Military Update: Higher fees eyed as a way to slow rising health costs
June 23, 2005
Defense Department officials say it’s time users of military health care pay a greater share of rising medical costs, perhaps through higher co-payments and enrollment fees, which haven’t been raised since Tricare, the military’s managed care program, began a decade ago.
In an interview, Dr. William Winkenwerder Jr., assistant secretary of defense for health affairs, said he and other senior defense officials, alarmed by a doubling of military health care costs over the past five years, are discussing ways to slow the growth with military leaders and Congress.
Those talks, he suggested, include a range of options to raise out-of-pocket costs for beneficiaries.
In 1995, when the triple-option Tricare plan began to be phased in for retirees and family members, enrollment fees for Tricare Prime, the managed-care option, were set at $230 a year for an individual and $460 for family coverage. They have not changed.
Retiree and family member co-payments also have been frozen, at $12 for a visit to a civilian doctor and $11 for a day for hospitalization. In fact, five years ago Congress eliminated all Tricare Prime co-payments for active-duty family members. Their co-payments for inpatient care also ended.
Medical care for active-duty members is free and will not change. Regarding fees for retirees and family members, Winkenwerder declined to discuss any specific option under review. Other sources said the menu being studied includes not only higher Tricare Prime fees and co-payments but possibly an enrollment fee for users of Tricare Standard, the military’s traditional fee-for-service option; payouts or buyouts to entice beneficiaries to use other health insurance options; and a plan to combine any higher fees and co-pays with the offer of tax-deferred military Health Savings Accounts.
Winkenwerder indicated that stagnant fees and co-pays have been a factor in rising health costs, encouraging many younger retirees working in second careers to use Tricare rather than employer-provided health insurance. With Tricare, retirees under 65 see average out-of-pocket costs of about $700 a year, he said, versus $3,800 or so if they use employer-provided insurance. That gap is growing and has led to a steady migration of retirees and families into Tricare and away from private-sector options.
In 2000, Winkenwerder said, 60 percent of retirees under age 65 relied on Tricare. Today, the figure is 72 percent, and rising two to three points a year. It is expected to hit 85 percent by 2010. Reliance on Tricare, said Winkenwerder, is being encouraged by civilian employers, including some state governments. Alabama, Nebraska, the Carolinas and Washington now entice employees who are retired military to rely on Tricare by offering to cover their fees and co-pays with Tricare “supplemental” insurance.
The biggest rise in military health care costs, however, has involved the elderly, through Tricare for Life (TFL) and Tricare Senior Pharmacy benefits begun in 2001. Before Congress enacted these plans, beneficiaries eligible for Medicare saw access to a guaranteed military health benefit end. As the department phased in managed care, the “greatest generation” of World War II and Korean War retirees also were being squeezed out of base hospitals and clinics, denied what they saw as a promise of free lifetime care.
Congress responded by passing TFL, a “golden” supplement to Medicare that pays almost all health costs that Medicare won’t. TFL and a new senior pharmacy benefit now cover 1.7 million beneficiaries. The combined cost in 2005 is $6 billion and will rise to $9 billion by 2010.
Winkenwerder said total military health spending will hit $50 billion in 2010 — up from $18 billion in 2001 — if Congress takes no action to curb costs. Indeed, costs will grow even faster if lawmakers continue to expand medical benefits for drilling Reserve and National Guard members.
Frederic W. Cook, a member of the Defense Advisory Committee on Military Compensation, suggested June 7 that Tricare fees and co-pays should be raised for retirees and then indexed to inflation like their annuities. He called such a move “perfectly fair and equitable.”
“I know this is going to be a passionate subject with some people but I think we have to take on sometimes controversial, passionate subjects and put a stake in the ground,” Cook said.
Before eyeing higher fees for beneficiaries, Winkenwerder said the department took other actions to curb costs including redesigning Tricare support contracts, consolidating the retail pharmacy contract to win deeper discounts, and making more efficient use of military treatment facilities.
‘Then there are other ways I believe we will have to consider, and certainly the structure of our benefit, and the incentives that it currently creates, is among those changes,’ Winkenwerder said.
Internal discussions about restructuring the benefit have involved Defense Secretary Donald Rumsfeld’s ‘leadership team’ as well as senior military officers, Winkenwerder said. There’s recognition, he suggested, that unless health costs are curbed, they will consume a larger and larger share of defense budgets, impacting weapons and other readiness programs.
‘This is a set of priorities that just have be balanced, and we will be turning to our most thoughtful leaders to help set that balance,’ he said.
He didn’t rule out raising fees on some active duty families but noted, ‘There’s great sensitivity to the challenges’ lower-income families face.
Winkenwerder wouldn’t say when specific proposals might surface.
‘It’s very important that we take the steps sooner rather than later so that we can sustain this great medical benefit,’ he said.
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