Prior to 2001, retirees lost most of their military health coverage when  they turned age 65, although they could still use MTFs when space was  available, and they could obtain prescription drugs without charge from  MTF pharmacies. In the Floyd D. Spence National Defense Authorization  Act for Fiscal Year 2001 (NDAA 2001), Congress established two new  benefits to supplement military retirees’ Medicare coverage:    Pharmacy benefit. Each plan was required by OPM to offer the same package of benefits to  demonstration enrollees that it offered in the civilian FEHBP, and plans  operating in the demonstration sites were generally required to participate  in the demonstration. Enrollment Rate Low on U.S. Mainland, Far Greater in Puerto Rico

While some military retiree organizations as well as a large FEHBP plan  predicted at the start of the demonstration that enrollment would reach 25  percent or more of eligible beneficiaries, demonstration-wide enrollment  was 3.6 percent in 2000 and 5.5 percent in 2001. Nonenrollees Emphasized Better Benefits and Lower Costs of Existing Coverage

Retirees who knew about the demonstration and did not enroll cited many  reasons for their decision, notably that their existing coverage’s benefits— in particular its prescription drug benefit—and costs were more attractive  than those of the demonstration. More than one-quarter of nonenrollees cited not being  able to continue getting prescriptions filled without charge at MTF  pharmacies if they enrolled. Lack of Medicare+Choice. Lack of employer-sponsored coverage. In 2000,  national plans’ monthly premiums for individual coverage ranged from $65  for Blue Cross Blue Shield to $208 for the Alliance Health Plans. In 2002, the third year, when both the plans and  OPM were able to examine a complete set of claims for the first year  before setting premiums, the pattern was reversed: On average, the  demonstration premiums for individual policies fell more than 2 percent  while the civilian premiums rose by 13 percent. Agency Comments

We provided DOD and OPM with the opportunity to comment on a draft of  this report. However, DOD differed with our description of the  demonstration’s impact on DOD’s budget as small. For example, as we report, DOD’s premium  costs for the demonstration during 2001, when enrollment peaked, were  about $17 million—less than 0.1 percent of DOD’s health care budget. OPM declined to comment. Appendix I: GAO-DOD-OPM Survey of Military Retirees and Others Eligible for the DOD-FEHBP Demonstration

To determine why those eligible for the Federal Employees Health  Benefits Program (FEHBP) demonstration enrolled or did not enroll in an  FEHBP plan, we co-sponsored with the Department of Defense (DOD) and  the Office of Personnel Management (OPM) a mail survey of eligible  beneficiaries—military retirees and others eligible to participate in the  demonstration. Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting DOD-FEHBP Demonstration Enrollment

In this appendix, we describe the data, methods, and models used to   (1) analyze the factors explaining how beneficiaries knew about the  demonstration and why they enrolled in it, (2) assess the health of  beneficiaries and civilian FEHBP enrollees, and (3) obtain the premiums  of Medigap insurance in the demonstration areas. Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises  Cost and Management Issues for DOD Health Care.
Why GAO Did This Study

Prior to 2001, military retirees who turned age 65 and became eligible for Medicare lost most of their Department of Defense (DOD) health benefits. The DOD-Federal Employees Health Benefits Program (FEHBP) demonstration was one of several demonstrations established to examine alternatives for addressing retirees' lack of Medicare supplemental coverage. The demonstration was mandated by the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (NDAA 1999), which also required GAO to evaluate the demonstration. GAO assessed enrollment in the demonstration and the premiums set by demonstration plans. To do this, GAO, in collaboration with the Office of Personnel Management (OPM) and DOD, conducted a survey of enrollees and eligible nonenrollees. GAO also examined DOD enrollment data, Medicare and OPM claims data, and OPM premiums data.

What GAO Found

Enrollment in the DOD-FEHBP demonstration was low, peaking at 5.5 percent of eligible beneficiaries in 2001 (7,521 enrollees) and then falling to 3.2 percent in 2002, after the introduction of comprehensive health coverage for all Medicare-eligible military retirees. Enrollment was considerably greater in Puerto Rico, where it reached 30 percent in 2002. Most retirees who knew about the demonstration and did not enroll said they were satisfied with their current coverage, which had better benefits and lower costs than the coverage they could obtain from FEHBP. Some of these retirees cited, for example, not being able to continue getting prescriptions filled at military treatment facilities if they enrolled in the demonstration. For those who enrolled, the factors that encouraged them to do so included the view that FEHBP offered retirees better benefits, particularly prescription drugs, than were available from their current coverage, as well as the lack of any existing coverage. Monthly premiums charged to enrollees for individual policies in the demonstration varied widely--from $65 to $208 in 2000--with those plans that had lower premiums and were better known to eligible beneficiaries, capturing the most enrollees. In setting premiums initially, plans had little information about the health and probable cost of care for eligible beneficiaries. Demonstration enrollees proved to have lower average health care costs than either their counterparts in the civilian FEHBP or those eligible for the demonstration who did not enroll. Plans enrolled similar proportions of beneficiaries in poor health, regardless of whether they charged higher, lower, or the same premiums for the demonstration as for the civilian FEHBP. In commenting on a draft of the report, DOD concurred with the overall findings but disagreed with the description of the demonstration's impact on DOD's budget as small. As noted in the draft report, DOD's costs for the demonstration relative to its total health care budget were less than 0.1 percent of that budget. OPM declined to comment.