* Subcommittee approves Issa's U.S. Postal Service bill
* Bill would end Saturday mail, front-door delivery
* House votes against health payment deadline extension
WASHINGTON, Sept 21 (Reuters) - A House of Representatives panel on Wednesday approved a bill that would end Saturday mail delivery by the U.S. Postal Service and establish a process that could lead to worker layoffs at the cash-strapped agency.
Republican lawmakers overrode the objections of their Democratic counterparts to approve the bill which would also phase out delivery to front-door mail slots as part of an overhaul of the service.
The Postal Service has seen mail volumes plummet in recent years as more customers send email and pay bills online.
The agency has said it needs to reduce payrolls by about 220,000 by 2015 and is studying thousands of post offices and about 300 processing facilities for possible closure. [ID:nS1E78E16D]
"The only way out of the U.S. Postal Service's current mess is to vastly restructure its operations, reducing the organization's workforce and labor costs and providing it the tools needed to compete," said subcommittee Chairman Dennis Ross.
Several lawmakers from both parties criticized the cost-focused bill proposed by Republican Darrell Issa, chairman of the powerful House Oversight Committee, saying it would limit the Postal Service's ability to serve its customers by allowing the agency to stop delivering mail on Saturdays.
The Postal Service has asked for that authority, saying weekend mail volumes are too low to justify Saturday delivery.
Representative Jason Chaffetz, a Republican, said reducing service could cause customers to send even less mail.
Analysts have said the move to five-day mail delivery could hurt e-commerce businesses who rely on the Postal Service to carry their products to consumers. [ID:nN1E7881QF]
Democrats tried to paint Issa's bill, which moves to the full Oversight Committee for consideration, as anti-union. They pointed to a provision that would form an independent group to cut costs -- including laying off workers and moving others to retirement -- if the Postal Service misses mandatory payments.
Republicans said the bill would help shrink the Postal Service to a sustainable size.
Officials announced last week plans to end next-day delivery of First Class mail in order to reduce overnight work.
Representatives Elijah Cummings and Stephen Lynch earlier on Wednesday announced a new bill to return to the Postal Service $6.9 billion it says it overpaid to a federal retirement fund, allow the agency to offer new products such as wine and beer, and give it more flexibility to raise rates.
Cummings said the bill, which closely follows an Obama administration plan released on Monday, would be more successful in the Democratic-controlled Senate.
The White House says its plan -- which differs from the Cummings bill in that it would cut Saturday mail -- would save about $20 billion in the next few years. (View the proposal here: r.reuters.com/wed83s)
Democrats and the White House also want to restructure a massive, Congress-mandated payment to prefund retiree health benefits that is due at the end of September each year. [ID:nS1E78B1I0]
Lawmakers voted down on Wednesday a continuing budget resolution that would have extended until mid-November the deadline for this year's $5.5 billion payment, which the Postal Service says it cannot afford. (Editing by Mohammad Zargham)