November 13, 2013

Discretionary SpendingOption 12

Function 050 - National Defense

Modify TRICARE Enrollment Fees and Cost Sharing for Working-Age Military Retirees

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
  Modify TRICARE Enrollment Fees, Deductibles, and Copayments
Change in Mandatory Outlays 0 * * * * * * * * * -0.1 -0.3
Change in Revenuesa 0 * -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.3 -0.4 -1.6
Change in Discretionary Spending                        
  Budget authority 0 -1.0 -1.5 -2.0 -2.2 -2.4 -2.6 -2.8 -3.0 -3.3 -6.8 -21.0
  Outlays 0 -0.8 -1.3 -1.9 -2.1 -2.3 -2.5 -2.7 -2.9 -3.1 -6.1 -19.7
 
  Make Retirees Ineligible for TRICARE Prime
Change in Mandatory Outlays 0 * * * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.5
Change in Revenuesa 0 -0.2 -0.6 -1.0 -1.2 -1.3 -1.4 -1.5 -1.6 -1.6 -3.0 -10.5
Change in Discretionary Spending                        
  Budget authority 0 -3.7 -5.7 -7.8 -8.3 -8.8 -9.4 -9.9 -10.6 -11.2 -25.5 -75.4
  Outlays 0 -3.0 -5.1 -7.1 -7.9 -8.4 -9.0 -9.6 -10.2 -10.8 -23.1 -71.0

Notes: This option would take effect in October 2014.

* = between -$50 million and $50 million.

a. Negative numbers denote a reduction in revenues.

Nearly 10 million people are eligible for military health care, including 1.5 million members of the active military and the other uniformed services (such as the Coast Guard), certain reservists, retired military personnel, and their qualified family members. The costs of that health care have been among the fastest-growing portions of the defense budget over the past decade, more than doubling in inflation-adjusted terms since 2001; the Department of Defense (DoD) spent about $50 billion in 2012 for health care. About 30 percent of that total was spent on working-age retirees (in general, those who are under age 65 and thus not yet eligible for Medicare) and their family members—a total of 3.5 million beneficiaries. Some 1.6 million (or about 45 percent of that group) were enrolled in TRICARE Prime, a plan that operates like a health maintenance organization. Its enrollees pay an annual fee of $274 (for single coverage) or $548 (for family coverage). Military retirees who do not enroll in TRICARE Prime may receive benefits under TRICARE Extra (a preferred provider network) or Standard (a traditional fee-for-service plan) without paying an enrollment fee. (When beneficiaries choose an in-network provider for a given medical service they are covered under the Extra plan; if they choose an out-of-network provider for a different medical service—even within the same year—they are covered under TRICARE Standard.)

The Congressional Budget Office projects that DoD’s health care costs will increase by 25 percent from 2013 to 2023 (after an adjustment for inflation). This option comprises two alternatives that would reduce future growth in military health care spending by requiring working-age retirees and their families to pay more for TRICARE.

The first alternative would raise the enrollment fees, deductibles, and copayments for working-age military retirees who want to use TRICARE, as follows:

  • Beginning in 2015, beneficiaries with single coverage could enroll in TRICARE Prime by paying a $550 annual fee.
  • For families, the enrollment fee would be $1,100 per year, which is approximately equivalent to the $460 fee first instituted in 1995 (after adjusting for the nationwide growth in health care spending per capita).
  • The copayments for medical treatments under TRICARE Prime would increase.
  • Single retirees (or surviving spouses) who used TRICARE Standard or Extra would have an annual deductible of $350; the annual deductible for families would be $700.
  • In addition—and for the first time—users of TRICARE Standard or Extra would be required to enroll and pay an annual fee of $50 (for single coverage) or $100 (for family coverage).
  • All of those new or increased fees, deductibles, and copayments would be indexed in the future to reflect the nationwide growth in per capita spending for health care.

The second alternative would make working-age military retirees and their families ineligible for TRICARE Prime, which is the most costly of the three programs for DoD. Those people could instead enroll in TRICARE Standard or Extra during the annual open-enrollment period or when a life event occurred (for example, a change in marital status). Enrollees in Standard or Extra would pay a monthly premium that would be set at 28 percent of the average cost of providing benefits for that group. In addition, the catastrophic cap (maximum out-of-pocket expenses) for military retirees and their dependents would be raised from the current $3,000 per family to $7,500 per family, the amount at which it was set before January 2002. That catastrophic cap would be indexed in the future to reflect the nationwide growth in per capita spending for health care.

CBO estimates that if TRICARE’s fees, deductibles, and copayments were modified according to the first alternative, discretionary outlays would be reduced by $20 billion between 2015 and 2023, under the assumption that appropriations would be reduced accordingly. Under the second alternative, discretionary outlays would be reduced by $71 billion from 2015 to 2023. The budgetary impact of the second alternative would be substantially larger because it would affect more TRICARE Prime users. Under the first alternative, higher out-of-pocket costs would cause about 200,000 retirees and their family members to leave Prime, CBO estimates, many of them switching to other TRICARE plans that are less costly to the government. But under the second alternative, all 1.6 million retirees and their family members who are currently using Prime would be disenrolled from that program.

Both alternatives would also affect mandatory spending. Certain mandatory spending would increase because some retirees would rely more heavily on other federal health care programs, such as Medicaid (for those with low income) or the Federal Employees Health Benefits program (FEHB, for those who complete a career in the federal civil service after their military retirement). However, mandatory spending on retirees’ health care costs would decrease for the Coast Guard, the uniformed corps of the National Oceanic and Atmospheric Administration, and the Public Health Service. (Health care costs for retired members of those three branches of the uniformed services are paid from mandatory appropriations. By contrast, DoD pays for the health care of its retirees out of its annual discretionary appropriations.) Overall, in CBO’s estimation, mandatory spending would decline by $300 million between 2015 and 2023 under the first alternative (because spending for people in those three uniformed services would decrease by more than spending on Medicaid and FEHB retirees would rise) but increase by $500 million under the second alternative (because spending on Medicaid and FEHB retirees would increase by more than spending for the three uniformed services would fall).

CBO and the staff of the Joint Committee on Taxation estimate that, under the first alternative, federal tax revenues would drop by $2 billion between 2015 and 2023, because some military retirees would sign up for employment-based health care plans in the private sector and therefore experience a shift in compensation from taxable wages to nontaxable fringe benefits. Under the second alternative, because more retirees would be affected by this change, federal tax revenues would decrease by $11 billion over the same period.

One rationale for this option is that TRICARE coverage and space-available care at military treatment facilities were originally set up to supplement other health care for military retirees and their dependents (to ensure they had a safety net), not to replace benefits offered by postservice civilian employers. The migration of retirees from civilian coverage to TRICARE is one factor behind the rapid increase in TRICARE spending since 2000. This option would begin to curtail the growth in DoD’s health care costs, freeing up resources for other defense priorities, such as purchasing and maintaining weapon systems and other equipment.

An argument against changing access to TRICARE coverage for military retirees and their dependents is that those retirees initially joined the military and remained for their entire careers with the understanding that they would receive medical care for free or at a very low cost after retiring. Significantly limiting TRICARE coverage for military retirees and their dependents would impose a financial cost on many of those beneficiaries and could adversely affect military retention. Another potential disadvantage of this option is that the health of users who remained in TRICARE might suffer if they did not seek health care or treat their illnesses in a timely manner because of higher copayments. However, their health might not be affected significantly if the higher copayments fostered more disciplined use of medical resources and primarily discouraged the use of low-value health care.