Defense Health Care: Limits to Older Retirees' Access to Care and Proposals for Change

Published by the Government Accountability Office on 1997-02-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              United States General Accounting Office

GAO                           Testimony
                              Before the Subcommittee on Military Personnel,
                              Committee on National Security, House of Representatives

For Release on Delivery
Expected at 1:00 p.m.
Thursday, February 27, 1997
                              DEFENSE HEALTH CARE

                              Limits to Older Retirees’
                              Access to Care and
                              Proposals for Change
                              Statement of Stephen P. Backhus, Director
                              Veterans’ Affairs and Military Health Care Issues
                              Health, Education, and Human Services Division

Defense Health Care: Limits to Older
Retirees’ Access to Care and Proposals for
               Mr. Chairman and Members of the Subcommittee:

               Thank you for the opportunity to be here today to discuss health care
               options for retired military members and their families. Health care
               options for these individuals involve complex issues, and proposed
               alternatives may have wide-ranging effects on Department of Defense
               (DOD) beneficiaries and federal health programs.

               Today’s DOD health care system provides coverage for about 8.3 million
               members, of which over half are retirees and their dependents and
               survivors.1 Under the terms of the 1956 Dependents’ Medical Care Act, DOD
               has authority to provide retirees of any age health care in its medical
               facilities as long as space and resources are available. This is referred to as
               space-available care. The statute does not entitle retirees to care in
               military facilities.

               When space and resources are available in military facilities, retirees may
               receive care at little or no cost. When resources are not available, retirees
               under age 65 may seek care from private health care providers and DOD
               will pay most of the cost through the Civilian Health and Medical Program
               of the Uniformed Services (CHAMPUS). CHAMPUS was established in part so
               that military members, once retired, could have health care coverage until
               eligible at age 65 for Medicare. At age 65, retirees’ only source of DOD-
               funded care is military facility space-available care.

               Major changes in DOD’s health care system, including the introducing of a
               managed care program called TRICARE and the closing or downsizing of
               many medical facilities, have caused older military retirees, those aged 65
               and older, to fear that these changes will eventually end their access to
               space-available care. As a result, alternatives have been proposed for
               improving older retirees’ access to DOD-funded or directly provided care.

               At the Subcommittee’s request, we have been reviewing retirees’ concerns
               and the major proposals for addressing them. We have talked with
               beneficiary associations, DOD headquarters officials, and military medical
               facility managers and health care providers nationwide to gain perspective
               on the effects of system changes on retirees. Our work is still under way.
               As this Subcommittee and others begin to weigh the costs and other
               trade-offs associated with how best to help military retirees, we welcome
               the opportunity to share our preliminary observations on the proposed

                For the remainder of this statement, the term “retirees” refers to retirees and their dependents and

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                       Defense Health Care: Limits to Older
                       Retirees’ Access to Care and Proposals for

                       alternatives and their likely effects on beneficiaries and the government.
                       Later this spring, we plan to issue a final report addressing these matters
                       in more detail.

                       Specifically, you asked that we discuss two areas:

                   •   older retirees’ options for accessing health care and the related effects of
                       DOD’s recent health care system changes on their access to care and
                   •   proposed alternatives for addressing retirees’ concerns and their potential
                       effects on beneficiary and government costs.

                       In summary, our work has shown that recent system downsizing has
Results in Brief       reduced all care, including space-available care—the only care retirees
                       may access at military facilities. In the last 10 years, the number of military
                       medical personnel has declined by 15 percent and one-third of military
                       hospitals have been closed, reflecting the one-third reduction in active-
                       duty forces. While further readiness-related downsizing decisions are
                       pending, some predict more system reductions. Meanwhile, TRICARE,
                       which does not allow older retirees to enroll in its Prime health care
                       option (its new health maintenance organization (HMO) option), is moving
                       to maximize Prime enrollment at all the facilities. As this takes place, older
                       retirees’ space-available care will further decline at most facilities and
                       eventually end at some. Space-available care at military health facilities,
                       moreover, is episodic and lacks the continuity so important to older
                       retirees who have more frequent, and often chronic, medical problems
                       than younger retirees. And, although retirees may also access care through
                       such government-sponsored programs as Medicare and private
                       supplementary health insurance, many retirees experience coverage gaps
                       and high out-of-pocket costs.

                       DOD  and members of the Congress have proposed alternatives to address
                       the availability, cost, and coverage issues affecting retirees’ access to care.
                       These proposals have potentially large price tags or fall short in helping
                       those most affected by base closures and TRICARE’s implementation. For
                       example, Medicare subvention, which is based upon DOD’s receiving
                       Medicare reimbursement for treating retirees as Prime enrollees at
                       military medical facilities, would be greatly limited by the number of
                       beneficiaries able to participate and susceptible to further downsizing

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                      Defense Health Care: Limits to Older
                      Retirees’ Access to Care and Proposals for

                      Allowing retirees to join the Federal Employees Health Benefits Program
                      (FEHBP), on the other hand, or using CHAMPUS as a second payer to
                      Medicare, would provide retirees with more dependable, consistent access
                      to care. Costs, however, would be considerable, in part because retirees
                      whose care is now funded by other sources would most likely join the new
                      program. To mitigate these costs, DOD would probably need to explore
                      measures such as alternative beneficiary cost sharing.

                      In addition, although not yet fully developed, DOD’s pharmacy proposal
                      would provide retirees a single benefit not covered by basic Medicare and
                      could fill the gap in coverage until system restructuring decisions are
                      made and the related consequences known. DOD has not yet decided,
                      however, on benefit eligibility, delivery, or funding details for this
                      proposal; thus, it is too early to judge the cost implications.

                      In the early 1950s, the military health care system was sized for a large
DOD System Changes    active-duty force. Military retirees and their families made up only
Have Reduced          8 percent of the eligible military health care population; health care in
Retirees’ Access to   military facilities was almost assured for them.

Facility Care         The military health system has changed significantly, however. Beginning
                      in the 1980s, active-duty forces have been downsized by more than one-
                      third, with attendant reductions in medical staff and facilities. Since then,
                      the number of military doctors, nurses, and medical technicians has
                      declined by 15 percent; in the past 10 years, one-third of all military
                      hospitals have been closed. In addition, while the total population eligible
                      for care declined by about 10 percent, the number of retirees grew.
                      Between 1987 and 1997, the number of older retirees increased by about
                      75 percent, to 1.2 million; and they are projected to outnumber active-duty
                      personnel in the future. These changes have significantly reduced the
                      availability of care for retirees in DOD facilities.

                      Moreover, recent DOD studies suggest that the military health care system
                      is larger than needed to meet future wartime requirements. If this is true,
                      then medical staff and facilities could be further reduced, with possible
                      reductions in retirees’ space-available care at military facilities. DOD is now
                      evaluating its medical requirements but has made no final decisions.

                      TRICARE may further reduce older retirees’ access to care at military
                      medical facilities. Before TRICARE, all retirees, regardless of age, had the
                      same priority for care in military medical facilities. Under TRICARE, those

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Defense Health Care: Limits to Older
Retirees’ Access to Care and Proposals for

who get priority for access are those enrolled in TRICARE Prime. As a
result, older retirees, who are currently not eligible to enroll in TRICARE
Prime, receive the lowest priority for access and can only access space-
available care at the facilities.

As of January 1997, most facilities where TRICARE is in place reported
having space available for older retirees but that retirees could not be
assured of obtaining such care whenever they sought it. According to
medical facility officials, many retirees may not make advance
appointments for routine or follow-up care or even get urgent care and
must persistently call each day hoping for an appointment. As a result,
care is episodic and lacks the regularity and continuity that is important to
older retirees, who have more frequent and chronic medical problems than
younger ones. Looking ahead, as TRICARE Prime enrollment increases,
older retirees’ space-available care will further decline at many facilities
and eventually end at others. If this trend continues, affected retirees will
need to depend more on non-DOD sources for their health care in the

Older military retirees may now also access other government-sponsored
and private health insurance. Virtually all receive Medicare part A
insurance, for example, which covers their inpatient hospital, skilled
nursing, and home health care needs. By paying an extra monthly
premium, they may also receive Medicare part B coverage for physicians
and other outpatient services. Recent DOD beneficiary surveys have
indicated that 90 percent of older retirees have Medicare part B coverage,
and about half have private insurance.2 Furthermore, in recent years, 31
states have introduced Medicare HMOs, providing some retirees another
care option. Finally, military retirees—though not their dependents—are
eligible for certain types of care through Department of Veterans Affairs

Unlike other federal retirees and retirees of many private employers who
are provided insurance supplementing Medicare, however, older military
retirees can experience coverage gaps, high costs, and an otherwise
patchwork system that they must learn to navigate to receive their care.
Medicare, for example, does not cover outpatient prescription drugs nor
does it have a catastrophic limit on patients’ out-of-pocket costs. In
addition, because Medicare has deductibles and copayment requirements,
about a third of older military retirees have purchased supplemental

 In the general elderly population, 95 percent have Medicare part B and 75 percent have private health

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                       Defense Health Care: Limits to Older
                       Retirees’ Access to Care and Proposals for

                       Medigap policies from private insurers. Such plans’ annual premiums
                       range from about $400 to more than $2,100, and the coverage under the 10
                       standard policies varies widely. Only the most expensive plans cover
                       outpatient prescriptions and none pay for dental or vision care. Although
                       older military retirees with private or other government employer-
                       sponsored insurance may have more generous coverage than those
                       without such coverage, their costs could still be relatively high depending
                       upon the extent to which such employers share the costs.

                       The conditions discussed have spurred several alternatives for addressing
Alternatives for       the availability of, cost of, and coverage for health care that now, and
Improving Retirees’    perhaps even more so in the future, confront older military retirees. We
Access Could Have      have been examining five alternatives for addressing the health care
                       concerns of military retirees aged 65 and older: (1) Medicare subvention,
Significant Cost and   (2) FEHBP enrollment, (3) CHAMPUS as a second payer, (4) Medigap policies,
Other Implications     and (5) a mail order pharmacy benefit. All of these proposals would
                       require some congressional action.

                       Through Medicare subvention, Medicare-eligible retirees could enroll in
                       TRICARE Prime. DOD would receive reimbursement for Medicare-covered
                       services from the Health Care Financing Administration (HCFA) to the
                       extent that older retirees’ care exceeds levels that DOD currently provides.
                       For those who enroll, DOD would directly provide or arrange for their full
                       care. Enrollees would have improved access to care in DOD facilities. Thus,
                       enrolled retirees would enjoy the continuity of care many now lack and
                       reduced out-of-pocket costs. The government might also benefit to the
                       extent that DOD facility care is provided less expensively than care
                       provided under Medicare.

                       The number of older retirees likely to benefit from subvention appears
                       proportionately small, however, because available resource capacity in
                       military facilities continues to decline. DOD estimates that less than half of
                       the older retirees now using the military medical facilities in areas where
                       subvention will be tested would be able to enroll in TRICARE Prime.
                       Under a nationwide implementation, DOD expects to be able to enroll in its
                       facilities a similar proportion of the 300,000 older retirees now using its
                       facilities. Furthermore, subvention would not be available to the many
                       retirees who do not live near military facilities such as those affected by
                       base closures. And, to expand subvention beyond the limits of its facilities,
                       DOD would have to buy care from civilian providers, through its TRICARE
                       contractors or, as HCFA does, on a fee-for-service basis or through HMOs.

                       Page 5                                                       GAO/T-HEHS-97-84
Defense Health Care: Limits to Older
Retirees’ Access to Care and Proposals for

There is most likely no cost advantage to the government of DOD’s
contracting out for this care rather than HCFA’s contracting out for it.

In addition, Medicare subvention would add administrative complexity to
DOD’s system. DOD has just begun implementing cost-accounting and
information systems needed to track enrollees’ care, reconcile Medicare
reimbursements, and accurately calculate spending and service levels. In
that regard, DOD’s current plans to test the program without HCFA
reimbursement seem prudent for the Department to effectively develop
the needed support systems.

Other alternatives—such as providing retirees with FEHBP, CHAMPUS, or
Medigap policies—would, in effect, supplement retirees’ current Medicare
coverage. With FEHBP, older retirees could choose from a wide array of
health insurance plans, including HMOs, sharing the premium costs with the
government. Offering FEHBP, moreover, would provide military retirees the
same coverage provided to other federal retirees and help those affected
by facility closures, distance from facilities, or reduced facility capacity
and those with limited insurance coverage from other sources. The
proposal’s potential cost, however, appears to be significant. DOD and the
Congressional Budget Office have estimated that additional annual costs
could exceed $1 billion, assuming that military retirees’ cost sharing equals
that of other federal retirees. This option would also impose new
administrative responsibilities and related costs on DOD and the Office of
Personnel Management, such as managing enrollments, withholding
premiums from annuities, and preparing and distributing plan materials.

Like the FEHBP proposal, providing CHAMPUS coverage to retirees when they
reach age 65 would help those with limited access to military medical
facilities or limited insurance coverage. In addition, older retirees could
continue coverage under a plan with which they are familiar and pay no
premiums. For these retirees, the program would operate as a secondary
payer and cover most expenses that Medicare does not now pay, including
prescription drug costs. Beneficiaries and providers alike, however, have
expressed dissatisfaction with such aspects of the CHAMPUS program as the
copayment amounts beneficiaries must pay and the amounts providers are
reimbursed. Furthermore, the proposal’s annual cost is estimated at
approximately $2 billion.

Many of the benefits older retirees would enjoy under FEHBP and CHAMPUS
could also be realized if DOD paid for their Medicare part B premium,
Medigap plans, or both. The cost implications would also be similar,

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               Defense Health Care: Limits to Older
               Retirees’ Access to Care and Proposals for

               roughly $630 million for Medicare part B and up to $2 billion for Medigap
               plans annually.

               One alternative that would perhaps fill a significant health care gap for
               many older retirees is an expanded pharmacy benefit. DOD is considering a
               mail order program modeled after its current program in base closure
               areas. The proposed program also would reduce retirees’ prescription
               expenses for those with limited or no prescription coverage and those who
               live too far from a military facility pharmacy. The costs of such a program
               would depend on the amount of retiree cost sharing required, whether
               retirees can continue to use military pharmacies, whether retirees have
               other prescription coverage, and the prices the government can obtain
               from drug suppliers. DOD’s preliminary estimates of its additional cost
               range from $142 million to $360 million. The lower number assumes that
               only retirees living outside facility catchment areas (generally 40 miles)
               would be eligible for the mail order benefit. The higher estimate assumes
               all older retirees would be eligible.

               DOD’s responsibilities to a growing retiree population given the availability,
Observations   cost, and coverage issues discussed today present a problem for the
               Department. On the one hand, like all responsible employers, DOD seeks to
               provide the best health care it can for its former employees, particularly
               during their later years when so many need it most. And DOD has
               acknowledged an obligation to its retirees, who served their country—
               many in harm’s way—during their most productive years. On the other
               hand, however, the military’s readiness needs determine the size of its
               health care system. While readiness decisions are now pending, some
               predict further system downsizing, leading to even less space-available
               care at military facilities.

               Within this context, the Medicare subvention proposal for treating retirees
               at military facilities appears particularly unlikely to help many retirees.
               The FEHBP and CHAMPUS as a second payer proposals have potentially large
               price tags. While DOD health care system restructuring decisions are being
               made, however, the pharmacy proposal might fill an important benefit gap
               for retirees with limited or no pharmacy coverage.

               Mr. Chairman, this concludes my prepared statement. My colleagues and I
               will be happy to respond to any questions you or other members of the
               Subcommittee may have.

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               Defense Health Care: Limits to Older
               Retirees’ Access to Care and Proposals for

               For more information on this testimony, please call Daniel Brier, Assistant
Contributors   Director, at (202) 512-6803. Other major contributors include Catherine
               O’Hara, Nancy Toolan, Sandra Davis, James Espinoza, Elsie Picyk, and
               Timothy Carr.

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