The Effects of Proposals to Increase Cost Sharing in TRICARE

June 5, 2009

The TRICARE program provides health care for members of the uninformed services, for military retirees, and for their familiesthe more than 9 million people eligible to use its integrated system of military health care facilities and providers and regional networks of contracted civilian providers. User fees for TRICARE beneficiaries have remained the same (or even been reduced) since the mid-1990s, when the current program was first set up. At the same time, taxpayers costs for the program have risen dramatically. The Department of Defense (DoD) has not requested any TRICARE fee increases for the upcoming fiscal year 2010. In light of previous proposals, however, a CBO report released today looks at the impact of possible cost-sharing changes in TRICARE on the federal budget.

In 2008, DoDs spending on health care was $42 billion, or about 6 percent of DoDs total funding; under current policy, CBO projects that the share of defense spending devoted to health care will rise sharply further in coming years. In its budget submissions for 2007, 2008, and 2009, DoD proposed that enrollment fees, deductibles, and copayments of some TRICARE beneficiaries (generally retirees between the ages of 38 and 65) be increased to encourage more-efficient use of the system and reduce medical spending.

In its analysis, CBO compared the proposed increase in fees for military retirees with the growth seen in several measures of nonmilitary health care spending. It found that the proposed enrollment fees accurately adjusted for trends in spending growth observed in the civilian sector since 1995. For example, if the Prime plans enrollment fee of $460 for family coverage had grown at the same pace as the average premium in civilian health plans, the amount today would be close to the new fees proposed in DoDs 2009 budget submission. Nevertheless, the level of DoDs proposed fees would still be below premiums commonly seen in civilian plans. The average annual health insurance premium for family coverage in a health maintenance organization in 2008, for example, was about $13,100, of which the average workers contribution was about $3,400. Under the proposal, most DoD retirees who were not yet eligible for Medicare would have paid $1,100 per year to enroll their family in TRICARE Prime in 2011.

CBO also determined, on the basis of currently available research, that DoD used reasonable assumptions about TRICARE beneficiaries responses to some of the changes in the 2009 proposal and that the actual reductions in spending could be larger than DoD has foreseen. CBO also found, however, that DoD did not include in its estimates the effects that increased cost sharing for TRICARE might have on other federal programssuch as Medicaid and the Federal Employees Health Benefits (FEHB) programand on revenues. Those effects would decrease, though to a relatively small degree, the reductions in spending that might be realized from increasing TRICARE beneficiaries costs.

This paper was written by Carla Tighe Murray of CBOs National Security Division. Carla has been at CBO for seven years and holds a Ph.D. from the University of Illinois (Urbana-Champaign). She enjoys yoga and gourmet cooking.