Military Retiree Health Benefits
Enrollment Low in Federal Employee Health Plans under DOD Demonstration Gao ID: GAO-03-547 June 6, 2003Prior to 2001, military retirees who turned age 65 and became eligible for Medicare lost most of their Department of Defense (DOD) health benefits. The DOD-Federal Employees Health Benefits Program (FEHBP) demonstration was one of several demonstrations established to examine alternatives for addressing retirees' lack of Medicare supplemental coverage. The demonstration was mandated by the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (NDAA 1999), which also required GAO to evaluate the demonstration. GAO assessed enrollment in the demonstration and the premiums set by demonstration plans. To do this, GAO, in collaboration with the Office of Personnel Management (OPM) and DOD, conducted a survey of enrollees and eligible nonenrollees. GAO also examined DOD enrollment data, Medicare and OPM claims data, and OPM premiums data.
Enrollment in the DOD-FEHBP demonstration was low, peaking at 5.5 percent of eligible beneficiaries in 2001 (7,521 enrollees) and then falling to 3.2 percent in 2002, after the introduction of comprehensive health coverage for all Medicare-eligible military retirees. Enrollment was considerably greater in Puerto Rico, where it reached 30 percent in 2002. Most retirees who knew about the demonstration and did not enroll said they were satisfied with their current coverage, which had better benefits and lower costs than the coverage they could obtain from FEHBP. Some of these retirees cited, for example, not being able to continue getting prescriptions filled at military treatment facilities if they enrolled in the demonstration. For those who enrolled, the factors that encouraged them to do so included the view that FEHBP offered retirees better benefits, particularly prescription drugs, than were available from their current coverage, as well as the lack of any existing coverage. Monthly premiums charged to enrollees for individual policies in the demonstration varied widely--from $65 to $208 in 2000--with those plans that had lower premiums and were better known to eligible beneficiaries, capturing the most enrollees. In setting premiums initially, plans had little information about the health and probable cost of care for eligible beneficiaries. Demonstration enrollees proved to have lower average health care costs than either their counterparts in the civilian FEHBP or those eligible for the demonstration who did not enroll. Plans enrolled similar proportions of beneficiaries in poor health, regardless of whether they charged higher, lower, or the same premiums for the demonstration as for the civilian FEHBP. In commenting on a draft of the report, DOD concurred with the overall findings but disagreed with the description of the demonstration's impact on DOD's budget as small. As noted in the draft report, DOD's costs for the demonstration relative to its total health care budget were less than 0.1 percent of that budget. OPM declined to comment.
GAO-03-547, Military Retiree Health Benefits: Enrollment Low in Federal Employee Health Plans under DOD Demonstration
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Report to Congressional Committees:
United States General Accounting Office:
GAO:
June 2003:
Military Retiree Health Benefits:
Enrollment Low in Federal Employee Health Plans under DOD
Demonstration:
GAO-03-547:
GAO Highlights:
Highlights of GAO-03-547, a report to Congressional Committees
Why GAO Did This Study:
Prior to 2001, military retirees who turned age 65 and became eligible
for Medicare lost most of their Department of Defense (DOD) health
benefits. The DOD-Federal Employees Health Benefits Program (FEHBP)
demonstration was one of several demonstrations established to examine
alternatives for addressing retirees‘ lack of Medicare supplemental
coverage. The demonstration was mandated by the Strom Thurmond
National Defense Authorization Act for Fiscal Year 1999 (NDAA 1999),
which also required GAO to evaluate the demonstration. GAO assessed
enrollment in the demonstration and the premiums set by demonstration
plans. To do this, GAO, in collaboration with the Office of Personnel
Management (OPM) and DOD, conducted a survey of enrollees and eligible
nonenrollees. GAO also examined DOD enrollment data, Medicare and OPM
claims data, and OPM premiums data.
What GAO Found:
Enrollment in the DOD-FEHBP demonstration was low, peaking at 5.5
percent of eligible beneficiaries in 2001 (7,521 enrollees) and then
falling to 3.2 percent in 2002, after the introduction of
comprehensive health coverage for all Medicare-eligible military
retirees. Enrollment was considerably greater in Puerto Rico, where
it reached 30 percent in 2002. Most retirees who knew about the
demonstration and did not enroll said they were satisfied with their
current coverage, which had better benefits and lower costs than the
coverage they could obtain from FEHBP. Some of these retirees cited,
for example, not being able to continue getting prescriptions filled
at military treatment facilities if they enrolled in the
demonstration. For those who enrolled, the factors that encouraged
them to do so included the view that FEHBP offered retirees better
benefits, particularly prescription drugs, than were available from
their current coverage, as well as the lack of any existing
coverage.
Monthly premiums charged to enrollees for individual policies in the
demonstration varied widely”from $65 to $208 in 2000”with those plans
that had lower premiums and were better known to eligible
beneficiaries, capturing the most enrollees. In setting premiums
initially, plans had little information about the health and probable
cost of care for eligible beneficiaries. Demonstration enrollees
proved to have lower average health care costs than either their
counterparts in the civilian FEHBP or those eligible for the
demonstration who did not enroll. Plans enrolled similar proportions
of beneficiaries in poor health, regardless of whether they charged
higher, lower, or the same premiums for the demonstration as for the
civilian FEHBP.
In commenting on a draft of the report, DOD concurred with the overall
findings but disagreed with the description of the demonstration‘s
impact on DOD‘s budget as small. As noted in the draft report, DOD‘s
costs for the demonstration relative to its total health care budget
were less than 0.1 percent of that budget. OPM declined to comment.
www.gao.gov/cgi-bin/getrpt?GAO-03-547.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Marjorie E. Kanof
(202) 512-7101.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Enrollment Was Low, Largely Due to Beneficiaries' Satisfaction with
Existing Coverage:
Premiums Varied Widely, Reflecting Plans' Different Assessments of
Demonstration Risk:
Impact of Demonstration on DOD Was Limited Due to Small Size and Low
Enrollment, but Impact on Enrollees Was Greater:
Agency Comments:
Appendix I: GAO-DOD-OPM Survey of Military Retirees and Others Eligible
for the DOD-FEHBP Demonstration:
Appendix II: Data, Methods, and Models Used in Analyzing Factors
Affecting DOD-FEHBP Demonstration Enrollment:
Appendix III: Enrollment in the DOD-FEHBP Demonstration:
Appendix IV: DOD's Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration:
Appendix V: Enrollees' and Nonenrollees' Reasons for Joining or Not
Joining a DOD-FEHBP Demonstration Plan:
Appendix VI: Comments from the Department of Defense:
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Related GAO Products:
Tables:
Table 1: Number of Eligible Beneficiaries by DOD-FEHBP Demonstration
Site, 2000-2002:
Table 2: Monthly Premiums Charged to Enrollees for Individual Policies
in the DOD-FEHBP Demonstration, 2000:
Table 3: Average Spending on Medicare-covered Services for Retirees
Eligible for the DOD-FEHBP Demonstration--by Enrollment Status, 2000:
Table 4: Major Survey Sections and Topics Covered:
Table 5: Survey Responses and Nonresponses:
Table 6: Population, Sample Size, and Response Rate, by DOD-FEHBP
Demonstration Site and Enrollee Status, 2000:
Table 7: Estimated Effects of Selected Factors on Whether Eligible
Retirees Knew about the DOD-FEHBP Demonstration:
Table 8: Estimated Effects of Selected Factors on Whether Eligible
Retirees Enrolled in an FEHBP Plan:
Table 9: Health Status Comparisons of DOD-FEHBP Demonstration Enrollees
with Eligible Retirees Who Did Not Enroll and with Civilian FEHBP
Retirees, Based on PIP-DCG Scores:
Table 10: Enrollment in the DOD-FEHBP Demonstration, 2000:
Table 11: Enrollment in the DOD-FEHBP Demonstration, 2001:
Table 12: Enrollment in the DOD-FEHBP Demonstration, 2002:
Table 13: Beneficiaries Who Recalled Receiving DOD-FEHBP Demonstration
Mailings and Who Found Them Useful:
Table 14: Beneficiaries' Sources of Information about the DOD-FEHBP
Demonstration:
Table 15: Sources of Information for Eligible Beneficiaries about
Specific FEHBP Plans:
Table 16: Survey Responses by Enrollees to the Question "Why Did You
Join a DOD-FEHBP Health Plan?":
Table 17: Survey Responses by Nonenrollees to the Question "Why Didn't
You Join a DOD-FEHBP Health Plan?":
Figures:
Figure 1: DOD-FEHBP Demonstration-wide Enrollment, 2000-2002:
Figure 2: DOD-FEHBP Demonstration Enrollment on the Mainland and in
Puerto Rico, 2000-2002:
Figure 3: DOD-FEHBP Demonstration Enrollment by Type of Previous Health
Coverage, 2000:
Figure 4: Comparison of Premiums for the DOD-FEHBP Demonstration with
Civilian FEHBP Premiums, 2000:
Abbreviations:
CMS: Centers for Medicare & Medicaid Services
DOD: Department of Defense
FAQ: frequently asked questions
FEHBP: Federal Employees Health Benefits Program
HMO: health maintenance organization
MTF: military treatment facility
NMOP: National Mail Order Pharmacy
OBRA 1990: Omnibus Budget Reconciliation Act of 1990
OPM: Office of Personnel Management
PIP-DCG: Principal Inpatient Diagnostic Cost Group
POS: point-of-service
PPO: preferred provider organization
SNF: skilled nursing facility
TFL: TRICARE For Life
VA: Department of Veterans Affairs:
United States General Accounting Office:
Washington, DC 20548:
June 6, 2003:
Congressional Committees:
Prior to 2001, military retirees who turned age 65 and became eligible
for Medicare lost most of their Department of Defense (DOD) health care
benefits. DOD did not offer its military retirees[Footnote 1] Medicare
supplemental coverage, which some private employers make available to
their retirees. Such coverage pays for Medicare deductibles and
copayments as well as certain items not covered by Medicare, including
most outpatient prescription drugs. Military retirees age 65 and over
could obtain free care from the more than 600 military treatment
facilities (MTF), but only if space was available after beneficiaries
under age 65 had been treated. Older retirees could also get
prescription drugs at no charge from MTF pharmacies if the drugs were
stocked by the MTFs, although only about 40 percent of retirees age 65
and over lived close to an MTF.
To gather information on alternative ways of addressing military
retirees' lack of Medicare supplemental coverage, Congress established
several demonstrations that allowed Medicare-eligible military
retirees to enroll in DOD-sponsored health care programs.[Footnote 2]
One of those demonstrations was the DOD Federal Employees Health
Benefits Program (FEHBP) demonstration ("the demonstration"),[Footnote
3] which lasted from 2000 through 2002. Under the demonstration,
military retirees and several smaller groups of beneficiaries[Footnote
4]--such as certain former spouses of active duty military personnel
and retirees--could purchase coverage from one of the private health
plans that participate in FEHBP, the federal government's health
insurance program for civilian employees and retirees. DOD subsidized
this retiree health coverage, paying up to three-quarters of the
premium. Enrollees could no longer use MTFs or military pharmacies. The
demonstration was open to about 120,000 of the more than 1.5 million
military retirees and dependents age 65 and over.[Footnote 5] It
initially included retirees and other eligible beneficiaries in eight
geographic areas and expanded in 2001 to include two additional areas.
The law establishing the demonstration (the Strom Thurmond National
Defense Authorization Act for Fiscal Year 1999 (NDAA 1999)) directed us
to examine a number of topics relating to enrollment and the
demonstration's effects on beneficiaries and DOD.[Footnote 6]
Specifically, this report addresses (1) enrollment in the demonstration
and the factors that influenced whether military retirees enrolled, (2)
the premiums set by FEHBP plans for the demonstration and their
strategies for setting premiums, and (3) any effects that the
demonstration project had on DOD and beneficiaries--enrollees and
nonenrollees.
To address these topics, we, in cooperation with DOD and the Office of
Personnel Management (OPM), which administers FEHBP, surveyed between
May and August 2000 a representative sample of about 5,600 persons
eligible for the demonstration, of whom 85 percent responded. To
analyze factors affecting enrollment, we obtained survey information
from both enrollees and nonenrollees on health status, insurance
coverage, and other factors potentially affecting their enrollment
decisions. We also obtained information from DOD on persons eligible
for the demonstration and their use of military health care. We
obtained information from Quotesmith Inc. on premiums for private
Medigap insurance plans that supplement Medicare and are sold directly
to individuals. To assess the premiums offered by FEHBP plans, we
obtained information from OPM on premiums in the demonstration and in
the civilian FEHBP. To obtain information on whether demonstration
enrollees were sicker than others, we used Medicare claims on the
diagnoses and costs of enrollees, eligible nonenrollees, and civilian
FEHBP enrollees age 65 and over who lived near the demonstration sites.
To examine the costs of demonstration enrollees, we obtained
information from OPM and from Medicare claims. We restricted some
analyses to retirees age 65 and over for two reasons. First, these
retirees constituted 85 percent of all enrollees. Second, cost and
diagnostic information was available for these retirees but not for
beneficiaries under age 65. We also interviewed representatives of
military retiree associations as well as DOD and OPM officials. (See
app. I for a discussion of our survey methods and app. II for a
discussion of our methods of analyzing health status and factors
affecting enrollment, including tests of statistical significance.) We
found that the size and design of the demonstration were adequate for
us to evaluate its effects and answer the questions that Congress
asked. We performed our work in phases from November 1999 through May
2003. In 1999 and 2000, we observed the initial planning and
implementation of the demonstration, and in 2000 we conducted the GAO-
OPM-DOD survey. At the end of 2002 and in 2003, after the demonstration
had ended, we conducted additional analyses. We completed our work in
accordance with generally accepted government auditing standards.
Results in Brief:
Enrollment in the DOD-FEHBP demonstration peaked at 5.5 percent of
potential beneficiaries in 2001 (7,521 enrollees) and then fell to 3.2
percent in 2002, after the introduction of comprehensive health
coverage--TRICARE For Life (TFL) and the senior pharmacy benefit--for
Medicare-eligible military retirees.[Footnote 7] Enrollment was
considerably greater in Puerto Rico than on the mainland,[Footnote 8]
reaching 30 percent in 2002. Most retirees who knew about the
demonstration and did not enroll said they were satisfied with their
current coverage--it had better benefits and lower costs than the
coverage they could obtain through the demonstration. Many nonenrollees
also cited not being able to continue getting prescriptions filled at
no charge at MTFs if they enrolled. Among the relatively small
proportion of people who did enroll, factors that encouraged their
enrollment included their view that the demonstration offered better
benefits, such as prescription drugs, than were available to them from
other plans, and their lack of existing coverage, such as employer-
sponsored insurance or a Medicare managed care plan. These factors also
help explain the high enrollment in Puerto Rico, where the share of
retirees without existing coverage was much greater than on the
mainland.
Premiums charged enrollees in the demonstration varied widely--from $65
to $208 monthly for an individual policy in 2000--with those plans that
had lower premiums and greater name recognition capturing the largest
number of enrollees. In setting premiums, plans had little information
about the health and probable cost of military beneficiaries. Plans
adopted two different strategies to reduce their financial burden if
they attracted sick, costly enrollees. One strategy kept premiums
relatively low--at or near premiums in the civilian FEHBP, with the
intent of attracting a representative mix of enrollees. The second
strategy was to charge higher premiums than in the civilian program,
which tended to discourage enrollment and provided a financial cushion
in case those beneficiaries who enrolled proved costly. However, plans
following the two different strategies attracted about the same
proportion of enrollees who were in poor health. In addition,
demonstration enrollees were on average less sick and younger than
either their counterparts in the civilian program or demonstration
nonenrollees. During the first year of the demonstration, enrolled
retirees' health care was considerably less expensive per person than
the health care for their counterparts in the civilian FEHBP--$3,529
(excluding prescription drugs) compared to $5,313. Premiums for
individual policies rose on average in 2001, but they fell in 2002, the
first time that a full year's information on enrollees' costs was
available when OPM and the plans negotiated premiums.
The demonstration's impact on DOD's budget, MTFs, and military
beneficiary access to military health care was small, although its
impact on beneficiaries who enrolled was considerable. The limited
impact on DOD's budget and MTFs was due in part to the demonstration's
small number of potential beneficiaries, relative to the more than 1.5
million military retirees age 65 and over, and in part to the small
proportion that actually enrolled. For enrollees, the demonstration
substantially expanded their choice of health care options.
In commenting on a draft of this report, DOD said that it concurred
with our overall findings but disagreed with our description of the
demonstration's impact on DOD's budget as small. DOD's costs for the
demonstration relative to its total health care budget were less than
0.1 percent of that budget. DOD provided technical comments that we
incorporated as appropriate. OPM declined to comment.
Background:
Medicare is generally the primary source of health insurance for people
age 65 and over. However, traditional Medicare leaves beneficiaries
liable for considerable out-of-pocket costs, and most beneficiaries
have supplemental coverage. Military retirees can also obtain some care
from MTFs and, since October 1, 2001, DOD has provided comprehensive
supplemental coverage to its retirees age 65 and over. Civilian federal
retirees and dependents age 65 and over can obtain supplemental
coverage from FEHBP. The demonstration tested extending this coverage
to military retirees age 65 and over, and their dependents.
Medicare:
Medicare, a federally financed health insurance program for persons age
65 and older, some people with disabilities, and people with end-stage
kidney disease, is typically the primary source of health insurance for
persons age 65 and over. Eligible Medicare beneficiaries are
automatically covered by part A, which includes inpatient hospital and
hospice care, most skilled nursing facility (SNF) care, and some home
health care.[Footnote 9] They can also pay a monthly premium ($54 in
2002) to join part B, which covers physician and outpatient services as
well as those home health services not covered under part A. Outpatient
prescription drugs are generally not covered.[Footnote 10] Under
traditional fee-for-service Medicare, beneficiaries choose their own
providers and Medicare reimburses those providers on a fee-for-service
basis. Beneficiaries who receive care through traditional Medicare are
responsible for paying a share of the costs for most services.
The alternative to traditional Medicare, Medicare+Choice, offers
beneficiaries the option of enrolling in private managed care plans and
other private health plans. In 1999, before the demonstration started,
about 16 percent of all Medicare beneficiaries were enrolled in a
Medicare+Choice plan; by 2002, the final year of the demonstration,
enrollment had fallen to 12 percent. Medicare+Choice plans cover all
basic Medicare benefits, and many also offer additional benefits such
as prescription drugs, although most plans place a limit on the amount
of drug costs they cover. These plans typically do not pay if their
members use providers who are not in their plans, and plan members may
have to obtain approval from their primary care doctors before they see
specialists. Members of Medicare+Choice plans generally pay less out of
pocket than they would under traditional Medicare.[Footnote 11]
Medicare Supplemental Coverage:
Medicare's traditional fee-for-service benefit package and cost-
sharing requirements leave beneficiaries liable for significant out-of-
pocket costs, and most beneficiaries in traditional fee-for-service
Medicare have supplemental coverage. This coverage typically pays part
of Medicare's deductibles, coinsurance, and copayments, and may also
provide benefits that Medicare does not cover--notably, outpatient
prescription drugs. Major sources of supplemental coverage include
employer-sponsored insurance, the standard Medigap policies sold by
private insurers to individuals, and Medicaid.
Employer-sponsored insurance. About one-third of Medicare's
beneficiaries have employer-sponsored supplemental coverage. These
plans, which typically have cost-sharing requirements, pay for some
costs not covered by Medicare, including part of the cost of
prescription drugs.[Footnote 12]
Medigap. About one-quarter of Medicare's beneficiaries have Medigap,
the only supplemental coverage option available to all beneficiaries
when they initially enroll in Medicare. Prior to 1992, insurers were
free to establish the benefits for Medigap policies. The Omnibus Budget
Reconciliation Act of 1990 (OBRA 1990) required that beginning in 1992,
Medigap policies be standardized, and OBRA authorized 10 different
benefit packages, known as plans A through J, that insurers could
offer.[Footnote 13] The most popular Medigap policy is plan F, which
covers Medicare coinsurance and deductibles, but not prescription
drugs. It had an average annual premium per person of about $1,200 in
1999, although in some cases plan F cost twice that amount. Among the
least popular Medigap policies are those offering prescription drug
coverage. These policies are the most expensive of the 10 standard
policies--they averaged about $1,600 in 1999, and some cost over
$5,000. Beneficiaries with these policies pay most of the cost of drugs
because the Medigap drug benefit has a deductible and high cost sharing
and does not reimburse policyholders for drug expenses above a set
limit.[Footnote 14]
Health Care for Military Retirees:
DOD provides health care to active-duty military personnel and
retirees, and to eligible dependents and survivors through its TRICARE
program.[Footnote 15] Prior to 2001, retirees lost most of their
military health coverage when they turned age 65, although they could
still use MTFs when space was available, and they could obtain
prescription drugs without charge from MTF pharmacies.[Footnote 16] In
the Floyd D. Spence National Defense Authorization Act for Fiscal Year
2001 (NDAA 2001), Congress established two new benefits to supplement
military retirees' Medicare coverage:
* Pharmacy benefit. Effective April 1, 2001, military retirees age 65
and over were given access to prescription drugs through TRICARE's
National Mail Order Pharmacy (NMOP) and civilian pharmacies. Retirees
make lower copayments for prescription drugs purchased through NMOP
than at civilian pharmacies. Retirees continue to have access to free
prescription drugs at MTF pharmacies.
* TFL. Effective October 1, 2001, military retirees age 65 and over who
were enrolled in Medicare part B became eligible for TFL. As a result,
DOD is now a secondary payer for these retirees' Medicare-covered
services, paying all of their required cost sharing. TFL also offers
certain benefits not covered by Medicare, including catastrophic
coverage. Retirees can continue to use MTFs without charge on a "space
available" basis.
In fiscal year 1999, before TFL was established, DOD's annual
appropriations for health care were about $16 billion, of which over $1
billion funded the care of military retirees age 65 and over. In fiscal
year 2002, DOD's annual health care appropriations totaled about $24
billion, of which over $5 billion funded the care of retirees age 65
and over who used TFL, the pharmacy benefit, and MTF care.
In addition to their DOD coverage, military retirees--but generally not
their dependents--can use Department of Veterans Affairs (VA)
facilities. There are 163 VA medical centers throughout the country
that provide inpatient and outpatient care as well as over 850
outpatient clinics. VA care is free to veterans with certain service-
connected disabilities or low incomes;[Footnote 17] other veterans are
eligible for care but have lower priority than those with service-
connected disabilities or low incomes and are required to make
copayments.
FEHBP:
FEHBP, the health insurance program administered by OPM for federal
civilian employees and retirees, covered about 8.3 million people in
2002. Civilian employees become eligible for FEHBP when hired by the
federal government. Employees and retirees can purchase health
insurance from a variety of private plans, including both managed care
and fee-for-service plans, that offer a broad range of benefits,
including prescription drugs. Insurers offer both self-only plans and
family plans, which also cover the policyholders' dependents. Some
plans also offer two levels of benefits: a standard option and a high
option, which has more benefits, less cost sharing, or both.[Footnote
18] For retirees age 65 and over, FEHBP supplements Medicare, paying
beneficiaries' Medicare deductibles and coinsurance in addition to
paying some costs not covered by Medicare, such as part of the cost of
prescription drugs.[Footnote 19]
Over two-thirds of FEHBP policyholders are in national plans; the
remainder are in local plans. National plans include plans that are
available to all civilian employees and retirees as well as plans that
are available only to particular groups, for example, foreign service
employees. In the FEHBP, the largest national plan is Blue Cross Blue
Shield, accounting for about 45 percent of those insured by an FEHBP
plan.[Footnote 20] Other national plans account for about 24 percent of
insured individuals. The national plans are all preferred provider
organizations (PPO) in which enrollees use doctors, hospitals, and
other providers that belong to the plan's network, but are allowed to
use providers outside of the network for an additional cost. Local
plans, which operate in selected geographic areas and are mostly
managed care, cover the remaining 32 percent of people insured by the
FEHBP.
Civilian employees who enroll in FEHBP can change plans during an
annual enrollment period. During this period, which runs from mid-
November to mid-December, beneficiaries eligible for FEHBP can select
new plans for the forthcoming calendar year. To assist these
beneficiaries in selecting plans, OPM provides general information on
FEHBP through brochures and its Web site. Also, as part of this
information campaign, plans' representatives may visit government
agencies to participate in health fairs, where they provide detailed
information about their specific health plans to government employees.
The premiums charged by these plans, which are negotiated annually
between OPM and the plans, depend on the benefits offered by the plan,
the type of plan--fee-for-service or managed care--and the plan's out-
of-pocket costs for the enrollee. Plans may propose changes to benefits
as well as changes in out-of-pocket payments by enrollees. OPM and the
plans negotiate these changes and take them into account when
negotiating premiums. Fee-for-service plans must base their rates on
the claims experience of their FEHBP enrollees, while adjusting for
changes in benefits and out-of-pocket payments, and must provide OPM
with data to justify their proposed rates. Managed care plans must give
FEHBP the best rate that they offer to groups of similar size in the
private sector under similar conditions, with adjustments to account
for differences in the demographic characteristics of FEHBP enrollees
and the benefits provided.[Footnote 21] The government pays a maximum
of 72 percent of the weighted average premium of all plans and no more
than 75 percent of any plan's premium. Unlike most other plans,
including employer-sponsored insurance and Medigap, FEHBP plans charge
the same premium to all enrollees, regardless of age. As a result,
persons over age 65, for whom the FEHBP plan supplements Medicare, pay
the same rate as those under age 65, for whom the FEHBP plan is the
primary insurer.
The FEHBP Demonstration:
The FEHBP demonstration allowed eligible beneficiaries in the
demonstration sites to enroll in an FEHBP plan. The demonstration ran
for 3 years, from January 1, 2000, through December 31, 2002. The law
that established the demonstration capped enrollment at 66,000
beneficiaries and specified that DOD and OPM should jointly select from
6 to 10 sites. Initially, the agencies selected 8 sites that had about
69,000 eligible beneficiaries according to DOD's calculation for
2000.[Footnote 22] (See table 1.) Four sites had MTFs, and 1 site--
Dover--also participated in the subvention demonstration.[Footnote 23]
Two other sites, which had about 57,000 eligible beneficiaries, were
added in 2001. Demonstration enrollees received the same benefits as
civilian FEHBP enrollees, but could no longer use MTFs or MTF
pharmacies.
Table 1: Number of Eligible Beneficiaries by DOD-FEHBP Demonstration
Site, 2000-2002:
With MTF:
Site: Camp Pendleton, Calif.; 2000: 24,907; 2001: 27,328; 2002: 27,287.
Site: Dover, Del.[A]; 2000: 4,384; 2001: 4,868; 2002: 4,867.
Site: Fort Knox, Ky.; 2000: 7,757; 2001: 9,121; 2002: 9,113.
Site: Puerto Rico; 2000: 6,907; 2001: 9,401; 2002: 9,453.
No MTF:
Site: Dallas, Tex.; 2000: 13,607; 2001: 16,159; 2002: 16,133.
Site: Greensboro, N.C.; 2000: 3,278; 2001: 4,033; 2002: 4,024.
Site: Humboldt County, Calif.; 2000: 2,919; 2001: 3,461; 2002: 3,454.
Site: New Orleans, La.; 2000: 5,083; 2001: 6,095; 2002: 6,085.
Site: Adair County, Iowa; 2000: [Empty]; 2001: 29,584; 2002: 29,530.
Site: Coffee County, Ga.; 2000: [Empty]; 2001: 27,329; 2002: 27,284.
Site: Total--initial 8 sites[B]; 2000: 68,842; 2001: [Empty]; 2002:
[Empty].
Site: Total--10 sites; 2000: [Empty]; 2001: 137,379; 2002: 137,230.
Source: DOD.
Note: The 2000 data are as of January 1, 2000, 2001 data are as of
March 14, 2001, and 2002 data are as of February 21, 2002.
[A] Dover also participated in the DOD Medicare subvention
demonstration.
[B] DOD initially calculated that there were 68,842 beneficiaries in
the original 8 sites. Based on this figure, the demonstration including
the two new sites had approximately 126,000 eligible beneficiaries. The
higher numbers in 2001 and 2002 resulted from corrections that DOD made
to its eligibility and enrollment database.
[End of table]
Military retirees age 65 and over and their dependents age 65 and over
were permitted to enroll in either self-only or family FEHBP plans.
Dependents who were under age 65 could be covered only if the eligible
retiree chose a family plan. Several other groups were permitted to
enroll including:
* unremarried former spouses of a member or former member of the armed
forces entitled to military retiree health care,
* dependents of a deceased member or former member of the armed forces
entitled to military retiree health care, and:
* dependents of a member of the armed services who died while on active
duty for more than 30 days.
About 13 percent of those eligible for the demonstration were under age
65.[Footnote 24]
DOD, with assistance from OPM, was responsible for providing eligible
beneficiaries information on the demonstration. A description of this
information campaign is in appendix IV.
The demonstration guaranteed enrollees who dropped their Medigap
policies the right to resume their coverage under 4 of the 10 standard
Medigap policies--plans A, B, C, and F--at the end of the
demonstration. However, demonstration enrollees who held any other
standard Medigap policies, or Medigap policies obtained before the
standard plans were established, were not given the right to regain the
policies. Enrollees who dropped their employer-sponsored retiree health
coverage had no guarantee that they could regain it.
Each plan was required by OPM to offer the same package of benefits to
demonstration enrollees that it offered in the civilian FEHBP, and
plans operating in the demonstration sites were generally required to
participate in the demonstration. Fee-for-service plans that limit
enrollment to specific groups, such as foreign service employees, did
not participate. In addition, health maintenance organizations (HMO)
and point-of-service (POS) plans were not required to participate if
their civilian FEHBP enrollment was less than 300 or their service area
overlapped only a small part of the demonstration site.[Footnote 25]
Thirty-one local plans participated in the demonstration in 2000; for
another 14 local plans participation was optional, and none of these
participated.
The law established a separate risk pool for the demonstration, so any
losses from the demonstration were not covered at the expense of
persons insured under the civilian FEHBP.[Footnote 26] As a result,
plans had to establish separate reserves for the demonstration and were
allowed to charge different premiums in the demonstration than they
charged in the civilian program.
Enrollment Was Low, Largely Due to Beneficiaries' Satisfaction with
Existing Coverage:
Enrollment in the demonstration was low, although enrollment in Puerto
Rico was substantially higher than on the U.S. mainland. Among eligible
beneficiaries who knew about the demonstration yet chose not to enroll,
most were satisfied with their existing health care coverage and
preferred it to the demonstration's benefits. Lack of knowledge about
the demonstration accounted for only a small part of the low
enrollment. Although most eligible retirees did not enroll in a
demonstration plan, several factors encouraged enrollment. Some
retirees took the view that the demonstration plans' benefits, notably
prescription drug coverage, were better than available alternatives.
Other retirees mentioned lack of satisfactory alternative coverage. In
particular, retirees who were not covered by an existing
Medicare+Choice or employer-sponsored health plan were much more likely
to enroll. The higher enrollment in Puerto Rico reflected a higher
proportion of retirees there who considered the demonstration's
benefits--ranging from drug coverage to choice of doctors--better than
what they had. The higher enrollment in Puerto Rico also reflected in
part Puerto Rico's greater share of retirees without existing coverage,
such as an employer-sponsored plan.
Enrollment Rate Low on U.S. Mainland, Far Greater in Puerto Rico:
While some military retiree organizations as well as a large FEHBP plan
predicted at the start of the demonstration that enrollment would reach
25 percent or more of eligible beneficiaries, demonstration-wide
enrollment was 3.6 percent in 2000 and 5.5 percent in 2001.[Footnote
27] In 2002, following the introduction of the senior pharmacy benefit
and TFL the previous year, demonstration-wide enrollment fell to 3.2
percent. (See fig. 1.) The demonstration's enrollment peaked at 7,521
beneficiaries, and by 2002 had declined to 4,367 of the 137,230
eligible beneficiaries.[Footnote 28]
Figure 1: DOD-FEHBP Demonstration-wide Enrollment, 2000-2002:
[See PDF for image]
Note: GAO analysis of DOD data. Enrollment is expressed as a percentage
of eligible beneficiaries.
[End of figure]
These low demonstration-wide enrollment rates masked a sizeable
difference in enrollment between the mainland sites and Puerto Rico. In
2000, enrollment in Puerto Rico was 13.2 percent of eligible
beneficiaries--about five times the rate on the mainland. By 2001,
Puerto Rico's enrollment had climbed to 28.6 percent. Unlike 2002
enrollment on the mainland, which declined, enrollment in Puerto Rico
that year rose slightly, to 30 percent. (See fig. 2.) Among the
mainland sites, there were also sizeable differences in enrollment,
ranging from 1.3 percent in Dover, Delaware, in 2001, to 8.8 percent in
Humboldt County, California, that year. Enrollment at all mainland
sites declined in 2002.[Footnote 29]
Figure 2: DOD-FEHBP Demonstration Enrollment on the Mainland and in
Puerto Rico, 2000-2002:
[See PDF for image]
Note: GAO analysis of DOD data. Enrollment is expressed as a percentage
of eligible beneficiaries.
[End of figure]
Nonenrollees Emphasized Better Benefits and Lower Costs of Existing
Coverage:
Retirees who knew about the demonstration and did not enroll cited many
reasons for their decision, notably that their existing coverage's
benefits--in particular its prescription drug benefit--and costs were
more attractive than those of the demonstration.[Footnote 30] In
addition, nonenrollees expressed several concerns, including
uncertainty about whether they could regain their Medicare supplemental
coverage after the demonstration ended.
* Benefits of existing coverage. Almost two-thirds of nonenrollees who
knew about the demonstration reported that they were satisfied with
their existing employer-sponsored or other health coverage.[Footnote
31] For the majority of nonenrollees with private employer-sponsored
coverage, the demonstration's benefits were no better than those
offered by their current plan.
* Costs of existing coverage. Nearly 30 percent of nonenrollees who
knew about the demonstration stated that its plans were too
costly.[Footnote 32] This was likely a significant concern for retirees
interested in a managed care plan, such as a Medicare+Choice plan,
whose premiums were generally lower than demonstration plans.
* Prescription drugs and availability of doctors. In explaining their
decision not to enroll, many eligible beneficiaries who knew about the
demonstration focused on limitations of specific features of the
benefits package that they said were less attractive than similar
features of their existing coverage. More than one-quarter of
nonenrollees cited not being able to continue getting prescriptions
filled without charge at MTF pharmacies if they enrolled. More than
one-quarter also said their decision at least partly reflected not
being able to keep their current doctors if they enrolled. These
nonenrollees may have been considering joining one of the
demonstration's managed care plans, which generally limit the number of
doctors included in their provider networks. Otherwise, they would have
been able to keep their doctors, because PPOs, while encouraging the
use of network doctors, permit individuals to select their own doctors
at an additional cost.
* Uncertainty. About one-fourth of nonenrollees said they were
uncertain about the viability of the demonstration and wanted to wait
to see how it worked out. In addition, more than 20 percent of
nonenrollees were concerned that the demonstration was temporary and
would end in 3 years. Furthermore, some nonenrollees who looked beyond
the demonstration period expressed uncertainty about what their
coverage would be after the demonstration ended: Roughly one-quarter
expressed concern that joining a demonstration plan meant risking the
future loss of other coverage--either Medigap or employer-sponsored
insurance. Finally, about one-quarter of nonenrollees were uncertain
about how the demonstration would mesh with Medicare.
Lack of Knowledge about Demonstration Accounted for Only Small Part of
Low Enrollment:
Lack of knowledge--although common among eligible retirees--was only a
small factor in explaining low enrollment. If everyone eligible for the
demonstration had known about it, enrollment might have doubled, but
would still have been low. DOD undertook an extensive information
campaign, intended to inform all eligible beneficiaries about the
demonstration, but nearly 54 percent of those eligible for the
demonstration did not know about it at the time of our survey (May
through August 2000). Of those who knew about the demonstration, only
7.4 percent enrolled. Those who did not know about the demonstration
were different in several respects from those who did: They were more
likely to be single, female, African American, older than age 75, to
have annual income of $40,000 or less, to live an hour or more from an
MTF, not covered by employer-sponsored health insurance, not officers,
not to belong to military retiree organizations and to live in the
demonstration areas of Camp Pendleton, California, Dallas, Texas, and
Fort Knox, Kentucky.
Accounting for the different characteristics of those retirees who knew
about the demonstration and those who did not, we found that roughly 7
percent of those who did not know about the demonstration would have
enrolled in 2000 if they had known about it. As a result, we estimate
that demonstration-wide enrollment would have been about 7 percent if
all eligible retirees knew about the demonstration. (See app. II.):
Comparison of enrollment in Puerto Rico and the mainland sites also
suggests that, among the factors that led to low enrollment, knowledge
about the demonstration was not decisive. In 2000, fewer people in
Puerto Rico reported knowing about the demonstration than on the
mainland (35 percent versus 47 percent). Nonetheless, enrollment in
Puerto Rico was much higher.
Factors Spurring Enrollment Included Favorable Assessment of FEHBP and
Lack of Existing Coverage:
In making the decision to enroll, retirees were attracted to an FEHBP
plan if it had better benefits--particularly prescription drug
coverage--or lower costs than their current coverage or other available
coverage. Among those who knew about the demonstration, retirees who
enrolled were typically positive about one or both of the following:
* Better FEHBP benefits. Two-thirds of enrollees cited their
demonstration plan's benefits package as a reason to enroll, with just
over half saying the benefits package was better than other coverage
available to them. Nearly two-thirds of enrollees mentioned the better
coverage of prescription drugs offered by their demonstration plan.
Furthermore, the inclusiveness of FEHBP plans' networks of providers
mattered to a majority of enrollees: More than three-fifths mentioned
as a reason for enrolling that they could keep their current doctors
under the demonstration.
* Lower demonstration plan costs. Among enrollees, about 62 percent
said that their demonstration FEHBP plan was less costly than other
coverage they could buy.
Beneficiaries' favorable assessments of FEHBP--and their enrollment in
the demonstration--were related to whether they lacked alternative
coverage to traditional Medicare and, if they had such coverage, to the
type of coverage. In 2000, among those who lacked employer-sponsored
coverage or a Medicare+Choice plan, or lived more than an hour's travel
time from an MTF, about 15 percent enrolled. By contrast, among those
who had such coverage, or had MTF access, 4 percent enrolled.
In particular, enrollment in an FEHBP plan was more likely for retirees
who lacked either Medicare+Choice or employer-sponsored coverage.
* Lack of Medicare+Choice. Controlling for other factors affecting
enrollment, those who did not use Medicare+Choice were much more likely
to enroll in a demonstration plan than those who did. (See fig. 3.)
Several reasons may account for this. First, in contrast to fee-for-
service Medicare, Medicare+Choice plans are often less costly out-of-
pocket, typically requiring no deductibles and lower cost sharing for
physician visits and other outpatient services. Second, unlike fee-for-
service Medicare, many Medicare+Choice plans offered a prescription
drug benefit. Third, while Medicare+Choice plan benefits were similar
to those offered by demonstration FEHBP plans, Medicare+Choice premiums
were typically less than those charged by the more popular
demonstration plans, including Blue Cross Blue Shield, the most popular
demonstration plan on the mainland.
* Lack of employer-sponsored coverage. Retirees who did not have
employer-sponsored health coverage were also more likely to join a
demonstration plan. Of those who did not have employer-sponsored
coverage, 8.6 percent enrolled in the demonstration, compared to 4.7
percent of those who had such coverage. Since benefits in employer-
sponsored health plans often resemble FEHBP benefits, retirees with
employer-sponsored coverage would have been less likely to find FEHBP
plans attractive.[Footnote 33]
Retirees with another type of alternative coverage, Medigap, responded
differently to the demonstration. Unlike the pattern with other types
of insurance coverage, more of those with a Medigap plan enrolled (9.3
percent) than did those without Medigap (5.6 percent). Medigap plans
generally offered fewer benefits than a demonstration FEHBP plan, but
at the same or higher cost to the retiree. Seven of the 10 types of
Medigap plans available to those eligible for the demonstration do not
cover prescription drugs. As a result of these differences, retirees
who were covered by Medigap policies would have had an incentive to
enroll instead in a demonstration FEHBP plan, which offered drug
coverage and other benefits at a lower premium cost than the most
popular Medigap plan.
Figure 3: DOD-FEHBP Demonstration Enrollment by Type of Previous Health
Coverage, 2000:
[See PDF for image]
Note: GAO analysis of CMS and GAO-DOD-OPM survey data. Enrollment is
expressed, for employer-sponsored coverage, as a percentage of eligible
beneficiaries who knew about the demonstration and, for Medicare+Choice
enrollment and Medigap coverage, as a percentage of eligible retirees
who knew about the demonstration. An eligible beneficiary or retiree
may have more than one type of coverage.
[End of figure]
Like the lack of Medicare+Choice or employer-sponsored coverage, lack
of nearby MTF care stimulated enrollment. While living more than an
hour from an MTF was associated with higher demonstration enrollment,
MTF care may have served some retirees as a satisfactory supplement to
Medicare-covered care, making demonstration FEHBP plans less attractive
to them. Of eligible retirees who knew of the demonstration and lived
within 1 hour of an MTF, 3.7 percent enrolled, compared to 11.1 percent
of those who lived more than 1 hour away.
Higher Enrollment in Puerto Rico Associated with Greater Lack of
Satisfactory Alternative Coverage:
Higher enrollment in Puerto Rico than on the mainland reflected in part
the more widespread lack of satisfactory alternative health coverage in
Puerto Rico compared to the mainland. In Puerto Rico, of those who knew
of the demonstration, the share of eligible retirees with employer-
sponsored health coverage (14 percent) was about half that on the
mainland (27 percent). In addition, before September 2001, no
Medicare+Choice plan was available in Puerto Rico. By contrast, in
mainland sites where Medicare+Choice plans were available, their
attractive cost sharing and other benefits discouraged retirees from
enrolling in demonstration plans. Other factors associated with Puerto
Rico's high enrollment and cited by enrollees there included the
demonstration plan's better benefits package--especially prescription
drug coverage--compared to many retirees' alternatives, the
demonstration plan's broader choice of doctors, and the plan's
reputation for quality of care.[Footnote 34]
Premiums Varied Widely, Reflecting Plans' Different Assessments of
Demonstration Risk:
The premiums charged by the demonstration plans varied widely,
reflecting differences in how they dealt with the concern that the
demonstration would attract a disproportionate number of sick, high-
cost enrollees. To address these concerns, plans generally followed one
of two strategies. Most plans charged higher premiums than those they
charged to their civilian FEHBP enrollees--a strategy that could have
provided a financial cushion and possibly discouraged enrollment. A
small number of plans set premiums at or near their premiums for the
civilian FEHBP with the aim of attracting a mix of enrollees who would
not be disproportionately sick. Plans' underlying concern that they
would attract a sicker population was not borne out. In the first year
of the demonstration, for example, on average health care for
demonstration retirees was 50 percent less expensive per enrollee than
the care for their civilian FEHBP counterparts.
Plans' Premiums Varied Widely, and Plans with Lower Premiums Attracted
the Most Enrollees:
Demonstration plans charged widely varying premiums to enrollees, with
the most popular plans offering some of the lowest premiums. In 2000,
national plans' monthly premiums for individual coverage ranged from
$65 for Blue Cross Blue Shield to $208 for the Alliance Health Plans.
Among local plans--most of which were managed care--monthly premiums
for individual coverage ranged from $43 for NYLCare Health Plans of the
Southwest to $280 for Aetna U.S. Healthcare. Not surprisingly, few
enrollees selected the more expensive plans.[Footnote 35] The two most
popular plans were Blue Cross Blue Shield and Triple-S; the latter
offered a POS in Puerto Rico. Both plans had relatively low monthly
premiums--the Triple-S premium charged to individuals was $54 in the
demonstration's first year. Average premiums for national plans were
about $20 higher than for local plans, which were largely managed care
plans. (See table 2.):
Table 2: Monthly Premiums Charged to Enrollees for Individual Policies
in the DOD-FEHBP Demonstration, 2000:
Type of plan: National plans:
Plan or group of plans: Blue Cross Blue Shield; Enrollee
share of premium: Type of plan: $65.
Plan or group of plans: GEHA Benefit Plan; Enrollee share
of premium: Type of plan: 99.
Plan or group of plans: Type of planNational plan average: Other
national plans--average; Enrollee share of premium: Type of
planNational plan average: 142.
Type of plan: National plan average: Enrollee share of premium: 125.
Type of plan: Local plans:
Plan or group of plans: Triple-S; Enrollee share of
premium: Type of plan: 54.
Plan or group of plans: Other fee-for-service plans--
average; Enrollee share of premium: Type of plan: 78.
Plan or group of plans: Local plan average: Managed care
plans--average; Enrollee share of premium: Type of planLocal plan
average: 107.
Type of plan: Local plan average: 103.
Type of plan: Average of all plans: $107.
Source: OPM.
Note: GAO analysis of OPM premium data. Premiums are for a standard
option individual policy unless only one option was available.
[End of table]
Some plans in the demonstration were well known in their market areas,
while others--especially those open only to government employees--
likely had much lower name recognition. Before the demonstration
started, OPM officials told us that they expected beneficiaries to be
unfamiliar with many of the plans included in the demonstration. These
officials said that beneficiaries were likely to have only experience
with or knowledge of Blue Cross Blue Shield and, possibly, some local
HMOs. The success of Blue Cross Blue Shield relative to other national
plans in attracting enrollees appears to support their view, as does
Triple-S's success in Puerto Rico, where it is one of the island's
largest insurers. In 2000, Blue Cross Blue Shield was the most popular
plan in the demonstration, with 42 percent of demonstration-wide
enrollment and 68 percent of enrollment on the mainland. Among national
plans, the GEHA Benefit Plan (known as GEHA) was a distant second with
4 percent of enrollment. The other five national plans together
captured less than 1 percent of all demonstration enrollment. Among
local plans, Triple-S was most successful, capturing 96 percent of
enrollment in Puerto Rico and 38 percent of enrollment demonstration-
wide. The other local plans, taken together, accounted for about 14
percent of demonstration-wide enrollment.
Plans' Premium Strategies Diverged despite Common Concerns about
Attracting Sicker Enrollees:
Several factors contributed to plans' concern that they would attract
sicker--and therefore more costly--enrollees in the demonstration.
Plans did not have the information that they usually use to set
premiums--claims history for fee-for-service plans and premiums charged
to comparable private sector groups for managed care plans. Moreover,
according to officials, some plans were reluctant to assume that
demonstration enrollees would be similar to their counterparts in the
civilian FEHBP. A representative from one of the large plans noted that
the small size of the demonstration was also a concern. The number of
people eligible for the demonstration (approaching 140,000, when the
demonstration was expanded in 2001) was quite small compared to the
number of people in the civilian program (8.5 million in 2001). If only
a small number of people enrolled in a plan, one costly case could
result in losses, because claims could exceed premiums.
In response to the concern that the demonstration might attract a
disproportionate number of sick enrollees, plans developed two
different strategies for setting premiums. Plans in one group,
including Blue Cross Blue Shield and GEHA, kept their demonstration
premiums at or near those they charged in the civilian FEHBP.
Representatives of one plan explained that it could have priced high,
but they believed that would have resulted in low enrollment and might
have attracted a disproportionate number of sick--and therefore costly-
-enrollees. Instead, by keeping their premium at the same level as in
the civilian program, these plan officials hoped to make their plan
attractive to those who were in good health as well as to those who
were not. Such a balanced mix of enrollees would increase the
likelihood that a plan's revenues would exceed its costs.
By contrast, some plans charged higher premiums in the demonstration--
in some cases, 100 percent higher--than in the civilian FEHBP. Setting
higher premiums might provide plans with a financial cushion to deal
with potential high-cost enrollees. While higher premiums might have
discouraged enrollment and reduced plans' exposure to high-cost
patients, this strategy carried the risk that those beneficiaries
willing to pay very high premiums might be sick, high-cost patients.
More than four-fifths of plans chose the second strategy, charging
higher premiums in the demonstration than in the civilian FEHBP. In
2000, only two plans--both local plans--charged enrollees less in the
demonstration than in the civilian program for individual, standard
option policies; these represented about 6 percent of all plans. By
contrast, three plans--about 9 percent of all plans--set premiums at
least twice as high as premiums in the civilian FEHBP. (See fig. 4.):
Figure 4: Comparison of Premiums for the DOD-FEHBP Demonstration with
Civilian FEHBP Premiums, 2000:
[See PDF for image]
Note: GAO analysis of OPM premium data. Premiums are for a standard
option individual policy unless only one option was available.
[End of figure]
Military Retirees Who Enrolled in Demonstration Not as Sick as Other
Retirees:
The demonstration did not attract sicker, more costly enrollees--
instead, military retirees who enrolled were less sick on average than
eligible nonenrollees.[Footnote 36] We found that, as scored by a
standard method to assess patients' health, older retirees who enrolled
in the demonstration were an estimated 13 percent less sick than
eligible nonenrollees. At each site enrollees were, on average, less
sick than nonenrollees. In the GAO-DOD-OPM survey, fewer enrollees on
the U.S. mainland (33 percent) reported that they or their spouses were
in fair or poor health compared to nonenrollees (40 percent). Retirees
who enrolled in demonstration plans had scores that indicated they
were, on average, 19 percent less sick than civilian FEHBP enrollees in
these plans.
Plans' divergent strategies for setting premiums resulted in similar
mixes of enrollees. Blue Cross Blue Shield and GEHA, both of which did
not increase premiums, attracted about the same proportion of
individuals in poor health as plans on the mainland that raised
premiums.
Demonstration Enrollees Less Expensive than Eligible Nonenrollees and
Much Less Expensive than Their Civilian FEHBP Counterparts, Leading to
Reduced Premiums for Most Plans in Final Year of Demonstration:
During 2000, the first year of the demonstration, enrolled retirees'
health care was 28 percent less expensive--as measured by Medicare
claims--than that of eligible nonenrolled retirees and one-third less
expensive than that of their FEHBP counterparts.[Footnote 37] (See
table 3.) The demonstration enrollees' average age (71.8 years) was
lower than eligible nonenrollees' average age (73.1 years), which in
turn was lower than the average age of civilian FEHBP retirees (75.2
years) in the demonstration areas. OPM has obtained from the three
largest plans claims information that includes the cost of drugs and
other services not covered by Medicare. These claims show a similar
pattern: Demonstration enrollees were considerably less expensive than
enrollees in the civilian FEHBP.
Table 3: Average Spending on Medicare-covered Services for Retirees
Eligible for the DOD-FEHBP Demonstration--by Enrollment Status, 2000:
Spending: Medicare; Demonstration enrollees: $3,174; Eligible
nonenrollees: $4,412; Civilian FEHBP retirees: $4,785.
Spending: Coinsurance; Demonstration enrollees: 213; Eligible
nonenrollees: 315; Civilian FEHBP retirees: 344.
Spending: Deductible; Demonstration enrollees: 142; Eligible
nonenrollees: 169; Civilian FEHBP retirees: 184.
Spending: Total; Demonstration enrollees: $3,529; Eligible
nonenrollees: $4,896; Civilian FEHBP retirees: $5,313.
Sources: CMS, DOD, and OPM.
Note: GAO analysis of CMS Medicare claims data, DOD enrollment data,
and OPM enrollment data. As of January 1, 2000, the average age of
demonstration enrollees was 71.8 years; of eligible nonenrollees, 73.1
years; and of civilian FEHBP retirees, 75.2 years.
[End of table]
Although demonstration enrollees' costs were lower than those of their
FEHBP counterparts in the first year, demonstration premiums generally
remained higher than premiums for the civilian FEHBP. In 2001, the
second year of the demonstration, only a limited portion of the first
year's claims was available when OPM and the plans negotiated the
premiums, so the lower demonstration costs had no effect on setting
2001 premiums. Demonstration premiums in 2001 increased more rapidly
than the civilian premium charged by the same plans: a 30 percent
average increase in the demonstration for individual policies compared
to a 9 percent increase for civilians in the same plans. In 2002, the
third year, when both the plans and OPM were able to examine a complete
set of claims for the first year before setting premiums, the pattern
was reversed: On average, the demonstration premiums for individual
policies fell more than 2 percent while the civilian premiums rose by
13 percent. However, on average, 2002 premiums remained higher in the
demonstration than in the civilian FEHBP. Blue Cross Blue Shield was an
exception, charging a higher monthly premium for an individual policy
to civilian enrollees ($89) in 2000 than to demonstration enrollees
($74).
Impact of Demonstration on DOD Was Limited Due to Small Size and Low
Enrollment, but Impact on Enrollees Was Greater:
Because the demonstration was open to only a small number of military
retirees--and only a small fraction of those enrolled--the
demonstration had little impact on DOD, nonenrollees, and MTFs.
However, the impact on enrolled retirees was greater. If the FEHBP
option were made permanent, the impact on DOD, nonenrollees, and MTFs
would depend on the number of enrollees.
DOD Little Affected by Demonstration, Due Primarily to Its Size, but
Enrollees More Affected:
Because of its small size, the demonstration had little impact on DOD's
budget. About 140,000 of the more than 8 million people served by the
DOD health system were eligible for the demonstration in its last 2
years. Enrollment at its highest was 7,521--about 5.5 percent of
eligible beneficiaries. DOD's expenditures on enrollees' premiums that
year totaled about $17 million--roughly 0.1 percent of its total health
care budget.[Footnote 38] Under the demonstration, DOD was responsible
for about 71 percent of each individual's premium, whereas under TFL it
is responsible for the entire cost of roughly similar Medicare
supplemental coverage.[Footnote 39]
Probably because of its small size, the demonstration had no observable
impact on either the ability of MTFs to assist in the training and
readiness[Footnote 40] of military health care personnel or on
nonenrollees' access to MTF care. Officials at the four MTFs in
demonstration sites told us that they had seen no impact from the
demonstration on either MTFs or nonenrollees' access to care.
Since enrollees were typically attracted to the demonstration by both
its benefits and its relatively low costs, the impact on those who
enrolled was necessarily substantial. In the first 2 years, the
demonstration provided enrollees with better supplemental coverage,
which was less costly or had better benefits, or both. In the third
year of the demonstration, after TFL and the retirees' pharmacy benefit
were introduced and enrollment declined, the number of beneficiaries
affected by the demonstration decreased. TFL entitled military retirees
to low-cost, comprehensive coverage, making the more expensive FEHBP
unattractive. The average enrollee premium for an individual policy in
the demonstration's third year was $109 per month. In comparison, to
obtain similar coverage under the the combined TFL-pharmacy benefit,
the only requirement was to pay the monthly Medicare part B premium of
$54. Further, pharmacy out-of-pocket costs under TFL are less than
those in the most popular FEHBP plan.
Impact of Permanent FEHBP Option Would Depend on Enrollment:
The impact on DOD of a permanent FEHBP option for military retirees
nationwide would depend on the number of retirees who enrolled. For
example, if the same percentage of eligible retirees who enrolled in
2002--after TFL and the retirees' pharmacy benefit were introduced--
enrolled in FEHBP, enrollment would be roughly 20,000 of the more than
1.5 million military retirees. As retirees' experience with TFL grows,
their interest in an FEHBP alternative may decline further. As long as
enrollment in a permanent FEHBP option remains small, the impact on
DOD's ability to provide care at MTFs and on MTF readiness would also
likely be small.
Agency Comments:
We provided DOD and OPM with the opportunity to comment on a draft of
this report. In its written comments DOD stated that, overall, it
concurred with our findings. However, DOD differed with our description
of the demonstration's impact on DOD's budget as small. In contrast,
DOD described these costs of the 3-year demonstration-$28 million for
FEHBP premiums and $11 million for administration--as substantial.
While we do not disagree with these dollar-cost figures and have
included them in this report, we consider them to be small when
compared to DOD's health care budget, which ranged from about $18
billion in fiscal year 2000 to about $24 billion in fiscal year 2002.
For example, as we report, DOD's premium costs for the demonstration
during 2001, when enrollment peaked, were about $17 million--less than
0.1 percent of DOD's health care budget. Although DOD's cost per
enrollee in the demonstration was substantial, the number of enrollees
was small, resulting in the demonstration's total cost to DOD being
small. DOD's comments appear in appendix VI. DOD also provided
technical comments, which we incorporated as appropriate. OPM declined
to comment.
We are sending copies of this report to the Secretary of Defense and
the Director of the Office of Personnel Management. We will make copies
available to others upon request. In addition, this report will be
available at no charge on GAO's Web site at http://www.gao.gov.
If you or your staffs have questions about this report, please contact
me at (202) 512-7101. Other GAO contacts and staff acknowledgments are
listed in appendix VII.
Marjorie E. Kanof
Director, Health Care--Clinical and Military Health Care Issues:
Signed by Marjorie E. Kanof:
List of Committees:
The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate:
The Honorable Peter G. Fitzgerald Chairman The Honorable Daniel K.
Akaka Ranking Minority Member Subcommittee on Financial Management, the
Budget, and International Security Committee on Governmental Affairs
United States Senate:
The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton
Ranking Minority Member Committee on Armed Services House of
Representatives:
The Honorable Jo Ann S. Davis Chair The Honorable Danny K. Davis
Ranking Minority Member Subcommittee on Civil Service and Agency
Organization Committee on Government Reform House of Representatives:
[End of section]
Appendix I: GAO-DOD-OPM Survey of Military Retirees and Others Eligible
for the DOD-FEHBP Demonstration:
To determine why those eligible for the Federal Employees Health
Benefits Program (FEHBP) demonstration enrolled or did not enroll in an
FEHBP plan, we co-sponsored with the Department of Defense (DOD) and
the Office of Personnel Management (OPM) a mail survey of eligible
beneficiaries--military retirees and others eligible to participate in
the demonstration. The survey was fielded during the first year of the
demonstration, from May to August 2000, and was sent to a sample of
eligible beneficiaries, both those who enrolled and those who did not
enroll, at each of the eight demonstration sites operating at that
time. The survey was designed to be statistically representative of
eligible beneficiaries, enrollees, nonenrollees, and sites, and to
facilitate valid comparisons between enrollees and nonenrollees.
Questionnaire Design:
In constructing the questionnaire, we developed questions pertaining to
individuals' previous use of health care services, access to and
satisfaction with care, health status, knowledge of the demonstration,
reasons for enrolling or not enrolling in the demonstration, and other
topics. Because eligible beneficiaries could choose FEHBP plans that
also covered their family members, we included questions about spouses
and dependent children. DOD and OPM officials and staff members from
Westat, the DOD subcontractor with responsibility for administering the
survey, provided input on the questionnaire's content and format. After
pretesting the questionnaire with a group of military retirees and
their family members, the final questionnaire included the topic areas
shown in table 4. We also produced a Spanish version of the
questionnaire that was mailed to beneficiaries living in Puerto Rico.
Table 4: Major Survey Sections and Topics Covered:
Section: Use of Health Care Services in 1999; Topics covered: Health
care use, source and use of prescription drugs, use of military
treatment facility (MTF) care, ease of access to MTF care, and
satisfaction with MTF care.
Section: Health Status; Topics covered: Current health status, health
status compared to 1 year ago, and need help with personal care needs.
Section: Family; Topics covered: Marital status, spouse's health care
use, spouse's use and source of prescription drugs, spouse's health
status, dependent children, and dependent children's health status.
Section: Knowledge of the Demonstration and Impact of the Demonstration
Information Campaign; Topics covered: Knowledge of the demonstration,
source of knowledge of the demonstration, whether demonstration
information materials were received, usefulness of the information
materials, use of the toll-free telephone service, source of
information received about individual demonstration plans, usefulness
of plans' information, problems with making the enrollment decision,
reasons for joining the demonstration, and reasons for not joining the
demonstration.
Section: Other Insurance Coverage; Topics covered: Medicare
supplemental insurance of self and spouse, other insurance coverage,
cost of insurance coverage, out-of-pocket costs for medical services,
and prescription drugs.
Section: Personal Information; Topics covered: Zip code, date of birth,
sex, membership in a military retiree organization, travel time to
nearest military hospital, rank at retirement, race and ethnicity,
educational attainment, income, and home ownership.
Source: GAO-DOD-OPM survey.
[End of table]
Sample Design:
Working with DOD, OPM, and Westat, we defined the survey population as
all persons living in the initial eight demonstration sites who were
eligible to enroll in the demonstration. The population included
military retirees, their spouses and dependents, and other eligible
beneficiaries, such as unremarried former spouses, designated by law.
We drew the survey sample from a database provided by DOD that listed
all persons eligible for the demonstration as of April 1999.
We stratified the sample by the eight demonstration sites and by
enrollment status--enrollees and nonenrollees. Specifically, we used a
stratified two-stage design in which households were selected within
each of the 16 strata and one eligible person was selected from each
household. For the enrollee sample, we selected all enrollees who were
the sole enrollee in their households. In households with multiple
enrollees, we randomly selected one enrollee to participate. For the
nonenrollee sample, first we randomly selected a sample of households
from all nonenrollee households and then randomly selected a single
person from each those households. We used a modified equal allocation
approach, increasing the size of the nonenrollee sample in steps,
bringing it successively closer to the sample size that would be
obtained through proportional allocation. This modified approach
produced the best balance in statistical terms between the gain from
the equal allocation approach and the gain from the proportional
allocation approach.[Footnote 41] If both an enrollee and a nonenrollee
were selected from the same household, the nonenrollee was dropped from
the sample and a different nonenrollee was selected. We adjusted the
nonenrollee sample size to take account of expected nonresponse. Our
final sample included 1,676 out of 2,507 enrollees and 3,971 out of
66,335 nonenrollees.
Response Rates:
Starting with an overall sample of 5,647 beneficiaries, we obtained
usable questionnaires from 4,787 people--an overall response rate of 85
percent.[Footnote 42] (See table 5.) Response rates varied across
sites, from 76 percent to 85 percent among nonenrollees, and from 92
percent to 98 percent among enrollees. (See table 6.) At each site,
enrollees responded at higher rates than nonenrollees.
Each of the 16 strata was weighted separately to reflect its
population. The enrollee strata were given smaller sampling weights,
reflecting enrollees' higher response rates and the fact that they were
sampled at a higher rate than nonenrollees. The weights were also
adjusted to reflect the variation in response rates across sites.
Finally, the sampling weights were further adjusted to reflect
differences in response rates between male and female participants in 8
strata.
Table 5: Survey Responses and Nonresponses:
Sample size: 5,647:
Response: 4,787.
Nonresponse: 860.
Overall response rate: 85%.
Reason for nonresponse:
Deceased: 27.
Refusal: 36.
Ineligible: 11.
Other nonresponse: 786.
Total not completed: 860.
Source: GAO-DOD-OPM survey.
Note: Westat analysis of GAO-DOD-OPM survey.
[End of table]
Table 6: Population, Sample Size, and Response Rate, by DOD-FEHBP
Demonstration Site and Enrollee Status, 2000:
Site and enrollee status: Camp Pendleton, Calif.: Enrollee;
Population: 303; Sample size: 197; Number of respondents: 187;
Response rate (percentage): 95.
Site and enrollee status: Camp Pendleton, Calif.: Nonenrollee;
Population: 24,604; Sample size: 752; Number of respondents: 609;
Response rate (percentage): 81.
Site and enrollee status: Dallas, Tex.: Enrollee; Population: 520;
Sample size: 350; Number of respondents: 323; Response rate
(percentage): 92.
Site and enrollee status: Dallas, Tex.: Nonenrollee; Population:
13,087; Sample size: 731; Number of respondents: 618; Response rate
(percentage): 85.
Site and enrollee status: Dover, Del.: Enrollee; Population: 35;
Sample size: 26; Number of respondents: 24; Response rate
(percentage): 92.
Site and enrollee status: Dover, Del.: Nonenrollee; Population: 4,349;
Sample size: 388; Number of respondents: 310; Response rate
(percentage): 80.
Site and enrollee status: Fort Knox, Ky.: Enrollee; Population: 134;
Sample size: 98; Number of respondents: 90; Response rate
(percentage): 92.
Site and enrollee status: Fort Knox, Ky.: Nonenrollee; Population:
7,623; Sample size: 676; Number of respondents: 535; Response rate
(percentage): 79.
Site and enrollee status: Greensboro, N.C.: Enrollee; Population: 285;
Sample size: 187; Number of respondents: 183; Response rate
(percentage): 98.
Site and enrollee status: Greensboro, N.C.: Nonenrollee; Population:
2,993; Sample size: 268; Number of respondents: 228; Response rate
(percentage): 85.
Site and enrollee status: Humboldt County, Calif.: Enrollee;
Population: 221; Sample size: 150; Number of respondents: 143;
Response rate (percentage): 95.
Site and enrollee status: Humboldt County, Calif.: Nonenrollee;
Population: 2,698; Sample size: 232; Number of respondents: 193;
Response rate (percentage): 83.
Site and enrollee status: New Orleans, La.: Enrollee; Population: 96;
Sample size: 71; Number of respondents: 65; Response rate
(percentage): 92.
Site and enrollee status: New Orleans, La.: Nonenrollee; Population:
4,987; Sample size: 419; Number of respondents: 318; Response rate
(percentage): 76.
Site and enrollee status: Puerto Rico: Enrollee; Population: 913;
Sample size: 597; Number of respondents: 561; Response rate
(percentage): 94.
Site and enrollee status: Puerto Rico: Nonenrollee; Population: 5,994;
Sample size: 505; Number of respondents: 400; Response rate
(percentage): 79.
Site and enrollee status: All sites: Enrollee; Population: 2,507;
Sample size: 1,676; Number of respondents: 1,576; Response rate
(percentage): 94.
Site and enrollee status: All sites: Nonenrollee; Population: 66,335;
Sample size: 3,971; Number of respondents: 3,211; Response rate
(percentage): 81.
Site and enrollee status: Total: Population: 68,842; Sample size:
5,647; Number of respondents: 4,787; Response rate (percentage): 85.
Sources: DOD, OPM, and GAO-DOD-OPM survey.
Note: GAO analysis of DOD and OPM data, and Westat analysis of GAO-DOD-
OPM survey.
[End of table]
[End of section]
Appendix II: Data, Methods, and Models Used in Analyzing Factors
Affecting DOD-FEHBP Demonstration Enrollment:
In this appendix, we describe the data, methods, and models used to (1)
analyze the factors explaining how beneficiaries knew about the
demonstration and why they enrolled in it, (2) assess the health of
beneficiaries and civilian FEHBP enrollees, and (3) obtain the premiums
of Medigap insurance in the demonstration areas.
Analysis of Factors Affecting Knowledge about the Demonstration and
Enrollment:
Our approach to analyzing eligible beneficiaries' behavior involved two
steps: first, analyzing the factors related to whether eligible
beneficiaries knew about the demonstration, and second, analyzing the
factors related to whether those who knew about the demonstration
decided to enroll.
Knowledge about the demonstration. To account for differences in
beneficiaries' knowledge about the demonstration, we used individual-
level variables as well as variables corresponding to individual
sites.[Footnote 43] These individual-level categories were demographic
and economic variables, such as age and income; health status; other
sources of health coverage, such as having employer-sponsored health
insurance; and military-related factors. The inclusion of site
variables allowed the model to take account of differences across the
different sites in beneficiaries' knowledge about the demonstration.
We analyzed the extent to which these variables influenced
beneficiaries' knowledge about the demonstration using a logistic
regression--a standard statistical method of analyzing an either/or
(binary) variable. This method yields an estimate of each factor's
effect, controlling for the effects of all other factors in the
regression. In our analysis, either a retiree knew about the
demonstration or did not. The logistic regression predicts the
probability that a beneficiary knew about the demonstration, given
information about the person's traits--for example, over age 75, had
employer-sponsored health insurance, and so on. The coefficient on each
variable measures its effect on beneficiaries' knowledge.[Footnote 44]
These coefficients pertain to the entire demonstration population, not
just those beneficiaries in our survey sample. To make the estimates
generalizable to the entire eligible population, we applied sample
weights to all observations.
In view of the large difference in enrollment between the mainland
sites and Puerto Rico, we tested whether the same set of coefficient
estimates was appropriate for the mainland sites and the Puerto Rico
site. Our results showed that the coefficient estimates for the
mainland and for Puerto Rico were not significantly different (at the 5
percent level), so it was appropriate to estimate a single logistic
regression model for all sites.
Table 7 shows for each variable its estimated effect on knowledge, as
measured by the variable's coefficient and odds ratio. The odds ratio
expresses how much more likely--or less likely--it is that a person
with a particular characteristic knows about the demonstration,
compared to a person without that characteristic. The odds ratio is
based on the coefficient, which indicates each explanatory variable's
estimated effect on the dependent variable, holding other variables
constant. For the mainland sites, retirees were more likely to know
about the demonstration if they were male, were married, were officers,
were covered by employer-sponsored health insurance, lived less than an
hour from a military treatment facility (MTF), or belonged to military
retiree organizations. Retirees were less likely to know about the
demonstration if they were African American; were older than age 75; or
lived in Camp Pendleton, California, Dallas, Texas, or Fort Knox,
Kentucky.
Table 7: Estimated Effects of Selected Factors on Whether Eligible
Retirees Knew about the DOD-FEHBP Demonstration:
Demographic and economic factors:
African American; Odds ratio: 0.67; Coefficient: -0.40[A].
Higher income (over $40,000); Odds ratio: 1.29; Coefficient:
0.26[A].
Hispanic; Odds ratio: 0.61; Coefficient: -0.49[B].
Male; Odds ratio: 1.38; Coefficient: 0.32[C].
Married; Odds ratio: 1.43; Coefficient: 0.36[C].
Officer; Odds ratio: 1.49; Coefficient: 0.40[C].
Older than age 75; Odds ratio: Health status: 0.71;
Coefficient: -0.35[C].
Health status; Self or spouse in fair or poor health; Odds ratio: 0.85;
Coefficient: -0.16.
Health insurance coverage:
Covered by a Medigap policy; Odds ratio: 1.10; Coefficient: 0.09.
Covered by employer-sponsored health insurance; Odds ratio: 1.39;
Coefficient: 0.33[C].
Enrolled in a Medicare+Choice plan in 1999; Odds ratio: 0.97;
Coefficient: -0.03.
Military-related factors:
Enrolled in Medicare part B on January 1, 2000; Odds ratio: Military-
related factors: 1.12; Coefficient: 0.11.
Less than 1 hour from an MTF; Odds ratio: 1.46; Coefficient: 0.38[C].
Member of military retiree organization; Odds ratio: 1.70;
Coefficient: 0.53[C].
Site effects[D]:
Used VA care during fiscal years 1998 or 1999; Odds ratio: 0.81;
Coefficient: -0.21.
Camp Pendleton, Calif.; Odds ratio: 0.58; Coefficient: -0.55[C].
Dallas, Tex.; Odds ratio: 0.65; Coefficient: -0.43[C].
Dover, Del.; Odds ratio: 0.72; Coefficient: -0.33.
Fort Knox, Ky.; Odds ratio: 0.59; Coefficient: -0.52[A].
Greensboro, N.C.; Odds ratio: 1.18; Coefficient: 0.16.
Humboldt County, Calif.; Odds ratio: 0.93; Coefficient: -0.07.
Puerto Rico; Odds ratio: 0.77; Coefficient: -0.26.
Constant: -0.73[C].
Observations; Coefficient: 3,504.
Sources: GAO-DOD-OPM survey, CMS, and VA.
Note: GAO analysis of GAO-DOD-OPM survey data, CMS enrollment data and
VA enrollment data. The odds ratio expresses how much more likely--or
less likely--it is that a person with a particular characteristic knows
about the demonstration, compared to a person without that
characteristic. The coefficient indicates each explanatory variable's
estimated effect on the dependent variable, holding other variables
constant.
[A] Significant at the 5 percent level.
[B] Significant at the 10 percent level.
[C] Significant at the 1 percent level.
[D] The site effects consisted of a dummy variable for each site; the
comparison site is New Orleans, La., selected at random from the eight
sites. The mainland site effects were jointly significant at the 5
percent level.
[End of table]
Decision to enroll in the demonstration. To account for a retiree's
decision to enroll or not to enroll, we considered four categories of
individual-level variables similar to those in the "knowledge of the
demonstration" regressions, and a site-level variable for Puerto Rico.
We also introduced a set of health insurance factors pertaining to the
area in which the retiree lived--the premium for a Medigap policy and
the proportion of Medicare beneficiaries in a retiree's county of
residence enrolled in a Medicare+Choice plan.
In our logistic regression analysis of enrollment, we included only
those people who knew about the demonstration. Despite the large
enrollment differences between the mainland sites and Puerto Rico, our
statistical tests determined that the mainland sites and the Puerto
Rico site could be combined into a single logistic regression of
enrollment. We included a variable for persons in the Puerto Rico site.
(See table 8.):
Table 8: Estimated Effects of Selected Factors on Whether Eligible
Retirees Enrolled in an FEHBP Plan:
Demographic and economic factors:
African American; Odds ratio: 0.51; Coefficient: -0.68[A].
Hispanic; Odds ratio: 1.19; Coefficient: 0.17.
Higher income (over $40,000); Odds ratio: 1.35; Coefficient: 0.30[B].
Male; Odds ratio: 0.74; Coefficient: -0.31[C].
Married; Odds ratio: 5.06; Coefficient: 1.62[C].
Officer; Odds ratio: 1.46; Coefficient: 0.38[A].
Older than age 75; Odds ratio: 1.32; Coefficient: 0.28.
Health status; Self or spouse in fair or poor health; Odds ratio: 0.93;
Coefficient: -0.07.
Health insurance coverage:
Covered by a Medigap policy; Odds ratio: 1.32; Coefficient: 0.28[B].
Covered by employer-sponsored health insurance; Odds ratio: 0.40;
Coefficient: -0.92[A].
Enrolled in a Medicare+Choice plan in 1999; Odds ratio: 0.53;
Coefficient: -0.64[A].
Enrolled in Medicare part B on January 1, 2000; Odds ratio: Military-
related factors: 2.01; Coefficient: Military-related factors: 0.70[A].
Military-related factors:
Less than 1 hour from an MTF; Odds ratio: 0.36; Coefficient: -1.01[A].
Member of a military retiree organization; Odds ratio: 1.49;
Coefficient: 0.40[A].
Used VA care during fiscal years 1998 or 1999; Odds
ratio: Geographic effects: 1.00; Coefficient: Geographic effects: 0.00.
Geographic effects:
Medicare+Choice enrollment in county[D]; Odds ratio: --[E];
Coefficient: -0.01[A].
Medigap price for county and age category; Odds ratio: --[E];
Coefficient: -0.38[A].
Puerto Rico site; Odds ratio: 2.96; Coefficient: 1.09[A].
Constant: Coefficient: -2.69[A].
Observations: 1,913.
Sources: GAO-DOD-OPM survey, Quotesmith Inc., CMS, and VA.
Note: GAO analysis of GAO-DOD-OPM survey, DOD enrollment data, CMS
enrollment data, VA enrollment data, and Quotesmith Inc. Medigap
premium data.
[A] Significant at the 1 percent level.
[B] Significant at the 5 percent level.
[C] Significant at the 10 percent level.
[D] The proportion of Medicare beneficiaries in a retiree's county of
residence enrolled in a Medicare+Choice plan.
[E] Odds ratios are not reported for continuous variables, such as the
number of enrollees and the price in dollars, because, unlike binary
variables, the choice of values to make a comparison is arbitrary.
[End of table]
We found that retirees were less likely to enroll in the demonstration
if they were African American, enrolled in Medicare+Choice plans, had
employer-sponsored health insurance, lived in areas with a high
proportion of Medicare beneficiaries enrolled in a Medicare+Choice
plan, lived in areas where Medigap was more expensive, or lived less
than an hour from an MTF. Retirees who had higher incomes, were
officers, were members of a military retiree organization, were
enrolled in Medicare part B, lived in Puerto Rico, or were covered by a
Medigap policy were more likely to enroll.
Calculating the Impact on Enrollment if Those Eligible Had Known about
the Demonstration:
We estimated what the demonstration's enrollment rate would have been
in 2000 if everyone eligible for the demonstration had known about it.
For the 54 percent of retirees who did not know about the
demonstration, we calculated their individual probabilities of
enrollment, using their characteristics (such as age) and the
coefficient estimates from the enrollment regression.[Footnote 45]
Aggregating these individual estimated enrollment probabilities, we
found that if all eligible retirees had known about the demonstration,
enrollment in 2000 would have been 7.2 percent of eligible
beneficiaries, compared with actual enrollment of 3.6 percent.[Footnote
46]
Estimating Health Status Based on PIP-DCG Scores:
To measure the health status of retired enrollees and nonenrollees, as
well as of civilian FEHBP enrollees, we calculated scores for
individuals using the Principal Inpatient Diagnostic Cost Group (PIP-
DCG) method. This method--used by the Centers for Medicare & Medicaid
Services (CMS) in adjusting Medicare+Choice payment rates--yielded a
proxy for the healthiness of military and civilian retirees as of 1999,
the year before the demonstration. The method relates individuals'
diagnoses to their annual Medicare expenditures. For example, a PIP-DCG
score of 1.20 indicates that the individual is 20 percent more costly
than the average Medicare beneficiary. In our analysis, we used
Medicare claims and other administrative data from 1999 to calculate
PIP-DCG scores for eligible military retirees and their counterparts in
the civilian FEHBP in the demonstration sites.
Using Medicare part A claims for 1999, we calculated PIP-DCG scores for
Medicare beneficiaries who were eligible for the demonstration. We used
a DOD database to identify enrollees as well as those who were eligible
for the demonstration but did not enroll.
We also calculated PIP-DCG scores based on 1999 Medicare claims for
each Medicare-eligible person enrolled in the civilian FEHBP. We
obtained from OPM data on enrollees in the civilian FEHBP and on the
plans in which they were enrolled. We restricted our analysis to those
Medicare-eligible civilian FEHBP enrollees who lived in a demonstration
site.
Results of PIP-DCG calculations. We compared the PIP-DCG scores of
demonstration enrollees with those of eligible retirees who did not
enroll. In every site, the average PIP-DCG score was significantly
less[Footnote 47] for demonstration enrollees than for those who did
not enroll. We also compared the PIP-DCG scores of those enrolled in
the demonstration with those enrolled in the civilian FEHBP: For every
site, these scores were significantly less for demonstration enrollees
than for their counterparts in the civilian FEHBP.[Footnote 48] (See
table 9.):
Table 9: Health Status Comparisons of DOD-FEHBP Demonstration Enrollees
with Eligible Retirees Who Did Not Enroll and with Civilian FEHBP
Retirees, Based on PIP-DCG Scores:
Site: All sites; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.87; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.81.
Site: Camp Pendleton, Calif.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.88; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.83.
Site: Dallas, Tex.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.82; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.75.
Site: Dover, Del.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.76; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.71.
Site: Humboldt County, Calif.; Ratio of PIP-DCG scores of enrollees in
a demonstration plan: Compared to eligible military retirees who did
not enroll: 0.91; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to civilian retirees in FEHBP: 0.86.
Site: Fort Knox, Ky.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.79; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.73.
Site: Greensboro, N.C.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.84; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.77.
Site: New Orleans, La.; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.78; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.73.
Site: Puerto Rico; Ratio of PIP-DCG scores of enrollees in a
demonstration plan: Compared to eligible military retirees who did not
enroll: 0.94; Ratio of PIP-DCG scores of enrollees in a demonstration
plan: Compared to civilian retirees in FEHBP: 0.93.
Source: CMS, DOD, and OPM.
Note: GAO analysis of CMS claims data, DOD enrollment data, and OPM
enrollment data. Comparisons used 1999 claims data and measured
enrollment status as of September 2000. The difference between the PIP-
DCG scores for the enrollees in the demonstration and the scores of
military retirees who did not enroll was statistically significant at
the 5 percent level for each demonstration site. The difference between
the PIP-DCG scores for the enrollees in the demonstration and the
scores of civilian retirees in FEHBP was statistically significant at
the 5 percent level for each demonstration site.
[End of table]
Medigap Premiums:
We compiled data from Quotesmith Inc. to obtain a premium price for
Medigap plan F in each of the counties in the eight demonstration
sites.[Footnote 49] We collected the lowest premium quote for a Medigap
plan F policy for each sex at 5-year intervals: ages 65, 70, 75, 80,
85, and over 89. A person age 65 to 69 was assigned the 65-year-old's
premium, a person age 70 to 74 was assigned the 70-year-old's premium,
and so on. Using these data, we assigned a Medigap plan F premium to
each survey respondent age 65 and over, according to the person's age,
sex, and location.
[End of section]
Appendix III: Enrollment in the DOD-FEHBP Demonstration:
Tables 10, 11, and 12 show enrollment rates by site and for the U.S.
mainland sites as a whole for each year of the demonstration, 2000
through 2002.
Table 10: Enrollment in the DOD-FEHBP Demonstration, 2000:
Mainland sites:
Camp Pendleton, Calif.; Enrollees: 303; Eligible
beneficiaries: 24,907; Percentage enrolled: 1.2.
Dallas, Tex.; Enrollees: 520; Eligible beneficiaries: 13,607;
Percentage enrolled: 3.8.
Dover, Del.; Enrollees: 35; Eligible beneficiaries: 4,384;
Percentage enrolled: 0.8.
Fort Knox, Ky.; Enrollees: 134; Eligible beneficiaries: 7,757;
Percentage enrolled: 1.7.
Greensboro, N.C.; Enrollees: 285; Eligible beneficiaries: 3,278;
Percentage enrolled: 8.7.
Humboldt County, Calif.; Enrollees: 221; Eligible beneficiaries:
2,919; Percentage enrolled: 7.6.
New Orleans, La.; Enrollees: Total for
mainland sites: 96; Eligible beneficiaries: Total for mainland sites:
5,083; Percentage enrolled: Total for mainland sites: 1.9.
Total for mainland sites: Enrollees: 1,594; Eligible
beneficiaries: 61,935; Percentage enrolled: 2.6.
Other site; Puerto Rico; Enrollees: 913; Eligible beneficiaries: 6,907;
Percentage enrolled: 13.2.
Total: Enrollees: 2,507; Eligible beneficiaries: 68,842;
Percentage enrolled: 3.6.
Source: DOD.
Note: Data are as of January 1, 2000.
[End of table]
Table 11: Enrollment in the DOD-FEHBP Demonstration, 2001:
Mainland sites:
Adair County, Iowa; Enrollees: 1,564; Eligible
beneficiaries: 29,584; Percentage enrolled: 5.3.
Camp Pendleton, Calif.; Enrollees: 421; Eligible beneficiaries:
27,328; Percentage enrolled: 1.5.
Coffee County, Ga.; Enrollees: 867; Eligible beneficiaries:
27,329; Percentage enrolled: 3.2.
Dallas, Tex.; Enrollees: 949; Eligible beneficiaries: 16,159;
Percentage enrolled: 5.9.
Dover, Del.; Enrollees: 64; Eligible beneficiaries: 4,868;
Percentage enrolled: 1.3.
Fort Knox, Ky.; Enrollees: 188; Eligible beneficiaries: 9,121;
Percentage enrolled: 2.1.
Greensboro, N.C.; Enrollees: 334; Eligible beneficiaries: 4,033;
Percentage enrolled: 8.3.
Humboldt County, Calif.; Enrollees: 305; Eligible beneficiaries:
3,461; Percentage enrolled: 8.8.
New Orleans, La.; Enrollees: Total for
mainland sites: 142; Eligible beneficiaries: Total for mainland sites:
6,095; Percentage enrolled: Total for mainland sites: 2.3.
Total for mainland sites; [Empty]; Enrollees: 4,834; Eligible
beneficiaries: 127,978; Percentage enrolled: 3.8.
Other site; Puerto Rico; Enrollees: 2,687; Eligible beneficiaries:
9,401; Percentage enrolled: 28.6.
Total: Enrollees: 7,521; Eligible beneficiaries: 137,379;
Percentage enrolled: 5.5.
Source: DOD.
Note: Data are as of March 14, 2001.
[End of table]
Table 12: Enrollment in the DOD-FEHBP Demonstration, 2002:
Mainland sites:
Adair County, Iowa; Enrollees: 484; Eligible
beneficiaries: 29,530; Percentage enrolled: 1.6.
Camp Pendleton, Calif.; Enrollees: 145; Eligible beneficiaries:
27,287; Percentage enrolled: 0.5.
Coffee County, Ga.; Enrollees: 212; Eligible beneficiaries:
27,284; Percentage enrolled: 0.8.
Dallas, Tex.; Enrollees: 354; Eligible beneficiaries: 16,133;
Percentage enrolled: 2.2.
Dover, Del.; Enrollees: 36; Eligible beneficiaries: 4,867;
Percentage enrolled: 0.7.
Fort Knox, Ky.; Enrollees: 70; Eligible beneficiaries: 9,113;
Percentage enrolled: 0.8.
Greensboro, N.C.; Enrollees: 85; Eligible beneficiaries: 4,024;
Percentage enrolled: 2.1.
Humboldt County, Calif.; Enrollees: 65; Eligible beneficiaries:
3,454; Percentage enrolled: 1.9.
New Orleans, La.; Enrollees: Total for
mainland sites: 74; Eligible beneficiaries: Total for mainland sites:
6,085; Percentage enrolled: Total for mainland sites: 1.2.
Total for mainland sites: Enrollees: 1,525; Eligible
beneficiaries: 127,777; Percentage enrolled: 1.2.
Other site; Puerto Rico; Enrollees: 2,842; Eligible beneficiaries:
9,453; Percentage enrolled: 30.1.
Total: Enrollees: 4,367; Eligible beneficiaries: 137,230;
Percentage enrolled: 3.2.
Source: DOD.
Note: Data are as of February 21, 2002.
[End of table]
[End of section]
Appendix IV: DOD's Approach to Informing Beneficiaries about the DOD-
FEHBP Demonstration:
The program for informing and educating eligible beneficiaries about
the demonstration was modeled on OPM's approach to informing eligible
civilian beneficiaries about FEHBP. Elements of OPM's approach include
making available a comparison of FEHBP plans and holding health fairs
sponsored by individual federal agencies. DOD expanded upon the OPM
approach-for example, by sending postcards to inform eligible
beneficiaries about the demonstration because they, unlike civilian
federal employees and retirees, were unlikely to have any prior
knowledge of FEHBP. In addition, DOD established a bilingual toll-free
number. During the first year's enrollment period, DOD adjusted its
information and education effort, for example, by changing the
education format from health fairs to town meetings designed
specifically for demonstration beneficiaries. In the second year of the
demonstration, DOD continued with its revised approach. In the third
year, after TRICARE For Life (TFL) began, DOD significantly reduced its
information program but continued to mail information to all eligible
beneficiaries. It limited town meetings to Puerto Rico, the only site
where enrollment remained significant during the third year.
Mailings:
DOD sent a series of mailings to all eligible beneficiaries. These
included:
* a postcard announcing the demonstration, mailed in August
1999,[Footnote 50] that alerted beneficiaries to the demonstration-the
returned postcards allowed DOD to identify incorrect mailing addresses
and to target follow-up mailings to beneficiaries with correct
addresses;
* an OPM-produced booklet, The 2000 Guide to Federal Employees Health
Benefits Plans Participating in the DOD/FEHBP Demonstration Project,
received by all eligible retirees from November 3 through 5, 1999, that
contained information on participating FEHBP plans, including coverage
and consumer satisfaction;
* a trifold brochure describing the demonstration, which was mailed on
September 1 and 4, 1999; and:
* a list of Frequently Asked Questions (FAQ) explaining how Medicare
and FEHBP work together.
At the time of our survey, after the first year's information campaign,
over half of eligible beneficiaries were unaware of the demonstration.
Among those who knew about it, more recalled receiving the postcard
than recalled receiving any of the later materials--although the FAQ
was cited more often as being useful. (See table 13.):
Table 13: Beneficiaries Who Recalled Receiving DOD-FEHBP Demonstration
Mailings and Who Found Them Useful:
Postcard announcing the DOD-FEHBP demonstration; Percentages:
Beneficiaries who recalled receiving materials[A]: 31; Percentages:
Beneficiaries who found materials useful[B]: 61.
Booklet entitled, The 2000 Guide to Federal Employees Health Benefits
Plans Participating in the DOD/FEHBP Demonstration Project;
Percentages: Beneficiaries who recalled receiving materials[A]: 27;
Percentages: Beneficiaries who found materials useful[B]: 67.
Trifold brochure describing the demonstration; Percentages:
Beneficiaries who recalled receiving materials[A]: 17; Percentages:
Beneficiaries who found materials useful[B]: 69.
FAQ about coordination of Medicare and FEHBP benefits; Percentages:
Beneficiaries who recalled receiving materials[A]: 17; Percentages:
Beneficiaries who found materials useful[B]: 72.
Source: GAO-DOD-OPM survey.
Note: These materials were mailed in 1999 for the 2000 enrollment
period.
[A] The question was asked only of those who knew that, as part of the
new demonstration, they could join an FEHBP health plan.
[B] Entries are percentages of beneficiaries who recalled receiving
them.
[End of table]
Health Fairs and Town Meetings:
Initially, the health fairs that DOD sponsored for military bases'
civilian employees were its main effort--other than the mailings--to
provide information about the demonstration to eligible beneficiaries.
At these health fairs, plans set up tables at which their
representatives distributed brochures and answered questions. At one
site, the military base refused to allow the demonstration
representatives to participate in its health fair because of concern
about an influx of large numbers of demonstration beneficiaries. At
another site, the turnout exceeded the capacity of the plan
representatives to deal with questions and DOD officials told us that
they accommodated more people by giving another presentation at a
different facility or at the same facility 1 month later.
A DOD official discovered, however, that it was difficult to convey
information about the demonstration to large numbers of individuals at
the health fairs. DOD officials determined that the health fairs were
not working well, so by January 2000, DOD replaced them with 2-hour
briefings, which officials called town meetings. In these meetings, a
DOD representative explained the demonstration during the first hour
and then answered questions from the audience. A DOD official told us
that these town meetings were more effective than the health
fairs.[Footnote 51]
For the first year of the demonstration, just under 6 percent of those
eligible attended either a health fair or a town meeting. The number of
eligible beneficiaries who reported attending these meetings varied
considerably by site--from about 3 percent in New Orleans and Camp
Pendleton to 4 percent in Fort Knox and 18 percent in Humboldt County.
Roughly 11 percent of beneficiaries reported attending in Puerto Rico,
the site with the highest enrollment.
DOD's Call Center and Web Site:
DOD also established a call center and a Web site to inform eligible
beneficiaries about the demonstration. The call center, which was
staffed by Spanish and English speakers, answered questions and sent
out printed materials on request. In the GAO-DOD-OPM survey, about 18
percent of those who knew about the demonstration reported calling the
center's toll-free number. The proportion that called the toll-free
number was much higher among subsequent enrollees (77 percent) than
among nonenrollees who knew about the demonstration (13 percent). The
Web site was another source of information about the demonstration.
Beneficiaries' Sources of Information:
Although less than half of eligible beneficiaries knew about the
demonstration, most of those who did know said they obtained their
information from DOD's mailings. Other important sources of information
included military retiree and military family organizations and FEHBP
plans. (See table 14.):
Table 14: Beneficiaries' Sources of Information about the DOD-FEHBP
Demonstration:
Source of information: Received information mailed by DOD; Percentages:
All beneficiaries: 81.8; Enrollees: 78.1; Nonenrollees: 82.1.
Source of information: Received information from a military retiree or
family organization; Percentages: All beneficiaries: 33.1; Enrollees:
43.3; Nonenrollees: 32.3.
Source of information: Received information from one of the FEHBP
plans; Percentages: All beneficiaries: 25.0; Enrollees: 37.3;
Nonenrollees: 24.0.
Source of information: Heard about demonstration from family or
friends; Percentages: All beneficiaries: 7.0; Enrollees: 10.0;
Nonenrollees: 6.8.
Source of information: Attended a health fair or town meeting; Percentages:
All beneficiaries: 5.9; Enrollees: 25.6; Nonenrollees: 4.3.
Source of information: Heard about it from office of Member of
Congress; Percentages: All beneficiaries: 2.1; Enrollees: 5.5;
Nonenrollees: 1.8.
Source of information: Read article about the demonstration in the
newspaper; Percentages: All beneficiaries: 7.6; Enrollees: 9.7;
Nonenrollees: 7.4.
Source of information: Saw newspaper advertisements by one or more
FEHBP plans; Percentages: All beneficiaries: 1.9; Enrollees: 2.2;
Nonenrollees: 1.8.
Source of information: Heard about demonstration on radio or
television; Percentages: All beneficiaries: 1.7; Enrollees: 1.7;
Nonenrollees: 1.7.
Source of information: Other[A]; Percentages: All beneficiaries: 6.7;
Enrollees: 10.4; Nonenrollees: 6.3.
Source: GAO-DOD-OPM survey.
Note: The source of information is given only for those who knew before
receiving the survey that, as a part of the new demonstration, they
could join an FEHBP health plan. Percentages add to more than 100
because respondents could select more than one reason. Respondents
reported information gained relating to 2000 enrollment.
[A] "Other" refers to answers that could not be classified.
[End of table]
Nearly all of enrollees (93 percent) and more than half of nonenrollees
who said they considered enrolling in an FEHBP health plan (55 percent)
reported that they had enough information about specific plans to make
an informed decision about enrolling in one of them. More than three-
fifths of these beneficiaries who enrolled or considered enrolling in
an FEHBP plan said they used The 2000 Guide to FEHBP Plans
Participating in the DOD/FEHBP Demonstration Project as a source of
information. Other major sources of information were the plans'
brochures and DOD's health fairs and town meetings. More than 18
percent of those who considered joining did not obtain information
about any specific plan. (See table 15.):
Table 15: Sources of Information for Eligible Beneficiaries about
Specific FEHBP Plans:
Source of Information: Reading The 2000 Guide to FEHBP Plans;
Percentages: Enrollees: 75.1; Nonenrollees: 59.7; Total: 63.5.
Source of Information: Reading one or more plans' brochures;
Percentages: Enrollees: 46.5; Nonenrollees: 26.0; Total: 31.1.
Source of Information: Health fair or town meeting;
Percentages: Enrollees: 35.2; Nonenrollees: 12.5; Total: 18.1.
Source of Information: Calling one or more plans;
Percentages: Enrollees: 27.2; Nonenrollees: 9.9; Total: 14.2.
Source of Information: Friends or family;
Percentages: Enrollees: 14.3; Nonenrollees: 8.6; Total: 10.0.
Source of Information: Internet;
Percentages: Enrollees: 10.3; Nonenrollees: 3.8; Total: 5.4.
Source of Information: Advertising in a newspaper or other publication;
Percentages: Enrollees: 1.6; Nonenrollees: 3.0; Total: 2.7.
Source of Information: Other[A]; Percentages: Enrollees: 10.1;
Nonenrollees: 6.8; Total: 7.6.
Source of Information: I did not get information about any specific
FEHBP plans; Percentages: Enrollees: 1.2; Nonenrollees: 24.3; Total:
18.6.
Source: GAO-DOD-OPM survey.
Note: Entries are percentages of respondents who considered joining an
FEHBP plan. Percentages add to more than 100 because respondents could
select more than one reason. Respondents reported information gained
relating to 2000 enrollment.
[A] "Other" refers to answers that could not be classified.
[End of table]
[End of section]
Appendix V: Enrollees' and Nonenrollees' Reasons for Joining or Not
Joining a DOD-FEHBP Demonstration Plan:
Table 16 shows reasons cited by enrollees for enrolling in a DOD-FEHBP
health plan in 2000, and table 17 shows reasons cited by nonenrollees
for not enrolling.
Table 16: Survey Responses by Enrollees to the Question "Why Did You
Join a DOD-FEHBP Health Plan?":
The plan's benefits package meets my needs (and those of my family);
Percentages: All respondents: 66.7; Percentages: Mainland: 66.1;
Percentages: Location: Puerto Rico: 68.2.
I needed better coverage for prescriptions; Percentages: All
respondents: 64.3; Percentages: Mainland: 60.0; Percentages: Location:
Puerto Rico: 74.7.
My current doctors are among those I can select under the plan;
Percentages: All respondents: 62.5; Percentages: Mainland: 63.0;
Percentages: Location: Puerto Rico: 61.3.
It costs less than other coverage that I could buy; Percentages: All
respondents: 62.1; Percentages: Mainland: 58.8; Percentages: Location:
Puerto Rico: 69.9.
The plan's benefits package is better than other coverage I could get;
Percentages: All respondents: 50.8; Percentages: Mainland: 47.2;
Percentages: Location: Puerto Rico: 59.2.
It costs less than my previous coverage (insurance or health plan);
Percentages: All respondents: 49.8; Percentages: Mainland: 48.9;
Percentages: Location: Puerto Rico: 51.8.
The plan has a good reputation for quality of care; Percentages: All
respondents: 44.6; Percentages: Mainland: 39.6; Percentages: Location:
Puerto Rico: 56.6.
My spouse joined the plan, and it is more convenient if we're both in
the same plan; Percentages: All respondents: 34.6; Percentages:
Mainland: 28.6; Percentages: Location: Puerto Rico: 48.7.
I can't count on getting space-available care; Percentages: All
respondents: 27.1; Percentages: Mainland: 33.1; Percentages: Location:
Puerto Rico: 13.1.
It gives me a broader choice of doctors than I had before; Percentages:
All respondents: 26.5; Percentages: Mainland: 21.8; Percentages:
Location: Puerto Rico: 37.5.
I don't want to use military care; Percentages: All respondents: 22.2;
Percentages: Mainland: 25.9; Percentages: Location: Puerto Rico: 13.4.
Many civilian doctors don't accept CHAMPUS/TRICARE[A]; Percentages: All
respondents: 20.4; Percentages: Mainland: 17.2; Percentages: Location:
Puerto Rico: 28.2.
My friends or relatives recommended that I join the plan; Percentages:
All respondents: 14.2; Percentages: Mainland: 9.4; Percentages:
Location: Puerto Rico: 25.3.
Other[B]; Percentages: All respondents: 10.0; Percentages: Mainland:
10.9; Percentages: Location: Puerto Rico: 7.8.
Source: GAO-DOD-OPM survey.
Note: This question was asked only of people who knew about the
demonstration at the time of the survey. Beneficiaries were given a
list of possible answers as well as an "Other" option for which they
could write their own answers.
[A] CHAMPUS is the name given to the military health care program that
preceded TRICARE.
[B] Answers that could not be classified.
[End of table]
Table 17: Survey Responses by Nonenrollees to the Question "Why Didn't
You Join a DOD-FEHBP Health Plan?":
I was satisfied with my current coverage; Percentages: All respondents:
64.1; Percentages: Location: Mainland: 65.9; Percentages: Location:
Puerto Rico: 28.4.
It would cost too much; Percentages: All respondents: 29.4;
Percentages: Location: Mainland: 29.9; Percentages: Location: Puerto
Rico: 17.6.
The program is new, and I'm waiting to see how it works; Percentages:
All respondents: 26.6; Percentages: Location: Mainland: 26.4;
Percentages: Location: Puerto Rico: 30.2.
I wasn't sure how it would work with Medicare; Percentages: All
respondents: 26.2; Percentages: Location: Mainland: 25.7; Percentages:
Location: Puerto Rico: 36.2.
I wouldn't be able to use military pharmacies anymore; Percentages: All
respondents: 26.1; Percentages: Location: Mainland: 26.4; Percentages:
Location: Puerto Rico: 20.8.
I couldn't keep my current doctors; Percentages: All respondents: 25.5;
Percentages: Location: Mainland: 26.3; Percentages: Location: Puerto
Rico: 8.1.
The demonstration will end in 3 years; Percentages: All respondents:
22.0; Percentages: Location: Mainland: 22.3; Percentages: Location:
Puerto Rico: 16.5.
I was afraid I wouldn't be able to get my Medicare supplemental policy
back after the demonstration ended; Percentages: All respondents: 20.2;
Percentages: Location: Mainland: 20.6; Percentages: Location: Puerto
Rico: 12.1.
I can get care at military health care facilities when I need it;
Percentages: All respondents: 14.4; Percentages: Location: Mainland:
13.6; Percentages: Location: Puerto Rico: 30.7.
I heard about the demonstration, but did not have enough information to
make a decision; Percentages: All respondents: 13.9; Percentages:
Location: Mainland: 13.3; Percentages: Location: Puerto Rico: 27.5.
I was afraid I wouldn't be able to get my retiree health insurance back
after the demonstration ended; Percentages: All respondents: 11.1;
Percentages: Location: Mainland: 11.1; Percentages: Location: Puerto
Rico: 11.0.
I can get care at the VA when I need it; Percentages: All respondents:
10.2; Percentages: Location: Mainland: 9.1; Percentages: Location:
Puerto Rico: 31.4.
I couldn't decide which plan to join; Percentages: All respondents:
9.5; Percentages: Location: Mainland: 9.0; Percentages: Location:
Puerto Rico: 20.8.
My spouse didn't want to join so I decided not to; Percentages: All
respondents: 5.7; Percentages: Location: Mainland: 5.5; Percentages:
Location: Puerto Rico: 9.2.
My friends and relatives recommend against it; Percentages: All
respondents: 5.0; Percentages: Location: Mainland: 5.2; Percentages:
Location: Puerto Rico: 0.0.
I was not eligible; Percentages: All respondents: 4.5; Percentages:
Location: Mainland: 4.7; Percentages: Location: Puerto Rico: 1.1.
I didn't know about the demonstration project; Percentages: All
respondents: 3.5; Percentages: Location: Mainland: 3.4; Percentages:
Location: Puerto Rico: 4.4.
None of the plans available to me had a good reputation; Percentages:
All respondents: 3.0; Percentages: Location: Mainland: 3.1;
Percentages: Location: Puerto Rico: 1.1.
Other[A]; Percentages: All respondents: 15.8; Percentages: Location:
Mainland: 15.9; Percentages: Location: Puerto Rico: 13.2.
Source: GAO-DOD-OPM survey.
Note: This question was asked only of people who knew about the
demonstration at the time of the survey. Beneficiaries were given a
list of possible answers as well as an "Other" option for which they
could write their own answers. Answers relate to enrollment in 2000.
Because beneficiaries could select multiple reasons, the percentages
total more than 100.
[A] Answers that could not be classified.
[End of table]
[End of section]
Appendix VI: Comments from the Department of Defense:
THE ASSISTANT SECRETARY OF DEFENSE:
1200 DEFENSE PENTAGON WASHINGTON, Dc 20301-1200:
HEALTH AFFAIRS:
MAY 22 2003:
Ms. Marjorie E. Kanof:
Director, Health Care-Clinical and Military Health Care Issues
U.S. General Accounting Office:
441 G Street, N.W., Washington, D.C. 20548.
Dear Ms. Kanof:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO 03-547 "MILITARY RETIREE HEALTH BENEFITS: Enrollment Low in
Federal Employee Health Plans Under DOD Demonstration," dated April 30,
2003 (GAO Code 290026 formerly 804635).":
Thank you for the opportunity to review and comment on this report.
Overall, the Department concurs with the findings contained in the
Draft Report. However, DoD is concerned about the report's suggestion
that the demonstration project had limited impact on its budget. This
is an inaccurate conclusion. It is important to note that despite the
extremely low enrollment in the demonstration project, DoD's costs
associated with operationalizing the demonstration were significant.
DoD's total contribution to the beneficiaries' premiums was over $28
million. Additionally, the administrative costs to operate the
demonstration project exceeded over $11 million. These high costs
associated with operationalizing this demonstration had a substantial
impact on DoD's budget.
As the report accurately points out, DoD and OPM launched a vigorous
marketing campaign to create awareness and promote enrollment in the
FEHBP demonstration project. Efforts included mass mailings, a toll-
free call center with bilingual services, and health fairs conducted at
every demonstration site. Despite the extensive marketing of the
demonstration project, total enrollment remained extremely low.
In conclusion, it is extremely important to recognize there were
substantial costs associated with the demonstration project and it had
considerable impact on DoD's budget. This demonstration project
illustrates that the number of beneficiaries enrolled in the project
did not equate with lower costs because there were additional
administrative costs associated with operating the demonstration.
Please feel free to address any questions to my project officers on
this matter, Mr. Pradeep G. Gidwani (functional) at (703) 681-3636 or
Mr. Gunther J. Zimmerman (GAO/IG Liaison) at (703) 681-3492.
Enclosure: As stated:
Sincerely,
William Winkenwerder, Jr., MD
Signed by E. P. Wyatt for William Winkenwerder
[End of section]
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Jonathan Ratner, (202) 512-7107 Phyllis Thorburn, (202) 512-7012:
Acknowledgments:
Major contributors to this work were Michael Kendix, Robin Burke,
Jessica Farb, Martha Kelly, Dae Park, and Michael Rose.
[End of section]
Related GAO Products:
Defense Health Care: Oversight of the Adequacy of TRICARE's Civilian
Provider Network Has Weaknesses. GAO-03-592T. Washington, D.C.: March
27, 2003.
Federal Employees' Health Benefits: Effects of Using Pharmacy Benefit
Managers on Health Plans, Enrollees, and Pharmacies. GAO-03-196.
Washington, D.C.: January 10, 2003.
Federal Employees' Health Plans: Premium Growth and OPM's Role in
Negotiating Benefits. GAO-03-236. Washington, D.C.: December 31, 2002.
Medicare+Choice: Selected Program Requirements and Other Entities'
Standards for HMOs. GAO-03-180: Washington, D.C.: October 31, 2002.
Medigap: Current Policies Contain Coverage Gaps, Undermine Cost Control
Incentives. GAO-02-533T. Washington, D.C.: March 14, 2002.
Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises
Cost and Management Issues for DOD Health Care. GAO-02-284. Washington,
D.C.: February 11, 2002.
Retiree Health Insurance: Gaps in Coverage and Availability. GAO-02-
178T. Washington, D.C.: November 1, 2001.
Medigap Insurance: Plans Are Widely Available but Have Limited Benefits
and May Have High Costs. GAO-01-941. Washington, D.C.: July 31, 2001.
Health Insurance: Proposals for Expanding Private and Public Coverage.
GAO-01-481T. Washington, D.C.: March 15, 2001.
Defense Health Care: Pharmacy Copayments. GAO/HEHS-99-134R.
Washington, D.C.: June 8, 1999.
Federal Health Programs: Comparison of Medicare, the Federal Employees
Health Benefits Program, Medicaid, Veterans' Health Services,
Department of Defense Health Services, and Indian Health Services. GAO/
HEHS-98-231R. Washington, D.C.: August 7, 1998.
Defense Health Care: Offering Federal Employees Health Benefits Program
to DOD Beneficiaries. GAO/HEHS-98-68. Washington, D.C.: March 23, 1998.
FOOTNOTES
[1] Our use of the term "military retirees" includes their dependents
and survivors age 65 and over.
[2] The Medicare subvention demonstration allowed retirees to enroll in
new DOD-run Medicare managed care plans at six sites. See U.S. General
Accounting Office, Medicare Subvention Demonstration: Pilot Satisfies
Enrollees, Raises Cost and Management Issues for DOD Health Care,
GAO-02-284 (Washington, D.C.: Feb. 11, 2002). Another demonstration,
called TRICARE Senior Supplement, used TRICARE--the DOD health care
program covering military personnel, younger retirees, and their
dependents--to supplement retirees' Medicare coverage.
[3] The demonstration was created by the Strom Thurmond National
Defense Authorization Act for Fiscal Year 1999, (NDAA 1999) Pub. L. No.
105-261, § 721, 112 Stat. 1920, 2061 (1998) (codified at 10 U.S.C. §
1108) (2000).
[4] In this report, the term "beneficiaries" refers to all those
eligible for the demonstration: retirees, their spouses and other
dependents, and other beneficiaries designated by law. It includes some
persons under age 65.
[5] In addition, the demonstration was open to approximately 17,000
eligible beneficiaries under age 65.
[6] 10 U.S.C. § 1108(k) (2000).
[7] The Floyd D. Spence National Defense Authorization Act for Fiscal
Year 2001 allowed Medicare-eligible retirees to begin participating in
TRICARE in 2001. Pub. L. No. 106-398, § 712, 114 Stat.1645A, 1554A-176
(2000).
[8] The mainland refers to the 48 contiguous states.
[9] U.S. citizens and permanent residents are generally eligible for
Medicare part A without having to pay a premium if they or their spouse
worked for at least 10 years in Medicare-covered employment. Certain
other persons with disabilities or end-stage kidney disease are also
covered. Work by members of the armed services has been considered
Medicare-covered employment since 1966, when Medicare was established.
[10] Medicare generally covers outpatient prescription drugs only if
they cannot be self-administered and are related to a physician's
services, such as cancer chemotherapy, or are provided in conjunction
with covered durable medical equipment, such as inhalation drugs used
with a nebulizer. In addition, Medicare covers selected immunizations
and certain drugs that can be self-administered, such as blood clotting
factors and some oral drugs used in association with cancer treatment
and immunosuppressive therapy.
[11] See U.S. General Accounting Office, Medicare+Choice: Selected
Program Requirements and Other Entities' Standards for HMOs, GAO-03-180
(Washington, D.C.: Oct. 31, 2002).
[12] Employer-sponsored health benefits have declined over the last
decade and continue to erode. See U.S. General Accounting Office,
Retiree Health Insurance: Gaps in Coverage and Availability,
GAO-02-178T (Washington, D.C.: Nov. 1, 2001).
[13] The Balanced Budget Act of 1997 permitted insurers to offer high
deductible versions of existing F and J plans. Pub. L. No. 105-33, §
4032. 111 Stat.251, 359 (1997).
[14] See U.S. General Accounting Office, Medigap: Current Policies
Contain Coverage Gaps, Undermine Cost Control Incentives, GAO-02-533T
(Washington, D.C.: Mar. 14, 2002) and Medigap Insurance: Plans Are
Widely Available but Have Limited Benefits and May Have High Costs,
GAO-01-941 (Washington, D.C.: July 31, 2001).
[15] DOD also provides health care to retired reserve service members
and their families as well as Medal of Honor recipients and their
families.
[16] Retirees could obtain prescription drugs from an MTF only if the
drugs were stocked by the MTF. In addition, over 400,000 beneficiaries
age 65 and over were eligible for the mail order and retail pharmacy
benefit as a result of the Base Realignment and Closure (BRAC) actions.
[17] Veterans with a service-connected disability rating of 50 percent
or more qualify for free health care in VA facilities. Their treatment
may be for conditions unrelated to military service. The disability
rating is based on an evaluation that represents the average loss in
earning capacity associated with the severity of physical and mental
conditions. Individuals' ratings range from 0 percent to 100 percent.
[18] Some plans refer to the two options as the basic option and the
standard option.
[19] See U.S. General Accounting Office, Federal Employees' Health
Plans: Premium Growth and OPM's Role in Negotiating Benefits,
GAO-03-236 (Washington, D.C.: Dec. 31, 2002).
[20] Blue Cross Blue Shield is a consortium of local Blue Cross Blue
Shield plans across the country. It charges the same premium in all
locations and distributes that premium to its local plans, without any
adjustment for local variations in health care costs.
[21] These private sector groups are referred to as similarly sized
subscriber groups.
[22] More recent DOD data indicate that the number of eligible
beneficiaries was approximately 80,000 in the 8 original sites. (See
app. III.) This substantial increase in eligible beneficiaries,
compared to the initial figure, resulted from corrections that DOD made
to its eligibility and enrollment database. We used the lower figure in
implementing the sampling strategy for our survey because it was the
only information available at the time of the survey. To maintain
consistency, all analyses for 2000 use the original (lower) DOD figure.
[23] The law establishing the FEHBP demonstration required that at
least one site contain an MTF, one site not contain an MTF, one site be
a participant in the DOD Medicare subvention demonstration, and no
TRICARE region have more than one FEHBP demonstration site. 10 U.S.C. §
1108(C) (2000).
[24] Persons eligible for the civilian FEHBP were not eligible for the
demonstration.
[25] HMOs are comprehensive medical plans that coordinate health care
through a network of physicians and hospitals. A POS option provides
enrollees with a choice of using the plan's health care providers or
paying higher fees to see providers outside of the plan's network.
[26] A risk pool is the group of people with respect to whom the
premium is set. In the FEHBP, premiums depend upon the expected claims
or costs of those enrolled. The FEHBP demonstration required that
expected costs for the demonstration enrollees and for civilian FEHBP
enrollees be calculated separately. 10 U.S.C. § 1108(h) (2000).
[27] Enrollment as a percentage of eligible beneficiaries in 2000 is
based on DOD's initial figure of 68,842 eligible beneficiaries.
[28] Enrollment for 2000 was as of January 1, 2000, enrollment for 2001
was as of March 14, 2001, and enrollment for 2002 was as of February
21, 2002.
[29] See app. III for enrollment by site.
[30] Only nonenrollees who knew about the demonstration (44 percent of
eligible beneficiaries) were asked to give their reasons for not
enrolling. Because respondents to our survey gave multiple reasons for
not enrolling, percentages reported concerning benefits, prescription
drugs, and other reasons add to more than 100 percent.
[31] Satisfaction with existing coverage was a much less important
reason for not enrolling in Puerto Rico than on the mainland. In Puerto
Rico, 28 percent of nonenrollees were satisfied with their existing
coverage, compared to 66 percent of nonenrollees on the mainland.
[32] See app. V for a complete list of reasons given.
[33] Like retirees' employer-sponsored coverage, those with
Medicare+Choice coverage were significantly less likely to enroll,
while retirees covered by Medicare part B were significantly more
likely to enroll. (See app. IV.) Part B coverage of enrollees and
nonenrollees differed slightly: 94.7 percent for enrollees and 92.1
percent for nonenrollees.
[34] There was only one local plan in the demonstration in Puerto Rico:
Triple-S.
[35] For example, the 10 percent of plans with the highest premiums
attracted 0.1 percent of enrollees.
[36] We assessed enrollees' health prior to the demonstration, using
the Principal Inpatient Diagnostic Cost Group, (PIP-DCG), which relies
on diagnoses from inpatient hospital stays and other patient
characteristics. See app. II for discussion of the method and our
results.
[37] "Their FEHBP counterparts" refers to civilian retirees who were
Medicare-eligible and enrolled in FEHBP plans.
[38] We were not able to adjust DOD expenditures to account for any
reductions in the cost of prescription drugs and MTF care due to the
demonstration. While some military retirees who enrolled were diverted
from military to civilian care, the numbers were small and any
reductions in MTF costs could not be separated from other factors
affecting DOD expenditures. In addition, according to DOD, its costs
for the demonstration were $28 million for FEHBP premiums and $11
million for administration, when measured over 3 years. These costs
averaged less than 0.1 percent of the DOD health care budget over the
life of the demonstration.
[39] TFL pays for Medicare-covered services not paid for by Medicare,
as well as certain other services.
[40] Readiness refers to the capability of the military health system
to provide medical support of military deployments, from small
humanitarian engagements to major military actions.
[41] We considered (1) a proportional (to the population size)
allocation across the sites that would provide the greatest precision
for population estimates, (2) an equal allocation across the sites that
would provide the greatest power to detect differences among the eight
sites, and (3) a matched allocation, in which the same number of
enrollees and nonenrollees would be selected, and which would provide
the greatest power to detect differences between enrollees and
nonenrollees. We also examined two blended strategies: one that blended
proportional allocation with equal allocation, and another that blended
proportional allocation with matched allocation. We conducted a
simulation to compare the gain in precision and power--increasing the
size of the nonenrollee sample under each blended strategy. Assessing
the gains from the two strategies, we determined that the modified
equal allocation approach was preferable. We specified the size of the
nonenrollee sample that would maximize the probability, at the 5
percent significance level, of detecting a 5 percentage point
difference in proportions between enrollees and nonenrollees and a 10
percentage point difference between enrollees and nonenrollees at a
given site.
[42] Westat, which fielded the survey, sent initial survey packages to
all beneficiaries starting in May 2000. Nonrespondents were sent
follow-up reminder postcards as well as additional survey packages as
needed. Participants with questions could call toll-free numbers and
speak with English-or Spanish-speaking survey staff.
[43] Individual sites were represented by binary or dummy variables;
for example, Humboldt County, California had a value of one when a
beneficiary lived in that site, and a value of zero when the
beneficiary lived in another site.
[44] To avoid statistical problems with analyzing the probability
directly, logistic regression analyzes a related dependent variable--a
function of the probability, P, divided by (1-P). However, the
estimated probability, P, can be calculated from the logistic
regression. In our analysis, P refers to each retiree's probability of
knowing about the demonstration.
[45] In these calculations, we used only the characteristics from the
model to simulate enrollment, which means we assumed the people who did
not know about the demonstration would have behaved the same with
respect to their decision to enroll, given their characteristics, as
those who knew. We also adjusted for the difference between the
enrollment rate in the demonstration as a whole and the enrollment rate
of those included in the logistic regression analysis for whom there
were no missing data.
[46] Retirees who reported that they did not know about the
demonstration before the survey may have included some retirees who had
known about it at one time. About 9 months elapsed between DOD's final
mailing to beneficiaries about the demonstration and the end of our
survey. Our logistic regression for enrollment considered only people
who responded in the survey that they knew about the demonstration. We
excluded people from the enrollment regression who were enrolled but
responded that they did not know about the demonstration. This did not
affect our results because nearly all (more than 99 percent) of those
who said they did not know about the demonstration did not enroll.
[47] The scores were significantly less at the 5 percent level.
[48] The scores were significantly less at the 5 percent level.
[49] Quotesmith.com, Inc. Instant Medicare Supplemental Insurance
Quotes (Darien, Ill.: June 2000), http://www.quotesmith.com/
index.html#medsup (downloaded on June 27, 2000).
[50] Dates for this and subsequent mailings refer to the first year of
the demonstration.
[51] In Puerto Rico, the town hall meetings were conducted in Spanish,
which, according to one DOD official, was very effective in conveying
the information to the eligible beneficiaries at that site.
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