through the end of 2003. In our calculation of present value, a net discount rate of 1.4% for medical expenses and 3.0% for compensation claims is used.

The estimate of the total costs of a claim is based upon the severity of the injury, the age of the injured employee, the assumed life expectancy of the employee, the trend of our experience with such an injury and other factors. See Note 3 for additional information.

Emergency Preparedness Appropriations

Emergency preparedness appropriations are the funds received from the federal government to help pay the costs to keep the mail, postal employees and postal customers safe. Upon receipt of the funds, we establish a liability. Upon use of the funds, we recognize non-operating revenue to the extent of the expenditure. Appropriations received for capital equipment will be offset against depreciation expense over the life of the equipment. See Note 11 for additional information.

3    workers' compensation

At the end of 2003, we estimate our total liability for future workers' compensation costs, excluding the Post Office Department (POD) liability, at $7,114 million. At the end of 2002, this liability was $6,525 million. The payout period for this liability will, for some claimants currently on the rolls, be for the rest of their lives. The liability is sensitive to changes in inflation and discount rates. A change of 1% in the assumptions would change our estimate of the liability by approximately $600 million.

In 2003, we recorded $1,457 million in workers' compensation expense, compared to the $1,511 million we recorded in 2002 and the $970 million we recorded in 2001. Our liability for future workers' compensation costs for POD claims was $122 million in 2003 and $185 million in 2002. In 2003, we recorded an expense of $17 million for POD, compared to the $13 million we recorded in 2002 and $9 million in 2001.

4    health benefit programs

Career employees of the Postal Service are covered by the U.S. government health plan, the Federal Employees Health Benefits Program (FEHBP). The Office of Personnel Management administers the program and allocates the cost of the program to the various participating employers. Our portion of the cost is based upon the average premium cost of the various employee coverage choices and the specific

coverage choices made by our employees. The employees of the Postal Service paid for 16.7% of the cost in 2003, and we paid the remainder.

Employees of the Postal Service who participate in the FEHBP for at least the five years immediately before their retirement may participate in the FEHBP during their retirement. The Omnibus Budget Reconciliation Act of 1990 requires us to pay the employer's share of health insurance premiums for all employees and their survivors, who participate in the FEHBP and who retire on or after July 1, 1971. However, we do not include the costs attributable to Federal civilian service before that date.

We account for post-retirement health benefits as a participant in a multi-employer plan arrangement in accordance with the Statement of Financial Accounting Standards (FAS) 106, Employers' Accounting for Postemployment Benefits Other Than Pensions. Our retiree FEHBP costs amounted to $1,133 million in 2003, $987 million in 2002 and $858 million in 2001. We include these costs in our compensation and benefits expense.

5    debt and related
       interest costs

Under the Postal Reorganization Act, as amended by Public Law 101-227, we can issue debt obligations. However, we are limited to net annual increases of $2 billion in our debt for capital improvements and to $1 billion for operating expenses. Our total debt cannot exceed $15 billion.

Debt is due as follows (dollars in millions):
Year	Amount
2004	$7,273
After 2008	1
Total	$7,274

Cash outlays for interest were $426 million in 2003, $339 million in 2002 and $339 million in 2001.

In January, July and August 2003, we repaid debt with maturity dates that extended to 2031. In connection with the August transaction, we paid a premium (debt repurchase expense) of $360 million which was expensed when incurred.

At year-end, the current estimated market value of our debt is $7,283 million in 2003 and $11,991 million in 2002 (Note 2). All notes payable to the