Military Struggling with Rising Health Care Costs

Rising medical costs and the expansion of health benefits for retirees, Guardsmen and Reservists, and their families, are putting a strain on the military health care system, Defense Department health and personnel officials told members of Congress April 21.

“Rising health care costs are not unique to the military health system; it’s a national concern, and we are struggling with it,” Dr. William Winkenwerder Jr., assistant secretary of defense for health affairs, said in testimony before the personnel subcommittee of the Senate Armed Services Committee.

David S. C. Chu, undersecretary of defense for personnel and readiness, also testified at the hearing. He said rising costs can also be attributed to increased enrollment in TRICARE benefit programs.

Chu said improvements in TRICARE benefits have made the health plan “widely accepted” by servicemembers, retirees and their families.

And, he added, “others seek to join this program,” referring to retirees over age 65, who joined TRICARE for Life, and Reservists, who can begin enrolling in TRICARE Reserve Select this month.

However, he said, the popularity of TRICARE programs has brought with it “substantial cost.”

Winkenwerder pointed out that expenses for TRICARE have grown rapidly, doubling over the past five years from $18 billion to nearly $36 billion this year. If the current trend continues, the program’s total budget could top $50 billion within five years, he said.

By 2010, Winkenwerder estimated, approximately “70 percent of the health budget will be spent caring for retirees.”

“The facts show that our expansion of health benefits, such as those for our senior retirees, underlies the growth, and that growth could put today’s operations and sustainment at risk,” he said.

In addition, the expansion of health care benefits to retirees has led to increased pharmacy costs. Winkenwerder said the cost of TRICARE’s pharmacy program has increased 500 percent since 2001, with costs approaching $6 billion this year.

He said the department is trying to control some of those costs by implementing “performance-based” budgets and improving TRICARE’s pharmacy program with a new formulary and using federal pricing for its retail pharmacy network.

In addition, he said, TRICARE contracts are now designed to “leverage private-sector methods” in order to control purchased health care costs.

Still, he added, management actions alone, even dramatic ones, “will not stem the rapid growth spending.”

“That is because benefit expansion and rising utilization are the driving forces in sending these costs upward,” he explained.

Winkenwerder said part of TRICARE’s problem is that the program’s benefit structure has not kept pace with changes in the private sector or industry. For example, enrollment fees and cost shares for TRICARE have not increased in a decade, he said.

Winkenwerder pointed out that while TRICARE cost shares have remained “unchanged” over the past five years, those for private health care firms have risen significantly. For instance, cost shares for Kaiser Permanente Mid-Atlantic region rose 57 percent, and those for Blue Cross Standard rose 87 percent.

“This has persuaded a growing number of our beneficiaries to drop their private coverage and to fully rely upon TRICARE,” he said.

Winkenwerder cautioned the committee that the “low out-of-pocket costs and outstanding benefit” that TRICARE provides will drive “all of our retirees (to) rely on TRICARE instead of their employer-based plans in just a few years.”

“Simply put, we face a tremendous challenge with a benefit design that does not always reward the efficient use of care,” he said. “And that is increasingly out of step with employer plans.”

However, he told the sub-committee, the department is looking at “viable options” to contain costs.

One possible option, according to Chu, would be establishing a health-savings plan for military families, similar to the one Congress authorized for DoD civil service employees. “We are looking hard at how you would offer (such a plan) on a voluntary basis – again, your choice – to military households,” Chu said.

Chu said he has asked the department to look into the issue. Although, he added, such a plan would likely need statutory authority from Congress. “The military benefit is called out in a separate set of statues and governed by those statutes,” he said. “So if we were going to offer a thoughtful health-saving account plan we would need some additional statutory authority.”

From U.S. Dept. of Defense

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