High health premiums deter military retirees from pilot program

Few military retirees have enrolled in the Federal Employees Health Benefits Program under a three-year pilot program partly because of costly health care premiums, the General Accounting Office said in a new report.

According to GAO, eligible retirees who did not enroll in the pilot program said satisfaction with their existing coverage, unhappiness with the pilot program's high monthly premiums and fear of not being able to receive Medicare coverage once the pilot program ended were the main reasons why they didn't participate.

"Nearly 30 percent of nonenrollees who knew about the demonstration stated that its plans were too costly," the GAO report (03-547) said. The watchdog agency pointed out that monthly premium costs ranged from $65 to $280.

Prior to 2001, when military retirees became eligible for Medicare, their military health benefits were drastically cut. According to GAO, military retirees age 65 and older could get free treatment at military hospitals or clinics, but only after beneficiaries younger than 65 had been treated. The fiscal 1999 Defense Authorization Act directed the Office of Personnel Management and the Defense Department to develop a three-year pilot project that allowed Medicare-eligible retirees and their families to enroll in FEHBP.

The law initially limited enrollment to 66,000 retirees in eight geographic areas, and later expanded to two additional areas in 2001, opening the program to another 57,000 retirees. Though 123,000 retirees were eligible to participate, enrollment in the pilot program peaked at 7,521 retirees according to the GAO report.

"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," the report said.

In assessing the pilot program's impact, GAO found that it greatly benefited those enrolled because it gave them more health care choices, but the pilot program had little impact on the Defense budget or military health facilities.

"The limited impact on DoD's budget and [military treatment facilities] was due in part to the demonstration's small number of potential beneficiaries, relative to the more than 1.5 million military retirees age 65 and over, and in part to the small proportion that actually enrolled," the report said.

As for the future impact on the department's budget and military facilities if the pilot program were made permanent, GAO concluded that it would depend on the number of enrollees.

"As long as enrollment in a permanent FEHBP option remains small, the impact on DoD's ability to provide care at [military treatment facilities] and on [military treatment facility] readiness would also likely be small," the report said.

In a written response, Defense officials disagreed with GAO's assessment that the pilot program had little impact on the department's budget.

"This is an inaccurate conclusion," a Pentagon official wrote in response to the report. "DoD's total contribution to the beneficiaries' premiums was over $28 million. Additionally, the administrative costs to operate the demonstration project exceeded over $11 million."