Military Retirees' Health Care:

Costs and Other Implications of Options to Enhance Older Retirees' Benefits

HEHS-97-134: Published: Jun 20, 1997. Publicly Released: Jun 20, 1997.

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Pursuant to a congressional request, GAO provided information on various proposals that have been made to enhance older retirees' Department of Defense (DOD) health care benefits, including: (1) enrolling Medicare-eligible retirees in TRICARE Prime, TRICARE's health maintenance organization (HMO), and paying for their care with Medicare funds, referred to as Medicare subvention; (2) using DOD funds to pay retirees' Medicare part B premiums and to furnish Medigap policies; (3) providing the Civilian Health and Medical Program of the Uniformed Services as a Medicare supplement; (4) extending the Federal Employees Health Benefits Program to retirees as a Medicare supplement and using DOD funds to pay part of the premium; and (5) expanding DOD's current mail-order prescription program to Medicare-eligibles who do not live near military medical facilities.

GAO noted that: (1) its analyses indicate that the proposals vary in their potential costs, coverage, and other effects on DOD, eligible beneficiaries, and Medicare; (2) DOD lacks the cost and care use data needed to estimate its current spending level for Medicare-eligible retirees, the level that would be DOD's spending limit under the Medicare subvention proposal and that, once reached, would trigger the Health Care Financing Administration's (HCFA) payments to begin; (3) it is uncertain whether HCFA's subvention payment rates, which would be lower than those it pays to Medicare HMOs, would equal DOD's actual care costs; (4) relatively few retirees could be accommodated by subvention at military medical facilities because of facility capacity and financial constraints; (5) the three proposals to have DOD fund Medicare supplemental coverage would cover all older retirees, and estimated additional DOD costs would range from $1.6 billion to $2.2 billion per year, in 1996 dollars, after they were fully implemented; (6) costs would be likely to rise over time as health care costs rose and greater numbers of Medicare-eligible retirees became eligible for programs; (7) all three of these options could inadvertently create a disparity in retirees' health care benefits by, in effect, providing older retirees with more comprehensive benefits than younger retirees; (8) while these options would provide retirees with enhanced benefits, none would increase retirees' access to care in military medical facilities; (9) the mail-order pharmacy option would address a significant gap in older retirees' health coverage--Medicare's lack of outpatient prescription drug coverage; (10) this proposal is unlike the others, which involve many uncertainties or high potential costs; (11) under this proposal, for an estimated cost of $229 million per year, DOD could extend the current mail-order pharmacy program in base closure areas to Medicare-eligible retirees who live far from military facility pharmacies; (12) this option would reduce prescription expenses for retirees living far from military pharmacies who have limited or no prescription coverage; and (13) because the approach could be implemented fairly easily as an extension of the current program, it would offer some relief to beneficiaries without major system changes.

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