Savings under health plan overestimated

By Tom Philpott: Military Update

At least a few Pentagon analysts believe the Bush administration will face a new credibility challenge if TRICARE officials tell Congress, as they have the Joint Chiefs, that plans to raise TRICARE fees and deductibles for under-age 65 retirees and their families will save $25 billion over nine years.

“Somebody needs to throw the (red) flag at the analysis behind these dollars promised,’’ said an official who has studied the cost-savings estimates used by senior officials in discussions over future health budgets. “That’s where the whole thing falls apart, in my view.”

An interview with TRICARE’s top financial analyst couldn’t be arranged for this column, and senior defense officials aren’t likely to defend the cost figures they relied on until the 2007 defense budget request and the Quadrennial Defense Review are released next month.

But documents used during talks on the planned fee increases for 3 million beneficiaries fuel rising skepticism. They show savings of $31.6 billion — an average of $3.5 billion a year — from fiscal 2007 through 2015. About 80 percent of those savings, or $24.9 billion, is traced to the “effect’’ of higher TRICARE fees. The planned increases include:

• Higher enrollment fees for TRICARE Prime, the managed care program, rising over three years from $230/$460 (individual/family) to $750/$1,500 for retired officers and $450/$900 for retired enlisted;

• An increase in annual deductibles for TRICARE Standard, the fee-for-service insurance plan, from $150/$300 (single/family) to $300/$600 for officers and $200/$400 for retired enlisted;

• A first-time enrollment fee on retirees who use TRICARE Standard, rising to $300/$600 for officers and $200/$400 for enlisted retirees by fiscal 2009;

• Adjusting TRICARE fees and deductibles annually after fiscal 2009 based on the inflation rate for healthcare services nationwide.

The higher fees together will generate $5.4 billion in added revenues through 2015. The remaining 78 percent of projected savings — $19.5 billion — hinge on an assumption that 600,000 beneficiaries, facing the higher fees, will stop using TRICARE and shift to employer-provided health plans.

The magnitude of the shift is said to be based on the experiences of civilian HMOs when they’ve raised fees. But will the TRICARE users behave similarly? Some officials don’t think so. Even after TRICARE Prime enrollment fees are tripled, as planned for officer retirees, one said, relatively few will leave TRICARE because most employer plans still will cost more.

No TRICARE official was available immediately to defend savings estimates used in their analysis. Officially, the planned fee increases aren’t expected to be unveiled until after the administration’s 2007 budget request and the Quadrennial Defense Review report are sent to Congress in February.

The department’s 2005 report to Congress on TRICARE shows the percentage of under-65 military retirees who use private health insurance has slid from 46.9 percent in 2002 to 39.7 percent in 2004, a shift that alarms Defense health officials. The report also shows that a private sector employee’s share of health costs rose by 50 percent from fiscal 2000 through 2004 while the relative cost of TRICARE for under-65 retirees fell by 8 percent, thanks to stagnant TRICARE fees and deductibles.

The report presents bar charts showing out-of-pocket costs for under-65 retirees enrolled in TRICARE Prime totaled $681 in fiscal 2004 compared to $3,684 in health insurance premiums paid by “civilian counterparts.”

Defense officials believe they already have authority to raise TRICARE fees or deductibles and drug co-payments. Legislation might be needed, however, to set an enrollment fee for retirees who use TRICARE Standard.

The planned increase in pharmacy co-payments is expected to generate $6.7 billion in savings through 2015. They would affect all retirees and their families, including those 65 and older. Indeed, $3.7 billion of the projected cost savings would come from older beneficiaries.

The goal is to discourage them from using the retail network, a more costly alternative than mail order or base pharmacies. The current $3 co-payment for generic drugs would rise to $5 in the retail network and fees would be dropped if ordered by mail. The current $9 co-pay for brand-name drugs would rise to $15 in the retail network and to $10 by mail.

Opponents of the TRICARE fee increases hope Congress will step in to stop them. Congressional staffers last week said the odds of that happening narrow if the Joint Chiefs, as expected, vigorously endorse the fee increases as being critical for keeping health care costs under control.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at: milupdate@aol.com