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Option 95 chart TriCare - Active duty family members

The Department of Defense (DoD) provides health care benefits to family members of active-duty personnel through a collection of health plans known as TRICARE. There are currently three TRICARE plans from which such beneficiaries may choose—Prime, Standard, or Extra—and those beneficiaries pay no premiums or enrollment fees for their coverage. TRICARE Prime is operated much like a civilian health maintenance organization (HMO), with a military or civilian primary care manager providing referrals to network providers. Family members of active-duty personnel enrolled in TRICARE Prime generally face no copayments at the point of service, whether they receive care from a military or civilian provider.1 (1. One exception is for pharmaceuticals. Beneficiaries who have prescriptions filled at retail pharmacies or through mail order face copayments of $3, $9, and $22, respectively, for generic, brandname formulary, and brand-name nonformulary medications. Prescriptions filled at out-of-network retail pharmacies are reimbursed at 50 percent of the cost. Prescriptions filled at military treatment facilities are free. ) In part because of the low out-of-pocket costs, those beneficiaries have rates of utilization of services that are substantially higher than those of a comparison group in a civilian HMO.2 (2. DoD estimates that among TRICARE Prime enrollees, inpatient utilization is 58 percent higher and outpatient utilization is 39 percent higher than a civilian HMO comparison group. These results were adjusted to reflect differences in age and sex among the populations being compared. See Department of Defense, Evaluation of the TRICARE Program: FY2008 Report to Congress (February 29, 2008).) Family members who choose not to enroll in Prime are covered by TRICARE Standard (the program’s fee-for-service plan) or Extra (the program’s preferred provider plan). Beneficiaries in those two plans have a greater choice of providers but face deductibles and coinsurance rates that vary depending on the type of service and whether the provider participates in a TRICARE network.

Under this option, DoD would provide active-duty personnel who have dependents with a special $500 cash allowance for health expenses while at the same time increasing out-of-pocket costs for care received through TRICARE Prime. The allowance would be nontaxable (like the current housing allowance) and could be used in one of two ways.

Under the first alternative, family members could use the allowance to help offset the out-of-pocket costs of any of the current TRICARE plans (Prime, Standard, or Extra). However, cost sharing under TRICARE Prime would be altered to incorporate copayments that would cover, on average, about 10 percent of the cost of health care services obtained either at military facilities or from civilian providers. Each TRICARE plan would include an annual cap on out-of-pocket expenditures to control the financial consequences of catastrophic illness. Under the second alternative, military family members could show proof of insurance and apply the $500 allowance toward their share of the premiums, copayments, and deductibles of another health insurance plan.

Currently, military treatment facilities (MTFs) do not charge eligible individuals copayments for medical services or pharmaceuticals. In order to reduce beneficiaries’ incentive to switch to MTFs and avoid the minimum out-of-pocket requirements, DoD would need to establish procedures for collecting payments from TRICARE beneficiaries seeking care from MTFs. If implemented, this option would save about $3 billion in discretionary outlays over the next five years and roughly $7 billion from 2010 to 2019. That estimate incorporates the cost of the cash allowances and accounts for the decreased demand for medical care among enrollees that would result under the new plan. (The higher out-of-pocket expenses would be expected to encourage restraint in health care purchases.) The estimate also accounts for the increased cost of the benefit for a small number of eligible family members of active-duty personnel who do not use TRICARE but instead rely on an employment-based health plan. Those beneficiaries currently cost the system nothing but would still receive the cash allowance.

This option would also result in a small increase in mandatory outlays resulting from some military dependents’ increased use of Medicaid services. In addition, federal tax revenues would decrease somewhat as more dependents of active-duty service members enrolled in private insurance plans, which would yield a shift in compensation from taxable wages to nontaxable fringe benefits. The degree of those two effects would depend on the specifics of any enacting legislation.

This option would offer several advantages. First, enrollees in TRICARE Prime would have a stronger incentive to use medical services prudently because they would be responsible for a share of the cost. Second, the ability to use the allowance to pay the premiums of another health insurance plan would induce some spouses to enroll in their employer’s plan rather than in TRICARE. That feature of the option would mean that some health care costs would be shifted to the civilian employers of military spouses, thus reducing DoD’s spending. Finally, because family members would commit annually to enrolling in a health insurance plan, total utilization of services would be easier to predict than it is under the current system, which allows users to join or leave at any time. Thus, this option would improve resource planning within the military health care system and allow DoD to negotiate firmer contracts for pharmaceuticals and civilian medical services. That advantage would exist even if most beneficiaries chose to remain in one of the three traditional TRICARE plans.

This option would also have potential disadvantages. Enrollees in TRICARE Prime would assume additional risks and might face financial difficulties, despite the plan’s cap on families’ annual out-of-pocket expenditures. Moreover, families that obtained health insurance through a spouse’s employer might have their coverage disrupted if the active-duty service member relocated to a new post. DoD would have to develop methods to prorate cash allowances and deductibles for beneficiaries who were forced to change from a private health care plan to TRICARE coverage (or vice versa) midyear.

RELATED CBO PUBLICATIONS

: Evaluating Military Compensation, June 2007; Consumer-Directed Health Plans: Potential Effects on Health Care Spending and Outcomes, December 2006; Military Compensation: Balancing Cash and Noncash Benefits, Issue Brief, January 16, 2004; and Growth in Medical Spending by the Department of Defense, September 2003