Financial Management: Department of Defense Regulations Establishing Methods to Calculate Amounts To Be Transferred from Department of Defense Medicare Eligible Retiree Health Care Fund

GAO reviewed regulations issued by the Department of Defense (DOD) to cover transfers from a new fund created by Congress to finance the cost of expanded health care programs' benefits for Medicare-eligible uniformed services retirees and their eligible dependents. These health care programs include pharmacy benefits and coverage of the deductible portion of Medicare benefits. The Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 established the Department of Defense Medicare Eligible Retiree Health Care Fund in the U.S. Treasury. Beginning on October 1, 2002, the fund will finance DOD's liabilities under the uniformed services retiree health programs for Medicare-eligible beneficiaries. The legislation requires that (1) the Secretary of Defense establish by regulation the methods for calculating amounts to be transferred periodically from the fund to applicable appropriations that incur the programs' cost and (2) the Comptroller General report to the Secretary of Defense and to Congress on the adequacy and appropriateness of these regulations within 30 days of receiving them from the Secretary. GAO found that regulations establishing the methods for calculating transfers from the fund to finance eligible health care costs were issued in July 2002, in sufficient time to begin making transfers upon activation of the fund on October 1, 2002. DOD regulations for establishing the methods for calculating transfers from the fund are adequate and appropriate, and they provide a framework for the transfers to be implemented upon activation of the fund. Under these regulations, there are to be daily transfers from the fund to cover amounts disbursed to non-DOD providers, such as civilian health care providers and retail pharmacies, based on claims transactions. The regulations also provide the methodology for calculating transfers to cover the cost of military treatment facilities care to the intended beneficiaries. However, the reliability of the underlying cost and patient clinical data could limit DOD's ability to reliably assign costs and bill DOD for services to DOD Medicare-eligible retirees and their eligible dependents.