Rate Hikes for Military Health Plan Would Be Felt in San Diego

SAN DIEGO — As part of President Obama’s 2013 budget, the Department of Defense proposed raising annual enrollment fees and prescription drug cost-sharing for TRICARE, the health care program for active military members, retirees their families and survivors.

The proposed additional fees amount to a $13 billion shift from the Pentagon to TRICARE beneficiaries over a period of five years.

TRICARE serves 9.6 million eligible active and retired military personnel and their families. Approximately 650,000 of those beneficiaries are based in California. More than 300,000 live in the San Diego region.

San Diegans have access to the Naval Medical Center, plus its 11 branches, along with the Naval Hospital at Camp Pendleton. In addition, the San Diego TRICARE provider network includes more than 7,200 health care providers located in 260 contracted medical facilities throughout the region.

The proposed $48.7 billion budget includes $1.8 billion in estimated savings associated with a number of cost-sharing proposals for the various TRICARE programs. These include:

  • TRICARE Prime, the HMO-type program for working age retirees would increase enrollment fees from $520 to as much as $820 annually starting Oct. 1 for family coverage. Annual fees could reach as high as $2,048 within five years. For the first time, annual enrollment fees would be based on a retiree’s income.
  • TRICARE Standard, the fee-for-service style benefits program, would include a $140 annual family enrollment fee for the first time and a $20 increase for deductibles (from $300 to $320) starting Oct. 1. Within five years, the enrollment fee would rise to $250 and the deductible to $580.
  • TRICARE for Life (TFL), the program for retired military members over age 65 and their families would face a new enrollment fee of up to $115 per person by October and as much as $475 within five years. Fees would be tiered based on retirees’ income.
  • Copayments for brand-name drugs purchased in a retail setting would rise from $12 to $26. Further, the copay for non-formulary, mail-order medications would jump from $25 to $51. The copay for mail-order, brand-name medications would rise from $9 to $26 starting this October. No fees would apply to active duty service members.

Both the U.S. House and Senate Armed Services committees voted to block proposed increases to enrollment fees and deductibles. But unlike the House committee, the Senate committee’s version of the bill did not remove DOD’s authority to increase pharmacy benefit costs.

The final outcome won’t be determined until the bill makes its way to conference committee, where disagreements between the House and Senate versions of the bill will be resolved. If signed into law, the legislation would be in place before the start of the federal fiscal year, and changes would take effect on Oct. 1.

Not Out of the Woods

Given that both the House and Senate panel versions of the 2013 defense authorization bill omit DOD’s proposed changes to enrollment fees and deductibles, it’s unlikely those increases will survive when final negotiations take place in conference committee later this year.

That doesn’t mean that military groups, which are opposed to the fee hikes, are resting easy. “We continue to be concerned about what will happen as [Congress] goes through the process,” said Gen. Jack Klimp, president and CEO of the National Association for Uniformed Services.

The proposed increases in cost-sharing for prescription drugs have a good chance of surviving congressional negotiations. The Senate panel indicated the Obama administration can use its authority to raise copays on brand-name medications filled through retail pharmacies and TRICARE mail order — exactly how much and whether these fee increases will ultimately pass remains up for debate in Washington.

Impact of Fees

According to Klimp, fee hikes would place a financial burden on retirees who already devote significant amounts of their income to medical care. “70% of all retirees are making less than $30,000 a year in retiree pay,” he said.

Col. Michael Hayden – deputy director of government relations for the Military Officers Association of America – also expressed concern about the effects of increased pharmacy fees, particularly for retirees.

“If you increase pharmacy copays, it will deter retirees from getting their prescriptions refilled,” he said. Poor medication compliance could result in higher medical costs, Hayden said.

Todd Harrison – senior fellow of Defense Budget Studies with the Center for Strategic and Budgetary Assessment — said health care costs have doubled over the past decade to $52.8 billion and now comprise one-tenth of the military budget. Staying the course and keeping cost-sharing static for military retirees is no longer an option. 

U.S. Rep. Susan Davis (D-San Diego – who serves on the House Armed Services Committee and is the ranking Democrat on the military personnel subcommittee — agreed but said there must be a balance.

“In these tough economic times, we must take a close look at defense spending, but we cannot break faith with those that have already given so much — our service members, military retirees and their families,” Davis said.

Access to Other Coverage

The average age of a retired enlisted member of the military is 43; officers retire at 47 on average. “You’ll get 40 years of benefit for 20 years of service, and that’s part of the problem. We have more retirees in the military health system than active duty personnel,” Harrison said.

What’s more, at a time in history when people are living longer, the annual fee retirees pay for TRICARE hasn’t kept pace. The fee was set in 1995 at $460 a year for a family plan and $230 for a single person. That annual fee increased for the first time last fall, rising $30 for individuals and $60 for families. Families now pay $520 a year for retiree health benefits. Individuals pay $260.  

There’s also an annual cap on out-of-pocket expenses of $3,000 for families. “Even with all copays and deductibles, if you have a really catastrophic illness, that’s [all you pay],” said Austin Camacho, spokesperson for TRICARE Management Activity.

According to Harrison, that’s “an incredibly good deal on insurance,” particularly when compared with private health plan costs.

According to the Kaiser Family Foundation, in 2011, the average premium cost of an employer-sponsored health plan was $5,429 for individuals and $15,073 for families.

In many cases, military retirees who are under age 65 have second careers, with access to private insurance. However, many often don’t take advantage of that coverage.

“Some work for the Department of Defense as civilians, and some work for private contractors and qualify for benefits in the private sector, but because it’s so cheap, they stay in the military plan,” Harrison said. 

According to Harrison, increasing cost-sharing alone won’t save the military medical system the kind of money it really needs. “The way you save money is by incentivizing retirees to leave the system and go into the private sector,” he said.

Finding Other Ways To Save

Military groups representing retirees suggest that DOD look within before raising fees for retiree service men and women.

“Before the Department of Defense goes and levies additional fees and additional copays on the beneficiary, we think that they should get their own house in line,” Hayden said.

Military groups say addressing inefficiencies throughout the system could save a lot of money. That includes centralizing the procurement of hospital equipment and doing a better job negotiating contracts with vendors that help to administer the program.

Three years ago, under former Secretary of Defense Robert Gates, DOD began an efficiency initiative that has identified more than $200 billion in efficiency savings over the next five years. The problem: “That’s already accounted for in the budget,” Harrison said. What’s more, he said, DOD has already spent the savings.

Ultimately, the Pentagon needs to gain control over growing military health costs. “In a declining Defense budget, [high medical costs] mean we’ll be spending a greater percentage of defense dollars on health for retirees. From a national perspective does that make sense?” Harrison asked.

However you answer that question, one thing is for certain: “We’ll probably be looking at all these things all over again next year,” Hayden said.

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