Medicare Subvention Demonstration

Medicare-eligible military retirees to get Medicare-covered care from the Defense Department (DOD). Proposals have also been made to allow veterans to use their Medicare benefits at Department of Veterans Affairs (VA) facilities. Under subvention, Medicare would pay DOD and VA less than the rate paid to private Medicare providers and managed care plans. The Balanced Budget Act of 1997 directed GAO to evaluate the results of a three-year DOD demonstration that involves about 30,000 enrolled retirees and caps Medicare payments to DOD at $65 million annually. GAO's final results will not be available until after the demonstration ends in December 2000. Meanwhile, DOD's early experience suggests that VA's permitting Medicare subvention would require it to consider, in collaboration with the Health Care Financing Administration, how to determine its baseline costs and payment rules and its need for good data for implementing, managing, and controlling costs. VA would need to make its regular enrollment of veterans who wish to use VA health care services interface smoothly with subvention enrollment and would need to be concerned about crowding out other, currently higher-priority veterans. VA would succeed better if it had enough time to plan and establish its demonstration and to reconsider the value and feasibility of implementing fee-for-service and managed care subvention models simultaneously.

GAO noted that: (1) subvention holds the potential to benefit military retirees and veterans, DOD and VA, and Medicare; (2) although it got off to a slow start, DOD has initiated its subvention demonstration and is now serving Medicare-eligible military retirees at six sites; (3) several key operational issues remain; (4) these include development of more understandable payment rules, viable for the longer term, and development of data to manage the demonstration and support its evaluation; (5) most important, the demonstration's final results, in terms of access to health care, quality of patient care, and costs to DOD, Medicare, and retirees, will not be known until the evaluation is completed, several months after the end of the demonstration in December 2000; (6) DOD's early experience with subvention does offer insights if proposals are acted on to permit Medicare subvention for VA; (7) in particular, it would need to consider, in collaboration with the Health Care Financing Administration, how to determine its baseline costs and payment rules, as well as the need for good data for implementation, management, and controlling costs; (8) moreover, VA would need to make its regular enrollment of veterans who wish to use VA health care services interface smoothly with subvention demonstration enrollment; (9) VA would also need to be concerned about potential crowding-out of other, higher-priority veterans by subvention enrollees; and (10) GAO's early work on DOD subvention suggests that VA would have a greater chance of success if it has sufficient time to plan and establish the demonstration, and if the value and feasibility of implementing fee-for-service and managed care subvention models simultaneously were reconsidered.