Military Health Care: Cost Data Indicate That TRICARE Reserve
Select Premiums Exceeded the Costs of Providing Program Benefits
(21-DEC-07, GAO-08-104).
(DOD) TRICARE Reserve Select (TRS) program allows most reservists
to purchase coverage under TRICARE, the military health insurance
program, when not on active duty. DOD intends to set premiums at
a level equal to the expected costs of providing TRS benefits.
The National Defense Authorization Act for 2007 required GAO to
review TRS costs. As discussed with the committees of
jurisdiction, GAO compared (1) the TRS premiums established by
DOD to the reported costs of providing benefits under TRS in 2006
and (2) DOD's projected costs for TRS before implementation to
DOD's reported costs for the program in 2005 and 2006. To do this
work, GAO examined DOD analyses and interviewed DOD officials and
external experts.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-104
ACCNO: A79152
TITLE: Military Health Care: Cost Data Indicate That TRICARE
Reserve Select Premiums Exceeded the Costs of Providing Program
Benefits
DATE: 12/21/2007
SUBJECT: Cost analysis
Health care costs
Health care programs
Health insurance
Health insurance cost control
Insurance premiums
Military benefits claims
Military health services
Program management
Benefit-cost tracking
Cost estimates
Program costs
Program goals or objectives
DOD Tricare Program
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GAO-08-104
* [1]Results in Brief
* [2]Background
* [3]Changes in TRS Coverage
* [4]Enrollment in TRS
* [5]DOD's Methods for Developing TRS Premiums
* [6]Basing TRS Premiums on BCBS Premiums Resulted in TRS Premium
* [7]In 2006, the Premium for Both Individual and Family Coverage
* [8]Basing TRS Premiums on BCBS Premiums Is Unlikely to Successf
* [9]TRS Cost Data Would Provide DOD with an Improved Basis for A
* [10]TRS's Projected Costs Significantly Exceeded Reported Costs
* [11]DOD's Projected Costs Were Significantly Higher Than Its Rep
* [12]DOD's Projected Costs Were Higher Than Reported Costs for TR
* [13]DOD's Projection of Future TRS Enrollment Levels Is Likely T
* [14]Conclusions
* [15]Recommendations for Executive Action
* [16]Agency Comments
* [17]Appendix I: Comparison of TRS Premium Growth with DOD's Esti
* [18]Appendix II: Scope and Methodology
* [19]Calculation of Average Costs per TRS Plan
* [20]Data Reliability Tests
* [21]Appendix III: Comments from the Department of Defense
* [22]Appendix IV: GAO Contact and Staff Acknowledgments
* [23]GAO Contact
* [24]Acknowledgments
* [25]Order by Mail or Phone
* [26]PDF6-Ordering Information.pdf
* [27]GAO's Mission
* [28]Obtaining Copies of GAO Reports and Testimony
* [29]Order by Mail or Phone
* [30]To Report Fraud, Waste, and Abuse in Federal Programs
* [31]Congressional Relations
* [32]Public Affairs
Report to Congressional Committees
United States Government Accountability Office
GAO
December 2007
MILITARY HEALTH CARE
Cost Data Indicate That TRICARE Reserve Select Premiums Exceeded the Costs
of Providing Program Benefits
GAO-08-104
Contents
Letter 1
Results in Brief 4
Background 6
Basing TRS Premiums on BCBS Premiums Resulted in TRS Premiums That
Exceeded the Costs of Providing Program Benefits in 2006 12
TRS's Projected Costs Significantly Exceeded Reported Costs for Fiscal
Years 2005 and 2006 Largely Because Enrollment Levels Were Lower Than DOD
Expected 17
Conclusions 21
Recommendations for Executive Action 22
Agency Comments 23
Appendix I Comparison of TRS Premium Growth with DOD's Estimated Rate of
Medical Care Price Inflation 25
Appendix II Scope and Methodology 27
Appendix III Comments from the Department of Defense 30
Appendix IV GAO Contact and Staff Acknowledgments 34
Tables
Table 1: Selected TRS Qualification Criteria and Premiums for Members of
the Selected Reserves 8
Table 2: Comparison of Cost-Sharing Provisions under TRS and Blue Cross
and Blue Shield Standard 11
Table 3: Comparison of the Projected Number of TRS Plans to the Reported
Number of TRS Plans, June 2007 19
Figures
Figure 1: Comparison of DOD's Reported Average Cost per Plan with TRS
Premiums, 2006 14
Figure 2: Number of TRS Plans in Each Tier, January 2006-June 2007 20
Abbreviations
BCBS Blue Cross and Blue Shield
CPI-W Consumer Price Index for Urban Wage
Earners and Clerical Workers
DOD Department of Defense
FEHBP Federal Employees Health Benefits Program
MTF military treatment facility
NDAA National Defense Authorization Act TRS
TRICARE Reserve Select
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United States Government Accountability Office
Washington, DC 20548
December 21, 2007
Congressional Committees
Since the September 11, 2001, terrorist attacks, the Department of Defense
(DOD) has increasingly relied on reservists to support military
operations, such as the conflicts in Iraq and Afghanistan.^1 In
recognition of this, Congress has increased the health care benefits
available to reservists and their dependents, which generally include
family members such as spouses and dependent children. Specifically, the
National Defense Authorization Acts (NDAA) for Fiscal Years 2005, 2006,
and 2007 expanded the number of reservists and their dependents who
qualify for TRICARE, the military health insurance program, and increased
the period during which they qualify.^2 The NDAA for Fiscal Year 2005
established the program that DOD has named TRICARE Reserve Select (TRS),
which currently allows most members of the Selected Reserves^3 to purchase
TRICARE coverage for periods after the TRICARE coverage associated with
active duty expires. After purchasing coverage, enrollees can obtain
health care through TRICARE-authorized providers or hospitals or through
DOD-operated military treatment facilities (MTF) if appointments are
available. TRS currently serves a small portion of the TRICARE
population--as of June 2007, only about 34,000 of the 9.1 million TRICARE
beneficiaries were enrolled in TRS.
Unlike most TRICARE beneficiaries who obtain health care benefits without
paying premiums, reservists who qualify for TRS must pay a monthly premium
to receive benefits through the program. By statute, DOD is required to
set premiums for TRS at a level that it determines to be reasonable using
an appropriate actuarial basis.^4 DOD officials told us that the
department interpreted this to mean that TRS premiums should be set equal
to the expected average costs of providing the benefit per plan.^5 TRS
enrollees are responsible for paying a portion of the total premium set by
DOD. In this report the term premium refers to the total premium--that is,
the portion paid by enrollees, currently 28 percent, plus the portion
covered by DOD, currently 72 percent.^6 DOD based the premiums for TRS on
the Federal Employees Health Benefits Program's (FEHBP) Blue Cross and
Blue Shield (BCBS) Standard premiums, which the department adjusted to
account for differences in age, gender, and family size between the BCBS
population and the population of reservists and their family members who
qualify for TRS. To keep pace with rising health care costs, DOD
originally designed TRS so that the premiums are adjusted each year based
on annual adjustments in BCBS Standard premiums. DOD planned to continue
using this method to adjust premiums in the near future.
^1In this report the term reservist includes all members of the seven
reserve components: the Army National Guard and the Air National Guard as
well as the Army Reserve, the Naval Reserve, the Marine Corps Reserve, the
Air Force Reserve, and the Coast Guard Reserve.
^2Prior to these expansions, a reservist and his or her dependents were
eligible for TRICARE only while the reservist was serving on active duty
for more than 30 days.
^3The Selected Reserves contains those units and individuals considered
essential to wartime missions. In 2005, 88 percent of reservists were
considered part of the Selected Reserves.
^4See 10 U.S.C. S 1076d(d)(2).
The NDAA for Fiscal Year 2007 required that we review DOD's costs of
implementing the TRS program.^7 Specifically, as discussed with the
committees of jurisdiction, we compared (1) the annual TRS premiums
established by DOD to the reported costs of providing benefits under TRS
in 2006 and (2) DOD's projected costs for the TRS program before
implementation to DOD's reported costs for the program in 2005 and 2006.
The NDAA for Fiscal Year 2007 also required that we describe how increases
in TRS premiums compare with DOD's annual rate of medical care price
inflation. This information is included in appendix I.
To compare the annual TRS premiums established by DOD to the reported
costs of providing benefits under TRS in 2006, we reviewed DOD's reported
TRS enrollment data and data on the cost of providing TRS benefits through
TRICARE-authorized civilian providers or hospitals, data on the
administrative costs associated with providing TRS benefits, and data on
the costs of providing TRS benefits through MTFs. Using DOD's data, we
calculated the average cost per TRS plan^8 of providing individual and
family coverage as the sum of the reported costs divided by the average
number of TRS plans. We also reviewed legislation relevant to the TRS
program and literature on setting health insurance premiums and
interviewed experts from the fields of health economics and finance and
DOD officials in the TRICARE Management Activity and the Office of the
Assistant Secretary for Health Affairs, which are responsible for managing
the TRICARE program. We limited our analysis to calendar year 2006 because
some 2007 data are still incomplete and because 2005 average cost data in
some months are based on a very small number of enrollees. During the time
period covered by our analysis, TRS included three tiers of eligibility
with enrollees in each tier paying different portions of the premium based
on the tier for which they qualified. We limited our analysis to tier 1
because it included over 90 percent of TRS plans and because tier 1
enrollee premium levels have applied to the entire TRS program since
October 2007. In addition, we were unable to report the average cost per
plan for tiers 2 and 3 separately, due to the low number of enrollees in
these tiers.
^5In this report the term plan refers to a TRS policy purchased for
individual or family coverage.
^6By law, under a three-tiered premium structure in effect during fiscal
year 2007, qualification criteria for TRS were set for each of three
separate tiers: Members of the Selected Reserves who served in a
contingency operation for 90 continuous days or more since September 11,
2001, qualified to purchase TRS coverage under tier 1 and paid 28 percent
of the total premium. Members of the Selected Reserves who did not have
such service but were either unemployed, self-employed, or not eligible
for employer-sponsored insurance qualified to purchase TRS coverage under
tier 2 and paid 50 percent of the total premium. Members of the Selected
Reserves who did not qualify for tier 1 or tier 2 were qualified to
purchase TRS coverage under tier 3, and paid 85 percent of the total
premium. Due to a change in law, since October 1, 2007, all enrollees have
paid 28 percent of the total premium.
^7See Pub. L. No. 109-364, S 713(b), 120 Stat. 2083, 2289-90 (2006).
To compare DOD's projected costs for the TRS program before implementation
with DOD's reported costs for the program in 2005 and 2006, we reviewed
the analyses prepared by DOD before TRS's implementation that projected
(1) the number of individual and family plans in each tier of the TRS
program and (2) the costs per plan of providing the TRS benefit. These
projections were the two major factors used by DOD to estimate TRS costs.
We compared these data with reported TRS enrollment and cost data from
2005 through 2007. In reporting the results of our comparison we use cost
data through 2006 only, because some cost data for 2007 were incomplete
due to the delay between when a claim is incurred and when it is paid. We
also reviewed DOD internal documents and interviewed DOD officials.
^8In our analysis we calculated a separate average cost per TRS plan for
individual and family coverage--not the average cost per TRS enrollee.
While we have raised concerns about the quality of DOD cost data in
previous reports,^9 we determined that the data used for this analysis
were sufficiently reliable for our purposes based on interviews with DOD
officials and an examination of the data for obvious errors and omissions.
However, we did not independently verify these data.
For a complete discussion of our scope and methodology, see appendix II.
We conducted our work from May 2007 through October 2007 in accordance
with generally accepted government auditing standards.
Results in Brief
In 2006, the premium for both individual and family coverage under
TRS--which DOD based on BCBS premiums--exceeded the reported average cost
per plan of providing TRICARE benefits through the program. The premium
for individual coverage under tier 1 was 72 percent higher than the
average cost per plan of providing benefits through the program.
Similarly, the premium for family coverage under tier 1 was 45 percent
higher than the average cost per plan of providing benefits. DOD based TRS
premiums on BCBS premiums because, at the time DOD was developing TRS,
actual data on the costs of delivering TRICARE benefits for the TRS
population did not exist; however, these data are now available for 2005
and 2006. Had DOD been successful in establishing premiums that were equal
to the cost of providing benefits in 2006, the portion of the premium paid
by enrollees in tier 1--which is set by statute to cover 28 percent of the
full premium--would have been lower that year--$566 instead of $972 for
single coverage and $2,099 instead of $3,036 for family coverage. Reasons
that basing TRS premiums on BCBS premiums did not successfully align TRS
premiums with benefit costs included certain differences between the TRS
and BCBS populations and certain differences between the two programs that
DOD did not consider in its methodology. According to experts, the most
successful methods for aligning premiums with the actual costs of
providing benefits involve using program cost data when setting premiums.
The regulation governing TRS premium adjustments allows DOD to use either
BCBS premiums or other means as the basis for TRS premiums. However, DOD
officials told us that they plan to continue, at least for the near
future, to base TRS premium adjustments on BCBS premiums because of
limitations associated with using currently available data to predict
future TRS costs. DOD officials told us that the limitations associated
with currently available data are due to the newness of the TRS program,
recent changes to TRS, and the low number of enrollees. However, any
limitations associated with TRS cost data should decrease over time as DOD
gains more experience with the program and enrollment increases, thus
enabling DOD to better project future health care costs. Nonetheless, due
to the uncertainty associated with predicting future health care costs,
premiums are unlikely to exactly match program costs, even when they are
based on cost data from prior years. Other insurance programs have methods
to address discrepancies between premiums and program costs, which are not
provided to DOD in the law governing TRS.
^9GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of
Cost Data and Provide Additional Guidance to Control Costs, [33]GAO-05-882
(Washington, D.C.: Sept. 21, 2005), and Medicare Subvention Demonstration:
DOD Data Limitations May Require Adjustments and Raise Broader Concern,
[34]GAO/HEHS-99-39 , (Washington, D.C.: May 28, 1999).
DOD significantly overestimated the total cost of providing benefits
through TRS. While the department projected that its total costs would
amount to about $70 million in fiscal year 2005 and about $442 million in
fiscal year 2006, DOD's reported costs in those years were about $5
million and about $40 million, respectively. DOD's cost projections were
too high largely because it overestimated the number of reservists who
would purchase TRS as well as the associated cost per plan of providing
benefits through the program. DOD officials told us that they considered
TRS cost and enrollment data when developing future year projections of
program costs and enrollment levels, but they chose not to use these data
as part of their projections because of uncertainty about whether they
would provide an accurate indication of likely future experience.
With the goal of eventually eliminating reliance on BCBS premiums and to
better align premiums with the costs of providing TRS health care
benefits, we recommend that the Secretary of Defense direct the Assistant
Secretary for Health Affairs to stop basing TRS premium adjustments only
on BCBS premium adjustments and use the reported costs of providing
benefits through the TRS program when adjusting TRS premiums in future
years as limitations associated with the reported cost data decrease.
We also recommend that DOD explore options for addressing instances in
which premiums have been either significantly higher or lower than program
costs in prior years, including seeking legislative authority as
necessary.
In its written comments on a draft of this report, DOD concurred with our
conclusions and recommendations. See appendix III for DOD's comments.
Background
Beginning on April 27, 2005, DOD made TRICARE coverage available for
purchase through TRS for certain reservists when they were not on active
duty or eligible for pre- or postactivation TRICARE coverage.^10 Enrollees
in TRS can obtain care from MTFs or from TRICARE-authorized civilian
providers or hospitals. TRS enrollees can obtain prescription drugs
through TRICARE's pharmacy system, which includes MTF pharmacies, network
retail pharmacies, nonnetwork retail pharmacies, and the TRICARE Mail
Order Pharmacy. Since 2005, Congress has made this benefit available to a
growing number of members of the Selected Reserves.
Changes in TRS Coverage
The NDAA for Fiscal Year 2005 authorized the TRS program.^11 As originally
authorized, TRS made TRICARE coverage available to certain members of the
Selected Reserves--that is, reservists mobilized since September 11, 2001,
who had continuous qualifying service on active duty for 90 days or more
in support of a contingency operation. To qualify for TRS, reservists had
to enter into an agreement with their respective reserve components to
continue to serve in the Selected Reserves in exchange for TRS coverage.
For each 90-day period of qualifying service in a contingency operation,
reservists could purchase 1 year of TRS coverage.^12 Electing to enroll in
this TRS program was a onetime opportunity, and as originally authorized,
the program required reservists to sign the new service agreement and
register for TRS before leaving active duty service. Reservists who
qualified could also obtain coverage for their dependents by paying the
appropriate premium.
The NDAA for Fiscal Year 2006 expanded the number of reservists and
dependents who qualify to participate in the TRS program.^13 Under the
expanded program, which became effective on October 1, 2006, almost all
reservists and dependents--regardless of the reservists' prior active duty
service--had the option of purchasing TRICARE coverage. Similar to the TRS
program as it was originally authorized, members of the Selected Reserves
and their dependents choosing to enroll in the expanded TRS program had to
pay a monthly premium to receive TRICARE coverage. The portion of the
premium paid by reservists in the Selected Reserves and their dependents
for TRS coverage varied based on certain qualifying conditions that had to
be met, such as whether the reservist also had access to an
employer-sponsored health plan. The NDAA for Fiscal Year 2006 established
three levels--which DOD calls tiers--of qualification for TRS, with
enrollees paying different portions of the premium based on the tier for
which they qualified. Those who would have qualified under the original
TRS program, because they had qualifying service in support of a
contingency operation, paid the lowest premium. In another change to the
program, those reservists with qualifying service in support of a
contingency operation now had up to 90 days after leaving active duty to
sign the new service agreement required to qualify for this lowest premium
tier.
^10TRICARE coverage is generally available to reservists and their
dependents at no charge for up to 90 days prior to the beginning of active
duty service and 180 days after. The Transitional Assistance Management
Program offers 180 days of individual or family TRICARE coverage to
reserve component members separated from active duty after being called up
or ordered in support of a contingency operation for more than 30 days.
^11See Pub. L. No. 108-375, S 701, 118 Stat. 1811, 1980-82 (2004).
^12Reservists who were ordered to active duty for a period of more than 30
days, but served less than 90 continuous days due to an injury, illness,
or disease incurred or aggravated while deployed, were eligible for 1 year
of TRICARE coverage under TRS as originally authorized.
^13See Pub. L. No. 109-163, SS 701-702, 119 Stat. 3136, 3339-42.
The NDAA for Fiscal Year 2007 significantly restructured the TRS program
by eliminating the three-tiered premium structure.^14 The act also changed
TRS qualification criteria for members of the Selected Reserves, generally
allowing these reservists to purchase TRICARE coverage for themselves and
their dependents at the lowest premium--formerly paid by enrollees in tier
1--regardless of whether they have served on active duty in support of a
contingency operation. In addition, the act removed the requirement that
reservists sign service agreements to be qualified for TRS. Instead, the
act established that reservists in the Selected Reserves qualify for TRS
for the duration of their service in the Selected Reserves. DOD
implemented these changes on October 1, 2007. See table 1 for an overview
of TRS qualification criteria and the monthly portion of the TRS premiums
paid by reservists.
^14See Pub. L. No. 109-364, S 706, 120 Stat. 2083, 2282 (2006) (codified
at 10 U.S.C. S 1076d).
Table 1: Selected TRS Qualification Criteria and Premiums for Members of
the Selected Reserves
Monthly portion of the TRS
premium paid by reservist
Percentage
of TRS
premium paid Individual Family Duration of
Qualification criteria by enrollees coverage coverage coverage
TRS as authorized by
the NDAA for Fiscal
Year 2005 (Effective
April 2005 through
September 2006)
Reservist must have 28 $75.00(April $233.00 One year of
qualifying active duty 2005 through (April coverage
service in support of December 2005) 2005 for each
a contingency through continuous
operation on or after $81.00(January December 90 days of
September 11, 2001, 2006 through 2005) qualifying
for at least 90 days; September 2006) service.
reservist must agree $253.00
to serve in the (January
Selected Reserves for 2006
the entire period of through
TRS coverage. If September
reservist was released 2006)
from active duty after
April 26, 2005,
reservist must execute
this service agreement
before release from
active duty. If
reservist was released
from active duty on or
before April 26, 2005,
reservist must execute
this service agreement
no later than October
28, 2005.
TRS as authorized by
the NDAA for Fiscal
Year 2006 (Effective
October 2006 through
September 2007)
Tier 1: Reservist must 28 $81.00 $253.00 One year of
have qualifying active coverage
duty service in for each
support of a continuous
contingency operation 90 days of
on or after September qualifying
11, 2001, for at least service.
90 days and must agree
to serve in the
Selected Reserves for
the entire period of
TRS coverage.
Reservist must execute
this service agreement
within 90 days after
release from active
duty.
Tier 2: Reservist does 50 $145.29 $451.42 Up to 1
not qualify for tier year of
1; must not be coverage
eligible for with an
employer-sponsored annual
health insurance, or option to
must be eligible for renew.
unemployment
compensation or must
be self-employed; must
execute a service
agreement to serve in
the Selected Reserves
for the entire period
of TRS coverage.
Reservist must qualify
during open season or
submit documentation
establishing a
qualifying life event.
Tier 3: Reservist does 85 $247.00 $767.41 Up to 1
not qualify for tier 1 year of
or 2; may be eligible coverage
for employer-sponsored with an
insurance, but must annual
execute a service option to
agreement to serve in renew.
the Selected Reserves
for the entire period
of TRS coverage.
Reservist must qualify
during open season or
submit documentation
establishing a
qualifying life event.
TRS as authorized by
the NDAA for Fiscal
Year 2007 (Effective
as of October 2007)
Reservist must be a 28 $81.00 $253.00 Coverage is
member of the Selected available
Reserves. Reservists as long as
who are eligible for the
coverage under FEHBP reservist
do not qualify to is a member
purchase TRS. of the
Selected
Reserves.
Source: GAO.
Note: The Selected Reserves contains those units and individuals
considered essential to wartime missions. As of 2005, 88 percent of
reservists were considered part of the Selected Reserves.
Enrollment in TRS
Currently, reservists who qualify for TRS may purchase TRS individual or
family coverage at any time. Once enrolled in TRS, reservists and their
dependents are able to obtain health care through MTFs, if appointments
are available, or through TRICARE-authorized civilian providers or
hospitals. Enrollees who choose to use civilian providers are subject to
an annual deductible, co-payments, and coinsurance. When these enrollees
use providers outside TRICARE's civilian network, they pay higher cost
shares and are considered to be using TRICARE Standard, the TRICARE option
that is similar to a fee-for-service plan. When they use providers who are
part of the TRICARE network, they pay discounted cost shares and are
considered to be using TRICARE Extra, the TRICARE option that is similar
to a preferred provider plan.^15
DOD's Methods for Developing TRS Premiums
DOD is required by law to set premiums for TRS at a level that it
determines to be reasonable using an appropriate actuarial basis.^16 DOD
officials told us that the department interpreted this to mean that TRS
premiums should be set equal to the expected average costs per plan of
providing the benefit. Beginning in 2005, DOD based TRS premiums on the
premiums for the BCBS Standard plan offered through FEHBP because, at the
time DOD was developing TRS, actual data on the costs of delivering TRS
benefits for the TRS population did not exist. To set the premiums, DOD
compared characteristics of the beneficiary populations in each group and
subsequently adjusted the BCBS premiums for differences in age, gender,
and family size between the TRS and BCBS populations. The population that
qualifies for TRS is younger, has a higher percentage of males, and has a
larger number of dependents per sponsor than the BCBS population. Taken
together, DOD concluded that these factors caused expected health care
costs for the TRS population to be lower than expected health care costs
for the BCBS population. To account for these differences, DOD set the TRS
premium for individual coverage 32 percent lower than the corresponding
BCBS premium and set the TRS premium for family coverage 8 percent lower
than the corresponding BCBS premium.^17 According to DOD officials, the
department based TRS premiums on BCBS premiums, rather than another health
insurance plan's premiums, because BCBS offers coverage that is similar to
the coverage offered under TRICARE Standard. (For a comparison of
cost-sharing provisions under TRS and BCBS Standard, see table 2.) In
addition, like TRS, BCBS charges a separate premium for individual
coverage and for family coverage, and each of these premiums is uniform
nationally and updated annually. Furthermore, according to DOD officials,
basing TRS premiums on BCBS premiums allowed the department to account for
the effect of adverse selection on the department's costs, because adverse
selection is already accounted for in BCBS premiums.^18
^15TRICARE has three options, referred to as Standard (similar to
fee-for-service option), Extra (similar to a preferred provider option),
and Prime (similar to a health maintenance organization option). TRICARE
Prime is not available under TRS.
^16See 10 U.S.C. S 1076d(d)(2).
^17The TRS premiums for family coverage and individual coverage were both
affected by TRS's younger population. The TRS premium for family coverage
was affected by the TRS population's larger number of dependents per
sponsor, making its adjustment from the BCBS premium smaller. The TRS
premium for individual coverage is affected by the TRS population's larger
percentage of males, who generally incur lower health care costs than
females, making its adjustment larger.
Table 2: Comparison of Cost-Sharing Provisions under TRS and Blue Cross
and Blue Shield Standard
Blue Cross and Blue
TRICARE Reserve Select Shield Standard
In-network Out-of-network In-network Out-of-network
Catastrophic limit $1,000 $1,000 $4,000 $6,000
per family^a
Calendar year $150/$300or $150/$300or $250 $250
deductible per $50/$100 (E4 $50/$100 (E4
individual/family and below) and below)
Hospital inpatient Greater of Greater of $100 per $300 per
deductible or $14.80 per $14.80 per day admission admission
co-payment day or $25 or $25 per
per admission
admission
Primary doctor 15 percent^b 20 percent^b $15 25 percent
office visits
Specialist office 15 percent^b 20 percent^b $15 25 percent
visits
Retail pharmacy $3 Greater of $9 25 percent 45 percent or
co-payment for or 20 percent higher
generic drugs of total cost
Mail-order pharmacy $3 N/A $10 N/A
co-payment for
generic drugs
Retail pharmacy $9 Greater of $9 25 percent 45 percent or
co-payment for or 20 percent higher
brand-name drugs of total cost
Mail-order pharmacy $9 N/A $35 N/A
co-payment for
brand-name drugs
Sources: DOD and the Office of Personnel Management.
aThe catastrophic cap is the maximum out-of-pocket expense for which
TRICARE enrollees are responsible in a given fiscal year. The catastrophic
cap applies only to services covered by TRICARE.
bThe in-network coinsurance rate is 15 percent of the negotiated rate,
which is the rate network providers and participating nonnetwork providers
have agreed to accept for covered services. The out-of-network coinsurance
rate is 20 percent of the TRICARE allowable charge, which is the maximum
amount TRICARE will pay for services.
^18Adverse selection occurs when people who know they have a risk of
incurring health care expenses buy insurance coverage, while those who
have relatively less risk of incurring health care expenses decide the
insurance is too expensive and therefore do not buy it. In these cases,
the resulting insured population is likely to incur greater-than-average
health care costs. Therefore, any premiums set to account for an insured
population with average health care costs may not be sufficient to cover
the claims that eventually arise.
In order to compensate for rising health care costs, DOD originally
designed TRS premiums so that they would be adjusted each year based on
annual adjustments in the total BCBS Standard premiums. DOD planned to
continue using this method to adjust premiums in the immediate future but
allowed for the possibility that it might change the methodology at some
point in the future. Thus, if BCBS premiums increased by 8.5 percent from
2005 to 2006, TRS premiums would be increased by the same percentage. New
premiums are effective at the start of each calendar year. TRS premiums
were increased by 8.5 percent for 2006 and scheduled to be increased by 1
percent for 2007, but a provision in the NDAA for Fiscal Year 2007
prevented this increase from being implemented for 2007.^19
According to DOD officials, another reason DOD decided to use BCBS as the
basis for annual TRS premium adjustments was because BCBS premiums are
updated annually, and the new premiums are made public each October. DOD
officials told us they did not want to use DOD data to adjust premiums
because they believe that doing so would be less transparent; that is,
they wanted to avoid any appearance that the data might have been
manipulated to DOD's own financial advantage.
Basing TRS Premiums on BCBS Premiums Resulted in TRS Premiums That Exceeded the
Costs of Providing Program Benefits in 2006
In 2006, the premiums for both individual and family coverage under TRS
exceeded the reported costs of providing TRICARE benefits through the
program. The total premium for individual coverage under tier 1 was 72
percent higher than the average cost per plan of providing benefits
through the program. Similarly, the total premium for family coverage
under tier 1 was 45 percent higher than the average cost per plan of
providing benefits. There are several reasons that basing TRS premiums on
BCBS premiums did not successfully align TRS premiums with benefit costs.
These include certain differences between the TRS and BCBS populations and
certain differences between the two programs that DOD did not take into
account. Experts indicated that data on the costs of delivering TRS
benefits would provide DOD with an improved basis for adjusting premiums
in future years.
^19See Pub. L. No. 109-364, S 704, 120 Stat. 2083, 2280 (2006). This
provision prevented any increase in premiums through September 30, 2007.
The NDAA for Fiscal Year 2008, as passed by the House and Senate and
reported on in Conference Report 110-477, contains a provision that would
extend this prohibition through September 20, 2008. As of December 17,
2007, the President had not signed this bill into law.
In 2006, the Premium for Both Individual and Family Coverage under TRS Exceeded
the Reported Costs per Plan of Providing Benefits through the Program
In 2006, the premium for both individual and family coverage under TRS
exceeded the reported costs per plan of providing TRICARE benefits through
the program. For tier 1, the annual premium for individual plans of
$3,471--including the share paid by enrollees and the share covered by
DOD--was 72 percent higher than the average cost of providing benefits
through TRS of $2,020 per plan. Similarly, the annual premium for family
plans of $10,843 was 45 percent higher than the average cost of providing
benefits through TRS of $7,496 per plan. (See fig. 1.)
Figure 1: Comparison of DOD's Reported Average Cost per Plan with TRS
Premiums, 2006
Note: The average cost per plan refers to tier 1 plans only.
The average costs per TRS plan do not include certain administrative costs
that DOD was not able to allocate specifically to TRS, such as advertising
costs and program education. However, DOD officials told us that including
these costs would not be sufficient to close the gap between TRS premiums
and the average costs per plan. DOD also incurred start-up costs
associated with establishing the TRS program, which are not included in
the average costs per TRS plan because DOD did not intend for them to be
covered by TRS premiums.
The discrepancy between TRS premiums and reported TRS costs has
implications for DOD's cost sharing with TRS enrollees. By statute, the
portion of the TRS premium paid by enrollees in tier 1--and all enrollees
as of October 1, 2007--is to cover 28 percent of the full premium. In
2006, TRS enrollees in tier 1 paid $972 for individual coverage and $3,036
for family coverage. This covered 48 percent of the average cost per
individual plan and 41 percent of the average cost per family plan. Had
DOD been successful in establishing TRS premiums that were equal to the
average reported cost per TRS plan in 2006, enrollees' share of the
premium would have been $566 for single coverage and $2,099 for family
coverage in that year.^20
Basing TRS Premiums on BCBS Premiums Is Unlikely to Successfully Align TRS
Premiums with Benefit Costs
Basing TRS premiums on BCBS premiums is unlikely to align TRS premiums
with benefit costs because of several differences between the TRS and BCBS
populations and programs that DOD did not take into account. DOD based TRS
premiums on BCBS premiums because at the time DOD was developing TRS,
actual data on the costs of delivering TRS benefits to the TRS population
did not exist. However, experts we interviewed suggested that because of
demographic differences between the TRS and BCBS populations, BCBS-based
premiums are unlikely to reflect TRS costs. In setting TRS premiums, DOD
adjusted BCBS premiums to account for differences in age, gender, and
family size between the TRS and BCBS populations. However, DOD did not
take other demographic differences into account that could have
potentially affected its likely success--such as enrollees' geographic
distribution and health status--because accounting for these differences
is very difficult. The geographic distribution of a population is an
important factor in predicting health care costs and corresponding health
insurance premiums, in large part because physician payment rates vary
across geographic locations.^21 Furthermore, according to experts we
interviewed, the most important predictors of health care costs are
measures related to enrollees' health status, which were not fully
available to DOD when it first established TRS premiums.
^20The average costs per TRS plan reported above apply only to tier 1
plans and are weighted by the number of plans in each month in calendar
year 2006. However, including tiers 2 and 3 in our calculation of the
average costs per plan does not substantially change the results, because
tier 1 comprised over 90 percent of all TRS plans.
^21GAO, Federal Employees Health Benefits Program: Differences in Health
Care Prices across Metropolitan Areas Linked to Competition and Other
Factors, [35]GAO-06-281T (Washington, D.C.: Dec. 2, 2005).
Another factor that may have contributed to the disparity between TRS
premiums and the program's costs is the dissimilarity in the structures of
the TRS and BCBS programs. While TRS premiums are designed to cover
enrollees' health care costs and certain administrative costs, BCBS
premiums are designed to cover these costs and also may include
contributions to or withdrawals from plan reserves^22 and profits. As a
result, changes in BCBS premiums are generally not equal to changes in
BCBS program costs.
TRS Cost Data Would Provide DOD with an Improved Basis for Adjusting Premiums in
Future Years
Experts indicated that data on the costs of delivering TRS benefits will
provide DOD with an improved basis for adjusting premiums in future
years.^23 They informed us that there are several methods of setting
health insurance premiums. The methods that are most successful in
aligning premiums with the actual costs of providing benefits involve
using program cost data when setting premiums. Although TRS cost data did
not exist when the program was implemented, leading DOD to base TRS
premiums on BCBS premiums, TRS cost data from 2005 and 2006 are now
available. In DOD's description of its methodology for establishing and
adjusting TRS premiums in the Federal Register on March 16, 2005, DOD
allowed for the possibility of using other means to adjust premiums in the
future.^24 It stated that it could base future changes in TRS premiums on
actual cost data. However, DOD officials told us that the department has
not used these data to adjust TRS premiums due to the limitations
associated with using prior year costs to predict future costs. According
to DOD officials, prior year claims data may not be indicative of future
year claims costs due to the newness of the TRS program, recent changes to
TRS, and the low number of enrollees. However, TRS cost data reflect
actual experience with the program and any limitations associated with TRS
cost data should decrease over time as DOD gains more experience with the
program and more reservists enroll in it.
^22Under 5 U.S.C. S 8909, the Office of Personnel Management administers a
reserve account for each FEHBP plan, including BCBS. Funds in the reserves
may be used to defray future premium increases, enhance plan benefits,
reduce premiums, or cover unexpected shortfalls from
higher-than-anticipated claims.
^23We obtained information from experts in the fields of economics and
finance.
^24See 70 Fed. Reg. 12798, 12800-01 (Mar. 16, 2005).
Nonetheless, due to the uncertainty associated with predicting future
health care costs, premiums are unlikely to exactly match program costs,
even when they are based on cost data from prior years. To help adjust for
discrepancies between premiums and program costs, some health insurance
programs have established reserve accounts, which may be used to defray
future premium increases or cover unexpected shortfalls from
higher-than-anticipated costs. For example, as noted earlier, the Office
of Personnel Management administers a reserve account for each FEHBP plan,
including BCBS. These reserve accounts are funded by a surcharge of up to
3 percent of a plan's premium. Once funds in the reserve accounts exceed
certain minimum balances, they can be used to offset future year premium
increases. Similarly, some health insurance programs make adjustments to
premiums for subsequent years that account for any significant discrepancy
between prior year premiums and program costs. The law governing TRS
contains no provision for the establishment of a reserve account or for
methods of increasing or decreasing premiums, after they are set, to
address differences between premiums and costs in prior years.
TRS's Projected Costs Significantly Exceeded Reported Costs for Fiscal Years
2005 and 2006 Largely Because Enrollment Levels Were Lower Than DOD Expected
DOD's estimated costs of providing TRS benefits were about 11 times higher
than its reported costs. DOD's cost projections were too high largely
because it overestimated the number of reservists who would enroll in TRS
as well as the associated cost per plan of providing benefits through the
program. DOD officials told us that they considered TRS cost and
enrollment data when developing future year projections of program costs
and enrollment levels, but they chose not to use these data as part of
their projections because they are uncertain that prior year enrollment
and cost data are indicative of future year costs and enrollment levels.
DOD's Projected Costs Were Significantly Higher Than Its Reported Costs for TRS
in Fiscal Years 2005 and 2006
DOD significantly overestimated the costs of providing benefits through
TRS. Prior to TRS's implementation, DOD estimated that total costs of
providing benefits through the program would amount to about $70 million
in fiscal year 2005 and about $442 million in fiscal year 2006. In
contrast, reported costs in those years only amounted to about $5 million
and about $40 million, respectively.^25 DOD estimated the program's likely
costs by multiplying the number of TRS plans that it projected would be
purchased by DOD's estimated cost per plan for individual and family
plans. DOD estimated that its cost per plan would be equal to the total
TRS premium minus the portion of the premium paid by enrollees.^26
DOD's Projected Costs Were Higher Than Reported Costs for TRS Because It
Overestimated the Number of TRS Enrollees and the Cost per Enrollee
The number of reservists who purchased TRS coverage has been significantly
lower than DOD projected, and as a result TRS program costs have also been
lower than expected. DOD projected that about 114,000 reservists would
purchase individual or family plans by 2007; however, as of June 2007 only
about 11,500--or about 10 percent--of that number had purchased TRS plans.
Over 90 percent of TRS enrollment had been for coverage under tier 1,
which offered the lowest enrollee premium contributions of the three tiers
in existence at the time covered by our analysis. Very few reservists
signed up for coverage under tier 3, which had the highest enrollee
premium contributions of the three tiers. (See table 3.)
^25The TRS program does not receive a separate appropriation but is funded
through the lump sum appropriation for the Defense Health Program, as well
as the premiums paid by reservists. Both the lump sum appropriation and
the premiums are credited to the Defense Health Program account. Since
amounts in this account are generally available for all medical and dental
care for DOD beneficiaries, not just for TRS benefits, funds not spent on
TRS are available for other components of the Defense Health Program. See
10 U.S.C. SS 1076d(d)(5), 1100.
^26Both DOD's projected and reported costs also included approximately $25
million that DOD obligated over fiscal years 2005 and 2006 for start-up
costs to be paid to the managed care support contractors and
subcontractors that oversee TRICARE's civilian provider network and
process TRICARE claims, and for changes to DOD's data systems. DOD
officials told us that this $25 million had been obligated over fiscal
years 2005 and 2006, but that it had not been paid out in full. As of
September 18, 2007, DOD officials told us that they and the contractors
had not yet determined the exact amounts to be paid.
Table 3: Comparison of the Projected Number of TRS Plans to the Reported
Number of TRS Plans, June 2007
Projected number of plans Reported number of plans (June
(fiscal year 2007) 2007)
Family Individual Family
Individual coverage coverage coverage coverage
Tier 1 18,216 78,591 3,107 7,412
Tier 2 3,096 6,285 363 610
Tier 3 2,639 5,359 17 25
All tiers 23,951 90,235 3,487 8,047
Source: DOD.
DOD estimated the number of reservists who would purchase TRS coverage by
dividing the population of reservists who qualify for each of the three
tiers into several categories for which it estimated distinct
participation rates, based on the premiums these reservists would likely
pay for non-DOD health insurance. DOD projected lower enrollment for
groups that had access to less expensive health insurance options, such as
those who are offered insurance through their employers. DOD officials
believe that enrollment in TRS will increase the longer the program is in
place. However, while enrollment in TRS increased moderately through
October 2006, it has remained relatively stable from October 2006 through
June 2007. (See fig. 2.)
Figure 2: Number of TRS Plans in Each Tier, January 2006-June 2007
In addition to the estimated number of plans purchased, the other major
factor that affected DOD's projection of overall TRS program costs was its
estimate of the cost of providing benefits for each TRS plan. As
previously stated, DOD based its estimated cost per plan on the total TRS
premium minus the portion of the premium paid by enrollees. Because the
premiums have been higher than DOD's reported costs, DOD's cost
projections have also been too high.
DOD's Projection of Future TRS Enrollment Levels Is Likely Too High
DOD developed a new model to project enrollment levels and program costs
under TRS's single-tiered premium structure that went into effect on
October 1, 2007; however, DOD's projection of future TRS enrollment levels
is likely too high. DOD projected that the total number of TRS plans for
individual and family coverage would be approximately 64,000 in fiscal
year 2008 at a cost to the department of about $381 million for that
year.^27 However, actual TRS enrollment data to date suggest that total
TRS enrollment--and therefore program costs--are unlikely to be as high as
DOD projected. As of June 2007, there were about 11,500 TRS plans--well
below DOD's projection of about 114,000. Enrollment will almost certainly
increase to some extent because reservists who previously only qualified
for tier 2 or tier 3 of the program--which required enrollees to pay a
larger portion of the premium--have qualified for the significantly lower
tier 1 enrollee premiums since October 1, 2007. However, the degree to
which it will increase is not clear. DOD officials told us that they
considered TRS cost and enrollment data when developing future year
projections of program costs and enrollment levels, but they chose not to
use these data as part of their projections because of uncertainty about
whether they would provide an accurate indication of likely future
experience. DOD's past enrollment projections, made without the benefit of
prior year enrollment data, were significantly higher than actual
enrollment levels.
Conclusions
Although DOD intended that TRS premiums would be equal to the expected
costs per plan of providing the benefit, DOD set premiums for the program
based on BCBS premiums that proved to be significantly higher than the
program's average reported costs per plan in 2006. Reservists' portion of
TRS premiums would have been lower in 2006 if DOD had aligned premiums
with the cost of providing TRS benefits. DOD officials told us that the
department planned to continue basing TRS premium adjustments on BCBS
premium adjustments in the immediate future, but the regulation governing
TRS premium adjustments allows for the possibility that the department
might change its methodology at some point in the future. However, because
TRS premiums were higher than the average costs per plan in 2006,
continuing to adjust TRS premiums based on BCBS premium adjustments could
widen the gap between TRS premiums and the average costs per plan.
^27DOD's new model projects enrollment and costs through 2013 under TRS's
single-tiered structure. Approximately 107,000 reservists are expected to
enroll in TRS by fiscal year 2010, with enrollment levels remaining
relatively constant through fiscal year 2013. Program costs are projected
to increase each year and amount to approximately $874 million in fiscal
year 2013.
The discrepancy between TRS premiums and the reported program costs per
plan results from the approach DOD used in setting TRS premiums. Basing
TRS premiums on BCBS premiums is problematic because of several
dissimilarities between the two programs. Most important, the average cost
data now available suggest that TRS enrollees have incurred significantly
lower health care costs than BCBS enrollees, even after adjusting for
certain demographic characteristics. In addition, BCBS premiums may be
based on more than program costs, whereas TRS premiums are intended to
cover only costs. Basing TRS premiums on BCBS premiums may have been
reasonable at the time that TRS was first implemented in 2005 due to the
lack of available data on the cost of providing benefits through TRS.
However, cost data that reflect actual experience under the program are
now becoming available, and limitations associated with them should
decrease over time as DOD gains more experience with the program and more
reservists enroll in it. These data will provide DOD with an improved
basis for setting premiums in future years, and allow the department to
eventually eliminate its reliance on BCBS premiums. Nonetheless, due to
the uncertainty associated with predicting future health care costs,
premiums are unlikely to exactly match program costs, even when they are
based on cost data from prior years. Other insurance programs have methods
to address discrepancies between premiums and program costs, which are not
provided to DOD in the law governing TRS.
DOD has also had difficulty accurately estimating the likely cost of
providing TRS benefits in large part because it overestimated the number
of reservists who would likely purchase TRS coverage. Over time, the
availability of actual cost and enrollment data should help DOD improve
its projections for future years.
Recommendations for Executive Action
With the goal of eventually eliminating reliance on BCBS premiums and to
better align premiums with the costs of providing TRS health care
benefits, we recommend that the Secretary of Defense direct the Assistant
Secretary for Health Affairs to stop basing TRS premium adjustments only
on BCBS premium adjustments and use the reported costs of providing
benefits through the TRS program when adjusting TRS premiums in future
years as limitations associated with the reported cost data decrease.
We also recommend that DOD explore options for addressing instances in
which premiums have been either significantly higher or lower than program
costs in prior years, including seeking legislative authority as
necessary.
Agency Comments
We received written comments on a draft of this report from DOD. DOD
stated that it concurs with our conclusions and recommendations and that
it is committed to improving the accuracy of TRS premium projections. It
further stated that our recommendations are consistent with DOD's strategy
to evolve the process, procedures, and analytical framework used to adjust
TRS premiums as the quality and quantity of reported cost data improve.
DOD's written comments are reprinted in appendix III.
We are sending copies of this report to the Secretary of Defense and other
interested parties. We will also make copies available to others on
request. In addition, the report will be available at no charge on GAO's
Web site at [36]http://www.gao.gov .
If you or your staff have any questions about this report, please contact
me at (202) 512-7114 or [37][email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. GAO staff who made major contributions to this
report are listed in appendix IV.
Laurie Ekstrand
Director, Health Care
List of Committees
The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate
The Honorable Daniel K. Inouye
Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Ike Skelton
Chairman
The Honorable Duncan L. Hunter
Ranking Member
Committee on Armed Services
House of Representatives
The Honorable John P. Murtha
Chairman
The Honorable C. W. Bill Young
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
Appendix I: Comparison of TRS Premium Growth with DOD's Estimated Rate of
Medical Care Price Inflation
The John Warner National Defense Authorization Act (NDAA) for Fiscal Year
2007 required that we describe how increases in TRICARE Reserve Select
(TRS) premiums compare with the Department of Defense's (DOD) annual rate
of medical care price inflation.^1 As discussed with the committees of
jurisdiction, this appendix compares DOD's January 2006 TRS premium
increase and DOD's proposed January 2007 TRS premium increase with DOD's
estimated annual rate of medical care price inflation in fiscal years 2005
and 2006 as well as the medical component of the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W).
Premiums for TRS were first established when the program was implemented
in April 2005. To keep pace with rising health care costs, DOD originally
designed TRS premiums so that they are adjusted each year based on annual
adjustments in the Federal Employees Health Benefits Program's Blue Cross
and Blue Shield (BCBS) Standard plan premiums. DOD planned to continue
using this method to adjust premiums in the immediate future, although
program regulations allow some flexibility in setting the premiums.
Accordingly, in line with BCBS, TRS premiums increased by 8.5 percent in
January 2006. Based on increases in BCBS, TRS premiums would have
increased by 1 percent in January 2007. However, the NDAA for Fiscal Year
2007 froze 2007 premiums through September 30, 2007, at the rates for
calendar year 2006.
DOD calculated its average annual rate of medical care inflation to be
about 4.9 percent in fiscal year 2005 and about 4.7 percent in fiscal year
2006. DOD did not develop these estimates of inflation based on its own
spending. Instead, DOD based the estimates on inflation rates provided
annually by the Office of Management and Budget for the various components
of the TRICARE operating budget, such as military personnel, private
sector health care, and pharmacy. In contrast, the medical component of
the CPI-W increased at lower rates than DOD's rate of medical care price
inflation. The medical care component of the CPI-W increased by about 4.1
percent in 2005 and about 4.2 percent in 2006. The medical care component
of the CPI-W is based on medical expenses, but it is problematic to
compare to DOD's estimated rate of medical care inflation because it is
based only on out-of-pocket medical expenditures paid by consumers,
including health insurance premiums, and excludes the medical expenditures
paid by public and private insurance programs.
^1See Pub. L. No. 109-364, S 713(b)(2)(B), 120 Stat. 2083, 2289 (2006).
Comparing premium growth trends with DOD's annual rate of medical care
price inflation and the medical care component of the CPI-W is problematic
because of differences in each measurement. Unlike medical care price
inflation, premium growth may reflect factors such as changes in the
comprehensiveness of the policy, changes in the ratio of premiums
collected to benefits paid, changes in costs because of increased
utilization of health care services, contributions to or withdrawals from
plan reserves, and profits.
Appendix II: Scope and Methodology
To compare the annual TRS premiums established by DOD to the reported
average costs per plan of providing benefits under TRS in 2006, we
reviewed DOD's reported TRS enrollment data and data on the cost of
providing TRS benefits through TRICARE-authorized civilian providers or
hospitals, data on the administrative costs associated with providing TRS
benefits, and data on the costs of providing TRS benefits through military
treatment facilities (MTF). Using DOD's data, we calculated the average
cost per TRS plan^1 of providing individual and family coverage as the sum
of the reported costs divided by the average number of TRS plans. We also
reviewed legislation relevant to the TRS program and literature on setting
health insurance premiums and interviewed several experts from the fields
of health economics and finance and DOD officials in the TRICARE
Management Activity and the Office of the Assistant Secretary for Health
Affairs. We limited our analysis to calendar year 2006 because some 2007
data are still incomplete and because 2005 average cost data in some
months are based on a very small number of enrollees. At the time covered
by our analysis, TRS included three tiers of eligibility with enrollees
paying different portions of the premium based on the tier for which they
qualified.^2 We limited our analysis to tier 1 because it included over 90
percent of TRS plans and because tier 1 enrollee premium levels have
applied to the entire TRS program since October 2007. We are unable to
report the average cost per plan for tiers 2 and 3 separately, due to the
low number of enrollees in these tiers.
To compare DOD's projected costs for the TRS program before implementation
to DOD's reported costs for the program in 2005 and 2006, we reviewed the
analyses prepared by DOD before TRS's implementation that projected (1)
the number of individual and family plans in each tier of the TRS program
and (2) the costs per plan of providing the TRS benefit. These projections
were the two major factors used by DOD to estimate TRS costs. We compared
these data with reported TRS enrollment and cost data from April 2005
through June 2007. In reporting the results of our comparison we use cost
data through 2006 only, because some cost data for 2007 were incomplete.
We also reviewed DOD internal documents and interviewed DOD officials.
^1In our analysis, we calculated a separate average cost per TRS plan for
individual and family coverage--not the average cost per TRS enrollee.
^2By law, under a three-tiered premium structure in effect during fiscal
year 2007, qualification criteria for TRS were set for each of three
separate tiers: Members of the Selected Reserves who served in a
contingency operation for 90 or more continuous days since September 11,
2001, qualified to purchase TRS coverage under tier 1 and paid 28 percent
of the total premium. Members of the Selected Reserves who did not have
such service but were either unemployed, self-employed, or not eligible
for employer-sponsored insurance qualified to purchase TRS coverage under
tier 2 and paid 50 percent of the total premium. Members of the Selected
Reserves who did not qualify for tier 1 or tier 2 were qualified to
purchase TRS coverage under tier 3 and paid 85 percent of the total
premium. Due to a change in law, since October 1, 2007, all enrollees have
paid 28 percent of the total premium.
Calculation of Average Costs per TRS Plan
To determine the average cost of providing benefits under TRS for
2006--for individual and family plans--we reviewed TRS enrollment data and
TRS purchased care cost data, administrative cost data, and data on the
costs of providing TRS benefits through MTFs, each of which were provided
to us by DOD.
DOD officials provided TRS enrollment data to us in the form of multiple
reports from the Defense Enrollment Eligibility Reporting System for each
month from May 2005 through June 2007. Each report lists the number of TRS
plans and enrollees in individual and family plans broken down by tier.
Using these reports, we calculated the average number of TRS plans and
enrollees in each month.
For each month, from May 2005 through June 2007, we calculated the total
costs of providing benefits under TRS by adding the cost components
reported by DOD, which consist of purchased care costs, MTF costs, and
administrative costs. Administrative costs were further divided among
costs associated with claims processing and separate administrative fees
levied by certain TRICARE managed care support contractors for each
enrollee in each month.
For each month, we calculated the average cost per TRS plan for individual
and family coverage by dividing the total costs of providing benefits
under TRS by the average number of TRS plans. We determined the average
cost of providing benefits under TRS in 2006--for single and family
plans--by summing the monthly averages and weighting them by enrollment in
each month.
Data Reliability Tests
To ensure that the DOD data were sufficiently reliable for our analyses,
we conducted detailed data reliability assessments of the data sets that
we used. We restricted these assessments, however, to the specific
variables that were pertinent to our analyses.
We reviewed DOD data that we determined to be relevant to our findings to
assess their quality and methodological soundness. Our review consisted of
(1) examining documents that describe the respective data, (2) manually
and electronically checking the data for obvious errors and missing
values, (3) interviewing DOD officials to inquire about concerns we
uncovered, and (4) interviewing DOD officials about internal controls in
place to ensure that data are complete and accurate.
Our review revealed minor inconsistencies in DOD's data that we reported
to DOD officials. Overall, however, we found that all of the data sets
used in this report were sufficiently reliable for use in our analyses.
However, we did not independently verify DOD's figures.
We conducted our work from May 2007 through October 2007 in accordance
with generally accepted government auditing standards.
Appendix III: Comments from the Department of Defense
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Laurie Ekstrand, (202) 512-7114 or [38][email protected]
Acknowledgments
In addition to the contact named above, Thomas Conahan, Assistant
Director; Krister Friday; Adrienne Griffin; William Simerl; and Michael
Zose made key contributions to this report.
(290632)
To view the full product, including the scope
and methodology, click on [39]GAO-08-104 .
For more information, contact Laurie Ekstrand at (202) 512-7114 or
[email protected].
Highlights of [40]GAO-08-104 , a report to congressional committees
December 2007
MILITARY HEALTH CARE
Cost Data Indicate That TRICARE Reserve Select Premiums Exceeded the Costs
of Providing Program Benefits
The Department of Defense's (DOD) TRICARE Reserve Select (TRS) program
allows most reservists to purchase coverage under TRICARE, the military
health insurance program, when not on active duty. DOD intends to set
premiums at a level equal to the expected costs of providing TRS benefits.
The National Defense Authorization Act for 2007 required GAO to review TRS
costs. As discussed with the committees of jurisdiction, GAO compared (1)
the TRS premiums established by DOD to the reported costs of providing
benefits under TRS in 2006 and (2) DOD's projected costs for TRS before
implementation to DOD's reported costs for the program in 2005 and 2006.
To do this work, GAO examined DOD analyses and interviewed DOD officials
and external experts.
[41]What GAO Recommends
GAO recommends that DOD stop basing TRS premiums only on Blue Cross and
Blue Shield (BCBS) premium adjustments and use the reported costs of
providing benefits through the TRS program when adjusting TRS premiums in
future years as limitations associated with the reported cost data
decrease. GAO also recommends that DOD explore options for addressing
instances in which premiums have been either significantly higher or lower
than program costs in prior years, including seeking legislative authority
as necessary. In its comments, DOD concurred with these recommendations
and with GAO's conclusions.
In 2006, the premium for both individual and family coverage under
TRS--which DOD based on BCBS premiums--exceeded the reported average cost
per plan of providing TRICARE benefits through the program. TRS currently
serves less than 1percent of the overall TRICARE population, and unlike
most other TRICARE beneficiaries, TRS enrollees pay a premium to receive
health care coverage. At the time of GAO's analysis, TRS consisted of
three tiers, established by law, with reservists in each tier paying
different portions of the total premium, based on the tier for which they
qualified. Over 90 percent of reservists who purchased TRS coverage
enrolled in tier 1. The premium for individual coverage under tier 1 was
72 percent higher than the average cost per plan of providing benefits
through the program. Similarly, the premium for family coverage under tier
1 was 45 percent higher than the average cost per plan of providing
benefits. DOD based TRS premiums on BCBS premiums because, at the time DOD
was developing TRS, actual data on the costs of TRS did not exist;
however, these data are now available. Had DOD been successful in
establishing premiums that were equal to the cost of providing benefits in
2006, the portion of the premium paid by enrollees in tier 1--which is set
by law to cover 28 percent of the full premium--would have been lower that
year. Reasons that TRS premiums did not align with benefit costs included
differences between the TRS and BCBS populations and differences in the
way the two programs are designed, which DOD did not consider in its
methodology. According to experts, the most successful methods for
aligning premiums with actual program costs involve using program cost
data when setting premiums. The regulation governing TRS premium
adjustments allows DOD to use either BCBS premiums or other means as the
basis for TRS premiums. However, DOD officials told GAO that they plan to
continue, at least for the near future, to base TRS premiums on BCBS
premiums because of limitations associated with using currently available
data to predict future TRS costs. However, these limitations should
decrease over time as DOD gains more experience with the program and
enrollment increases. Nonetheless, due to the uncertainty associated with
predicting future health care costs, premiums are unlikely to exactly
match program costs, even when they are based on cost data from prior
years. Other insurance programs have methods to address differences
between premiums and program costs, which are not provided to DOD in the
law governing TRS.
DOD overestimated the total cost of providing benefits through TRS. While
the department projected that its total costs would amount to about $70
million in fiscal year 2005 and about $442 million in fiscal year 2006,
DOD's reported costs in those years were about $5 million and about $40
million, respectively. DOD's cost projections were too high largely
because it overestimated the number of reservists who would purchase TRS
and the associated cost per plan of providing TRS benefits. DOD officials
told GAO that they chose not to use TRS cost and enrollment data when
projecting future year program costs and enrollment levels because of
uncertainty about whether they would provide an accurate indication of
future experience.
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References
Visible links
33. http://www.gao.gov/cgi-bin/getrpt?GAO-05-882
34. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-39
35. http://www.gao.gov/cgi-bin/getrpt?GAO-06-281T
36. http://www.gao.gov/
37. mailto:[email protected]
38. mailto:[email protected]
39. http://www.gao.gov/cgi-bin/getrpt?GAO-08-104
40. http://www.gao.gov/cgi-bin/getrpt?GAO-08-104
42. http://www.gao.gov/
43. http://www.gao.gov/
44. http://www.gao.gov/fraudnet/fraudnet.htm
45. mailto:[email protected]
46. mailto:[email protected]
47. mailto:[email protected]
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