Military Update: Retiree costs to rise as supplemental plans end
Phil Peterson, a retired Navy chief petty officer working for a major defense contractor in Greenville, S.C., got word last week that his company’s Tricare supplemental insurance plan, which covers all costs not picked up by Peterson’s Tricare Standard benefit, must end by Jan. 1.
Peterson is among tens of thousands of working retirees who will see their health costs rise from a law Congress enacted last year that prohibits companies as well as state and local governments from offering health plans or other incentives to encourage military retirees who work for them to drop employer-provided health plans and use their Tricare benefits instead.
Peterson, 53, dropped his company’s group health insurance four years ago when it began offering a free supplement to Tricare Standard, the military’s traditional fee-for service health insurance. Peterson saw family out-of-pocket medical costs fall to zero that year.
“It turned out to be a very good thing because I didn’t have to worry about deductibles or co-payments for office visits, prescriptions or anything else,” Peterson said. “It’s not right now that somebody up in Washington is telling me, ‘We don’t want you to use it so we can save money.’”
Employers who offer a Tricare supplement have saved themselves a lot of money, says the Congressional Budget Office. Wrap-around insurance to Tricare Standard might cost a company just over $1,200 a year. But if a military retiree on the payroll can be enticed to use Tricare instead of the company’s group health plan, the company avoids a cost of up $5,500 a year.
CBO, citing DOD survey results, estimated that 50,000 people a year were “being diverted from employer-sponsored plan to Tricare.” Outlawing employer-paid supplements, CBO predicted, will save $119 million in 2008 and $700 million through 2011.
Lee Grieve, a retired Air Force master sergeant in Fort Walton Beach, Fla., said his company, Jacobs Technology, began offering a Tricare supplement only last year. Though Congress has banned such offers and raised his costs, Grieve said, it won’t stop him from using Tricare Standard.
“The intent is to reduce the cost to Tricare by making me use my company-provided benefit,” said Grieve, who is 49 and has heart disease. “What Congress has failed to see is [that Tricare] is cheaper than my Blue Cross alternative, even if I have to pay my own supplement.”
The decision he now faces, Grieve said, is whether to buy the supplement himself “or take my chances with co-pays.”
Congress last year rejected the Bush administration’s call to raise Tricare fees and co-payments for retirees under age 65 and their families. But then Defense officials lobbied hard for a fiscal consolation prize: an end to employer-paid Tricare supplements. Donald Rumsfeld, who was still defense secretary, called Senate and House leaders, including Sen. John Warner, R-Va., then chairman of the Senate Armed Services Committee, to urge adoption of the provision, a committee source recalled. Rumsfeld showed lawmakers a health plan menu from a major defense contractor that included an offer of a few thousand dollars in cash to any retiree who would rely on Tricare rather than the corporate health plan.
Language was added to the fiscal 2007 defense authorization act to extend to Tricare a rule adopted years ago to dampen Medicare costs. It prohibits employers from offering a financial or other incentive to encourage retiree beneficiaries to decline employer health insurance and use Tricare instead. Employers who violate the ban face a $5,000 fine per employee starting Jan. 1. Companies with fewer than 20 employees are exempt.
Retired Air Force Capt. William “Bernie” Herpin Jr., in Colorado Springs, got a letter from his employer, Lockheed Martin Corp., explaining that the company-paid Tricare supplement will end. For a retiree who wants to pay it for himself and spouse, the cost is $111 a month. Herpin said a co-worker under the corporate plan pays $47 a week in premiums, and a $300 annual deductible plus routine co-pays.
A dozen states also have been offering Tricare supplements to military retirees on their payrolls. Those incentives too must end.
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