Introduce Minimum Out-of-Pocket Requirements Under TRICARE For Life

TRICARE For Life (TFL) was introduced in 2002 as a supplement to Medicare for military retirees and their family members who are eligible for Medicare. The program pays nearly all medical costs for acute care not covered by Medicare and requires few out-of-pocket fees. Because the Department of Defense (DoD) is a passive payer in the program--it neither manages care nor provides incentives for the cost-conscious use of services-- it has virtually no means of controlling the program's costs. In contrast, most public and private programs that pay for health care either manage the care or require people receiving care to pay deductibles or copayments to a specified threshold. In 2010, DoD spent about $8.4 billion on Medicare-eligible beneficiaries (in addition to amounts spent for those individuals by Medicare).

This option would introduce minimum out-of-pocket requirements for TFL beneficiaries. For calendar year 2013, TFL would not cover any of the first $550 of an enrollee's cost-sharing payments under Medicare and would cover only 50 percent of the next $4,950 in such payments. (Because all further cost sharing would be covered by TFL, enrollees would not be obliged to pay more than $3,025 in cost sharing in that year.) Those dollar limits would be indexed to growth in average Medicare costs for later years. Currently, military treatment facilities charge very small or no copayments for hospital services to TFL beneficiaries. To reduce beneficiaries' incentive to switch to those facilities and avoid the out- of-pocket costs of using civilian facilities, this option would require TFL beneficiaries seeking care from military treatment facilities to make payments that would be roughly comparable to the charges they would face at civilian facilities.

This option would reduce spending for Medicare as well as for TFL because higher out-of-pocket costs would lead beneficiaries to use somewhat fewer medical services. Altogether, this option would reduce the federal spending devoted to TFL beneficiaries by about $15 billion through 2016 and by about $43 billion through 2021. Approximately 30 percent of those savings would come from a reduced demand for medical services; the rest represents a shift of spending from the government to military retirees and their families.

An advantage of this option is that greater cost sharing would increase TFL beneficiaries' awareness of the cost of health care and promote a corresponding restraint in their use of medical services. Research has generally shown that introducing modest cost sharing can reduce medical expenditures without causing measurable increases in adverse health outcomes for most people.

Among its disadvantages, this option could discourage some patients (particularly low-income patients) from seeking preventive medical care or from managing their chronic conditions under close medical supervision, which might negatively affect their health.