Military Retiree Health Benefits: Enrollment Low in Federal	 
Employee Health Plans under DOD Demonstration (06-JUN-03,	 
GAO-03-547).							 
                                                                 
Prior to 2001, military retirees who turned age 65 and became	 
eligible for Medicare lost most of their Department of Defense	 
(DOD) health benefits. The DOD-Federal Employees Health Benefits 
Program (FEHBP) demonstration was one of several demonstrations  
established to examine alternatives for addressing retirees' lack
of Medicare supplemental coverage. The demonstration was mandated
by the Strom Thurmond National Defense Authorization Act for	 
Fiscal Year 1999 (NDAA 1999), which also required GAO to evaluate
the demonstration. GAO assessed enrollment in the demonstration  
and the premiums set by demonstration plans. To do this, GAO, in 
collaboration with the Office of Personnel Management (OPM) and  
DOD, conducted a survey of enrollees and eligible nonenrollees.  
GAO also examined DOD enrollment data, Medicare and OPM claims	 
data, and OPM premiums data.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-547 					        
    ACCNO:   A07073						        
  TITLE:     Military Retiree Health Benefits: Enrollment Low in      
Federal Employee Health Plans under DOD Demonstration		 
     DATE:   06/06/2003 
  SUBJECT:   Health insurance					 
	     Retired military personnel 			 
	     Retirement benefits				 
	     Health care programs				 
	     Federal Employees Health Benefits			 
	     Program						 
                                                                 
	     Medicare Program					 

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GAO-03-547

Report to Congressional Committees

United States General Accounting Office

GAO

June 2003 MILITARY RETIREE HEALTH BENEFITS

Enrollment Low in Federal Employee Health Plans under DOD Demonstration

GAO- 03- 547

Enrollment in the DOD- FEHBP demonstration was low, peaking at 5.5 percent
of eligible beneficiaries in 2001 (7,521 enrollees) and then falling to
3.2 percent in 2002, after the introduction of comprehensive health
coverage for all Medicare- eligible military retirees. Enrollment was
considerably greater in Puerto Rico, where it reached 30 percent in 2002.
Most retirees

who knew about the demonstration and did not enroll said they were
satisfied with their current coverage, which had better benefits and lower
costs than the coverage they could obtain from FEHBP. Some of these
retirees cited, for example, not being able to continue getting
prescriptions filled at military treatment facilities if they enrolled in
the demonstration. For those who enrolled, the factors that encouraged
them to do so included the view that FEHBP offered retirees better
benefits, particularly prescription drugs, than were available from their
current coverage, as well as the lack of any existing coverage.

Monthly premiums charged to enrollees for individual policies in the
demonstration varied widely* from $65 to $208 in 2000* with those plans
that had lower premiums and were better known to eligible beneficiaries,
capturing the most enrollees. In setting premiums initially, plans had
little information about the health and probable cost of care for eligible
beneficiaries. Demonstration enrollees proved to have lower average health
care costs than either their counterparts in the civilian FEHBP or those
eligible for the demonstration who did not enroll. Plans enrolled similar
proportions of beneficiaries in poor health, regardless of whether they

charged higher, lower, or the same premiums for the demonstration as for
the civilian FEHBP.

In commenting on a draft of the report, DOD concurred with the overall
findings but disagreed with the description of the demonstration*s impact
on DOD*s budget as small. As noted in the draft report, DOD*s costs for
the demonstration relative to its total health care budget were less than
0.1 percent of that budget. OPM declined to comment. DOD- FEHBP
Demonstration Enrollment, 2000- 2002

Note: Enrollment is expressed as a percentage of eligible beneficiaries.

Prior to 2001, military retirees who turned age 65 and became eligible for
Medicare lost most of their

Department of Defense (DOD) health benefits. The DOD- Federal Employees
Health Benefits Program (FEHBP) demonstration was one of several
demonstrations established to examine alternatives for addressing
retirees* lack of Medicare supplemental coverage. The demonstration was
mandated by the Strom Thurmond National Defense Authorization Act for
Fiscal Year 1999 (NDAA 1999), which also required GAO to evaluate the
demonstration. GAO

assessed enrollment in the demonstration and the premiums set by
demonstration plans. To do this, GAO, in collaboration with the

Office of Personnel Management (OPM) and DOD, conducted a survey of
enrollees and eligible nonenrollees. GAO also examined DOD enrollment
data, Medicare and OPM claims data, and OPM premiums data.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 547. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Marjorie E. Kanof (202) 512- 7101. Highlights of GAO-
03- 547, a report to

Congressional Committees

June 2003

MILITARY RETIREE HEALTH BENEFITS

Enrollment Low in Federal Employee Health Plans under DOD Demonstration

Page i GAO- 03- 547 Military Retiree Health Benefits Letter 1 Results in
Brief 3 Background 5 Enrollment Was Low, Largely Due to Beneficiaries*
Satisfaction

with Existing Coverage 13 Premiums Varied Widely, Reflecting Plans*
Different Assessments of Demonstration Risk 20 Impact of Demonstration on
DOD Was Limited Due to Small Size and Low Enrollment, but Impact on
Enrollees Was Greater 26 Agency Comments 27 Appendix I GAO- DOD- OPM
Survey of Military Retirees and

Others Eligible for the DOD- FEHBP Demonstration 30

Appendix II Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment 35

Appendix III Enrollment in the DOD- FEHBP Demonstration 43

Appendix IV DOD*s Approach to Informing Beneficiaries about the DOD- FEHBP
Demonstration 45

Appendix V Enrollees* and Nonenrollees* Reasons for Joining or Not Joining
a DOD- FEHBP Demonstration Plan 50

Appendix VI Comments from the Department of Defense 52 Contents

Page ii GAO- 03- 547 Military Retiree Health Benefits Appendix VII GAO
Contacts and Staff Acknowledgments 53

GAO Contacts 53 Acknowledgments 53 Related GAO Products 54

Tables

Table 1: Number of Eligible Beneficiaries by DOD- FEHBP Demonstration
Site, 2000- 2002 11 Table 2: Monthly Premiums Charged to Enrollees for
Individual

Policies in the DOD- FEHBP Demonstration, 2000 21 Table 3: Average
Spending on Medicare- covered Services for Retirees Eligible for the DOD-
FEHBP Demonstration* by Enrollment Status, 2000 25 Table 4: Major Survey
Sections and Topics Covered 31 Table 5: Survey Responses and Nonresponses
33 Table 6: Population, Sample Size, and Response Rate, by DOD-

FEHBP Demonstration Site and Enrollee Status, 2000 34 Table 7: Estimated
Effects of Selected Factors on Whether Eligible Retirees Knew about the
DOD- FEHBP Demonstration 37 Table 8: Estimated Effects of Selected Factors
on Whether Eligible Retirees Enrolled in an FEHBP Plan 39 Table 9: Health
Status Comparisons of DOD- FEHBP

Demonstration Enrollees with Eligible Retirees Who Did Not Enroll and with
Civilian FEHBP Retirees, Based on PIP- DCG Scores 42 Table 10: Enrollment
in the DOD- FEHBP Demonstration, 2000 43 Table 11: Enrollment in the DOD-
FEHBP Demonstration, 2001 43 Table 12: Enrollment in the DOD- FEHBP
Demonstration, 2002 44 Table 13: Beneficiaries Who Recalled Receiving DOD-
FEHBP

Demonstration Mailings and Who Found Them Useful 46 Table 14:
Beneficiaries* Sources of Information about the DOD- FEHBP Demonstration
48 Table 15: Sources of Information for Eligible Beneficiaries about
Specific FEHBP Plans 49 Table 16: Survey Responses by Enrollees to the
Question *Why Did You Join a DOD- FEHBP Health Plan?* 50 Table 17: Survey
Responses by Nonenrollees to the Question *Why Didn*t You Join a DOD-
FEHBP Health Plan?* 51

Page iii GAO- 03- 547 Military Retiree Health Benefits Figures

Figure 1: DOD- FEHBP Demonstration- wide Enrollment, 2000- 2002 14 Figure
2: DOD- FEHBP Demonstration Enrollment on the Mainland and in Puerto Rico,
2000- 2002 15 Figure 3: DOD- FEHBP Demonstration Enrollment by Type of
Previous Health Coverage, 2000 19 Figure 4: Comparison of Premiums for the
DOD- FEHBP

Demonstration with Civilian FEHBP Premiums, 2000 23 Abbreviations

CMS Centers for Medicare & Medicaid Services DOD Department of Defense FAQ
frequently asked questions FEHBP Federal Employees Health Benefits Program
HMO health maintenance organization

MTF military treatment facility NMOP National Mail Order Pharmacy OBRA
1990 Omnibus Budget Reconciliation Act of 1990 OPM Office of Personnel
Management PIP- DCG Principal Inpatient Diagnostic Cost Group POS point-
of- service PPO preferred provider organization SNF skilled nursing
facility TFL TRICARE For Life VA Department of Veterans Affairs

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.

Page 1 GAO- 03- 547 Military Retiree Health Benefits

June 6, 2003 Congressional Committees Prior to 2001, military retirees who
turned age 65 and became eligible for Medicare lost most of their
Department of Defense (DOD) health care benefits. DOD did not offer its
military retirees 1 Medicare supplemental coverage, which some private
employers make available to their retirees. Such coverage pays for
Medicare deductibles and copayments as well as certain items not covered
by Medicare, including most outpatient prescription drugs. Military
retirees age 65 and over could obtain free care from the more than 600
military treatment facilities (MTF), but only if space was available after
beneficiaries under age 65 had been treated. Older retirees could also get
prescription drugs at no charge from MTF pharmacies if the drugs were
stocked by the MTFs, although only about 40 percent of retirees age 65 and
over lived close to an MTF.

To gather information on alternative ways of addressing military retirees*
lack of Medicare supplemental coverage, Congress established several
demonstrations that allowed Medicare- eligible military retirees to enroll
in DOD- sponsored health care programs. 2 One of those demonstrations was

the DOD Federal Employees Health Benefits Program (FEHBP) demonstration (*
the demonstration*), 3 which lasted from 2000 through 2002. Under the
demonstration, military retirees and several smaller groups of
beneficiaries 4 *such as certain former spouses of active duty

1 Our use of the term *military retirees* includes their dependents and
survivors age 65 and over. 2 The Medicare subvention demonstration allowed
retirees to enroll in new DOD- run Medicare managed care plans at six
sites. See U. S. General Accounting Office, Medicare Subvention
Demonstration: Pilot Satisfies Enrollees, Raises Cost and Management
Issues for DOD Health Care, GAO- 02- 284 (Washington, D. C.: Feb. 11,
2002). Another demonstration, called TRICARE Senior Supplement, used
TRICARE* the DOD health care program covering military personnel, younger
retirees, and their dependents* to

supplement retirees* Medicare coverage. 3 The demonstration was created by
the Strom Thurmond National Defense Authorization Act for Fiscal Year
1999, (NDAA 1999) Pub. L. No. 105- 261, S: 721, 112 Stat. 1920, 2061

(1998) (codified at 10 U. S. C. S: 1108) (2000). 4 In this report, the
term *beneficiaries* refers to all those eligible for the demonstration:
retirees, their spouses and other dependents, and other beneficiaries
designated by law. It includes some persons under age 65.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 547 Military Retiree Health Benefits

military personnel and retirees* could purchase coverage from one of the
private health plans that participate in FEHBP, the federal government*s
health insurance program for civilian employees and retirees. DOD
subsidized this retiree health coverage, paying up to three- quarters of
the premium. Enrollees could no longer use MTFs or military pharmacies.
The demonstration was open to about 120,000 of the more than 1.5 million
military retirees and dependents age 65 and over. 5 It initially included
retirees and other eligible beneficiaries in eight geographic areas and
expanded in 2001 to include two additional areas.

The law establishing the demonstration (the Strom Thurmond National
Defense Authorization Act for Fiscal Year 1999 (NDAA 1999)) directed us to
examine a number of topics relating to enrollment and the

demonstration*s effects on beneficiaries and DOD. 6 Specifically, this
report addresses (1) enrollment in the demonstration and the factors that
influenced whether military retirees enrolled, (2) the premiums set by
FEHBP plans for the demonstration and their strategies for setting
premiums, and (3) any effects that the demonstration project had on DOD
and beneficiaries* enrollees and nonenrollees.

To address these topics, we, in cooperation with DOD and the Office of
Personnel Management (OPM), which administers FEHBP, surveyed between May
and August 2000 a representative sample of about 5,600 persons eligible
for the demonstration, of whom 85 percent responded. To analyze factors
affecting enrollment, we obtained survey information from

both enrollees and nonenrollees on health status, insurance coverage, and
other factors potentially affecting their enrollment decisions. We also
obtained information from DOD on persons eligible for the demonstration
and their use of military health care. We obtained information from
Quotesmith Inc. on premiums for private Medigap insurance plans that
supplement Medicare and are sold directly to individuals. To assess the
premiums offered by FEHBP plans, we obtained information from OPM on
premiums in the demonstration and in the civilian FEHBP. To obtain
information on whether demonstration enrollees were sicker than others, we
used Medicare claims on the diagnoses and costs of enrollees, eligible

nonenrollees, and civilian FEHBP enrollees age 65 and over who lived near
the demonstration sites. To examine the costs of demonstration

5 In addition, the demonstration was open to approximately 17, 000
eligible beneficiaries under age 65. 6 10 U. S. C. S: 1108( k) (2000).

Page 3 GAO- 03- 547 Military Retiree Health Benefits

enrollees, we obtained information from OPM and from Medicare claims. We
restricted some analyses to retirees age 65 and over for two reasons.
First, these retirees constituted 85 percent of all enrollees. Second,
cost and diagnostic information was available for these retirees but not
for beneficiaries under age 65. We also interviewed representatives of
military retiree associations as well as DOD and OPM officials. (See app.
I for a discussion of our survey methods and app. II for a discussion of
our methods of analyzing health status and factors affecting enrollment,
including tests of statistical significance.) We found that the size and
design of the demonstration were adequate for us to evaluate its effects
and answer the questions that Congress asked. We performed our work in
phases from November 1999 through May 2003. In 1999 and 2000, we observed
the initial planning and implementation of the demonstration, and in 2000
we conducted the GAO- OPM- DOD survey. At the end of 2002 and in 2003,
after the demonstration had ended, we conducted additional analyses. We
completed our work in accordance with generally accepted government
auditing standards.

Enrollment in the DOD- FEHBP demonstration peaked at 5.5 percent of
potential beneficiaries in 2001 (7,521 enrollees) and then fell to 3.2
percent in 2002, after the introduction of comprehensive health coverage*
TRICARE For Life (TFL) and the senior pharmacy benefit* for
Medicareeligible military retirees. 7 Enrollment was considerably greater
in Puerto Rico than on the mainland, 8 reaching 30 percent in 2002. Most
retirees who knew about the demonstration and did not enroll said they
were satisfied with their current coverage* it had better benefits and
lower costs than the coverage they could obtain through the demonstration.
Many nonenrollees also cited not being able to continue getting
prescriptions filled at no charge at MTFs if they enrolled. Among the
relatively small proportion of people who did enroll, factors that
encouraged their enrollment included their view that the demonstration
offered better benefits, such as prescription drugs, than were available
to them from other plans, and their lack of existing coverage, such as
employersponsored

insurance or a Medicare managed care plan. These factors also 7 The Floyd
D. Spence National Defense Authorization Act for Fiscal Year 2001 allowed
Medicare- eligible retirees to begin participating in TRICARE in 2001.
Pub. L. No. 106- 398, S: 712, 114 Stat. 1645A, 1554A- 176 (2000).

8 The mainland refers to the 48 contiguous states. Results in Brief

Page 4 GAO- 03- 547 Military Retiree Health Benefits

help explain the high enrollment in Puerto Rico, where the share of
retirees without existing coverage was much greater than on the mainland.

Premiums charged enrollees in the demonstration varied widely* from $65 to
$208 monthly for an individual policy in 2000* with those plans that had
lower premiums and greater name recognition capturing the largest number
of enrollees. In setting premiums, plans had little information about the
health and probable cost of military beneficiaries. Plans adopted two
different strategies to reduce their financial burden if they attracted
sick, costly enrollees. One strategy kept premiums relatively low* at or
near premiums in the civilian FEHBP, with the intent of attracting a
representative mix of enrollees. The second strategy was to charge higher
premiums than in the civilian program, which tended to discourage
enrollment and provided a financial cushion in case those beneficiaries
who enrolled proved costly. However, plans following the two different
strategies attracted about the same proportion of enrollees who were in
poor health. In addition, demonstration enrollees were on average less
sick and younger than either their counterparts in the civilian program or
demonstration nonenrollees. During the first year of the demonstration,
enrolled retirees* health care was considerably less expensive per person
than the health care for their counterparts in the civilian FEHBP*$ 3,529

(excluding prescription drugs) compared to $5, 313. Premiums for
individual policies rose on average in 2001, but they fell in 2002, the
first time that a full year*s information on enrollees* costs was
available when OPM and the plans negotiated premiums.

The demonstration*s impact on DOD*s budget, MTFs, and military beneficiary
access to military health care was small, although its impact on
beneficiaries who enrolled was considerable. The limited impact on DOD*s
budget and MTFs was due in part to the demonstration*s small number of
potential beneficiaries, relative to the more than 1.5 million military
retirees age 65 and over, and in part to the small proportion that
actually enrolled. For enrollees, the demonstration substantially expanded
their choice of health care options.

In commenting on a draft of this report, DOD said that it concurred with
our overall findings but disagreed with our description of the
demonstration*s impact on DOD*s budget as small. DOD*s costs for the
demonstration relative to its total health care budget were less than 0.1
percent of that budget. DOD provided technical comments that we
incorporated as appropriate. OPM declined to comment.

Page 5 GAO- 03- 547 Military Retiree Health Benefits

Medicare is generally the primary source of health insurance for people
age 65 and over. However, traditional Medicare leaves beneficiaries liable
for considerable out- of- pocket costs, and most beneficiaries have
supplemental coverage. Military retirees can also obtain some care from
MTFs and, since October 1, 2001, DOD has provided comprehensive
supplemental coverage to its retirees age 65 and over. Civilian federal
retirees and dependents age 65 and over can obtain supplemental coverage
from FEHBP. The demonstration tested extending this coverage to military
retirees age 65 and over, and their dependents.

Medicare, a federally financed health insurance program for persons age 65
and older, some people with disabilities, and people with end- stage
kidney disease, is typically the primary source of health insurance for
persons age 65 and over. Eligible Medicare beneficiaries are automatically
covered by part A, which includes inpatient hospital and hospice care,

most skilled nursing facility (SNF) care, and some home health care. 9
They can also pay a monthly premium ($ 54 in 2002) to join part B, which
covers physician and outpatient services as well as those home health
services not covered under part A. Outpatient prescription drugs are
generally not covered. 10 Under traditional fee- for- service Medicare,
beneficiaries choose

their own providers and Medicare reimburses those providers on a fee-
forservice basis. Beneficiaries who receive care through traditional
Medicare are responsible for paying a share of the costs for most
services.

The alternative to traditional Medicare, Medicare+ Choice, offers
beneficiaries the option of enrolling in private managed care plans and
other private health plans. In 1999, before the demonstration started,
about 16 percent of all Medicare beneficiaries were enrolled in a
Medicare+ Choice plan; by 2002, the final year of the demonstration,
enrollment had fallen to 12 percent. Medicare+ Choice plans cover all
basic

9 U. S. citizens and permanent residents are generally eligible for
Medicare part A without having to pay a premium if they or their spouse
worked for at least 10 years in Medicarecovered employment. Certain other
persons with disabilities or end- stage kidney disease are also covered.
Work by members of the armed services has been considered Medicarecovered
employment since 1966, when Medicare was established.

10 Medicare generally covers outpatient prescription drugs only if they
cannot be selfadministered and are related to a physician*s services, such
as cancer chemotherapy, or are provided in conjunction with covered
durable medical equipment, such as inhalation drugs used with a nebulizer.
In addition, Medicare covers selected immunizations and certain

drugs that can be self- administered, such as blood clotting factors and
some oral drugs used in association with cancer treatment and
immunosuppressive therapy. Background Medicare

Page 6 GAO- 03- 547 Military Retiree Health Benefits

Medicare benefits, and many also offer additional benefits such as
prescription drugs, although most plans place a limit on the amount of
drug costs they cover. These plans typically do not pay if their members
use providers who are not in their plans, and plan members may have to
obtain approval from their primary care doctors before they see

specialists. Members of Medicare+ Choice plans generally pay less out of
pocket than they would under traditional Medicare. 11 Medicare*s
traditional fee- for- service benefit package and cost- sharing

requirements leave beneficiaries liable for significant out- of- pocket
costs, and most beneficiaries in traditional fee- for- service Medicare
have supplemental coverage. This coverage typically pays part of
Medicare*s deductibles, coinsurance, and copayments, and may also provide
benefits that Medicare does not cover* notably, outpatient prescription
drugs. Major sources of supplemental coverage include employer- sponsored
insurance, the standard Medigap policies sold by private insurers to
individuals, and Medicaid.

Employer- sponsored insurance. About one- third of Medicare*s
beneficiaries have employer- sponsored supplemental coverage. These plans,
which typically have cost- sharing requirements, pay for some costs not
covered by Medicare, including part of the cost of prescription drugs. 12
Medigap. About one- quarter of Medicare*s beneficiaries have Medigap, the

only supplemental coverage option available to all beneficiaries when they
initially enroll in Medicare. Prior to 1992, insurers were free to
establish the benefits for Medigap policies. The Omnibus Budget
Reconciliation Act of 1990 (OBRA 1990) required that beginning in 1992,
Medigap policies be standardized, and OBRA authorized 10 different benefit
packages, known as plans A through J, that insurers could offer. 13 The
most popular Medigap policy is plan F, which covers Medicare coinsurance
and deductibles, but not prescription drugs. It had an average annual
premium per person of

11 See U. S. General Accounting Office, Medicare+ Choice: Selected Program
Requirements and Other Entities* Standards for HMOs, GAO- 03- 180
(Washington, D. C.: Oct. 31, 2002). 12 Employer- sponsored health benefits
have declined over the last decade and continue to erode. See U. S.
General Accounting Office, Retiree Health Insurance: Gaps in Coverage and
Availability, GAO- 02- 178T (Washington, D. C.: Nov. 1, 2001).

13 The Balanced Budget Act of 1997 permitted insurers to offer high
deductible versions of existing F and J plans. Pub. L. No. 105- 33, S:
4032. 111 Stat. 251, 359 (1997). Medicare Supplemental

Coverage

Page 7 GAO- 03- 547 Military Retiree Health Benefits

about $1,200 in 1999, although in some cases plan F cost twice that
amount. Among the least popular Medigap policies are those offering
prescription drug coverage. These policies are the most expensive of the
10 standard policies* they averaged about $1,600 in 1999, and some cost
over $5,000. Beneficiaries with these policies pay most of the cost of
drugs because the Medigap drug benefit has a deductible and high cost
sharing and does not reimburse policyholders for drug expenses above a set
limit. 14 DOD provides health care to active- duty military personnel and
retirees,

and to eligible dependents and survivors through its TRICARE program. 15
Prior to 2001, retirees lost most of their military health coverage when
they turned age 65, although they could still use MTFs when space was
available, and they could obtain prescription drugs without charge from
MTF pharmacies. 16 In the Floyd D. Spence National Defense Authorization
Act for Fiscal Year 2001 (NDAA 2001), Congress established two new
benefits to supplement military retirees* Medicare coverage:

 Pharmacy benefit. Effective April 1, 2001, military retirees age 65 and
over were given access to prescription drugs through TRICARE*s National
Mail Order Pharmacy (NMOP) and civilian pharmacies. Retirees make lower
copayments for prescription drugs purchased through NMOP than at civilian
pharmacies. Retirees continue to have access to free prescription drugs at
MTF pharmacies.  TFL. Effective October 1, 2001, military retirees age 65
and over who were

enrolled in Medicare part B became eligible for TFL. As a result, DOD is
now a secondary payer for these retirees* Medicare- covered services,
paying all of their required cost sharing. TFL also offers certain
benefits not covered by Medicare, including catastrophic coverage.
Retirees can continue to use MTFs without charge on a *space available*
basis.

14 See U. S. General Accounting Office, Medigap: Current Policies Contain
Coverage Gaps, Undermine Cost Control Incentives, GAO- 02- 533T
(Washington, D. C.: Mar. 14, 2002) and

Medigap Insurance: Plans Are Widely Available but Have Limited Benefits
and May Have High Costs, GAO- 01- 941 (Washington, D. C.: July 31, 2001).

15 DOD also provides health care to retired reserve service members and
their families as well as Medal of Honor recipients and their families. 16
Retirees could obtain prescription drugs from an MTF only if the drugs
were stocked by the MTF. In addition, over 400, 000 beneficiaries age 65
and over were eligible for the mail

order and retail pharmacy benefit as a result of the Base Realignment and
Closure (BRAC) actions. Health Care for Military

Retirees

Page 8 GAO- 03- 547 Military Retiree Health Benefits

In fiscal year 1999, before TFL was established, DOD*s annual
appropriations for health care were about $16 billion, of which over $1
billion funded the care of military retirees age 65 and over. In fiscal
year 2002, DOD*s annual health care appropriations totaled about $24
billion, of which over $5 billion funded the care of retirees age 65 and
over who used

TFL, the pharmacy benefit, and MTF care. In addition to their DOD
coverage, military retirees* but generally not their dependents* can use
Department of Veterans Affairs (VA) facilities. There are 163 VA medical
centers throughout the country that provide inpatient and outpatient care
as well as over 850 outpatient clinics. VA care is free to veterans with
certain service- connected disabilities or low incomes; 17 other veterans
are eligible for care but have lower priority than those with service-
connected disabilities or low incomes and are required to make copayments.

FEHBP, the health insurance program administered by OPM for federal
civilian employees and retirees, covered about 8.3 million people in 2002.
Civilian employees become eligible for FEHBP when hired by the federal
government. Employees and retirees can purchase health insurance from a

variety of private plans, including both managed care and fee- for-
service plans, that offer a broad range of benefits, including
prescription drugs. Insurers offer both self- only plans and family plans,
which also cover the policyholders* dependents. Some plans also offer two
levels of benefits: a standard option and a high option, which has more
benefits, less cost sharing, or both. 18 For retirees age 65 and over,
FEHBP supplements Medicare, paying beneficiaries* Medicare deductibles and
coinsurance in addition to paying some costs not covered by Medicare, such
as part of the cost of prescription drugs. 19 17 Veterans with a service-
connected disability rating of 50 percent or more qualify for free

health care in VA facilities. Their treatment may be for conditions
unrelated to military service. The disability rating is based on an
evaluation that represents the average loss in earning capacity associated
with the severity of physical and mental conditions. Individuals* ratings
range from 0 percent to 100 percent. 18 Some plans refer to the two
options as the basic option and the standard option.

19 See U. S. General Accounting Office, Federal Employees* Health Plans:
Premium Growth and OPM*s Role in Negotiating Benefits, GAO- 03- 236
(Washington, D. C.: Dec. 31, 2002). FEHBP

Page 9 GAO- 03- 547 Military Retiree Health Benefits

Over two- thirds of FEHBP policyholders are in national plans; the
remainder are in local plans. National plans include plans that are
available to all civilian employees and retirees as well as plans that are
available only to particular groups, for example, foreign service
employees. In the FEHBP, the largest national plan is Blue Cross Blue
Shield, accounting for about 45 percent of those insured by an FEHBP plan.
20 Other national plans account for about 24 percent of insured
individuals. The national plans are all preferred provider organizations
(PPO) in which enrollees use doctors, hospitals, and other providers that
belong to the plan*s network, but are allowed to use providers outside of
the network for an additional cost. Local plans, which operate in selected
geographic areas and are mostly managed care, cover the remaining 32
percent of people insured by the FEHBP.

Civilian employees who enroll in FEHBP can change plans during an annual
enrollment period. During this period, which runs from midNovember to mid-
December, beneficiaries eligible for FEHBP can select new plans for the
forthcoming calendar year. To assist these beneficiaries in selecting
plans, OPM provides general information on FEHBP through brochures and its
Web site. Also, as part of this information campaign, plans*
representatives may visit government agencies to participate in health
fairs, where they provide detailed information about their specific

health plans to government employees. The premiums charged by these plans,
which are negotiated annually between OPM and the plans, depend on the
benefits offered by the plan, the type of plan* fee- for- service or
managed care* and the plan*s out- ofpocket costs for the enrollee. Plans
may propose changes to benefits as well as changes in out- of- pocket
payments by enrollees. OPM and the plans negotiate these changes and take
them into account when negotiating premiums. Fee- for- service plans must
base their rates on the claims experience of their FEHBP enrollees, while
adjusting for changes in benefits and out- of- pocket payments, and must
provide OPM with data to

justify their proposed rates. Managed care plans must give FEHBP the best
rate that they offer to groups of similar size in the private sector under
similar conditions, with adjustments to account for differences in the
demographic characteristics of FEHBP enrollees and the benefits

20 Blue Cross Blue Shield is a consortium of local Blue Cross Blue Shield
plans across the country. It charges the same premium in all locations and
distributes that premium to its local plans, without any adjustment for
local variations in health care costs.

Page 10 GAO- 03- 547 Military Retiree Health Benefits

provided. 21 The government pays a maximum of 72 percent of the weighted
average premium of all plans and no more than 75 percent of any plan*s
premium. Unlike most other plans, including employer- sponsored insurance
and Medigap, FEHBP plans charge the same premium to all enrollees,
regardless of age. As a result, persons over age 65, for whom the FEHBP
plan supplements Medicare, pay the same rate as those under age

65, for whom the FEHBP plan is the primary insurer. The FEHBP
demonstration allowed eligible beneficiaries in the demonstration sites to
enroll in an FEHBP plan. The demonstration ran for 3 years, from January
1, 2000, through December 31, 2002. The law that established the
demonstration capped enrollment at 66,000 beneficiaries and specified that
DOD and OPM should jointly select from 6 to 10 sites. Initially, the
agencies selected 8 sites that had about 69,000 eligible beneficiaries
according to DOD*s calculation for 2000. 22 (See table 1.) Four sites had
MTFs, and 1 site* Dover* also participated in the subvention
demonstration. 23 Two other sites, which had about 57,000 eligible
beneficiaries, were added in 2001. Demonstration enrollees received the
same benefits as civilian FEHBP enrollees, but could no longer use MTFs or
MTF pharmacies.

21 These private sector groups are referred to as similarly sized
subscriber groups. 22 More recent DOD data indicate that the number of
eligible beneficiaries was approximately 80,000 in the 8 original sites.
(See app. III.) This substantial increase in eligible beneficiaries,
compared to the initial figure, resulted from corrections that DOD made to
its eligibility and enrollment database. We used the lower figure in
implementing the sampling strategy for our survey because it was the only
information available at the time of the survey. To maintain consistency,
all analyses for 2000 use the original (lower) DOD figure.

23 The law establishing the FEHBP demonstration required that at least one
site contain an MTF, one site not contain an MTF, one site be a
participant in the DOD Medicare subvention demonstration, and no TRICARE
region have more than one FEHBP demonstration site. 10 U. S. C. S: 1108(
C) (2000). The FEHBP

Demonstration

Page 11 GAO- 03- 547 Military Retiree Health Benefits

Table 1: Number of Eligible Beneficiaries by DOD- FEHBP Demonstration
Site, 2000- 2002 Site 2000 2001 2002

With MTF: Camp Pendleton, Calif. 24,907 27,328 27,287 Dover, Del. a 4,384
4,868 4,867 Fort Knox, Ky. 7,757 9,121 9,113 Puerto Rico 6,907 9,401 9,453
No MTF: Dallas, Tex. 13,607 16,159 16,133

Greensboro, N. C. 3,278 4,033 4,024 Humboldt County, Calif. 2,919 3,461
3,454 New Orleans, La. 5,083 6,095 6,085 Adair County, Iowa 29,584 29,530
Coffee County, Ga. 27,329 27,284 Total* initial 8 sites b 68,842 Total* 10
sites 137,379 137,230

Source: DOD. Note: The 2000 data are as of January 1, 2000, 2001 data are
as of March 14, 2001, and 2002 data are as of February 21, 2002.

a Dover also participated in the DOD Medicare subvention demonstration. b
DOD initially calculated that there were 68,842 beneficiaries in the
original 8 sites. Based on this figure, the demonstration including the
two new sites had approximately 126,000 eligible beneficiaries. The higher
numbers in 2001 and 2002 resulted from corrections that DOD made to its
eligibility and enrollment database. Military retirees age 65 and over and
their dependents age 65 and over

were permitted to enroll in either self- only or family FEHBP plans.
Dependents who were under age 65 could be covered only if the eligible
retiree chose a family plan. Several other groups were permitted to enroll

including:  unremarried former spouses of a member or former member of
the armed

forces entitled to military retiree health care,  dependents of a
deceased member or former member of the armed forces

entitled to military retiree health care, and  dependents of a member of
the armed services who died while on active

duty for more than 30 days.

Page 12 GAO- 03- 547 Military Retiree Health Benefits

About 13 percent of those eligible for the demonstration were under age
65. 24 DOD, with assistance from OPM, was responsible for providing
eligible beneficiaries information on the demonstration. A description of
this

information campaign is in appendix IV. The demonstration guaranteed
enrollees who dropped their Medigap policies the right to resume their
coverage under 4 of the 10 standard Medigap policies* plans A, B, C, and
F* at the end of the demonstration. However, demonstration enrollees who
held any other standard Medigap

policies, or Medigap policies obtained before the standard plans were
established, were not given the right to regain the policies. Enrollees
who dropped their employer- sponsored retiree health coverage had no
guarantee that they could regain it.

Each plan was required by OPM to offer the same package of benefits to
demonstration enrollees that it offered in the civilian FEHBP, and plans
operating in the demonstration sites were generally required to
participate in the demonstration. Fee- for- service plans that limit
enrollment to

specific groups, such as foreign service employees, did not participate.
In addition, health maintenance organizations (HMO) and point- of- service
(POS) plans were not required to participate if their civilian FEHBP
enrollment was less than 300 or their service area overlapped only a small
part of the demonstration site. 25 Thirty- one local plans participated in
the demonstration in 2000; for another 14 local plans participation was
optional, and none of these participated.

The law established a separate risk pool for the demonstration, so any
losses from the demonstration were not covered at the expense of persons
insured under the civilian FEHBP. 26 As a result, plans had to establish
separate reserves for the demonstration and were allowed to charge

24 Persons eligible for the civilian FEHBP were not eligible for the
demonstration. 25 HMOs are comprehensive medical plans that coordinate
health care through a network of physicians and hospitals. A POS option
provides enrollees with a choice of using the plan*s health care providers
or paying higher fees to see providers outside of the plan*s network. 26 A
risk pool is the group of people with respect to whom the premium is set.
In the FEHBP, premiums depend upon the expected claims or costs of those
enrolled. The

FEHBP demonstration required that expected costs for the demonstration
enrollees and for civilian FEHBP enrollees be calculated separately. 10 U.
S. C. S: 1108( h) (2000).

Page 13 GAO- 03- 547 Military Retiree Health Benefits

different premiums in the demonstration than they charged in the civilian
program.

Enrollment in the demonstration was low, although enrollment in Puerto
Rico was substantially higher than on the U. S. mainland. Among eligible
beneficiaries who knew about the demonstration yet chose not to enroll,
most were satisfied with their existing health care coverage and preferred
it to the demonstration*s benefits. Lack of knowledge about the
demonstration accounted for only a small part of the low enrollment.
Although most eligible retirees did not enroll in a demonstration plan,
several factors encouraged enrollment. Some retirees took the view that
the demonstration plans* benefits, notably prescription drug coverage,
were better than available alternatives. Other retirees mentioned lack of
satisfactory alternative coverage. In particular, retirees who were not
covered by an existing Medicare+ Choice or employer- sponsored health plan
were much more likely to enroll. The higher enrollment in Puerto Rico
reflected a higher proportion of retirees there who considered the
demonstration*s benefits* ranging from drug coverage to choice of doctors*
better than what they had. The higher enrollment in Puerto Rico also
reflected in part Puerto Rico*s greater share of retirees without

existing coverage, such as an employer- sponsored plan. While some
military retiree organizations as well as a large FEHBP plan predicted at
the start of the demonstration that enrollment would reach 25 percent or
more of eligible beneficiaries, demonstration- wide enrollment

was 3.6 percent in 2000 and 5.5 percent in 2001. 27 In 2002, following the
introduction of the senior pharmacy benefit and TFL the previous year,
demonstration- wide enrollment fell to 3.2 percent. (See fig. 1.) The
demonstration*s enrollment peaked at 7,521 beneficiaries, and by 2002 had
declined to 4,367 of the 137,230 eligible beneficiaries. 28 27 Enrollment
as a percentage of eligible beneficiaries in 2000 is based on DOD*s
initial

figure of 68,842 eligible beneficiaries. 28 Enrollment for 2000 was as of
January 1, 2000, enrollment for 2001 was as of March 14, 2001, and
enrollment for 2002 was as of February 21, 2002. Enrollment Was Low,

Largely Due to Beneficiaries* Satisfaction with Existing Coverage

Enrollment Rate Low on U. S. Mainland, Far Greater in Puerto Rico

Page 14 GAO- 03- 547 Military Retiree Health Benefits

Figure 1: DOD- FEHBP Demonstration- wide Enrollment, 2000- 2002

Note: GAO analysis of DOD data. Enrollment is expressed as a percentage of
eligible beneficiaries.

These low demonstration- wide enrollment rates masked a sizeable
difference in enrollment between the mainland sites and Puerto Rico. In
2000, enrollment in Puerto Rico was 13.2 percent of eligible
beneficiaries* about five times the rate on the mainland. By 2001, Puerto
Rico*s enrollment had climbed to 28.6 percent. Unlike 2002 enrollment on

the mainland, which declined, enrollment in Puerto Rico that year rose
slightly, to 30 percent. (See fig. 2.) Among the mainland sites, there
were also sizeable differences in enrollment, ranging from 1.3 percent in
Dover, Delaware, in 2001, to 8.8 percent in Humboldt County, California,
that year. Enrollment at all mainland sites declined in 2002. 29 29 See
app. III for enrollment by site.

3.6 5.5

3.2

0 2

4 6

8 10

12 2000 2001 2002 Percentage

Source: DOD.

Page 15 GAO- 03- 547 Military Retiree Health Benefits

Figure 2: DOD- FEHBP Demonstration Enrollment on the Mainland and in
Puerto Rico, 2000- 2002

Note: GAO analysis of DOD data. Enrollment is expressed as a percentage of
eligible beneficiaries.

Retirees who knew about the demonstration and did not enroll cited many
reasons for their decision, notably that their existing coverage*s
benefits* in particular its prescription drug benefit* and costs were more
attractive than those of the demonstration. 30 In addition, nonenrollees
expressed

several concerns, including uncertainty about whether they could regain
their Medicare supplemental coverage after the demonstration ended.

 Benefits of existing coverage. Almost two- thirds of nonenrollees who
knew about the demonstration reported that they were satisfied with their
existing employer- sponsored or other health coverage. 31 For the majority

30 Only nonenrollees who knew about the demonstration (44 percent of
eligible beneficiaries) were asked to give their reasons for not
enrolling. Because respondents to our survey gave multiple reasons for not
enrolling, percentages reported concerning benefits, prescription drugs,
and other reasons add to more than 100 percent.

31 Satisfaction with existing coverage was a much less important reason
for not enrolling in Puerto Rico than on the mainland. In Puerto Rico, 28
percent of nonenrollees were satisfied with their existing coverage,
compared to 66 percent of nonenrollees on the mainland. Nonenrollees
Emphasized Better Benefits and Lower

Costs of Existing Coverage

13.2 28.6 30.1

2.6 3.8 1.2

0 5

10 15

20 25

30 35

2000 2001 2002

Puerto Rico U. S. mainland sites

Percentage

Source: DOD.

Page 16 GAO- 03- 547 Military Retiree Health Benefits

of nonenrollees with private employer- sponsored coverage, the
demonstration*s benefits were no better than those offered by their
current plan.  Costs of existing coverage. Nearly 30 percent of
nonenrollees who

knew about the demonstration stated that its plans were too costly. 32
This was likely a significant concern for retirees interested in a managed
care plan, such as a Medicare+ Choice plan, whose premiums were generally

lower than demonstration plans.  Prescription drugs and availability of
doctors. In explaining their

decision not to enroll, many eligible beneficiaries who knew about the
demonstration focused on limitations of specific features of the benefits
package that they said were less attractive than similar features of their
existing coverage. More than one- quarter of nonenrollees cited not being
able to continue getting prescriptions filled without charge at MTF

pharmacies if they enrolled. More than one- quarter also said their
decision at least partly reflected not being able to keep their current
doctors if they enrolled. These nonenrollees may have been considering
joining one of the demonstration*s managed care plans, which generally
limit the number of doctors included in their provider networks.
Otherwise, they would have been able to keep their doctors, because PPOs,
while encouraging the use of network doctors, permit individuals to select
their own doctors at an additional cost.  Uncertainty. About one- fourth
of nonenrollees said they were uncertain about the viability of the
demonstration and wanted to wait to see how it

worked out. In addition, more than 20 percent of nonenrollees were
concerned that the demonstration was temporary and would end in 3 years.
Furthermore, some nonenrollees who looked beyond the demonstration period
expressed uncertainty about what their coverage would be after the
demonstration ended: Roughly one- quarter expressed concern that joining a
demonstration plan meant risking the future loss of other coverage* either
Medigap or employer- sponsored insurance. Finally, about one- quarter of
nonenrollees were uncertain about how the demonstration would mesh with
Medicare.

Lack of knowledge* although common among eligible retirees* was only a
small factor in explaining low enrollment. If everyone eligible for the
demonstration had known about it, enrollment might have doubled, but would
still have been low. DOD undertook an extensive information

campaign, intended to inform all eligible beneficiaries about the 32 See
app. V for a complete list of reasons given. Lack of Knowledge about

Demonstration Accounted for Only Small Part of Low Enrollment

Page 17 GAO- 03- 547 Military Retiree Health Benefits

demonstration, but nearly 54 percent of those eligible for the
demonstration did not know about it at the time of our survey (May through
August 2000). Of those who knew about the demonstration, only 7.4 percent
enrolled. Those who did not know about the demonstration were different in
several respects from those who did: They were more likely to be single,
female, African American, older than age 75, to have annual income of
$40,000 or less, to live an hour or more from an MTF, not

covered by employer- sponsored health insurance, not officers, not to
belong to military retiree organizations and to live in the demonstration
areas of Camp Pendleton, California, Dallas, Texas, and Fort Knox,
Kentucky.

Accounting for the different characteristics of those retirees who knew
about the demonstration and those who did not, we found that roughly 7
percent of those who did not know about the demonstration would have
enrolled in 2000 if they had known about it. As a result, we estimate that
demonstration- wide enrollment would have been about 7 percent if all
eligible retirees knew about the demonstration. (See app. II.)

Comparison of enrollment in Puerto Rico and the mainland sites also
suggests that, among the factors that led to low enrollment, knowledge
about the demonstration was not decisive. In 2000, fewer people in Puerto
Rico reported knowing about the demonstration than on the mainland (35

percent versus 47 percent). Nonetheless, enrollment in Puerto Rico was
much higher.

In making the decision to enroll, retirees were attracted to an FEHBP plan
if it had better benefits* particularly prescription drug coverage* or
lower costs than their current coverage or other available coverage. Among
those who knew about the demonstration, retirees who enrolled were
typically positive about one or both of the following:

 Better FEHBP benefits. Two- thirds of enrollees cited their
demonstration plan*s benefits package as a reason to enroll, with just
over half saying the benefits package was better than other coverage
available to them. Nearly two- thirds of enrollees mentioned the better
coverage of prescription drugs offered by their demonstration plan.
Furthermore, the inclusiveness of FEHBP plans* networks of providers
mattered to a majority of enrollees: More than three- fifths mentioned as
a reason for enrolling that they could keep their current doctors under
the demonstration. Factors Spurring

Enrollment Included Favorable Assessment of FEHBP and Lack of Existing
Coverage

Page 18 GAO- 03- 547 Military Retiree Health Benefits

 Lower demonstration plan costs. Among enrollees, about 62 percent said
that their demonstration FEHBP plan was less costly than other coverage
they could buy.

Beneficiaries* favorable assessments of FEHBP* and their enrollment in the
demonstration* were related to whether they lacked alternative coverage to
traditional Medicare and, if they had such coverage, to the type of
coverage. In 2000, among those who lacked employer- sponsored coverage or
a Medicare+ Choice plan, or lived more than an hour*s travel time from an
MTF, about 15 percent enrolled. By contrast, among those who had such
coverage, or had MTF access, 4 percent enrolled.

In particular, enrollment in an FEHBP plan was more likely for retirees
who lacked either Medicare+ Choice or employer- sponsored coverage.

 Lack of Medicare+ Choice. Controlling for other factors affecting
enrollment, those who did not use Medicare+ Choice were much more likely
to enroll in a demonstration plan than those who did. (See fig. 3.)
Several reasons may account for this. First, in contrast to fee- for-
service Medicare, Medicare+ Choice plans are often less costly out- of-
pocket, typically requiring no deductibles and lower cost sharing for
physician visits and other outpatient services. Second, unlike fee- for-
service Medicare, many Medicare+ Choice plans offered a prescription drug
benefit. Third, while Medicare+ Choice plan benefits were similar to those
offered by demonstration FEHBP plans, Medicare+ Choice premiums were
typically less than those charged by the more popular demonstration plans,
including Blue Cross Blue Shield, the most popular demonstration plan on
the mainland.  Lack of employer- sponsored coverage. Retirees who did not
have

employer- sponsored health coverage were also more likely to join a
demonstration plan. Of those who did not have employer- sponsored
coverage, 8.6 percent enrolled in the demonstration, compared to 4.7
percent of those who had such coverage. Since benefits in
employersponsored health plans often resemble FEHBP benefits, retirees
with employer- sponsored coverage would have been less likely to find
FEHBP plans attractive. 33 33 Like retirees* employer- sponsored coverage,
those with Medicare+ Choice coverage were significantly less likely to
enroll, while retirees covered by Medicare part B were

significantly more likely to enroll. (See app. IV.) Part B coverage of
enrollees and nonenrollees differed slightly: 94.7 percent for enrollees
and 92.1 percent for nonenrollees.

Page 19 GAO- 03- 547 Military Retiree Health Benefits

Retirees with another type of alternative coverage, Medigap, responded
differently to the demonstration. Unlike the pattern with other types of
insurance coverage, more of those with a Medigap plan enrolled (9.3
percent) than did those without Medigap (5.6 percent). Medigap plans
generally offered fewer benefits than a demonstration FEHBP plan, but at
the same or higher cost to the retiree. Seven of the 10 types of Medigap

plans available to those eligible for the demonstration do not cover
prescription drugs. As a result of these differences, retirees who were
covered by Medigap policies would have had an incentive to enroll instead
in a demonstration FEHBP plan, which offered drug coverage and other
benefits at a lower premium cost than the most popular Medigap plan.

Figure 3: DOD- FEHBP Demonstration Enrollment by Type of Previous Health
Coverage, 2000

Note: GAO analysis of CMS and GAO- DOD- OPM survey data. Enrollment is
expressed, for employer- sponsored coverage, as a percentage of eligible
beneficiaries who knew about the demonstration and, for Medicare+ Choice
enrollment and Medigap coverage, as a percentage of eligible retirees who
knew about the demonstration. An eligible beneficiary or retiree may have
more than one type of coverage.

Like the lack of Medicare+ Choice or employer- sponsored coverage, lack of
nearby MTF care stimulated enrollment. While living more than an hour from
an MTF was associated with higher demonstration enrollment, MTF care may
have served some retirees as a satisfactory supplement to

Not enrolled

in Medicare+

Choice Enrolled

in Medicare+

Choice Did not have

employersponsored insurance

Had employersponsored

insurance Did not have

Medigap policy

Had Medigap

policy Percentage

Source: CMS and GAO- DOD- OPM survey. 8.6

1.8 8.6

4.7 5.6

9.3

0 3

6 9

12

Page 20 GAO- 03- 547 Military Retiree Health Benefits

Medicare- covered care, making demonstration FEHBP plans less attractive
to them. Of eligible retirees who knew of the demonstration and lived
within 1 hour of an MTF, 3.7 percent enrolled, compared to 11.1 percent of
those who lived more than 1 hour away.

Higher enrollment in Puerto Rico than on the mainland reflected in part
the more widespread lack of satisfactory alternative health coverage in
Puerto Rico compared to the mainland. In Puerto Rico, of those who knew of
the demonstration, the share of eligible retirees with employersponsored
health coverage (14 percent) was about half that on the mainland (27
percent). In addition, before September 2001, no Medicare+ Choice plan was
available in Puerto Rico. By contrast, in mainland sites where Medicare+
Choice plans were available, their attractive cost sharing and other
benefits discouraged retirees from enrolling in demonstration plans. Other
factors associated with Puerto

Rico*s high enrollment and cited by enrollees there included the
demonstration plan*s better benefits package* especially prescription drug
coverage* compared to many retirees* alternatives, the demonstration
plan*s broader choice of doctors, and the plan*s reputation

for quality of care. 34 The premiums charged by the demonstration plans
varied widely, reflecting differences in how they dealt with the concern
that the demonstration would attract a disproportionate number of sick,
high- cost enrollees. To address these concerns, plans generally followed
one of two strategies. Most plans charged higher premiums than those they
charged to their civilian FEHBP enrollees* a strategy that could have
provided a financial cushion and possibly discouraged enrollment. A small
number of plans set premiums at or near their premiums for the civilian
FEHBP with the aim of attracting a mix of enrollees who would not be
disproportionately sick. Plans* underlying concern that they would attract
a sicker population was not borne out. In the first year of the
demonstration, for example, on average health care for demonstration
retirees was 50 percent less expensive per enrollee than the care for
their civilian FEHBP counterparts.

34 There was only one local plan in the demonstration in Puerto Rico:
Triple- S. Higher Enrollment in

Puerto Rico Associated with Greater Lack of Satisfactory Alternative
Coverage

Premiums Varied Widely, Reflecting Plans* Different Assessments of
Demonstration Risk

Page 21 GAO- 03- 547 Military Retiree Health Benefits

Demonstration plans charged widely varying premiums to enrollees, with the
most popular plans offering some of the lowest premiums. In 2000, national
plans* monthly premiums for individual coverage ranged from $65 for Blue
Cross Blue Shield to $208 for the Alliance Health Plans. Among local
plans* most of which were managed care* monthly premiums for individual
coverage ranged from $43 for NYLCare Health Plans of the Southwest to $280
for Aetna U. S. Healthcare. Not surprisingly, few enrollees selected the
more expensive plans. 35 The two most popular plans were Blue Cross Blue
Shield and Triple- S; the latter offered a POS in Puerto Rico. Both plans
had relatively low monthly premiums* the Triple- S premium charged to
individuals was $54 in the demonstration*s first year. Average premiums
for national plans were about $20 higher than for local plans, which were
largely managed care plans. (See table 2.)

Table 2: Monthly Premiums Charged to Enrollees for Individual Policies in
the DODFEHBP Demonstration, 2000

Type of plan Plan or group of plans Enrollee share of premium

National plans Blue Cross Blue Shield $65 GEHA Benefit Plan 99 Other
national plans* average 142 National plan average 125 Local plans Triple-
S 54

Other fee- for- service plans* average 78 Managed care plans* average 107
Local plan average 103 Average of all plans $107

Source: OPM. Note: GAO analysis of OPM premium data. Premiums are for a
standard option individual policy unless only one option was available.

Some plans in the demonstration were well known in their market areas,
while others* especially those open only to government employees* likely
had much lower name recognition. Before the demonstration started, OPM
officials told us that they expected beneficiaries to be unfamiliar with
many of the plans included in the demonstration. These

35 For example, the 10 percent of plans with the highest premiums
attracted 0. 1 percent of enrollees. Plans* Premiums Varied

Widely, and Plans with Lower Premiums Attracted the Most Enrollees

Page 22 GAO- 03- 547 Military Retiree Health Benefits

officials said that beneficiaries were likely to have only experience with
or knowledge of Blue Cross Blue Shield and, possibly, some local HMOs. The
success of Blue Cross Blue Shield relative to other national plans in
attracting enrollees appears to support their view, as does Triple- S*s
success in Puerto Rico, where it is one of the island*s largest insurers.
In 2000, Blue Cross Blue Shield was the most popular plan in the
demonstration, with 42 percent of demonstration- wide enrollment and 68
percent of enrollment on the mainland. Among national plans, the GEHA
Benefit Plan (known as GEHA) was a distant second with 4 percent of
enrollment. The other five national plans together captured less than 1
percent of all demonstration enrollment. Among local plans, Triple- S was
most successful, capturing 96 percent of enrollment in Puerto Rico and 38
percent of enrollment demonstration- wide. The other local plans, taken

together, accounted for about 14 percent of demonstration- wide
enrollment.

Several factors contributed to plans* concern that they would attract
sicker* and therefore more costly* enrollees in the demonstration. Plans
did not have the information that they usually use to set premiums*

claims history for fee- for- service plans and premiums charged to
comparable private sector groups for managed care plans. Moreover,
according to officials, some plans were reluctant to assume that
demonstration enrollees would be similar to their counterparts in the
civilian FEHBP. A representative from one of the large plans noted that
the small size of the demonstration was also a concern. The number of
people eligible for the demonstration (approaching 140,000, when the
demonstration was expanded in 2001) was quite small compared to the number
of people in the civilian program (8.5 million in 2001). If only a small
number of people enrolled in a plan, one costly case could result in
losses, because claims could exceed premiums.

In response to the concern that the demonstration might attract a
disproportionate number of sick enrollees, plans developed two different
strategies for setting premiums. Plans in one group, including Blue Cross
Blue Shield and GEHA, kept their demonstration premiums at or near those
they charged in the civilian FEHBP. Representatives of one plan explained
that it could have priced high, but they believed that would have resulted
in low enrollment and might have attracted a disproportionate

number of sick* and therefore costly* enrollees. Instead, by keeping their
premium at the same level as in the civilian program, these plan officials
hoped to make their plan attractive to those who were in good health as
Plans* Premium Strategies

Diverged despite Common Concerns about Attracting Sicker Enrollees

Page 23 GAO- 03- 547 Military Retiree Health Benefits

well as to those who were not. Such a balanced mix of enrollees would
increase the likelihood that a plan*s revenues would exceed its costs.

By contrast, some plans charged higher premiums in the demonstration* in
some cases, 100 percent higher* than in the civilian FEHBP. Setting higher
premiums might provide plans with a financial cushion to deal with
potential high- cost enrollees. While higher premiums might have

discouraged enrollment and reduced plans* exposure to high- cost patients,
this strategy carried the risk that those beneficiaries willing to pay
very high premiums might be sick, high- cost patients.

More than four- fifths of plans chose the second strategy, charging higher
premiums in the demonstration than in the civilian FEHBP. In 2000, only
two plans* both local plans* charged enrollees less in the demonstration
than in the civilian program for individual, standard option policies;
these represented about 6 percent of all plans. By contrast, three plans*
about 9 percent of all plans* set premiums at least twice as high as
premiums in the civilian FEHBP. (See fig. 4.)

Figure 4: Comparison of Premiums for the DOD- FEHBP Demonstration with
Civilian FEHBP Premiums, 2000

Note: GAO analysis of OPM premium data. Premiums are for a standard option
individual policy unless only one option was available.

Demonstration premium at least twice as high

Demonstration premium 100 to 199 percent higher Demonstration premium

50 to 99 percent higher Demonstration premium

20 to 49 percent higher Demonstration premium

0 to 19 percent higher Lower premium for demonstration 6.1

9.1 21.2

18.2 12.1

33.3

Source: OPM.

Page 24 GAO- 03- 547 Military Retiree Health Benefits

The demonstration did not attract sicker, more costly enrollees* instead,
military retirees who enrolled were less sick on average than eligible
nonenrollees. 36 We found that, as scored by a standard method to assess
patients* health, older retirees who enrolled in the demonstration were an
estimated 13 percent less sick than eligible nonenrollees. At each site
enrollees were, on average, less sick than nonenrollees. In the GAO-
DODOPM survey, fewer enrollees on the U. S. mainland (33 percent) reported
that they or their spouses were in fair or poor health compared to
nonenrollees (40 percent). Retirees who enrolled in demonstration plans
had scores that indicated they were, on average, 19 percent less sick than
civilian FEHBP enrollees in these plans.

Plans* divergent strategies for setting premiums resulted in similar mixes
of enrollees. Blue Cross Blue Shield and GEHA, both of which did not
increase premiums, attracted about the same proportion of individuals in
poor health as plans on the mainland that raised premiums.

During 2000, the first year of the demonstration, enrolled retirees*
health care was 28 percent less expensive* as measured by Medicare claims*
than that of eligible nonenrolled retirees and one- third less expensive
than that of their FEHBP counterparts. 37 (See table 3.) The demonstration
enrollees* average age (71.8 years) was lower than eligible nonenrollees*
average age (73.1 years), which in turn was lower than the average age of
civilian FEHBP retirees (75.2 years) in the demonstration areas. OPM has
obtained from the three largest plans claims information that includes the
cost of drugs and other services not covered by Medicare. These claims
show a similar pattern: Demonstration enrollees were considerably less

expensive than enrollees in the civilian FEHBP. 36 We assessed enrollees*
health prior to the demonstration, using the Principal Inpatient
Diagnostic Cost Group, (PIP- DCG), which relies on diagnoses from
inpatient hospital stays and other patient characteristics. See app. II
for discussion of the method and our results. 37 *Their FEHBP
counterparts* refers to civilian retirees who were Medicare- eligible and
enrolled in FEHBP plans. Military Retirees Who

Enrolled in Demonstration Not as Sick as Other Retirees

Demonstration Enrollees Less Expensive than Eligible Nonenrollees and Much
Less Expensive than Their Civilian FEHBP Counterparts, Leading to Reduced
Premiums for Most Plans in Final Year of Demonstration

Page 25 GAO- 03- 547 Military Retiree Health Benefits

Table 3: Average Spending on Medicare- covered Services for Retirees
Eligible for the DOD- FEHBP Demonstration* by Enrollment Status, 2000

Spending Demonstration enrollees Eligible

nonenrollees Civilian FEHBP retirees

Medicare $3,174 $4,412 $4,785 Coinsurance 213 315 344 Deductible 142 169
184

Total $3,529 $4,896 $5,313

Sources: CMS, DOD, and OPM. Note: GAO analysis of CMS Medicare claims
data, DOD enrollment data, and OPM enrollment data. As of January 1, 2000,
the average age of demonstration enrollees was 71.8 years; of eligible
nonenrollees, 73.1 years; and of civilian FEHBP retirees, 75.2 years.
Although demonstration enrollees* costs were lower than those of their

FEHBP counterparts in the first year, demonstration premiums generally
remained higher than premiums for the civilian FEHBP. In 2001, the second
year of the demonstration, only a limited portion of the first year*s

claims was available when OPM and the plans negotiated the premiums, so
the lower demonstration costs had no effect on setting 2001 premiums.
Demonstration premiums in 2001 increased more rapidly than the civilian
premium charged by the same plans: a 30 percent average increase in the
demonstration for individual policies compared to a 9 percent increase for
civilians in the same plans. In 2002, the third year, when both the plans
and OPM were able to examine a complete set of claims for the first year
before setting premiums, the pattern was reversed: On average, the
demonstration premiums for individual policies fell more than 2 percent
while the civilian premiums rose by 13 percent. However, on average, 2002
premiums remained higher in the demonstration than in the civilian FEHBP.
Blue Cross Blue Shield was an exception, charging a higher monthly premium
for an individual policy to civilian enrollees ($ 89) in 2000 than to
demonstration enrollees ($ 74).

Page 26 GAO- 03- 547 Military Retiree Health Benefits

Because the demonstration was open to only a small number of military
retirees* and only a small fraction of those enrolled* the demonstration
had little impact on DOD, nonenrollees, and MTFs. However, the impact

on enrolled retirees was greater. If the FEHBP option were made permanent,
the impact on DOD, nonenrollees, and MTFs would depend on the number of
enrollees. Because of its small size, the demonstration had little impact
on DOD*s

budget. About 140,000 of the more than 8 million people served by the DOD
health system were eligible for the demonstration in its last 2 years.
Enrollment at its highest was 7,521* about 5.5 percent of eligible
beneficiaries. DOD*s expenditures on enrollees* premiums that year totaled
about $17 million* roughly 0.1 percent of its total health care budget. 38
Under the demonstration, DOD was responsible for about 71 percent of each
individual*s premium, whereas under TFL it is responsible for the entire
cost of roughly similar Medicare supplemental coverage. 39 Probably
because of its small size, the demonstration had no observable

impact on either the ability of MTFs to assist in the training and
readiness 40 of military health care personnel or on nonenrollees* access
to MTF care. Officials at the four MTFs in demonstration sites told us
that they had seen no impact from the demonstration on either MTFs or
nonenrollees* access to care.

38 We were not able to adjust DOD expenditures to account for any
reductions in the cost of prescription drugs and MTF care due to the
demonstration. While some military retirees who enrolled were diverted
from military to civilian care, the numbers were small and any reductions
in MTF costs could not be separated from other factors affecting DOD
expenditures. In addition, according to DOD, its costs for the
demonstration were $28 million for FEHBP premiums and $11 million for
administration, when measured over 3 years. These costs averaged less than
0.1 percent of the DOD health care budget over the life of the
demonstration. 39 TFL pays for Medicare- covered services not paid for by
Medicare, as well as certain other

services. 40 Readiness refers to the capability of the military health
system to provide medical support of military deployments, from small
humanitarian engagements to major military actions. Impact of

Demonstration on DOD Was Limited Due to Small Size and Low Enrollment, but
Impact on Enrollees Was Greater DOD Little Affected by

Demonstration, Due Primarily to Its Size, but Enrollees More Affected

Page 27 GAO- 03- 547 Military Retiree Health Benefits

Since enrollees were typically attracted to the demonstration by both its
benefits and its relatively low costs, the impact on those who enrolled
was necessarily substantial. In the first 2 years, the demonstration
provided enrollees with better supplemental coverage, which was less
costly or had better benefits, or both. In the third year of the
demonstration, after TFL and the retirees* pharmacy benefit were
introduced and enrollment declined, the number of beneficiaries affected
by the demonstration decreased. TFL entitled military retirees to low-
cost, comprehensive coverage, making the more expensive FEHBP
unattractive. The average enrollee premium for an individual policy in the
demonstration*s third year was $109 per month. In comparison, to obtain
similar coverage under the the combined TFL- pharmacy benefit, the only
requirement was to pay the monthly Medicare part B premium of $54.
Further, pharmacy out- ofpocket

costs under TFL are less than those in the most popular FEHBP plan.

The impact on DOD of a permanent FEHBP option for military retirees
nationwide would depend on the number of retirees who enrolled. For
example, if the same percentage of eligible retirees who enrolled in 2002*
after TFL and the retirees* pharmacy benefit were introduced* enrolled in
FEHBP, enrollment would be roughly 20,000 of the more than 1.5 million

military retirees. As retirees* experience with TFL grows, their interest
in an FEHBP alternative may decline further. As long as enrollment in a
permanent FEHBP option remains small, the impact on DOD*s ability to
provide care at MTFs and on MTF readiness would also likely be small.

We provided DOD and OPM with the opportunity to comment on a draft of this
report. In its written comments DOD stated that, overall, it concurred
with our findings. However, DOD differed with our description of the
demonstration*s impact on DOD*s budget as small. In contrast, DOD
described these costs of the 3- year demonstration*$ 28 million for FEHBP
premiums and $11 million for administration* as substantial. While we do
not disagree with these dollar- cost figures and have included them in
this report, we consider them to be small when compared to DOD*s health
care budget, which ranged from about $18 billion in fiscal year 2000 to
about $24 billion in fiscal year 2002. For example, as we report, DOD*s
premium costs for the demonstration during 2001, when enrollment peaked,
were about $17 million* less than 0.1 percent of DOD*s health care budget.
Although DOD*s cost per enrollee in the demonstration was substantial, the
number of enrollees was small, resulting in the demonstration*s total cost
to DOD being small. DOD*s comments appear in appendix VI. DOD Impact of
Permanent

FEHBP Option Would Depend on Enrollment

Agency Comments

Page 28 GAO- 03- 547 Military Retiree Health Benefits

also provided technical comments, which we incorporated as appropriate.
OPM declined to comment. We are sending copies of this report to the
Secretary of Defense and the Director of the Office of Personnel
Management. We will make copies available to others upon request. In
addition, this report will be available at no charge on GAO*s Web site at
http:// www. gao. gov.

If you or your staffs have questions about this report, please contact me
at (202) 512- 7101. Other GAO contacts and staff acknowledgments are
listed in appendix VII.

Marjorie E. Kanof Director, Health Care* Clinical

and Military Health Care Issues

Page 29 GAO- 03- 547 Military Retiree Health Benefits

List of Committees

The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate

The Honorable Peter G. Fitzgerald Chairman The Honorable Daniel K. Akaka
Ranking Minority Member Subcommittee on Financial Management,

the Budget, and International Security Committee on Governmental Affairs
United States Senate

The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representatives

The Honorable Jo Ann S. Davis Chair The Honorable Danny K. Davis Ranking
Minority Member Subcommittee on Civil Service and

Agency Organization Committee on Government Reform House of
Representatives

Appendix I: GAO- DOD- OPM Survey of Military Retirees and Others Eligible
for the DOD- FEHBP Demonstration Page 30 GAO- 03- 547 Military Retiree
Health Benefits

To determine why those eligible for the Federal Employees Health Benefits
Program (FEHBP) demonstration enrolled or did not enroll in an FEHBP plan,
we co- sponsored with the Department of Defense (DOD) and the Office of
Personnel Management (OPM) a mail survey of eligible beneficiaries*
military retirees and others eligible to participate in the demonstration.
The survey was fielded during the first year of the demonstration, from
May to August 2000, and was sent to a sample of eligible beneficiaries,
both those who enrolled and those who did not enroll, at each of the eight
demonstration sites operating at that time. The survey was designed to be
statistically representative of eligible beneficiaries, enrollees,
nonenrollees, and sites, and to facilitate valid comparisons between
enrollees and nonenrollees.

In constructing the questionnaire, we developed questions pertaining to
individuals* previous use of health care services, access to and
satisfaction with care, health status, knowledge of the demonstration,
reasons for enrolling or not enrolling in the demonstration, and other
topics. Because eligible beneficiaries could choose FEHBP plans that also
covered their family members, we included questions about spouses and
dependent children. DOD and OPM officials and staff members from Westat,
the DOD subcontractor with responsibility for administering the survey,
provided input on the questionnaire*s content and format. After pretesting
the questionnaire with a group of military retirees and their family
members, the final questionnaire included the topic areas shown in table
4. We also produced a Spanish version of the questionnaire that was mailed
to beneficiaries living in Puerto Rico. Appendix I: GAO- DOD- OPM Survey
of

Military Retirees and Others Eligible for the DOD- FEHBP Demonstration

Questionnaire Design

Appendix I: GAO- DOD- OPM Survey of Military Retirees and Others Eligible
for the DOD- FEHBP Demonstration Page 31 GAO- 03- 547 Military Retiree
Health Benefits

Table 4: Major Survey Sections and Topics Covered Section Topics covered

Use of Health Care Services in 1999 Health care use, source and use of
prescription drugs, use of military treatment facility (MTF) care, ease of
access to MTF care, and satisfaction with MTF care. Health Status Current
health status, health status compared to 1 year ago, and need help with
personal

care needs. Family Marital status, spouse*s health care use,

spouse*s use and source of prescription drugs, spouse*s health status,
dependent children, and dependent children*s health status.

Knowledge of the Demonstration and Impact of the Demonstration Information
Campaign

Knowledge of the demonstration, source of knowledge of the demonstration,
whether demonstration information materials were received, usefulness of
the information

materials, use of the toll- free telephone service, source of information
received about individual demonstration plans, usefulness of plans*
information, problems with making the

enrollment decision, reasons for joining the demonstration, and reasons
for not joining the demonstration. Other Insurance Coverage Medicare
supplemental insurance of self and

spouse, other insurance coverage, cost of insurance coverage, out- of-
pocket costs for medical services, and prescription drugs. Personal
Information Zip code, date of birth, sex, membership in a military retiree
organization, travel time to

nearest military hospital, rank at retirement, race and ethnicity,
educational attainment, income, and home ownership.

Source: GAO- DOD- OPM survey.

Working with DOD, OPM, and Westat, we defined the survey population as all
persons living in the initial eight demonstration sites who were eligible
to enroll in the demonstration. The population included military retirees,

their spouses and dependents, and other eligible beneficiaries, such as
unremarried former spouses, designated by law. We drew the survey sample
from a database provided by DOD that listed all persons eligible for the
demonstration as of April 1999.

We stratified the sample by the eight demonstration sites and by
enrollment status* enrollees and nonenrollees. Specifically, we used a
stratified two- stage design in which households were selected within each
Sample Design

Appendix I: GAO- DOD- OPM Survey of Military Retirees and Others Eligible
for the DOD- FEHBP Demonstration Page 32 GAO- 03- 547 Military Retiree
Health Benefits

of the 16 strata and one eligible person was selected from each household.
For the enrollee sample, we selected all enrollees who were the sole
enrollee in their households. In households with multiple enrollees, we
randomly selected one enrollee to participate. For the nonenrollee sample,
first we randomly selected a sample of households from all nonenrollee
households and then randomly selected a single person from each those
households. We used a modified equal allocation approach, increasing the
size of the nonenrollee sample in steps, bringing it successively closer
to the sample size that would be obtained through proportional allocation.
This modified approach produced the best balance in statistical terms

between the gain from the equal allocation approach and the gain from the
proportional allocation approach. 1 If both an enrollee and a nonenrollee
were selected from the same household, the nonenrollee was dropped from
the sample and a different nonenrollee was selected. We adjusted the
nonenrollee sample size to take account of expected nonresponse. Our final
sample included 1,676 out of 2,507 enrollees and 3,971 out of 66,335
nonenrollees.

Starting with an overall sample of 5,647 beneficiaries, we obtained usable
questionnaires from 4,787 people* an overall response rate of 85 percent.
2 (See table 5.) Response rates varied across sites, from 76 percent to 85
percent among nonenrollees, and from 92 percent to 98 percent among

1 We considered (1) a proportional (to the population size) allocation
across the sites that would provide the greatest precision for population
estimates, (2) an equal allocation across the sites that would provide the
greatest power to detect differences among the eight sites, and (3) a
matched allocation, in which the same number of enrollees and nonenrollees
would be selected, and which would provide the greatest power to detect
differences between enrollees and nonenrollees. We also examined two
blended strategies: one that blended proportional allocation with equal
allocation, and another that blended proportional allocation with matched
allocation. We conducted a simulation to compare the gain in precision and
power* increasing the size of the nonenrollee sample under each

blended strategy. Assessing the gains from the two strategies, we
determined that the modified equal allocation approach was preferable. We
specified the size of the nonenrollee sample that would maximize the
probability, at the 5 percent significance level, of detecting a 5
percentage point difference in proportions between enrollees and
nonenrollees and a 10 percentage point difference between enrollees and
nonenrollees at a given site.

2 Westat, which fielded the survey, sent initial survey packages to all
beneficiaries starting in May 2000. Nonrespondents were sent follow- up
reminder postcards as well as additional survey packages as needed.
Participants with questions could call toll- free numbers and speak with
English- or Spanish- speaking survey staff. Response Rates

Appendix I: GAO- DOD- OPM Survey of Military Retirees and Others Eligible
for the DOD- FEHBP Demonstration Page 33 GAO- 03- 547 Military Retiree
Health Benefits

enrollees. (See table 6.) At each site, enrollees responded at higher
rates than nonenrollees.

Each of the 16 strata was weighted separately to reflect its population.
The enrollee strata were given smaller sampling weights, reflecting
enrollees* higher response rates and the fact that they were sampled at a
higher rate than nonenrollees. The weights were also adjusted to reflect
the variation in response rates across sites. Finally, the sampling
weights were further

adjusted to reflect differences in response rates between male and female
participants in 8 strata.

Table 5: Survey Responses and Nonresponses Sample size 5,647

Response 4,787 Nonresponse 860 Overall response rate 85% Reason for
nonresponse

Deceased 27 Refusal 36 Ineligible 11 Other nonresponse 786 Total not
completed 860

Source: GAO- DOD- OPM survey. Note: Westat analysis of GAO- DOD- OPM
survey.

Appendix I: GAO- DOD- OPM Survey of Military Retirees and Others Eligible
for the DOD- FEHBP Demonstration Page 34 GAO- 03- 547 Military Retiree
Health Benefits

Table 6: Population, Sample Size, and Response Rate, by DOD- FEHBP
Demonstration Site and Enrollee Status, 2000 Site and enrollee status
Population Sample size Number of

respondents Response rate (percentage) Camp Pendleton, Calif. Enrollee 303
197 187 95

Nonenrollee 24,604 752 609 81

Dallas, Tex. Enrollee 520 350 323 92 Nonenrollee 13,087 731 618 85

Dover, Del. Enrollee 35 26 24 92 Nonenrollee 4,349 388 310 80

Fort Knox, Ky. Enrollee 134 98 90 92 Nonenrollee 7,623 676 535 79

Greensboro, N. C. Enrollee 285 187 183 98 Nonenrollee 2,993 268 228 85

Humboldt County, Calif. Enrollee 221 150 143 95 Nonenrollee 2,698 232 193
83

New Orleans, La. Enrollee 96 71 65 92 Nonenrollee 4,987 419 318 76

Puerto Rico Enrollee 913 597 561 94 Nonenrollee 5,994 505 400 79

All sites Enrollee 2,507 1,676 1,576 94 Nonenrollee 66,335 3, 971 3,211 81

Total 68,842 5, 647 4,787 85

Sources: DOD, OPM, and GAO- DOD- OPM survey. Note: GAO analysis of DOD and
OPM data, and Westat analysis of GAO- DOD- OPM survey.

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 35 GAO- 03- 547 Military Retiree Health Benefits

In this appendix, we describe the data, methods, and models used to (1)
analyze the factors explaining how beneficiaries knew about the
demonstration and why they enrolled in it, (2) assess the health of
beneficiaries and civilian FEHBP enrollees, and (3) obtain the premiums of
Medigap insurance in the demonstration areas. Our approach to analyzing
eligible beneficiaries* behavior involved two

steps: first, analyzing the factors related to whether eligible
beneficiaries knew about the demonstration, and second, analyzing the
factors related to whether those who knew about the demonstration decided
to enroll.

Knowledge about the demonstration. To account for differences in
beneficiaries* knowledge about the demonstration, we used individuallevel
variables as well as variables corresponding to individual sites. 1 These
individual- level categories were demographic and economic

variables, such as age and income; health status; other sources of health
coverage, such as having employer- sponsored health insurance; and
military- related factors. The inclusion of site variables allowed the
model

to take account of differences across the different sites in
beneficiaries* knowledge about the demonstration. We analyzed the extent
to which these variables influenced beneficiaries*

knowledge about the demonstration using a logistic regression* a standard
statistical method of analyzing an either/ or (binary) variable. This
method yields an estimate of each factor*s effect, controlling for the

effects of all other factors in the regression. In our analysis, either a
retiree knew about the demonstration or did not. The logistic regression
predicts the probability that a beneficiary knew about the demonstration,
given information about the person*s traits* for example, over age 75, had
employer- sponsored health insurance, and so on. The coefficient on each

variable measures its effect on beneficiaries* knowledge. 2 These
coefficients pertain to the entire demonstration population, not just
those beneficiaries in our survey sample. To make the estimates
generalizable to 1 Individual sites were represented by binary or dummy
variables; for example, Humboldt County, California had a value of one
when a beneficiary lived in that site, and a value of

zero when the beneficiary lived in another site. 2 To avoid statistical
problems with analyzing the probability directly, logistic regression
analyzes a related dependent variable* a function of the probability, P,
divided by (1- P). However, the estimated probability, P, can be
calculated from the logistic regression. In our analysis, P refers to each
retiree*s probability of knowing about the demonstration. Appendix II:
Data, Methods, and Models Used in Analyzing Factors Affecting DOD- FEHBP

Demonstration Enrollment Analysis of Factors Affecting Knowledge about the
Demonstration and Enrollment

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 36 GAO- 03- 547 Military Retiree Health Benefits

the entire eligible population, we applied sample weights to all
observations.

In view of the large difference in enrollment between the mainland sites
and Puerto Rico, we tested whether the same set of coefficient estimates
was appropriate for the mainland sites and the Puerto Rico site. Our
results showed that the coefficient estimates for the mainland and for
Puerto Rico were not significantly different (at the 5 percent level), so
it was appropriate to estimate a single logistic regression model for all
sites.

Table 7 shows for each variable its estimated effect on knowledge, as
measured by the variable*s coefficient and odds ratio. The odds ratio
expresses how much more likely* or less likely* it is that a person with a
particular characteristic knows about the demonstration, compared to a
person without that characteristic. The odds ratio is based on the
coefficient, which indicates each explanatory variable*s estimated effect
on the dependent variable, holding other variables constant. For the

mainland sites, retirees were more likely to know about the demonstration
if they were male, were married, were officers, were covered by
employersponsored health insurance, lived less than an hour from a
military treatment facility (MTF), or belonged to military retiree
organizations. Retirees were less likely to know about the demonstration
if they were African American; were older than age 75; or lived in Camp
Pendleton, California, Dallas, Texas, or Fort Knox, Kentucky.

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 37 GAO- 03- 547 Military Retiree Health Benefits

Table 7: Estimated Effects of Selected Factors on Whether Eligible
Retirees Knew about the DOD- FEHBP Demonstration Odds ratio Coefficient

Demographic and economic factors African American 0.67 -0.40 a Higher
income (over $40,000) 1.29 0.26 a Hispanic 0.61 -0.49 b Male 1.38 0.32 c
Married 1.43 0.36 c Officer 1.49 0.40 c Older than age 75 0.71 -0.35 c
Health status Self or spouse in fair or poor health 0.85 -0.16 Health
insurance coverage Covered by a Medigap policy 1.10 0.09

Covered by employer- sponsored health insurance 1.39 0.33 c Enrolled in a
Medicare+ Choice plan in 1999 0.97 -0.03 Enrolled in Medicare part B on
January 1, 2000 1.12 0.11 Military- related factors Less than 1 hour from
an MTF 1.46 0.38 c

Member of military retiree organization 1.70 0.53 c Used VA care during
fiscal years 1998 or 1999 0.81 -0.21 Site effects d Camp Pendleton, Calif.
0.58 -0.55 c

Dallas, Tex. 0.65 -0.43 c Dover, Del. 0.72 -0.33 Fort Knox, Ky. 0.59 -0.52
a Greensboro, N. C. 1.18 0.16 Humboldt County, Calif. 0.93 -0.07 Puerto
Rico 0.77 -0.26 Constant -0.73 c Observations 3,504

Sources: GAO- DOD- OPM survey, CMS, and VA. Note: GAO analysis of GAO-
DOD- OPM survey data, CMS enrollment data and VA enrollment data. The odds
ratio expresses how much more likely* or less likely* it is that a person
with a particular characteristic knows about the demonstration, compared
to a person without that characteristic. The coefficient indicates each
explanatory variable*s estimated effect on the dependent variable, holding
other variables constant. a Significant at the 5 percent level.

b Significant at the 10 percent level. c Significant at the 1 percent
level. d The site effects consisted of a dummy variable for each site; the
comparison site is New Orleans, La., selected at random from the eight
sites. The mainland site effects were jointly significant at the 5 percent
level.

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 38 GAO- 03- 547 Military Retiree Health Benefits Decision to enroll
in the demonstration. To account for a retiree*s

decision to enroll or not to enroll, we considered four categories of
individual- level variables similar to those in the *knowledge of the
demonstration* regressions, and a site- level variable for Puerto Rico. We
also introduced a set of health insurance factors pertaining to the area
in which the retiree lived* the premium for a Medigap policy and the

proportion of Medicare beneficiaries in a retiree*s county of residence
enrolled in a Medicare+ Choice plan.

In our logistic regression analysis of enrollment, we included only those
people who knew about the demonstration. Despite the large enrollment
differences between the mainland sites and Puerto Rico, our statistical
tests determined that the mainland sites and the Puerto Rico site could be
combined into a single logistic regression of enrollment. We included a
variable for persons in the Puerto Rico site. (See table 8.)

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 39 GAO- 03- 547 Military Retiree Health Benefits

Table 8: Estimated Effects of Selected Factors on Whether Eligible
Retirees Enrolled in an FEHBP Plan Odds ratio Coefficient

Demographic and economic factors African American 0.51 -0.68 a Hispanic
1.19 0.17 Higher income (over $40,000) 1.35 0.30 b Male 0.74 -0.31 c
Married 5.06 1.62 c Officer 1.46 0.38 a Older than age 75 1.32 0.28 Health
status Self or spouse in fair or poor health 0.93 -0.07 Health insurance
coverage Covered by a Medigap policy 1.32 0.28 b

Covered by employer- sponsored health insurance 0.40 -0.92 a Enrolled in a
Medicare+ Choice plan in 1999 0.53 -0.64 a Enrolled in Medicare part B on
January 1, 2000 2.01 0.70 a Military- related factors Less than 1 hour
from an MTF 0.36 -1.01 a

Member of a military retiree organization 1.49 0.40 a Used VA care during
fiscal years 1998 or 1999 1.00 0.00 Geographic effects Medicare+ Choice
enrollment in county d -- e -0.01 a

Medigap price for county and age category -- e -0.38 a Puerto Rico site
2.96 1.09 a Constant -2.69 a Observations 1,913

Sources: GAO- DOD- OPM survey, Quotesmith Inc., CMS, and VA. Note: GAO
analysis of GAO- DOD- OPM survey, DOD enrollment data, CMS enrollment
data, VA enrollment data, and Quotesmith Inc. Medigap premium data. a
Significant at the 1 percent level.

b Significant at the 5 percent level. c Significant at the 10 percent
level. d The proportion of Medicare beneficiaries in a retiree*s county of
residence enrolled in a Medicare+ Choice plan. e Odds ratios are not
reported for continuous variables, such as the number of enrollees and the
price

in dollars, because, unlike binary variables, the choice of values to make
a comparison is arbitrary.

We found that retirees were less likely to enroll in the demonstration if
they were African American, enrolled in Medicare+ Choice plans, had
employer- sponsored health insurance, lived in areas with a high
proportion of Medicare beneficiaries enrolled in a Medicare+ Choice plan,
lived in areas where Medigap was more expensive, or lived less than an
hour from an MTF. Retirees who had higher incomes, were officers, were
members of a military retiree organization, were enrolled in Medicare part
B, lived in Puerto Rico, or were covered by a Medigap policy were more
likely to enroll.

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 40 GAO- 03- 547 Military Retiree Health Benefits

We estimated what the demonstration*s enrollment rate would have been in
2000 if everyone eligible for the demonstration had known about it. For
the 54 percent of retirees who did not know about the demonstration, we
calculated their individual probabilities of enrollment, using their
characteristics (such as age) and the coefficient estimates from the
enrollment regression. 3 Aggregating these individual estimated enrollment
probabilities, we found that if all eligible retirees had known about the
demonstration, enrollment in 2000 would have been 7.2 percent of eligible
beneficiaries, compared with actual enrollment of 3.6 percent. 4 To
measure the health status of retired enrollees and nonenrollees, as well
as of civilian FEHBP enrollees, we calculated scores for individuals using

the Principal Inpatient Diagnostic Cost Group (PIP- DCG) method. This
method* used by the Centers for Medicare & Medicaid Services (CMS) in
adjusting Medicare+ Choice payment rates* yielded a proxy for the
healthiness of military and civilian retirees as of 1999, the year before
the demonstration. The method relates individuals* diagnoses to their
annual Medicare expenditures. For example, a PIP- DCG score of 1.20
indicates that the individual is 20 percent more costly than the average
Medicare beneficiary. In our analysis, we used Medicare claims and other
administrative data from 1999 to calculate PIP- DCG scores for eligible
military retirees and their counterparts in the civilian FEHBP in the
demonstration sites.

Using Medicare part A claims for 1999, we calculated PIP- DCG scores for
Medicare beneficiaries who were eligible for the demonstration. We used a

3 In these calculations, we used only the characteristics from the model
to simulate enrollment, which means we assumed the people who did not know
about the demonstration would have behaved the same with respect to their
decision to enroll, given their characteristics, as those who knew. We
also adjusted for the difference between the enrollment rate in the
demonstration as a whole and the enrollment rate of those included in the
logistic regression analysis for whom there were no missing data.

4 Retirees who reported that they did not know about the demonstration
before the survey may have included some retirees who had known about it
at one time. About 9 months elapsed between DOD*s final mailing to
beneficiaries about the demonstration and the end of our survey. Our
logistic regression for enrollment considered only people who responded in
the survey that they knew about the demonstration. We excluded people from
the enrollment regression who were enrolled but responded that they did
not know about the demonstration. This did not affect our results because
nearly all (more than 99 percent) of those who said they did not know
about the demonstration did not enroll. Calculating the Impact on

Enrollment if Those Eligible Had Known about the Demonstration

Estimating Health Status Based on PIP- DCG Scores

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 41 GAO- 03- 547 Military Retiree Health Benefits

DOD database to identify enrollees as well as those who were eligible for
the demonstration but did not enroll. We also calculated PIP- DCG scores
based on 1999 Medicare claims for

each Medicare- eligible person enrolled in the civilian FEHBP. We obtained
from OPM data on enrollees in the civilian FEHBP and on the plans in which
they were enrolled. We restricted our analysis to those Medicareeligible
civilian FEHBP enrollees who lived in a demonstration site.

Results of PIP- DCG calculations. We compared the PIP- DCG scores of
demonstration enrollees with those of eligible retirees who did not
enroll. In every site, the average PIP- DCG score was significantly less 5
for demonstration enrollees than for those who did not enroll. We also
compared the PIP- DCG scores of those enrolled in the demonstration with
those enrolled in the civilian FEHBP: For every site, these scores were
significantly less for demonstration enrollees than for their counterparts
in the civilian FEHBP. 6 (See table 9.)

5 The scores were significantly less at the 5 percent level. 6 The scores
were significantly less at the 5 percent level.

Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting
DOD- FEHBP Demonstration Enrollment

Page 42 GAO- 03- 547 Military Retiree Health Benefits

Table 9: Health Status Comparisons of DOD- FEHBP Demonstration Enrollees
with Eligible Retirees Who Did Not Enroll and with Civilian FEHBP
Retirees, Based on PIP- DCG Scores

Ratio of PIP- DCG scores of enrollees in a demonstration plan

Site Compared to eligible

military retirees who did not enroll Compared to civilian

retirees in FEHBP

All sites 0.87 0.81 Camp Pendleton, Calif. 0.88 0.83 Dallas, Tex. 0.82
0.75 Dover, Del. 0.76 0.71 Humboldt County, Calif. 0.91 0.86 Fort Knox,
Ky. 0.79 0.73 Greensboro, N. C. 0.84 0.77 New Orleans, La. 0.78 0.73
Puerto Rico 0.94 0.93

Source: CMS, DOD, and OPM. Note: GAO analysis of CMS claims data, DOD
enrollment data, and OPM enrollment data. Comparisons used 1999 claims
data and measured enrollment status as of September 2000. The difference
between the PIP- DCG scores for the enrollees in the demonstration and the
scores of military retirees who did not enroll was statistically
significant at the 5 percent level for each demonstration site. The
difference between the PIP- DCG scores for the enrollees in the
demonstration and the scores of civilian retirees in FEHBP was
statistically significant at the 5 percent level for each demonstration
site. We compiled data from Quotesmith Inc. to obtain a premium price for

Medigap plan F in each of the counties in the eight demonstration sites. 7
We collected the lowest premium quote for a Medigap plan F policy for each
sex at 5- year intervals: ages 65, 70, 75, 80, 85, and over 89. A person
age 65 to 69 was assigned the 65- year- old*s premium, a person age 70 to
74 was assigned the 70- year- old*s premium, and so on. Using these data,
we

assigned a Medigap plan F premium to each survey respondent age 65 and
over, according to the person*s age, sex, and location.

7 Quotesmith. com, Inc. Instant Medicare Supplemental Insurance Quotes
(Darien, Ill.: June 2000), http:// www. quotesmith. com/ index. html#
medsup (downloaded on June 27, 2000). Medigap Premiums

Appendix III: Enrollment in the DOD- FEHBP Demonstration

Page 43 GAO- 03- 547 Military Retiree Health Benefits

Tables 10, 11, and 12 show enrollment rates by site and for the U. S.
mainland sites as a whole for each year of the demonstration, 2000 through
2002.

Table 10: Enrollment in the DOD- FEHBP Demonstration, 2000 Enrollees
Eligible beneficiaries Percentage enrolled

Mainland sites Camp Pendleton, Calif. 303 24,907 1.2 Dallas, Tex. 520
13,607 3.8 Dover, Del. 35 4,384 0.8 Fort Knox, Ky. 134 7,757 1.7
Greensboro, N. C. 285 3,278 8.7 Humboldt County, Calif. 221 2,919 7.6 New
Orleans, La. 96 5,083 1.9

Total for mainland sites 1,594 61,935 2.6

Other site Puerto Rico 913 6,907 13.2

Total 2,507 68,842 3.6

Source: DOD. Note: Data are as of January 1, 2000.

Table 11: Enrollment in the DOD- FEHBP Demonstration, 2001 Enrollees
Eligible beneficiaries Percentage enrolled

Mainland sites Adair County, Iowa 1,564 29,584 5.3 Camp Pendleton, Calif.
421 27,328 1.5 Coffee County, Ga. 867 27,329 3.2 Dallas, Tex. 949 16,159
5.9 Dover, Del. 64 4,868 1.3 Fort Knox, Ky. 188 9,121 2.1 Greensboro, N.
C. 334 4,033 8.3 Humboldt County, Calif. 305 3,461 8.8 New Orleans, La.
142 6,095 2.3

Total for mainland sites 4,834 127,978 3.8

Other site Puerto Rico 2,687 9,401 28.6

Total 7,521 137,379 5.5

Source: DOD. Note: Data are as of March 14, 2001.

Appendix III: Enrollment in the DOD- FEHBP Demonstration

Appendix III: Enrollment in the DOD- FEHBP Demonstration

Page 44 GAO- 03- 547 Military Retiree Health Benefits

Table 12: Enrollment in the DOD- FEHBP Demonstration, 2002 Enrollees
Eligible beneficiaries Percentage enrolled

Mainland sites Adair County, Iowa 484 29,530 1. 6 Camp Pendleton, Calif.
145 27,287 0. 5 Coffee County, Ga. 212 27,284 0. 8 Dallas, Tex. 354 16,133
2. 2 Dover, Del. 36 4,867 0.7 Fort Knox, Ky. 70 9,113 0.8 Greensboro, N.
C. 85 4,024 2.1 Humboldt County, Calif. 65 3,454 1.9 New Orleans, La. 74
6,085 1.2

Total for mainland sites 1,525 127,777 1. 2

Other site Puerto Rico 2,842 9,453 30.1

Total 4,367 137,230 3. 2

Source: DOD. Note: Data are as of February 21, 2002.

Appendix IV: DOD*s Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration

Page 45 GAO- 03- 547 Military Retiree Health Benefits

The program for informing and educating eligible beneficiaries about the
demonstration was modeled on OPM*s approach to informing eligible civilian
beneficiaries about FEHBP. Elements of OPM*s approach include

making available a comparison of FEHBP plans and holding health fairs
sponsored by individual federal agencies. DOD expanded upon the OPM
approach* for example, by sending postcards to inform eligible
beneficiaries about the demonstration because they, unlike civilian
federal employees and retirees, were unlikely to have any prior knowledge
of FEHBP. In addition, DOD established a bilingual toll- free number.
During the first year*s enrollment period, DOD adjusted its information
and

education effort, for example, by changing the education format from
health fairs to town meetings designed specifically for demonstration
beneficiaries. In the second year of the demonstration, DOD continued with
its revised approach. In the third year, after TRICARE For Life (TFL)
began, DOD significantly reduced its information program but continued to
mail information to all eligible beneficiaries. It limited town meetings
to Puerto Rico, the only site where enrollment remained significant during
the third year.

DOD sent a series of mailings to all eligible beneficiaries. These
included  a postcard announcing the demonstration, mailed in August 1999,
1 that

alerted beneficiaries to the demonstration* the returned postcards allowed
DOD to identify incorrect mailing addresses and to target follow- up
mailings to beneficiaries with correct addresses;  an OPM- produced
booklet, The 2000 Guide to Federal Employees Health

Benefits Plans Participating in the DOD/ FEHBP Demonstration Project,

received by all eligible retirees from November 3 through 5, 1999, that
contained information on participating FEHBP plans, including coverage and
consumer satisfaction;  a trifold brochure describing the demonstration,
which was mailed on

September 1 and 4, 1999; and  a list of Frequently Asked Questions (FAQ)
explaining how Medicare and

FEHBP work together. At the time of our survey, after the first year*s
information campaign, over half of eligible beneficiaries were unaware of
the demonstration. Among those who knew about it, more recalled receiving
the postcard than

1 Dates for this and subsequent mailings refer to the first year of the
demonstration. Appendix IV: DOD*s Approach to Informing

Beneficiaries about the DOD- FEHBP Demonstration

Mailings

Appendix IV: DOD*s Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration

Page 46 GAO- 03- 547 Military Retiree Health Benefits

recalled receiving any of the later materials* although the FAQ was cited
more often as being useful. (See table 13.)

Table 13: Beneficiaries Who Recalled Receiving DOD- FEHBP Demonstration
Mailings and Who Found Them Useful

Percentages Beneficiaries

who recalled receiving materials a Beneficiaries

who found materials useful b Postcard announcing the DOD- FEHBP

demonstration 31 61 Booklet entitled, The 2000 Guide to Federal Employees
Health Benefits Plans Participating

in the DOD/ FEHBP Demonstration Project 27 67 Trifold brochure describing
the demonstration 17 69 FAQ about coordination of Medicare and FEHBP
benefits 17 72

Source: GAO- DOD- OPM survey. Note: These materials were mailed in 1999
for the 2000 enrollment period. a The question was asked only of those who
knew that, as part of the new demonstration, they could

join an FEHBP health plan. b Entries are percentages of beneficiaries who
recalled receiving them.

Initially, the health fairs that DOD sponsored for military bases*
civilian employees were its main effort* other than the mailings* to
provide information about the demonstration to eligible beneficiaries. At
these health fairs, plans set up tables at which their representatives
distributed brochures and answered questions. At one site, the military
base refused to allow the demonstration representatives to participate in
its health fair because of concern about an influx of large numbers of
demonstration beneficiaries. At another site, the turnout exceeded the
capacity of the plan representatives to deal with questions and DOD
officials told us that they accommodated more people by giving another
presentation at a different facility or at the same facility 1 month
later.

A DOD official discovered, however, that it was difficult to convey
information about the demonstration to large numbers of individuals at the
health fairs. DOD officials determined that the health fairs were not
working well, so by January 2000, DOD replaced them with 2- hour
briefings, which officials called town meetings. In these meetings, a DOD
representative explained the demonstration during the first hour and then
Health Fairs and Town Meetings

Appendix IV: DOD*s Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration

Page 47 GAO- 03- 547 Military Retiree Health Benefits

answered questions from the audience. A DOD official told us that these
town meetings were more effective than the health fairs. 2 For the first
year of the demonstration, just under 6 percent of those

eligible attended either a health fair or a town meeting. The number of
eligible beneficiaries who reported attending these meetings varied
considerably by site* from about 3 percent in New Orleans and Camp
Pendleton to 4 percent in Fort Knox and 18 percent in Humboldt County.
Roughly 11 percent of beneficiaries reported attending in Puerto Rico, the
site with the highest enrollment.

DOD also established a call center and a Web site to inform eligible
beneficiaries about the demonstration. The call center, which was staffed
by Spanish and English speakers, answered questions and sent out printed
materials on request. In the GAO- DOD- OPM survey, about 18 percent of

those who knew about the demonstration reported calling the center*s
tollfree number. The proportion that called the toll- free number was much
higher among subsequent enrollees (77 percent) than among nonenrollees who
knew about the demonstration (13 percent). The Web site was another source
of information about the demonstration.

Although less than half of eligible beneficiaries knew about the
demonstration, most of those who did know said they obtained their
information from DOD*s mailings. Other important sources of information
included military retiree and military family organizations and FEHBP
plans. (See table 14.)

2 In Puerto Rico, the town hall meetings were conducted in Spanish, which,
according to one DOD official, was very effective in conveying the
information to the eligible beneficiaries at that site. DOD*s Call Center
and

Web Site Beneficiaries* Sources of Information

Appendix IV: DOD*s Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration

Page 48 GAO- 03- 547 Military Retiree Health Benefits

Table 14: Beneficiaries* Sources of Information about the DOD- FEHBP
Demonstration Percentages Source of information All beneficiaries
Enrollees Nonenrollees

Received information mailed by DOD 81.8 78.1 82.1 Received information
from a military retiree or family organization 33.1 43.3 32.3 Received
information from one of the FEHBP plans 25.0 37.3 24.0 Heard about
demonstration from family or friends 7.0 10.0 6.8 Attended a health fair
or town meeting 5.9 25.6 4.3 Heard about it from office of Member of
Congress 2.1 5. 5 1.8 Read article about the demonstration in the
newspaper 7.6 9. 7 7.4 Saw newspaper advertisements by one or more FEHBP
plans 1.9 2. 2 1.8 Heard about demonstration on radio or television 1.7 1.
7 1.7 Other a 6.7 10.4 6.3

Source: GAO- DOD- OPM survey. Note: The source of information is given
only for those who knew before receiving the survey that, as a part of the
new demonstration, they could join an FEHBP health plan. Percentages add
to more than 100 because respondents could select more than one reason.
Respondents reported information gained relating to 2000 enrollment. a
*Other* refers to answers that could not be classified.

Nearly all of enrollees (93 percent) and more than half of nonenrollees
who said they considered enrolling in an FEHBP health plan (55 percent)
reported that they had enough information about specific plans to make an

informed decision about enrolling in one of them. More than three- fifths
of these beneficiaries who enrolled or considered enrolling in an FEHBP
plan said they used The 2000 Guide to FEHBP Plans Participating in the
DOD/ FEHBP Demonstration Project as a source of information. Other major
sources of information were the plans* brochures and DOD*s health fairs
and town meetings. More than 18 percent of those who considered joining
did not obtain information about any specific plan. (See table 15.)

Appendix IV: DOD*s Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration

Page 49 GAO- 03- 547 Military Retiree Health Benefits

Table 15: Sources of Information for Eligible Beneficiaries about Specific
FEHBP Plans

Percentages Source of Information Enrollees Nonenrollees Total

Reading The 2000 Guide to FEHBP Plans 75.1 59.7 63.5

Reading one or more plans* brochures 46.5 26.0 31.1

Health fair or town meeting 35.2 12.5 18.1

Calling one or more plans 27.2 9.9 14.2

Friends or family 14.3 8.6 10.0

Internet 10.3 3.8 5.4

Advertising in a newspaper or other publication 1.6 3.0 2.7

Other a 10.1 6.8 7.6

I did not get information about any specific FEHBP plans 1.2 24.3 18.6

Source: GAO- DOD- OPM survey. Note: Entries are percentages of respondents
who considered joining an FEHBP plan. Percentages add to more than 100
because respondents could select more than one reason. Respondents
reported information gained relating to 2000 enrollment. a *Other* refers
to answers that could not be classified.

Appendix V: Enrollees* and Nonenrollees* Reasons for Joining or Not
Joining a DODFEHBP Demonstration Plan

Page 50 GAO- 03- 547 Military Retiree Health Benefits

Table 16 shows reasons cited by enrollees for enrolling in a DOD- FEHBP
health plan in 2000, and table 17 shows reasons cited by nonenrollees for
not enrolling.

Table 16: Survey Responses by Enrollees to the Question *Why Did You Join
a DOD- FEHBP Health Plan?* Percentages

Location All respondents Mainland Puerto Rico

The plan*s benefits package meets my needs (and those of my family) 66.7
66.1 68.2 I needed better coverage for prescriptions 64.3 60.0 74.7 My
current doctors are among those I can select under the plan 62.5 63.0 61.3
It costs less than other coverage that I could buy 62.1 58.8 69.9 The
plan*s benefits package is better than other coverage I could get 50.8
47.2 59.2 It costs less than my previous coverage (insurance or health
plan) 49.8 48.9 51.8 The plan has a good reputation for quality of care
44.6 39.6 56.6 My spouse joined the plan, and it is more convenient if
we*re both in the same plan 34.6 28.6 48.7 I can*t count on getting space-
available care 27.1 33.1 13.1 It gives me a broader choice of doctors than
I had before 26.5 21.8 37.5 I don*t want to use military care 22.2 25.9
13.4 Many civilian doctors don*t accept CHAMPUS/ TRICARE a 20.4 17.2 28.2
My friends or relatives recommended that I join the plan 14.2 9.4 25.3
Other b 10.0 10.9 7.8 Source: GAO- DOD- OPM survey.

Note: This question was asked only of people who knew about the
demonstration at the time of the survey. Beneficiaries were given a list
of possible answers as well as an *Other* option for which they could
write their own answers.

a CHAMPUS is the name given to the military health care program that
preceded TRICARE. b Answers that could not be classified.

Appendix V: Enrollees* and Nonenrollees* Reasons for Joining or Not
Joining a DODFEHBP Demonstration Plan

Appendix V: Enrollees* and Nonenrollees* Reasons for Joining or Not
Joining a DODFEHBP Demonstration Plan

Page 51 GAO- 03- 547 Military Retiree Health Benefits

Table 17: Survey Responses by Nonenrollees to the Question *Why Didn*t You
Join a DOD- FEHBP Health Plan?* Percentages

Location All respondents Mainland Puerto Rico

I was satisfied with my current coverage 64.1 65.9 28.4 It would cost too
much 29.4 29.9 17.6 The program is new, and I*m waiting to see how it
works 26.6 26.4 30.2 I wasn*t sure how it would work with Medicare 26.2
25.7 36.2 I wouldn*t be able to use military pharmacies anymore 26.1 26.4
20.8 I couldn*t keep my current doctors 25.5 26.3 8. 1 The demonstration
will end in 3 years 22.0 22.3 16.5 I was afraid I wouldn*t be able to get
my Medicare supplemental policy back after the demonstration ended 20.2
20.6 12.1 I can get care at military health care facilities when I need it
14.4 13.6 30.7 I heard about the demonstration, but did not have enough
information to make a decision 13.9 13.3 27.5 I was afraid I wouldn*t be
able to get my retiree health insurance back after the demonstration ended
11.1 11.1 11.0 I can get care at the VA when I need it 10.2 9.1 31.4 I
couldn*t decide which plan to join 9.5 9.0 20.8 My spouse didn*t want to
join so I decided not to 5.7 5.5 9. 2 My friends and relatives recommend
against it 5.0 5.2 0. 0 I was not eligible 4.5 4.7 1. 1 I didn*t know
about the demonstration project 3.5 3.4 4. 4 None of the plans available
to me had a good reputation 3.0 3.1 1. 1 Other a 15.8 15.9 13.2

Source: GAO- DOD- OPM survey. Note: This question was asked only of people
who knew about the demonstration at the time of the survey. Beneficiaries
were given a list of possible answers as well as an *Other* option for
which they could write their own answers. Answers relate to enrollment in
2000. Because beneficiaries could

select multiple reasons, the percentages total more than 100. a Answers
that could not be classified.

Appendix VI: Comments from the Department of Defense

Page 52 GAO- 03- 547 Military Retiree Health Benefits

Appendix VI: Comments from the Department of Defense

Appendix VII: GAO Contacts and Staff Acknowledgments

Page 53 GAO- 03- 547 Military Retiree Health Benefits

Jonathan Ratner, (202) 512- 7107 Phyllis Thorburn, (202) 512- 7012

Major contributors to this work were Michael Kendix, Robin Burke, Jessica
Farb, Martha Kelly, Dae Park, and Michael Rose. Appendix VII: GAO Contacts
and Staff

Acknowledgments GAO Contacts Acknowledgments

Related GAO Products Page 54 GAO- 03- 547 Military Retiree Health Benefits

Defense Health Care: Oversight of the Adequacy of TRICARE*s Civilian
Provider Network Has Weaknesses. GAO- 03- 592T. Washington, D. C.: March
27, 2003.

Federal Employees* Health Benefits: Effects of Using Pharmacy Benefit
Managers on Health Plans, Enrollees, and Pharmacies. GAO- 03- 196.
Washington, D. C.: January 10, 2003.

Federal Employees* Health Plans: Premium Growth and OPM*s Role in
Negotiating Benefits. GAO- 03- 236. Washington, D. C.: December 31, 2002.

Medicare+ Choice: Selected Program Requirements and Other Entities*
Standards for HMOs. GAO- 03- 180: Washington, D. C.: October 31, 2002.

Medigap: Current Policies Contain Coverage Gaps, Undermine Cost Control
Incentives. GAO- 02- 533T. Washington, D. C.: March 14, 2002.

Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises Cost
and Management Issues for DOD Health Care. GAO- 02- 284. Washington, D.
C.: February 11, 2002. Retiree Health Insurance: Gaps in Coverage and
Availability. GAO- 02-

178T. Washington, D. C.: November 1, 2001.

Medigap Insurance: Plans Are Widely Available but Have Limited Benefits
and May Have High Costs. GAO- 01- 941. Washington, D. C.: July 31, 2001.

Health Insurance: Proposals for Expanding Private and Public Coverage.
GAO- 01- 481T. Washington, D. C.: March 15, 2001.

Defense Health Care: Pharmacy Copayments. GAO/ HEHS- 99- 134R. Washington,
D. C.: June 8, 1999.

Federal Health Programs: Comparison of Medicare, the Federal Employees
Health Benefits Program, Medicaid, Veterans* Health Services, Department
of Defense Health Services, and Indian Health Services. GAO/ HEHS- 98-
231R. Washington, D. C.: August 7, 1998.

Defense Health Care: Offering Federal Employees Health Benefits Program to
DOD Beneficiaries. GAO/ HEHS- 98- 68. Washington, D. C.: March 23, 1998.
Related GAO Products

(290026)

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