Assistant Secretary of Defense for Health Affairs Dr. Jonathan Woodson (File)
The Pentagon’s latest proposal to rein in its medical costs could potentially block millions of retired troops and their familiy members from accessing the Tricare health system and is likely to set off yet another battle on Capitol Hill.
Under the proposal, first floated July 31 by Defense Secretary Chuck Hagel, “working-age” retirees — under 65 and not yet eligible for Medicare — who have access to health insurance from their current private-sector employer would not be eligible for Tricare as their primary coverage. Tricare would serve only as a secondary backup payer to the employer coverage.
It’s the latest effort to bring down the Pentagon’s soaring health care costs, driven in part by the many retirees who opt to keep Tricare coverage because it’s often far cheaper than many private-sector health insurance programs offered by civilian employers.
About 3.5 million retirees and family members under 65 are eligible for military health coverage, and about 1.6 million were enrolled in Tricare Prime in 2012, according to a recent report to Congress.
Forcing many of those enrollees to buy alternative health care is one of several measures proposed to help the Defense Department absorb the budget cuts known as sequestration, a roughly 10 percent across-the-board reduction, which became law in March.
The proposed change could create big out-of-pocket expenses for some retirees. The cost of Tricare coverage for a retiree family is estimated at less than $1,000 per year, while similar coverage in the private sector is likely to cost more than $6,000 a year, according to a recent report from the Congressional Budget Office.
Defense officials say the measure would require legislative approval from Congress, which will trigger another fierce battle with lawmakers who have resisted similar Pentagon calls to adjust the Tricare program in recent years.
The powerful veterans lobbying groups on Capitol Hill also would fight the measure tooth and nail.
“We would be adamantly opposed to it,” said Philip Odom, a retired Air Force colonel who is the Military Officers Association of America’s deputy director for government relations.
The proposal was developed by an inner circle of Pentagon leaders in the so-called Strategic Choices and Management Review earlier this year. Assistant Secretary of Defense for Health Affairs Dr. Jonathan Woodson said the proposal remains in an early stage of consideration.
“That would need to be worked up as a legislative proposal,” Woodson told Military Times on Aug. 7. “I can’t say at this time how much traction that would have. It’s certainly a part of what came out of the review, and we need to look into it. More to come on this.”
Time for adjustment?
The Pentagon’s dilemma with Tricare costs is largely of its own making. When the program was introduced in the mid-1990s, no mechanism was included to periodically adjust beneficiary costs to account for medical inflation.
As a result, the percentage of Tricare costs paid by beneficiaries has plunged from about 27 percent when the program was introduced to about 12 percent today, defense officials say.
The Pentagon in recent years has sought to address the issue, urging Congress to allow for Tricare fee increases in the hopes that fewer working-age retirees would make the decision to choose Tricare over their own employers’ benefits package. But lawmakers generally have resisted, approving only very modest fee increases.
Meanwhile, private-sector health insurance costs have risen dramatically over the past 20 years — making Tricare one of the most inexpensive health care plans in the nation.
“The fundamental problem is that you have big incentives for retirees to turn down their civilian insurance and stay on Tricare, and that has distorted the system,” said Nora Bensahel, a defense budget expert with the Center for a New American Security.
Pentagon officials have made no mention of a so-called grandfather provision that could permit current working-age retirees to keep their existing benefits. A grandfather clause would drastically diminish the amount of money the Defense Department could save in the near term.
The proposal comes at a time of great uncertainty in the entire health care arena, as the 2010 Affordable Care Act begins to take effect. For example, it may raise questions about whether living in a state that operates a health-insurance exchange might render military retirees ineligible for Tricare because they would have the option of buying coverage.
“Hanging over this is a lot of uncertainty. We really don’t know how the changes to health care [in the civilian sector] are going to affect any of this,” Bensahel said.
Staff writer Patricia Kime contributed to this story