Defense Health Care: Limits to Older Retirees' Access to Care and
Proposals for Change (Testimony, 02/27/97, GAO/T-HEHS-97-84).

Pursuant to a congressional request, GAO discussed health care options
for retired military members and their families, focusing on: (1) older
retirees' options for accessing health care and the related effects of
the Department of Defense's (DOD) recent health care system changes on
their access to care; and (2) proposed alternatives for addressing
retirees' concerns and their potential effects on beneficiary and
government costs.

GAO noted that: (1) its work has shown that recent system downsizing has
reduced all care, including space-available care, the only care retirees
may access at military facilities; (2) in the last 10 years, the number
of military medical personnel has declined by 15 percent and one-third
of military hospitals have been closed, reflecting the one-third
reduction in active-duty forces; (3) while further readiness-related
downsizing decisions are pending, some predict more system reductions;
(4) meanwhile, TRICARE, which does not allow older retirees to enroll in
its Prime health care option (its new health maintenance organization
option), is moving to maximize Prime enrollment at all the facilities;
(5) as this takes place, older retirees' space-available care will
further decline at most facilities and eventually end at some; (6)
space-available care at military health facilities, moreover, is
episodic and lacks the continuity so important to older retirees who
have more frequent, and often chronic, medical problems than younger
retirees; (7) although retirees may also access care through such
government-sponsored programs as Medicare and private supplementary
health insurance, many retirees experience coverage gaps and high
out-of-pocket costs; (8) DOD and members of Congress have proposed
alternatives to address the availability, cost, and coverage issues
affecting retirees' access to care: (9) these proposals have potentially
large price tags or fall short in helping those most affected by base
closures and TRICARE's implementation; (10) allowing retirees to join
the Federal Employees Health Benefits Program, or using the Civilian
Health and Medical Program of the Uniformed Services as a second payer
to Medicare, would provide retirees with more dependable, consistent
access to care; (11) costs, however, would be considerable, in part
because retirees whose care is now funded by other sources would most
likely join the new program; (12) to mitigate these costs, DOD would
probably need to explore measures such as alternative beneficiary cost
sharing; (13) in addition, although not yet fully developed, DOD's
pharmacy proposal would provide retirees a single benefit not covered by
basic Medicare and could fill the gap in coverage until system
restructuring decisions are made and the related consequences known; and
(14) DOD has not yet decided, however, on benefit eligibility, delivery*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-97-84
     TITLE:  Defense Health Care: Limits to Older Retirees' Access to 
             Care and Proposals for Change
      DATE:  02/27/97
   SUBJECT:  Health care programs
             Retired military personnel
             Military dependents
             Health care costs
             Military downsizing
             Military hospitals
             Health care services
             Elderly persons
             Drugs
IDENTIFIER:  Civilian Health and Medical Program of the Uniformed 
             Services
             CHAMPUS
             Medicare Program
             DOD TRICARE Prime Program
             DOD TRICARE Program
             Federal Employees Health Benefits Program
             Medigap
             
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Cover
================================================================ COVER


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

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

DEFENSE HEALTH CARE - LIMITS TO
OLDER RETIREES' ACCESS TO CARE AND
PROPOSALS FOR CHANGE

Statement of Stephen P.  Backhus, Director
Veterans' Affairs and Military Health Care Issues
Health, Education, and Human Services Division

GAO/T-HEHS-97-84

GAO/HEHS-97-84T


(101601)


Abbreviations
=============================================================== ABBREV

  HMO - health maintenance organizations
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  DOD - Department of Defense
  FEHBP - Federal Employees Health Benefits Program
  HCFA - Health Care Financing Administration

DEFENSE HEALTH CARE:  LIMITS TO
OLDER RETIREES' ACCESS TO CARE AND
PROPOSALS FOR CHANGE
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

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

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

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

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

At the Subcommittee's request, we have been reviewing retirees'
concerns and the major proposals for addressing them.  We have talked
with beneficiary associations, DOD headquarters officials, and
military medical facility managers and health care providers
nationwide to gain perspective on the effects of system changes on
retirees.  Our work is still under way.  As this Subcommittee and
others begin to weigh the costs and other trade-offs associated with
how best to help military retirees, we welcome the opportunity to
share our preliminary observations on the proposed alternatives and
their likely effects on beneficiaries and the government.  Later this
spring, we plan to issue a final report addressing these matters in
more detail. 

Specifically, you asked that we discuss two areas: 

  -- older retirees' options for accessing health care and the
     related effects of DOD's recent health care system changes on
     their access to care and

  -- proposed alternatives for addressing retirees' concerns and
     their potential effects on beneficiary and government costs. 


--------------------
\1 For the remainder of this statement, the term "retirees" refers to
retirees and their dependents and survivors. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:1

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

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

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

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


   DOD SYSTEM CHANGES HAVE REDUCED
   RETIREES' ACCESS TO FACILITY
   CARE
---------------------------------------------------------- Chapter 0:2

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

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

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

TRICARE may further reduce older retirees' access to care at military
medical facilities.  Before TRICARE, all retirees, regardless of age,
had the same priority for care in military medical facilities.  Under
TRICARE, those who get priority for access are those enrolled in
TRICARE Prime.  As a result, older retirees, who are currently not
eligible to enroll in TRICARE Prime, receive the lowest priority for
access and can only access space-
available care at the facilities. 

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

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

Unlike other federal retirees and retirees of many private employers
who are provided insurance supplementing Medicare, however, older
military retirees can experience coverage gaps, high costs, and an
otherwise patchwork system that they must learn to navigate to
receive their care.  Medicare, for example, does not cover outpatient
prescription drugs nor does it have a catastrophic limit on patients'
out-of-pocket costs.  In addition, because Medicare has deductibles
and copayment requirements, about a third of older military retirees
have purchased supplemental Medigap policies from private insurers. 
Such plans' annual premiums range from about $400 to more than
$2,100, and the coverage under the 10 standard policies varies
widely.  Only the most expensive plans cover outpatient prescriptions
and none pay for dental or vision care.  Although older military
retirees with private or other government employer-
sponsored insurance may have more generous coverage than those
without such coverage, their costs could still be relatively high
depending upon the extent to which such employers share the costs. 


--------------------
\2 In the general elderly population, 95 percent have Medicare part B
and 75 percent have private health insurance. 


   ALTERNATIVES FOR IMPROVING
   RETIREES' ACCESS COULD HAVE
   SIGNIFICANT COST AND OTHER
   IMPLICATIONS
---------------------------------------------------------- Chapter 0:3

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

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

The number of older retirees likely to benefit from subvention
appears proportionately small, however, because available resource
capacity in military facilities continues to decline.  DOD estimates
that less than half of the older retirees now using the military
medical facilities in areas where subvention will be tested would be
able to enroll in TRICARE Prime.  Under a nationwide implementation,
DOD expects to be able to enroll in its facilities a similar
proportion of the 300,000 older retirees now using its facilities. 
Furthermore, subvention would not be available to the many retirees
who do not live near military facilities such as those affected by
base closures.  And, to expand subvention beyond the limits of its
facilities, DOD would have to buy care from civilian providers,
through its TRICARE contractors or, as HCFA does, on a
fee-for-service basis or through HMOs.  There is most likely no cost
advantage to the government of DOD's contracting out for this care
rather than HCFA's contracting out for it. 

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

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

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

Many of the benefits older retirees would enjoy under FEHBP and
CHAMPUS could also be realized if DOD paid for their Medicare part B
premium, Medigap plans, or both.  The cost implications would also be
similar, roughly $630 million for Medicare part B and up to $2
billion for Medigap plans annually. 

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


   OBSERVATIONS
---------------------------------------------------------- Chapter 0:4

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

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


-------------------------------------------------------- Chapter 0:4.1

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


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:5

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


*** End of document. ***