Introduce Minimum Out-of-Pocket Requirements Under TRICARE for Life

TRICARE for Life (TFL) was introduced in 2002 as a supplement to Medicare for military retirees and their family members who are eligible for Medicare. The program pays nearly all medical costs not covered by Medicare and requires few out-of-pocket fees. Because the Department of Defense (DoD) is a passive payer in the program—it neither manages care nor provides incentives for the cost-conscious use of services—it has virtually no means of controlling the program’s costs. In contrast, most public and private programs that pay for health care either manage the care or require people receiving care to pay deductibles or copayments up to a specified threshold. In 2012, DoD spent $8.7 billion for the care delivered through TFL by both military treatment facilities and civilian providers (in addition to the amount spent for those beneficiaries through Medicare).

This option would introduce minimum out-of-pocket requirements for TFL beneficiaries. For calendar year 2015, TFL would not cover any of the first $550 of an enrollee’s cost-sharing payments under Medicare and would cover only 50 percent of the next $4,950 in such payments. Because all further costs would be covered by TFL, enrollees would not be obligated to pay more than $3,025 in 2015. Those dollar limits would be indexed to growth in average Medicare costs (excluding Part D drug benefits) for later years. Currently, military treatment facilities charge very small or no copayments for hospital services provided to TFL beneficiaries. To reduce beneficiaries’ incentives to avoid out-of-pocket costs by switching to military facilities, this option would require TFL beneficiaries seeking care from those facilities to make payments that would be roughly comparable to the charges they would face at civilian facilities.

This option would reduce spending for Medicare as well as for TRICARE for Life because higher out-of-pocket costs would lead beneficiaries to use somewhat fewer medical services. Altogether, this option would reduce the federal spending devoted to TFL beneficiaries by $31 billion between 2015 and 2023, the Congressional Budget Office estimates. About one-third of those savings would come from reduced spending for medical services because of reduced demand for those services; the rest would represent a shift of spending from the federal government to military retirees and their families.

An advantage of this option is that greater cost sharing would increase TFL beneficiaries’ awareness of the cost of health care and promote a corresponding restraint in their use of medical services. Research has generally shown that introducing modest cost sharing can reduce medical expenditures without causing measurable increases in adverse health outcomes for most people.

A disadvantage would be that the change could discourage some patients (particularly low-income patients) from seeking preventive medical care or from managing their chronic conditions under close medical supervision, which might negatively affect their health.