Defense Health Care
Health Insurance Stipend Program Expected to Cost More Than TRICARE But Could Improve Continuity of Care for Dependents of Activated Reserve Component Members Gao ID: GAO-06-128R October 19, 2005Since the September 11, 2001, terrorist attacks, the Department of Defense (DOD) has increased its reliance on its National Guard and reserve forces to support the Global War on Terrorism, and particularly Operation Iraqi Freedom. Congress has been interested in making improvements and enhancements to compensation and benefit programs for reserve component members. When reserve component members are activated for more than 30 days under federal authorities, they are covered under TRICARE, DOD's health care system. While reserve component members are automatically covered by TRICARE when activated, their spouses and other dependents have the option of using either TRICARE or their private health insurance. However, our prior work found that dependents of reserve component members who had dropped their private health insurance reported problems accessing the TRICARE system--such as difficulty finding a health care provider, establishing eligibility, understanding TRICARE benefits, and knowing where to go when questions and problems arise. In addition, maintaining continuity of care with the same health care providers, especially for dependents with chronic medical conditions, may be problematic after switching to TRICARE. To address these concerns, some legislative proposals would give reserve component members the option of accepting a stipend from DOD to help defray the cost of continuing their private health insurance for their spouses and dependents when they are activated for more than 30 days. The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 requires us to determine the cost and feasibility of providing a stipend to members of the Ready Reserve to offset the cost of continuing their current private health insurance coverage for their dependents while they are on active duty. Specifically, we (1) examined whether the implementation of a health care stipend program would be likely to increase or decrease the cost to DOD of providing health care to the spouses and dependents of reserve component members and (2) identified the potential implications of a stipend program on members and their families, DOD, and the members' employers.
Offering a health care stipend to reserve component members could cost the Department of Defense (DOD) from $365 million to $735 million over a 5-year period--fiscal years 2006 through 2010--exclusive of program administration costs, for a specific range of reserve component member participation rates. Congressional Budget Office (CBO) officials cautioned that in the absence of specific legislative language that describes the design of a proposed stipend program in detail, CBO's estimates should be considered preliminary. Final CBO estimates would reflect actual legislative language and CBO's then current baseline assumptions. For example, in preparing this estimate of cost, CBO assumed that the amount of the stipend would equal the average worker contribution for family health plans. However, for deployments of more than 30 days, employees may be liable for the full health insurance premium, including the employer share, plus an additional 2 percent for administrative costs. This amount may be significantly higher than the amount of the stipend used by CBO in preparing the estimate of cost. In addition, DOD estimated that it would cost about $10 million for startup costs in the first year of implementation and $20 to $25 million annually to administer stipend payments to participating reserve component members. Since the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 did not identify the specific design features of a stipend program, it was difficult to identify a reliable anticipated participation rate for a stipend program. Using CBO's cost estimate of a 75 percent participation level by eligible servicemembers and including DOD's estimate of administrative costs, it could cost DOD $230 million (45.5 percent) more to provide health care stipends to spouses and dependents of activated reserve component members over a 5-year period (fiscal years 2006 through 2010) than to provide TRICARE to these individuals. The most significant potential impact of a health care stipend program could be to improve continuity of care for spouses and dependents of reserve component members because the availability of a stipend would potentially allow more reserve component members to continue their private health insurance while they are activated. Continuation of their private health insurance would help family members avoid disruption in ongoing medical treatment caused by switching to TRICARE for their health care coverage, by enabling them to keep their current health care providers. Civilian employers of reserve component members may also benefit from the availability of a stipend since this amount will help to offset the burden on those employers who choose to pay the full contribution for their activated employees. However, DOD officials are unaware of any evidence to support that a stipend would have any impact on several other issues affecting the reserve components, including medical readiness, recruitment, or retention of reserve component members.
GAO-06-128R, Defense Health Care: Health Insurance Stipend Program Expected to Cost More Than TRICARE But Could Improve Continuity of Care for Dependents of Activated Reserve Component Members
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October 19, 2005:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Duncan L. Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
Subject: Defense Health Care: Health Insurance Stipend Program Expected
to Cost More Than TRICARE But Could Improve Continuity of Care for
Dependents of Activated Reserve Component Members:
Since the September 11, 2001, terrorist attacks, the Department of
Defense (DOD) has increased its reliance on its National Guard and
reserve forces to support the Global War on Terrorism, and particularly
Operation Iraqi Freedom. Congress has been interested in making
improvements and enhancements to compensation and benefit programs for
reserve component members.[Footnote 1] When reserve component members
are activated for more than 30 days under federal authorities, they are
covered under TRICARE, DOD's health care system.[Footnote 2] While
reserve component members are automatically covered by TRICARE when
activated, their spouses and other dependents have the option of using
either TRICARE or their private health insurance. However, our prior
work[Footnote 3] found that dependents of reserve component members who
had dropped their private health insurance reported problems accessing
the TRICARE system--such as difficulty finding a health care provider,
establishing eligibility, understanding TRICARE benefits, and knowing
where to go when questions and problems arise. In addition, maintaining
continuity of care with the same health care providers, especially for
dependents with chronic medical conditions, may be problematic after
switching to TRICARE. To address these concerns, some legislative
proposals would give reserve component members the option of accepting
a stipend from DOD to help defray the cost of continuing their private
health insurance for their spouses and dependents when they are
activated for more than 30 days.
The Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005[Footnote 4] requires us to determine the cost and feasibility of
providing a stipend to members of the Ready Reserve[Footnote 5] to
offset the cost of continuing their current private health insurance
coverage for their dependents while they are on active duty.
Specifically, we (1) examined whether the implementation of a health
care stipend program would be likely to increase or decrease the cost
to DOD of providing health care to the spouses and dependents of
reserve component members and (2) identified the potential implications
of a stipend program on members and their families, DOD, and the
members' employers.
To determine the cost of a stipend program, we requested the
Congressional Budget Office (CBO) to prepare an estimate of cost for a
stipend program for varying rates of participation since it is not
within our purview, but rather CBO's, to develop cost estimates
associated with legislative proposals. CBO also prepared an estimate of
cost to DOD for spouses and dependents of activated reserve component
members using TRICARE instead of receiving the stipend.
To identify the potential implications of a stipend program on
recruitment, retention, and medical readiness,[Footnote 6] we discussed
and obtained documentation from DOD's Office of the Assistant Secretary
of Defense for Reserve Affairs and Office of the Assistant Secretary of
Defense for Health Affairs and representatives of selected military
service organizations--the Enlisted Association of the National Guard
of the United States, the Reserve Officers Association of the United
States, and the Military Officers Association of America. We also
analyzed the November 2004 DOD survey of reserve component members to
identify those factors reserve component members consider important for
retention. We also discussed the potential implications of a stipend
program with representatives of two organizations representing
employers--the National Federation of Independent Businesses and the
National Association of Manufacturers. For more detailed information on
our scope and methodology, see enclosure I. We performed our work from
February 2005 through September 2005 in accordance with generally
accepted government auditing standards.
Results In Brief:
Offering a health care stipend to reserve component members could cost
DOD from $365 million to $735 million over a 5-year period--fiscal
years 2006 through 2010--exclusive of program administration costs, for
a specific range of reserve component member participation rates. CBO
officials cautioned that in the absence of specific legislative
language that describes the design of a proposed stipend program in
detail, CBO's estimates should be considered preliminary. Final CBO
estimates would reflect actual legislative language and CBO's then
current baseline assumptions. For example, in preparing this estimate
of cost, CBO assumed that the amount of the stipend would equal the
average worker contribution for family health plans. However, for
deployments of more than 30 days, employees may be liable for the full
health insurance premium, including the employer share, plus an
additional 2 percent for administrative costs. This amount may be
significantly higher than the amount of the stipend used by CBO in
preparing the estimate of cost. In addition, DOD estimated that it
would cost about $10 million for startup costs in the first year of
implementation and $20 to $25 million annually to administer stipend
payments to participating reserve component members. Since the Ronald
W. Reagan National Defense Authorization Act for Fiscal Year 2005 did
not identify the specific design features of a stipend program, it was
difficult to identify a reliable anticipated participation rate for a
stipend program. Using CBO's cost estimate of a 75 percent
participation level by eligible servicemembers and including DOD's
estimate of administrative costs, it could cost DOD $230 million (45.5
percent) more to provide health care stipends to spouses and dependents
of activated reserve component members over a 5-year period (fiscal
years 2006 through 2010) than to provide TRICARE to these individuals.
The most significant potential impact of a health care stipend program
could be to improve continuity of care for spouses and dependents of
reserve component members because the availability of a stipend would
potentially allow more reserve component members to continue their
private health insurance while they are activated. Continuation of
their private health insurance would help family members avoid
disruption in ongoing medical treatment caused by switching to TRICARE
for their health care coverage, by enabling them to keep their current
health care providers. Civilian employers of reserve component members
may also benefit from the availability of a stipend since this amount
will help to offset the burden on those employers who choose to pay the
full contribution for their activated employees. However, DOD officials
are unaware of any evidence to support that a stipend would have any
impact on several other issues affecting the reserve components,
including medical readiness, recruitment, or retention of reserve
component members.
Background:
There are seven reserve components: the Army Reserve, Army National
Guard, Air Force Reserve, Air National Guard, Naval Reserve, Marine
Corps Reserve and the Coast Guard Reserve. Reserve forces can be
divided into three major categories: the Ready Reserve, the Standby
Reserve, and the Retired Reserve. The Ready Reserve had about 1.1
million National Guard and reserve members as of July 2005, and as of
September 2005, members of the Ready Reserve have been the only reserve
component members subject to mobilization under the partial
mobilization authority[Footnote 7] declared by the President on
September 14, 2001.[Footnote 8]
Under federal mobilization authorities, members of the reserve
component may be activated to move the military from its peacetime
posture to a heightened state of readiness to support national security
objectives in times of war or other national emergencies. In recent
years, DOD has dramatically increased its reliance on reserve component
members for military operations, particularly those in Afghanistan and
Iraq. Between September 2001 and May 2005, DOD mobilized more than
436,000 reserve component members. The average number of days a reserve
component member spent on active duty for three ongoing operations
(Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom) as of
March 2004 totaled 342 days.
The Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005 included several provisions to enhance health care benefits for
reserve component members and their dependents--which includes spouses,
children, and others who qualify--to help with their transition from
civilian status to active duty status. Generally, these provisions
provided for the following:
* Permanent authority for reserve component members and their
dependents to be eligible for TRICARE benefits when they receive a
delayed- effective-date order for activation up to 90 days before
activation.
* Permanent authority to provide transitional health care benefits to
certain service members and their dependents for up to 180 days
following separation from active duty.
* Authorized waiver of certain deductibles required by certain TRICARE
programs for dependents of certain reserve component members who are
called or ordered to active duty for a period of more than 30 days.
* Exemption for dependents of reserve component members who are ordered
to active duty for a period of more than 30 days from paying a health
care provider any amount above the TRICARE maximum allowable charge.
Also, the Act gave those reserve component members called up on or
after September 11, 2001 an opportunity to purchase TRICARE health care
coverage for themselves and their family members after they
demobilize.[Footnote 9] This program, known as TRICARE Reserve Select,
requires the member to agree to continue serving for a period of one
year or more in the Selected Reserve after their active duty service
ends.
A reserve component member is covered by TRICARE while activated. The
member's dependents, who qualify, have the option of using TRICARE at
no premium or continuing to use health insurance that may be provided
by the member's employer, which may include a cost to the member.
TRICARE eligible dependents can obtain health care through DOD's direct
care system of military hospitals and clinics, commonly referred to as
military treatment facilities, and through DOD's purchased care system
of civilian providers. DOD uses managed care support contractors to
develop networks of providers to complement care available in military
treatment facilities. The Office of the Assistant Secretary of Defense
for Health Affairs establishes TRICARE policy. DOD's TRICARE Management
Activity, under the Assistant Secretary of Defense for Health Affairs,
is responsible for procuring, administering, and overseeing the health
care contracts for purchased care.
Under the Uniformed Services Employment and Reemployment Rights Act of
1994 (USERRA),[Footnote 10] activated reserve component members'
employer-provided health benefits are protected. Specifically, for
absences of 30 days or less, health benefits continue as if the
employee had not been absent. For absences of 31 days or more, coverage
stops unless (1) the employee elects to pay for the coverage, including
the employer contributions,[Footnote 11] or (2) the employer
voluntarily agrees to continue coverage.[Footnote 12] Under USERRA,
employers must reinstate reserve component members' health coverage
upon reemployment.
In May 2003, about 87 percent of reserve component members with
dependents reportedly had health insurance before they were mobilized.
Of these members, only about 54 percent reportedly continued their
health insurance during their activation.[Footnote 13]
Estimated Costs For Providing a Health Care Stipend Higher Compared to
TRICARE:
Providing a health care stipend program to activated reserve component
members to enable their dependents to maintain their private health
insurance would likely cost more than TRICARE, according to CBO's
estimates prepared for this study. In September 2005, CBO estimated
that offering a health care stipend program to reserve component
members would cost DOD from $365 million to $735 million over a 5-year
period--fiscal years 2006 through 2010--exclusive of program
administration costs, for a specific range of reserve component member
participation rates. CBO officials cautioned that in the absence of
specific legislative language that describes the design of a proposed
stipend program in detail, CBO's estimates should be considered
preliminary. Final CBO estimates would reflect actual legislative
language and CBO's then current baseline assumptions. For example, in
preparing this estimate of cost, CBO assumed that the amount of the
stipend would equal the average worker contribution of family health
care plans. Since the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005 did not identify the specific design features
of a stipend program for our review, it was difficult to identify a
reliable anticipated participation rate for a stipend program. In
addition, DOD estimated that it would cost about $10 million for
startup costs in the first year of implementation and $20 to $25
million annually to administer stipend payments to participating
reserve component members. Adding the DOD administrative cost estimates
to the CBO program cost estimates and comparing them to CBO estimates
for TRICARE shows that a stipend program would cost DOD $230 million
(45.5 percent) more than TRICARE over a 5-year period (fiscal years
2006 through 2010). (See enclosure II for estimate of cost
assumptions.)
CBO Estimate of Cost for a Health Care Stipend Program:
CBO developed an estimate of cost for a stipend program at varying
rates of participation by reserve component members in the program. In
consultation with CBO analysts, we agreed that CBO would prepare an
estimate of cost for a stipend program equal to the employee's share of
health insurance, excluding federal employees. Since the Ronald W.
Reagan National Defense Authorization Act for Fiscal Year 2005 did not
identify the specific design features of a stipend program for our
review, it was difficult to identify a reliable anticipated
participation rate for a stipend program. As proxies for varying rates
of participation, we requested CBO to prepare an estimate of cost at
three levels of participation: low range (45 percent of eligible
population), medium range (75 percent of eligible population), and high
range (90 percent of eligible population). We selected the low range of
participation (45 percent) as a marker representing the percentage of
activated reserve component members with spouses and dependents that
had private health insurance before the members activated and chose to
continue this insurance coverage while they were activated and after
excluding those members expected to participate in the TRICARE Reserve
Select program. Similarly, we selected the medium range (75 percent) as
a marker representing those reserve component members with dependents
that had private health insurance before they were activated and also
after excluding those members expected to participate in the TRICARE
Reserve Select program. We selected the high range (90 percent) rather
than 100 percent since full participation in a program is rarely
achieved.
Using a range of specified participation rates in a stipend program,
CBO estimated that DOD's cost for a stipend program, exclusive of
administrative costs, ranged from $365 million to $735 million for
fiscal years 2006 through 2010, as shown in table 1.[Footnote 14]
Table 1: CBO Estimate of Cost for a Health Care Stipend Program At
Varying Rates of Participation, Exclusive of Administrative Costs,
Fiscal Years (FY) 2006 - 2010A:
[See PDF for image]
Sources: Estimate of cost from CBO; rates of participation provided by
GAO.
[A] CBO officials cautioned that in the absence of specific legislative
language that describes the design of a proposed stipend program in
detail, CBO's estimates should be considered preliminary. Final CBO
estimates would reflect actual legislative language and CBO's then
current baseline assumptions.
[B] CBO's estimate assumed that costs would be less in 2006 as the
first year of the program because it takes time for potential
participants to become aware of and actually enroll in the program. For
this reason, CBO estimated that participants would receive the stipend
for only part of the year in the first year of the program.
[End of table]
Administrative Costs:
DOD officials believe that the method of paying the stipend--directly
to reserve component members, to employers, or to insurance companies-
-would affect DOD's administrative costs. Office of the Assistant
Secretary of Defense for Reserve Affairs (OASD/RA) officials commented
that there would be administrative costs to establish and administer
the payment system, regardless of which method is mandated. However,
OASD/RA officials believe that the administrative costs might be
smaller if the payments were provided directly to the reserve component
member. This would avoid the need to establish a new, unique process to
handle payments/claims from hundreds or thousands of
employers/insurance companies.
If stipend payments are made directly to the reserve component member,
OASD/RA officials commented that some members may use the payments for
expenses other than health insurance unless appropriate internal
control processes are incorporated. In addition, CBO advised us that
the decision to pay stipends directly to the reserve component member
could affect participation rates, and therefore, program costs.
In order to calculate administrative costs for a stipend program, DOD
officials commented that the requirements of the stipend program would
need to be defined, including the eligibility rules, portion of the
premium to be covered by stipend, and required documentation.
DOD's TRICARE Management Activity estimated that administrative costs
for a stipend being paid directly to the member would approximate $10
million in startup costs and $20 to $25 million annually to administer
the program. We were told that DOD had not estimated administrative
costs for stipend payments being paid directly to employers or health
insurance companies.
Comparative Costs Under TRICARE:
We compared the estimated cost to DOD of providing health care for
dependents of activated reserve component members under a stipend
program and under TRICARE. For this comparison, we used the medium
range, or 75 percent participation rate, for a health care stipend
program.[Footnote 15] Based on CBO's estimate of cost at the 75 percent
participation level and DOD's estimate of administrative costs, a
stipend program could cost DOD $735 million compared with estimated
costs of $505 million to provide TRICARE to reserve component members'
spouses and dependents. Thus, the net cost of providing a stipend to
reserve component members is estimated to be $230 million (45.5
percent) more expensive than TRICARE over the 5 year period (fiscal
years 2006 through 2010), as shown in table 2. This net difference will
vary depending on the participation rate.
Table 2: Estimated Costs to DOD for Health Care Stipend Program
Compared to TRICARE:
[See PDF for image]
Source: Estimate of cost for stipend program and under TRICARE from
CBO; estimate of administrative costs from TRICARE Management Activity.
[A] For this comparison of estimated costs, we used $25 million each
year for administrative costs.
[B] See enclosure II for CBO assumptions in the estimate of cost under
TRICARE.
[End of table]
Stipend Program Could Improve Continuity of Health Care For Reserve
Component Members' Families, But May Have Minimal Impact On Other
Reserve Issues:
Implementing a stipend program to help defray a family's cost of
maintaining their private health insurance when a reserve component
member is activated for duty may have positive implications in terms of
continuity of care and decreased costs for civilian employers; however,
DOD officials do not believe that other factors--such as recruitment,
retention, and medical readiness--would likely be significantly
affected. By providing a stipend for health coverage to reserve
component members, fewer families may experience disruptions in medical
treatment. In addition, civilian employers may decide to reduce their
contribution for the reserve component members' private health
insurance while the member is activated if a stipend is available.
However, a stipend is not likely to cause more individuals to join or
remain in the reserve components, or improve the medical readiness of
activated reserve component members.
Health Care Stipend Program Could Improve Continuity of Care and May
Decrease Civilian Employer Costs:
A DOD health care stipend program could improve the continuity of care
for families of reserve component members and may decrease costs for
civilian employers while the member is activated. Officials with the
Office of the Assistant Secretary of Defense for Health Affairs
commented that payment of a stipend might enable families to avoid
disruption in ongoing medical treatment caused by families shifting to
TRICARE when the reserve component member is ordered to active duty for
a period of more than 30 days because, with a stipend, dependents would
be able to keep their same health care providers. Officials pointed out
that the Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005 provides authority for waiving TRICARE deductibles and
enabling higher payments to physicians who do not accept TRICARE
payment rates, which would also increase the likelihood that family
members can continue receiving care from the same health care
providers. According to an official in the Office of the Assistant
Secretary of Defense for Reserve Affairs (OASD/RA), DOD is still in the
process of rule-making for these provisions; however, in the interim, a
demonstration project for reserve component family members with these
provisions has been extended until October 2007. Officials with the
Military Officers Association of America and the Enlisted Association
of the National Guard of the United States told us that switching to
TRICARE may cause disruption of health care because some reserve
component members live in areas that are not close to military
treatment facilities and where health care providers may not accept
TRICARE patients. In July 2003, we also reported that DOD and its
contractors have reported long-standing health care provider shortages
in some geographic areas and that a lack of health care providers in
certain geographic locations, low reimbursement rates, and
administrative requirements contribute to potential civilian provider
network inadequacy.[Footnote 16]
OASD/RA officials commented that the implications of a health care
stipend program for employers would depend on how such a program is
designed. DOD's survey of reserve component members conducted in
November 2004 found that employers for 42 percent of the respondents
paid the entire premium for their private health insurance and another
43 percent paid a portion of the insurance premium while the member was
activated. Because increasing employee health care costs are a major
concern for employers, we believe that the availability of a stipend
may encourage employers to transfer all or a portion of their cost for
continuing the employer-based health insurance to DOD. While there is
no empirical evidence that describes employer reactions, OASD/RA
officials believe that employers who paid some portion or all of the
premium payments for reserve component members who continue their
private health insurance while activated are unlikely to continue
making such payments if the federal government covers the expense. If
employers reduce their contribution for the premium because of the
availability of a stipend, the employee's share could increase and,
therefore, the potential cost of a stipend program may increase if the
amount of the stipend is linked to the employee's share.
Neither the National Association of Manufacturers nor the National
Federation of Independent Businesses had surveyed their employer
memberships about the proposed stipend program. Similarly, neither had
taken any positions on legislative proposals to provide stipends to
reserve component members. However, officials from both organizations
commented that they believe the vast majority of their members would
prefer that stipends be made to employees or insurance companies rather
than to employers. They added that most employers do not like the idea
of dealing with the federal government because of the various reporting
and verification requirements that usually accompany such a program.
Also, most of their member-employers are relatively small companies
with small human resource staffs that would likely have additional
responsibilities associated with a stipend program.
Less Impact on Other Reserve Component Issues:
DOD officials are unaware of any evidence to support that a stipend
would have any impact on several other issues affecting the reserve
components, including medical readiness, recruitment, or retention of
reserve component members. Representatives of three military service
organizations we contacted had mixed views about the effects of a
stipend program on recruitment but two of the three organizations
believed that it could positively affect retention in the reserve
component.
Recruitment: OASD/RA officials commented that DOD has no evidence that
any form of medical benefits or the prospect of such benefits during
future periods of active duty affect individuals' decisions to join the
reserve component. Officials commented that it is very unlikely that
the potential for future medical benefits is an important factor in the
decision of non-prior service recruits to join the reserve component.
However, officials commented that a stipend program may contribute
positively to the decision of prior-service recruits to join the
reserve component because their families would be able to remain in the
same health care system and keep the same providers while the members
are on active duty. Officials with the Reserve Officers Association of
the United States commented that they do not believe a health care
stipend program would draw more people to the reserve component.
Similarly, officials with the Military Officers Association of America
said that they are not sure of the extent to which a stipend program
would impact recruitment. However, officials with the Enlisted
Association of the National Guard of the United States commented that
they believe a stipend program may positively impact the recruitment of
older individuals with families but have less of an impact on younger
members without families.
Retention: Although DOD has not surveyed reserve component members to
determine the effect a stipend might have on retention, OASD/RA
officials believe that it is unlikely that a stipend program would
appreciably affect overall reserve component member retention.
Officials cited recent surveys of National Guard and reserve members
that found health care, in general, was ninth in relative importance in
their decision to continue to participate in the reserve component.
Only four percent of the respondents placed health care as the most
important factor affecting their decision, and fewer than 15 percent
placed it in their top three considerations. Some factors that were
more important than health care for members' decision making as to
whether to continue to participate in the reserve component were pay
and allowances, military retirement, and predictability, frequency, and
duration of deployments. Officials with the Enlisted Association of the
National Guard of the United States said that a stipend program could
positively impact retention of reserve component members since it would
improve the continuity of care for families. Officials with the Reserve
Officers Association of the United States said that they believe a
stipend program would have a positive impact on retention because the
lack of control in choosing health care insurance coverage is one of
many reasons cited by reserve component members who leave military
service. Officials with the Military Officers Association of America
were unsure of the extent to which a stipend would impact retention but
said that health care disruption is one of many factors causing
retention problems.
Medical readiness: DOD officials commented that it is difficult to
understand how a stipend program for dependents would improve the
medical readiness of reserve component members. They added that the
only possible impact of a stipend program on medical readiness is the
peace of mind achieved through the knowledge that members' families
would be able to continue their private health insurance. However,
officials commented that they are not aware of any study that supports
the assumption that the member, while deployed, may enjoy increased
peace of mind knowing their family members have health care coverage
through private health insurance rather than TRICARE.
Concluding Observations:
DOD officials believe that making stipend payments directly to the
reserve component member would be more efficient than making such
payments to the members' employers or health insurance plans. Further,
CBO points out that making stipend payments directly to the member
could increase the rate of participation in a stipend program and thus
increase the cost of the program. We believe that making stipend
payments available to the member creates some risk that the funds may
not be used for the intended purpose. To mitigate the risk of abuse,
appropriate internal controls are important in implementing a health
care stipend program.
Agency Comments And Our Evaluation:
DOD provided written comments on a draft of this report, which are
found in enclosure III. The Assistant Secretary of Defense for Reserve
Affairs commented that the estimated cost of a stipend program could be
substantially more than the CBO estimate of cost, depending on the
specific requirements included in proposed legislation. Factors the
Assistant Secretary said could significantly increase the cost of a
stipend program included:
* Continued deployment of reserve component members at fiscal year 2006
levels rather than assuming a decreasing number of deployed members;
* Payment of a stipend amount higher than the average worker
contribution for health insurance for employed workers; and:
* Payment of a stipend during the period before and after the member is
activated.
We agree that the cost of the stipend program could be significantly
more than the CBO estimate. As noted in our report, the actual cost of
a stipend program would depend on the number of reserve component
members activated over the next five years and the specific design of a
stipend program. CBO's estimate of cost is based on the assumptions
provided in enclosure II.
Changes were made to the report, where appropriate, to respond to
technical comments.
We are sending copies of this report to the Secretary of Defense and
other interested parties. We will provide copies of this report to
others upon request. In addition, the report is available at no charge
on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please
contact me at (202) 512-5559 or stewartd@gao.gov. Key contributors to
this report are listed in enclosure IV.
Sincerely yours,
Signed by:
Derek B. Stewart:
Director, Defense Capabilities and Management:
Enclosure I: Scope and Methodology:
To meet our objectives, we interviewed responsible officials and
reviewed pertinent documents, reports, and information, when available,
related to the cost and effects of providing a stipend to activated
reserve component members obtained from officials at the Office of the
Assistant Secretary of Defense for Reserve Affairs; the Office of the
Assistant Secretary of Defense for Health Affairs; the TRICARE
Management Activity; the Defense Manpower Data Center (DMDC);
representatives of selected military service organizations--the
Enlisted Association of the National Guard of the United States, the
Reserve Officers Association of the United States, and the Military
Officers Association of America; representatives of two organizations
representing employers--the National Federation of Independent
Businesses and the National Association of Manufacturers; DOD's
National Committee for Employer Support to the Guard and Reserve; and
Humana Inc.
To determine the cost to DOD for providing a stipend to activated
reservists, we requested CBO to prepare an estimate of cost for fiscal
year 2006 through fiscal year 2010 for varying rates of participation
in a stipend program since developing cost estimates associated with
legislative proposals is not within our purview, but rather CBO's. In
consultation with CBO analysts, we agreed that CBO would prepare an
estimate of cost for a stipend program for a stipend equal to the
employee's share of health insurance, excluding federal employees, for
the specified participation rates, utilizing those assumptions that CBO
considered most appropriate and its expertise in preparing cost
projections.[Footnote 17]
Since the Ronald W. Reagan National Defense Authorization Act for
Fiscal Year 2005 did not identify the specific design features of a
stipend program, it was difficult to identify a reliable anticipated
participation rate for a stipend program. To identify reasonable
markers for participation rates in a stipend program, we analyzed
recent data obtained from the May 2003 Status of Forces survey
administered to members of the reserve component regarding the
percentage that have health insurance other than TRICARE and the
percentage that maintained this coverage when they were activated.
Based on discussions with DOD officials, we chose the May 2003 Status
of Forces survey instead of the more recent November 2004 survey for
three reasons: (1) the series of questions related to other health
insurance in the May 2003 survey seemed more straight-forward than in
the November 2004 survey, which did not ask an overall question on the
percentage of families with insurance prior to their most recent
activation; (2) the May 2003 survey response percentages for other
health insurance coverage were consistent with our prior analysis of
this issue from 2000 survey data; and (3) quality control checks were
possible on the May 2003 survey that were not possible on the November
2004 survey. In addition, DMDC officials had not analyzed the November
2004 survey data to the same degree that the May 2003 survey data had
been analyzed. We found estimates from the May 2003 Status of Forces
survey to be sufficiently reliable for the purposes of this report.
As proxies for varying rates of participation, we requested CBO to
prepare an estimate of cost at three levels of participation: low (45
percent of eligible population), medium (75 percent of eligible
population), and high (90 percent of eligible population). We selected
the low level of participation (45 percent) as a marker representing
the percentage of activated reserve component members with dependents
that had continued their private health insurance while they were
activated and after excluding those members (17 percent) expected by
the TRICARE Management Activity to participate in the TRICARE Reserve
Select program. Similarly, we selected the medium level (75 percent) as
a marker representing those reserve component members with dependents
that had private health insurance before they were activated and also
after excluding those members expected by the TRICARE Management
Activity to participate in the TRICARE Reserve Select program. We
selected the high level (90 percent) as a marker, recognizing that full
participation in a program is rarely achieved.
At our request, CBO also prepared an estimate of cost to DOD for
dependents of activated reserve component members using TRICARE instead
of receiving the stipend. For the estimate of cost for TRICARE, CBO
used the average TRICARE cost per dependent based on fiscal year 2003
TRICARE costs for active duty dependents. We did not independently
verify the data used by CBO in preparing its estimate of cost.
Enclosure II shows the assumptions used by CBO in preparing its
estimates of cost for a stipend program and comparative costs under
TRICARE.
We discussed administrative and management considerations for DOD in
implementing a stipend program with DOD officials and obtained related
documentation. We also obtained an estimate of the cost to administer a
stipend program from the TRICARE Management Activity. We did not
independently assess the reliability of DOD's estimate for
administrative costs.
To identify the potential implications of a stipend program on
recruitment, retention, and medical readiness, we discussed and
obtained documentation from DOD's Office of the Assistant Secretary of
Defense for Reserve Affairs and Office of the Assistant Secretary of
Defense for Health Affairs and representatives of selected military
service organizations--the Enlisted Association of the National Guard
of the United States, the Reserve Officers Association of the United
States, and the Military Officers Association of America. We also
analyzed the November 2004 DOD survey of reserve component members to
identify those factors they consider important for retention.
We discussed the potential implications of a stipend program on
continuity of care for dependents with pre-existing health conditions
with DOD officials and obtained related documentation. We also
discussed the prevalence of special medical needs within the TRICARE
dependent population with a Humana Inc. official since Humana Inc. has
the contract for administering the TRICARE program for about 2.8
million beneficiaries in the 10-state South region.
We also discussed the potential implications of a stipend program for
employers with representatives of two organizations representing
employers--the National Federation of Independent Businesses and the
National Association of Manufacturers--with officials representing
DOD's National Committee for Employer Support to the Guard and Reserve,
and with DOD officials. We also obtained related documentation, when
available, from these organizations and officials.
We performed our work from February 2005 through September 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Enclosure II: Assumptions Used In CBO Estimate of Cost For the Stipend
Program and Comparative Costs Under TRICARE:
In developing the estimate of cost for the stipend program at specified
participation rates, CBO used the following assumptions:
* Based on an analysis of the number and types of reserve component
members currently activated, CBO estimates that 165,000 reserve
component members will be activated in 2005. CBO assumes that force
levels and overseas operations for 2006 will remain at levels expected
for 2005 and decline gradually over several years. If the number of
reserve component members called to active duty were to remain at
current levels over the 2006 through 2010 period, the cost of this
program would be significantly higher. Costs are based on the following
numbers of reserve component members being activated for more than 30
days:
Table 3: Number of Reserve Component Members Activated For More Than 30
Days, Fiscal Years 2006 Through 2010:
[See PDF for image]
Source: CBO.
[End of table]
* The stipend is available only to activated reserve component members
with dependents. Sixty percent of the activated reservists would have
dependents based on 2005 data from DOD's Reserve Component Common
Personnel Data System.
* No cost was included for the 11 percent of reserve component members
with dependents who are assumed to be enrolled in the Federal Employee
Health Benefits Program based on 2005 data from DOD's Reserve Component
Common Personnel Data System and 2004 data from the Office of Personnel
Management Central Personnel Data File.
* Amount of the stipend is the average worker contribution of family
health insurance premiums based on 2004 data from The Kaiser Family
Foundation and Health Research and Education Trust.
* Health insurance premiums would increase at an annual inflation rate
of 7 percent.
In calculating the estimated costs for the dependents of the activated
reserve component members under TRICARE, CBO used the following
assumptions:
Only 30 percent of activated reserve component members with dependents
move their dependents to TRICARE when activated.
* The average number of dependents per activated member is 2.3 based on
2005 data from DOD's Reserve Component Common Personnel Data System.
* Average TRICARE cost per dependent is based on the fiscal year 2003
TRICARE costs for active duty dependents.
* TRICARE costs per dependent will increase annually by CBO's Consumer
Price Index--Medical component forecast.
Enclosure III: Comments From the Department Of Defense:
ASSISTANT SECRETARY OF DEFENSE:
RESERVE AFFAIRS:
WASHINGTON, DC 20301-1500:
OCT 13 2005:
Mr. Derek B. Stewart:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Mr. Stewart:
This is the Department of Defense (DoD) response to the Draft GAO
report "DEFENSE HEALTH CARE: Health Insurance Stipend Program Expected
to Cost More Than TRICARE But Could Improve Continuity of Care for
Dependents of Activated Reserve Component Members" dated October 3,
2005 (GAO Code 350659/06-128R). Written recommendations and comments
attached.
Should you have any questions reference this response, please direct
them to my point of contact, Colonel Kathleen Woody at 703-693-2296 or
by email at Kathleen.woody@osd.mil.
Sincerely,
Signed by:
T. F. Hall:
Attachment: As stated:
GAO DRAFT REPORT - DATED OCTOBER 3, 2005:
GAO CODE 350659/GAO-06-128R:
"DEFENSE HEALTH CARE: Health Insurance Stipend Program Expected to Cost
More Than TRICARE But Could Improve Continuity of Care for Dependents
of Activated Reserve Component Members" (GAO-06-128R):
DEPARTMENT OF DEFENSE RESPONSE AND RECOMMENDATIONS TO DRAFT REPORT:
1. Recommend GAO expand on the limitations of the methodology of the
study and incorporate footnote 7 on page 3 into the main body of the
text.
Rationale: DoD is concerned that the estimated cost of this proposed
program could be substantially more than CBO estimated depending on the
requirements that may be included in any proposed legislation. While
the CBO provided a range of estimates based on participation rates,
changes in other assumptions could significantly affect the cost.
a. The number of deployed reserve members is projected to decline by
two thirds. Continued deployments at FY 2006 levels could easily triple
these estimates.
b. The amount of the stipend was estimated using the average worker
contribution among employed workers. Unless there is a cap on the
stipend, the possibility exists that employers would discontinue
providing their portion of the premiums, knowing that the RC member
would be compensated for the additional cost. Given that employees
typically pay only one-fourth to one-third of their premiums, the
estimate could easily be tripled or quadrupled.
c. Since the period during which the stipend is to be paid is unknown,
there is uncertainty as to whether this payment would be continued
during the pre and post-deployment periods which could again
significantly increase the estimated cost.
d. The report does not reflect the cost of providing a dual benefit to
those RC members who elect the stipend program (the member would
continue to receive care through the military health care system while
also receiving a stipend for civilian health insurance) which impacts
the overall cost to the program. Recommend this be incorporated into
the report.
2. Change last sentence in the last paragraph under "Results in Brief'
(Page 4) to read: "There is no evidence to support that a stipend would
have any impact on medical readiness, recruitment or retention of RC
members."
Rationale: Sentence should be rephrased to reflect an objective rather
than subjective statement.
3. Delete last sentence in last paragraph, on Page 11 beginning with
"In addition, civilian employers may benefit by paying less to cover
reserve component member's private health insurance while the member is
activated.
Rationale: There is no requirement under the law for employers to pay
anything for coverage of members when activated. Further, COBRA and
USERRA both provide an additional 2% to be added to the full premium of
coverage to defray any administrative costs suffered by the employer
for providing the continuation of coverage. If employers choose to
absorb the costs of continued coverage or continue to pay some or all
of the premium payments, rather than passing it along to the former
employee, it is their own independent decision.
[End of section]
Enclosure IV: GAO Contact and Staff Acknowledgments:
GAO Contact: Derek B. Stewart (202) 512-5559 or stewartd@gao.gov:
Acknowledgments: In addition to the individual named above, Brenda
Farrell, Assistant Director; Steve Fox; Joseph Applebaum; Timothy Carr;
Alissa Czyz; Jennifer Popovic; William Mathers; Elisha Matvay; Terry
Richardson; Clifton Spruill; John Van Schaik; and Michael Zola made key
contributions to this report.
(350659):
FOOTNOTES
[1] DOD's reserve components include the collective forces of the Army
National Guard and the Air National Guard, as well as the forces from
the Army Reserve, the Naval Reserve, the Marine Corps Reserve, and the
Air Force Reserve. The Coast Guard Reserve is a service in the
Department of Homeland Security, except when operating as a service in
the Navy during times of war or national emergency.
[2] DOD provides health care through TRICARE, a regionally structured
program that uses civilian contractors to maintain health care provider
networks that complement health care provided at military treatment
facilities.
[3] GAO, Defense Health Care: Most Reservists Have Civilian Health
Coverage but More Assistance is Needed When TRICARE Is Used, GAO-02-829
(Washington, D.C.: Sept. 6, 2002).
[4] Pub. L. No. 108-375, § 702 (2004).
[5] The Ready Reserve accounts for about 98 percent of nonretired
reserve component members and consists of individuals who are subject
to activation under the provisions of 10 U.S.C. § 12301 and § 12302.
[6] For this report, we defined medical readiness as the medical
fitness of servicemembers to perform their mission.
[7] The partial mobilization authority limits involuntary mobilizations
to not more than 1 million reserve component members at any one time,
for not more than 24 consecutive months during a time of national
emergency.
[8] Executive Order 13223 of September 14, 2001.
[9] Reserve component members may be eligible to purchase TRICARE
"after the member completes service on active duty to which the member
was called or ordered for a period of more than 30 days on or after
September 11, 2001, under a provision of law referred to in section
101(a)(13)(B), if the member (1) served continuously on active duty for
90 or more days pursuant to such call or order; and (2) on or before
the date of the release from such active-duty service, entered into an
agreement with the Secretary concerned to serve continuously in the
Selected Reserve for a period of one or more whole years following such
date." See Pub. L. No. 108-375 § 701.
[10] Codified at 38 U.S.C. §§ 4301-4334, as amended.
[11] For deployments of 31 days or more, USERRA permits the employer to
assess an additional 2 percent administrative fee if the reserve
component members elect to continue with private health insurance and
pay the full premium, including the employer share.
[12] When the employer elects to continue mobilized reserve component
members' health insurance, the reserve component member may continue to
be liable for the employee portion of the premium. However, some
employers pay the full premium.
[13] Based on responses to DOD's May 2003 Status of Forces Survey of
reserve component members. DOD officials told us that the May 2003
survey represented a more accurate portrayal of this information than
the November 2004 survey.
[14] We did not assess the implications of making a stipend payment
taxable or non-taxable to the reserve component member. If the stipend
is taxable to the member, any taxes would effectively reduce the net
cost to the government and the amount available to the member for
defraying the cost of his or her private health insurance. We did not
determine whether taxing the stipend would significantly affect the
extent to which members would participate in a stipend program.
[15] DOD officials also expressed concern that a stipend payment may
represent a dual benefit to the reserve component member if the stipend
includes a portion for the member even though the member is already
covered by TRICARE while activated.
[16] GAO, Defense Health Care: Oversight of the TRICARE Civilian
Provider Network Should Be Improved, GAO-03-928 (Washington, D.C.: July
31, 2003).
[17] CBO officials cautioned that in the absence of specific
legislative language that describes the design of a proposed stipend
program in detail, CBO's estimates should be considered preliminary.
Final CBO estimates would reflect actual legislative language and CBO's
then current baseline assumptions.
