Postal employees and retirees may participate in the Federal Employees Health Benefit Program (FEHBP), which is administered by OPM. We account for our employee and retiree health benefit costs as an expense in the period our contribution is due and payable to FEHBP. For retiree health benefits we use multiemployer plan accounting rules in accordance with ASC 715 (formerly FAS 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions).

The drivers of our active employee health care costs are the number of employees electing coverage and the premium costs of the plans they select. On average, the employees of the Postal Service paid for 19% of the premium cost in 2009 and we paid the remainder. The employee percent contribution was 18% in 2008 and 17% in 2007. Premiums for each plan participating in FEHBP are determined annually by OPM. In September 2009, OPM announced average premium increases of 8.8% for calendar year 2010. Previous increases were 7% in January 2009, 2% in 2008 and 1.8% in 2007. The low premium increases in 2007 and 2008 were the result of lower plan costs and the application of plan reserves to constrain premium increases.

Despite an average increase of 7% in FEHBP premiums for 2009, employee migration to lower cost plans and a declining workforce combined to lower total health benefit costs. In 2009, health benefit expenses were $5,294 million, which were 7.4% of total operating expenses and a decrease of $82 million from 2008. The 2008 expense of $5,376 million was 6.9% of our total operating expenses and a decrease of $25 million from 2007.