Auditors question Pentagon projections for health care savings

The Pentagon's proposal to cut health care spending by increasing the share of costs paid by some TRICARE beneficiaries is unlikely to achieve the large savings the agency projects, according to a recent report by the Government Accountability Office.

From 2000 to 2005, the report (GAO-07-647) noted, the Defense Department's health spending more than doubled, from $17.4 billion to $35.4 billion. It primarily went toward TRICARE, the program that provides health care to 9.2 million active duty personnel and others, including military retirees. The agency projects that health spending will continue to rise in coming years and will consume 12 percent of the Defense budget by 2015, up from 7.5 percent in 2005.

GAO reviewed the Pentagon's Sustain the Benefit Program, which the agency projects will generate $9.8 billion in savings over five years by increasing TRICARE enrollment fees and deductibles for retirees and dependents under age 65.

The report found that Defense's projections rely heavily on the assumption that the increased fees and deductibles will result in about 500,000 current beneficiaries leaving or choosing not to enroll in TRICARE. But this estimate is likely too high, GAO said, adding that many beneficiaries in this group, particularly older and sicker individuals, are unlikely to have lower-priced options available and would therefore be likely to continue using the program.

GAO projected that Defense's proposed fees and deductible increases would achieve $2.3 billion in savings over five years, absent from any beneficiaries leaving the program. "Neither GAO nor DoD can make a more accurate savings estimate, in part because DoD does not collect and compile certain data, such as the cost of other health insurance options," the report stated.

Defense also has projected $1.5 billion in savings by increasing retail pharmacy co-payments for all beneficiaries except active duty personnel. It based its estimates on a study that measured savings from increased pharmacy co-payments in non-Defense, employer-sponsored insurance programs.

"This study was not analogous to DoD's situation, which resulted in DoD overestimating the reduction in the number of prescriptions obtained from retail pharmacies, and thereby overestimating its savings," the report said.

Defense has attributed its increase in health care spending to medical care inflation and benefit enhancements required by law, including the TRICARE for Life program, which supplements Medicare coverage for TRICARE beneficiaries generally over age 65. Other factors include an increased number of enrollees in TRICARE as well as rising costs for reservists and their families affected by the war on terror, the report noted.

GAO recommended that Defense begin collecting and compiling information that could help identify the reasons why a beneficiary may or may not choose TRICARE. "Such data could include beneficiaries' access to and cost of other health insurance," the report said.

Defense officials agreed, but added that the report leaves the impression that savings from the proposed changes "may be as low as $2.3 billion." GAO should have made a stronger statement on the most likely effect or a range of the effect on savings, Defense argued.