasury securities, the fund may experience losses in a market downturn and would thus have reduced assets available for health care. Assuming there would be no explicit federal guarantee of the value of the invested assets, we stated that USPS is not well positioned to deal with a potentially significant decline in their value, given its significant operating losses and continuing decline in mail volume. We also reported that the impact of any asset losses could be magnified because a market downturn that negatively affects asset value could be associated with a more general economic downturn that negatively affects USPS mail volume and revenues. About a half million postal retirees receive retiree health benefits. Postal retirees have provided a vital service to the nation, and resolving a key aspect of their future situation warrants congressional action. Failure to address the poor financial outlook of the RHB Fund could pose serious consequences for these retirees as well as USPS, postal customers, and other stakeholders, including the federal government. It is reasonable to believe that USPS will not be able to fill the financial gap once the RHB fund is depleted—a situation that could occur in as little as 12 years under the status quo. There is no certainty on what actions should be taken to address this problem. However, we have identified multiple approaches that could be used, individually or in combination, that Congress could consider to help address the financial shortfall in this area. All of these approaches have different potential effects, and it is up to Congress to consider the merits of the approaches and determine the most appropriate action to take. It would be preferable to take action when careful consideration is possible, rather than wait until lack of adequate funding could disrupt postal retiree health benefits. Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing. We provided a draft of this report to OPM and USPS for their review and comment. OPM provided technical comments, which we incorporated as appropriate. USPS provided a written response, which is reproduced in appendix II of this report. In its written response, USPS stated that it concurred with our matter for congressional consideration that congressional action is necessary to achieve a financially sustainable Postal Service Retiree Health Benefits Fund (RHB Fund). However, USPS said our discussion of potential policy approaches for postal retiree health benefits would benefit from additional context and balance. USPS also put forth additional information for three of the potential policy approaches highlighted in our report. Our report presents a high-level overview of eight potential policy approaches. It was not designed to be a comprehensive catalog of possible options with an analysis of the various considerations relevant to each. With regard to the Medicare integration approach, USPS stated that increased Medicare participation by postal retirees is not limited to the “full Medicare integration option,” as represented in our report and identified variations of such an approach. USPS said readers would benefit from a fuller picture of Medicare integration practices, stating that among employers that continue to provide retiree health benefits, full Medicare integration is a uniform best practice. USPS cited a 2014 report that said Medicare integration is the most common arrangement for employer-provided retiree health benefits, adding that retiree health benefits for Medicare-eligible employees are assumed to be merely supplemental to Medicare as a matter of course. Our report discussed Medicare integration by state governments, but did not present recent data on the percentage of private companies that coordinate their retiree health benefits with Medicare because such data are not publicly available. Additionally, USPS said our report framed the issue of Medicare integration as “solely” a tradeoff between USPS and Medicare costs while there are other factors to consider, such as the relative benefits to USPS compared to the overall cost for the Medicare program. As we noted in our report, the eight potential policy approaches were not designed to be mutually exclusive, nor an exhaustive list of possible approaches. Additionally, we recognize there are various factors related to this approach, but that the primary one is whether to increase postal retirees’ use of Medicare which would lead to further increasing Medicare costs. Second, USPS said it believed our statements about approaches for changing the level of prefunding for retiree health benefits below the 100 percent level were misplaced, citing “universally accepted practices” for other entities to “pay-as-you-go” (i.e., not prefund at all), or to prefund at much lower levels. We have reported on such funding levels in the past as well. However, a proposed 80 percent funding target for postal retiree health benefits would have the effect of carrying a permanent unfunded liability equal to roughly 20 percent of USPS’s liability, which could be a significant amount. As we previously reported, an alternative could be to build in a schedule to achieve 100 percent funding in a later time period after the 80 percent level is achieved. As our report also explained, although USPS payments with an 80 percent funding target would reduce USPS’s required payments, fully funded benefits protect against an inability to make payments later, make promised benefits less vulnerable to cuts, and protect USPS’s long-term viability. Finally, USPS said that our statements about potential risks associated with investment of assets outside the U.S. Treasury seem disproportionate given USPS’s view that diversification of assets set aside for retiree health benefits is “universally accepted” as a best practice. We recognize that a higher rate of return on RHB Fund assets could reduce long-term funding needs for the RHB Fund. However, there are considerations specific to USPS. For example, assuming there would be no explicit federal guarantee of the value of the invested assets, we stated that USPS is not well positioned to deal with a potentially significant decline in their value, given its significant operating losses and continuing decline in mail volume. We also noted that, as we have previously reported, the impact of any asset losses could be magnified because a market downturn that negatively affects asset value could be associated with a more general economic downturn that also negatively affects USPS mail volume and revenues. In summary, we believe our report presents a balanced description of a wide range of possible policy options; it does not endorse or recommend any particular option for Congress. As we concluded, all of these approaches have different potential effects, and the information we present, as well as the additional views presented by USPS, provide critical information for congressional decision-makers to assess as they consider the merits of the approaches and determine the most appropriate action to take. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees; the Postmaster General; and the Director of the Office of Personnel Management. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix III. End of year net funded status (unfunded) (55.0) Missed USPS payments to the fund (53.5) (52.0) (48.6) (46.2) (47.8) (48.3) (48.9) (54.8) (52.1) payments due on Sept. 30, 2017, of $955 million for the amortization of USPS’s unfunded liability for postal retiree health benefits, and $3.3 billion for the “normal costs” of retiree health benefits. The “normal cost” is the annual expected growth in liability attributable to an additional year of employees’ service. In addition to the individual named above, Derrick Collins (Assistant Director); Kenneth John (Analyst-in-Charge); Amy Abramowitz; Taiyshawna Battle; William Colwell; Swati Deo; John Dicken; Leia Dickerson; William Hadley; James Leonard; Emei Li; Thanh Lu; Sara Ann Moessbauer; Joshua Parr; Malika Rice; Matthew Rosenberg; Amy Rosewarne; Frank Todisco; and Crystal Wesco made key contributions to this report.
USPS is required to prefund its share of health benefits costs for its retirees. To do so, USPS is required to make payments into the RHB Fund, which is administered by OPM. However, USPS has not made any payments to the fund since fiscal year 2010. At the end of fiscal year 2017, USPS had missed $38.2 billion in payments, leaving the fund 44 percent funded. Pursuant to law, beginning in fiscal year 2017, OPM started drawing from the fund to cover USPS's share of postal retirees' health benefits premiums. GAO was asked to review issues related to the sustainability of the RHB Fund. This report examines (1) the financial outlook for the RHB Fund and (2) policy approaches for postal retiree health benefits, among other topics. GAO evaluated financial projections for the RHB Fund from OPM. GAO reviewed laws and regulations and identified policy approaches primarily by identifying legislative proposals, and literature on actions of companies and state governments to address retiree health benefits. These approaches are not exhaustive or mutually exclusive. GAO also interviewed experts in retiree health benefits and postal stakeholders, chosen on the basis of relevant publications and prior GAO work, and interviewed and obtained written responses from OPM and USPS officials. The financial outlook of the Postal Service Retiree Health Benefits Fund (RHB Fund) is poor. At the end of fiscal year 2017, the fund's assets declined to $49.8 billion and unfunded liabilities rose to $62.2 billion. Based on Office of Personnel Management (OPM) projections requested by GAO, the fund is on track to be depleted in fiscal year 2030 if the United States Postal Service (USPS) continues to make no payments into the fund. Annual payments of $1 billion or $2 billion into the fund would extend the projected depletion date by 2 to 5 years (see figure). USPS has said that its required payments to the fund are unaffordable relative to its current financial situation and outlook. For the past 11 years USPS has incurred large operating losses that it expects will continue. Additionally, USPS has stated that its opportunities for revenue generation and cost-cutting are limited. USPS reported that it did not make required fund payments in 2017 in order to preserve liquidity and cover operational costs. If the fund becomes depleted, USPS would be required by law to make the payments necessary to cover its share of health benefits premiums for current postal retirees. Current law does not address what would happen if the fund becomes depleted and USPS does not make payments to cover those premiums. Depletion of the fund could affect postal retirees as well as USPS, customers, and other stakeholders, including the federal government. About 500,000 postal retirees receive health benefits and OPM expects that number to remain about the same through 2035. GAO identified three categories of policy approaches for postal retiree health benefits, based on legislative proposals and pertinent literature. First, some approaches, such as generally requiring eligible postal retirees to participate in Medicare, would shift costs to the federal government. Second, some approaches would reduce benefits or increase costs to postal retirees and/or employees. Third, some approaches would change how benefits are financed (see table). All of these approaches have different potential effects and would require congressional action. Thus, it is up to Congress to consider the merits of different approaches and determine the most appropriate action to take. It would be preferable to take action when careful consideration is possible, rather than wait until lack of adequate funding could disrupt postal retiree health benefits. Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing. USPS agreed that congressional action is needed and offered views on some policy approaches discussed in this report.