Congressional Budget Office

Approaches to Reduce Federal Spending on the Defense Health System

Presentation at the Western Economic Association Conference

July 1, 2013

Carla Tighe Murray

Senior Analyst, National Security Division

1 C O N G R E S S I O N A L B U D G E T O F F I C E

Actual and Projected Costs for Military Health Care as a Share of DoD’s Budget, 1990 to 2030

Percent

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 20300

2

4

6

8

10

12

14

16Actual Projected

TRICARE

Initiated

FYDP

Projection

TRICARE for Life

Initiated

CBO's ProjectionFYDP = DoD’s 2013 Future Years Defense Program

2 C O N G R E S S I O N A L B U D G E T O F F I C E

Funding for the Military Health Care System, by Category

(Billions of 2013 dollars)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Pharmaceuticals

Purchased Care and Contracts

Direct Care and Administration

TRICARE for Life Accrual Payments

Military Personnel

3 C O N G R E S S I O N A L B U D G E T O F F I C E

TRICARE Beneficiaries Pay Less Out-of-Pocket for Their Health Care

■ Share of health care costs for a military retiree family of working age (<65) has fallen

– 27 percent of the total cost of care in 1996, when TRICARE was first fully implemented

– 11 percent in 2012

■ In 2012, retiree families paid less than one-fifth as much for their care as civilian counterparts with employment-based insurance

4 C O N G R E S S I O N A L B U D G E T O F F I C E

Costs for Military Retiree Families Under TRICARE Plans and for Civilian Counterparts with Employment-Based Insurance, 2012

(Dollars)

Premium or Enrollment Fee

Deductibles and Copayments

Total Annual Out-of-Pocket Costs

TRICARE Prime 520 445 965

Civilian HMO 5,080 1,000 6,080

TRICARE as a Percentage of the Civilian Plan 16%

TRICARE Standard or Extra 0 1,035 1,035

Civilian PPO 4,270 1,295 5,565

TRICARE as a Percentage of the Civilian Plan 19%

5 C O N G R E S S I O N A L B U D G E T O F F I C E

Options for Slowing the Growth of Health Care Costs

■ Cost-sharing Options – Increase fees, copayments,

and deductibles for military retirees and families

– Prevent military retirees and families from enrolling in TRICARE Prime but allow access to Standard/Extra for an annual fee

– Introduce minimum out-of-pocket costs to Tricare for Life for Medicare-eligible retirees and families

■ Other Approaches – Expand disease management

programs

– Expand scholarships and close the Uniformed Services University of the Health Sciences (USUHS)

– Hire additional auditors to combat fraud

– Combine the military departments’ medical establishments

6 C O N G R E S S I O N A L B U D G E T O F F I C E

Estimated Budgetary Effects of TRICARE’s Cost-Sharing Options, 2014 to 2023

Approach Annual Savings

Increase Cost Sharing for TRICARE Users As much as several billion dollars

Other Approaches (Disease management, close USUHS, hire more auditors, or combine medical establishments) As much as roughly $100 million

7 C O N G R E S S I O N A L B U D G E T O F F I C E

Potential for Savings in the Other Approaches

■ Expand disease management programs – Studies of DoD’s existing program find small to nonexistent savings

■ Expand the use of scholarships and close USUHS – In 2012, USUHS funding was $190 million for operations and

maintenance and $35 million for military personnel

– Transferring functions means continuing some funding

■ Hire additional auditors – A cost to the government

■ Combine military medical establishments – DoD estimated that savings from implementing the Defense Health

Agency could equal $46.5 million per year

– GAO’s assessment was that savings would be lower