Budget Options
December 8, 2016

Discretionary Spending Health Option 15

Function 050 - National Defense

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

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Discretionary Spending                        
  Budget authority 0 * -1.4 -2.0 -2.1 -2.3 -2.4 -2.6 -2.8 -2.9 -5.4 -18.4
  Outlays 0 * -1.1 -1.9 -2.1 -2.2 -2.4 -2.5 -2.7 -2.9 -5.0 -17.8
Change in Mandatory Outlays 0 0 * * * -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.4
Change in Revenuesa 0 0 -0.1 -0.2 -0.2 -0.3 -0.3 -0.3 -0.3 -0.3 -0.6 -2.0
  Increase in the Deficit 0 0 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.4 1.6

Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.

This option would take effect in January 2019.

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

a. Estimates include the effects on Social Security payroll tax receipts, which are classified as off-budget.

More than 9 million people are eligible to receive health care through TRICARE, a program run by the military health care system. Among its beneficiaries are 1.4 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 15 years, more than doubling in real (inflation-adjusted) terms since 2001. In 2015, the Department of Defense (DoD) spent about $50 billion for health care, and over the next 15 years, the Congressional Budget Office projects, DoD’s health care costs will increase by 36 percent in real terms.

In 2015, about 25 percent of military health care spending was for working-age retirees (generally, beneficiaries who, although retired from military service, are under age 65 and thus not yet eligible for Medicare) and their family members: 3.2 million beneficiaries in all. Some 1.6 million people (or about 50 percent of that group) were enrolled in TRICARE Prime, which operates like a health maintenance organization. Subscribers pay an annual enrollment fee of $283 (for individual coverage) or $565 (for family coverage). Working-age retirees who do not enroll in TRICARE Prime may participate in TRICARE Extra (a preferred provider network) or Standard (a traditional fee-for-service plan) without enrolling or paying an enrollment fee. (A beneficiary who chooses an in-network provider for a given medical service is covered under Extra; if he or she chooses an out-of-network provider for a different medical service—even in the same year—that service is covered under TRICARE Standard.)

Starting in January 2019, and indexed thereafter to nationwide growth in per capita spending on health care, under this option TRICARE’s enrollment fees, deductibles, and copayments for working-age military retirees would increase as follows:

  • Beneficiaries with individual coverage could pay $650 annually to enroll in TRICARE Prime. The annual cost of family enrollment would be $1,300. (That family enrollment fee is about equivalent to what would result from increasing the $460 annual fee first instituted in 1995 by the nationwide growth in health care spending per capita since then.)
  • For the first time, retired beneficiaries in TRICARE Standard or Extra would have to enroll and pay $100 for individual or $200 for family coverage for a year.
  • The annual deductible for individual retirees (or surviving spouses) for TRICARE Standard or Extra would rise to $500; the family deductible would be $1,000 annually.
  • All copayments for medical treatments under TRICARE Prime would increase. For example, the copayment for a medical visit to a Prime provider in the civilian network would rise from the current $12 to $30 in 2019. Then, copayments would grow in line with the nationwide growth in health care spending per capita.

CBO estimates that, combined, those modifications would reduce discretionary outlays by $18 billion between 2018 and 2026, under the assumption that appropriations would be reduced accordingly. Under this option, CBO estimates, about 200,000 retirees and their family members would leave TRICARE Prime because of the higher out-of-pocket costs they would face. Many would switch to Standard or Extra, which are less costly to the government.

This option would have partially offsetting effects on mandatory spending. On the one hand, mandatory spending would increase when some retirees enrolled in other federal health care programs, such as Medicaid (for low-income retirees) or the Federal Employees Health Benefits program (FEHB, for those who complete a career in the federal civil service after military retirement). On the other hand, mandatory spending would decrease as a result of the new cost sharing for retirees of the Coast Guard, the uniformed corps of the National Oceanic and Atmospheric Administration, and the Public Health Service. (TRICARE’s costs for those three uniformed services are paid from mandatory appropriations; DoD’s costs are paid from annual discretionary appropriations.) Overall, in CBO’s estimation, mandatory spending would decline by $400 million between 2019 and 2026 under this option because spending for people in those three uniformed services would fall by a larger amount than spending for Medicaid and FEHB annuitants would rise.

CBO and the staff of the Joint Committee on Taxation estimate that under this option, federal tax revenues would decline by $2 billion between 2019 and 2026 because some retirees would enroll in employment-based plans in the private sector and therefore experience a shift in compensation from taxable wages to nontaxable fringe benefits.

One rationale for this option is that the federal government established TRICARE coverage and space-available care at military treatment facilities to supplement other health care for military retirees and their dependents as a safety net rather as a replacement for benefits offered by postservice civilian employers. The migration of retirees from civilian coverage into TRICARE is one factor in the rapid increase in TRICARE spending since 2000.

An argument against this option is that current retirees joined and remained in the military with the understanding that they would receive free or very low cost medical care in retirement. Imposing new cost sharing might have the effect of making health care coverage unaffordable for some military retirees and their dependents; it also could adversely affect military retention. Another potential disadvantage is that the health of users who remained in TRICARE might suffer if higher copayments led them to forgo seeking needed health care or timely treatment of illnesses. 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.