Defense Health Care

The establishment of uniform benefits and cost sharing for Defense Department (DOD) beneficiaries is a key component of the TRICARE program and is something that GAO and others have long advocated. Such uniformity would, in GAO's view, eliminate inequities and confusion that now exist among beneficiaries of military health plans. Although adopting TRICARE cost shares may cause some minor adverse selection for the Uniformed Services Treatment Facilities (USTF), there should be no lasting negative financial impact on its operations. Moreover, the new cost shares, which are similar to health maintenance organizations, are appropriate for the risks to be borne by the USTFs and will likely make the USTF population more similar to DOD's general beneficiary population. More importantly, there should be a financial impact. DOD's current USTF capitation methodology takes into account and allows for adjusted reimbursement levels for such higher costs that result from changes in the enrollee cost shares and population characteristics.

GAO found that: (1) the new cost-sharing arrangement might leave USTF at risk for higher costs by causing some healthy members to disenroll, an outcome known as adverse selection; (2) adverse selection probably will not have long-term negative financial effects on USTF, because less than 10 percent of current USTF members are expected to disenroll, and USTF costs would not increase by more than 2 percent; (3) DOD capitation payments will automatically adjust for higher USTF costs caused by changes in enrollment, and USTF may negotiate payment adjustments for the effects of the benefit and cost-sharing revisions; (4) USTF estimated that cost-sharing would cause about 40 percent of their members to disenroll and increase costs by about 11 percent; (5) the USTF estimates are unreliable because of data and methodological weaknesses; (6) the USTF estimates included data for large claims which are unpredictable and dramatically affect cost estimates; (7) the difference in members' out-of-pocket costs between USTF and TRICARE Standard is not expected to be great enough to cause more than an estimated 10-percent USTF disenrollment; and (8) USTF already serve proportionally more retirees and their dependents who are under age 65 than exist in the general DOD population, but cost-sharing may reduce the proportion of younger retirees and their dependents in the USTF population.