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GAO-11-837R: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 26, 2011: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services 
United States Senate: 

The Honorable Howard P. "Buck" McKeon: 
Chairman: 
The Honorable Adam Smith: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

Subject: DOD Health Care: Cost Impact of Health Care Reform and the 
Extension of Dependent Coverage: 

The Department of Defense (DOD) offers health care to eligible 
beneficiaries through TRICARE, its health care program.[Footnote 1] 
Recently enacted health care reform legislation--the Patient 
Protection and Affordable Care Act (PPACA) and the Health Care and 
Education Reconciliation Act of 2010 (HCERA)[Footnote 2]--has 
implications for much of the nation's health care system, including 
TRICARE.[Footnote 3] One particular health reform provision directed 
certain health insurance plans to extend coverage to dependents up to 
age 26.[Footnote 4] Though this provision does not apply to TRICARE 
because it is not considered a health insurance plan,[Footnote 5] the 
subsequent Ike Skelton National Defense Authorization Act for Fiscal 
Year 2011 (NDAA 2011) included a similar provision that extends 
TRICARE coverage to certain dependent children of TRICARE 
beneficiaries.[Footnote 6] In response, in May 2011, DOD began 
implementing TRICARE Young Adult (TYA), a premium-based health care 
plan[Footnote 7] that extends TRICARE coverage to dependents of 
TRICARE beneficiaries up to age 26 who do not have access to employer-
sponsored health care coverage and are unmarried.[Footnote 8] 

The NDAA 2011 directed us to assess the cost to DOD of complying with 
PPACA and HCERA. You also asked us to examine DOD's costs of 
implementing, administering, and providing benefits under TYA. In this 
report, we assess DOD's costs of (1) complying with PPACA and HCERA 
and (2) implementing and providing benefits under TYA. 

To examine DOD's costs of complying with PPACA and HCERA, we reviewed 
documents from DOD's Office of General Counsel and interviewed DOD 
officials to identify the provisions of PPACA and HCERA with which DOD 
has determined it is required to comply. We also obtained DOD's cost 
estimates for complying with these provisions, when such estimates 
were available. We analyzed the costs directly associated with 
implementing these provisions, which did not generally include 
estimates of any indirect costs or potential offsetting savings that 
may result. 

To examine DOD's costs of implementing and providing benefits under 
TYA, we reviewed the methodology DOD used in establishing premium 
rates for TYA and DOD's cost estimates for implementing the plan. We 
examined DOD's estimated costs because actual cost data were not 
available at the time of our review. Our review included examining 
whether TYA's premiums are likely to fully cover DOD's costs of 
providing benefits and associated administrative costs, and the extent 
to which DOD relied on its costs of implementing other recently 
established TRICARE plans, such as TRICARE Reserve Select and TRICARE 
Retired Reserve,[Footnote 9] in estimating implementation costs for 
TYA. We also interviewed DOD officials about how they established TYA 
premium rates and cost estimates for implementing the plan. 
Additionally, we met with representatives of a national actuarial 
association to obtain their perspectives on TYA premiums. 

We conducted this performance audit from May 2011 through September 
2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Results in Brief: 

Overall, DOD expects to incur minimal costs to implement the 21 PPACA 
and HCERA provisions with which department officials have determined 
it is required to comply. In particular, DOD officials estimated that 
11 of the provisions could be implemented at no cost, and the 
estimated costs of complying with another third of the provisions (8) 
are minimal because no new staff or significant additional resources 
will be required to implement them. Officials told us that they could 
not determine the exact costs for these 8 provisions until they are 
fully implemented. At this time, DOD has not yet estimated its costs 
for complying with the remaining 2 provisions--including providing 
written statements to beneficiaries affirming that coverage was 
provided--because according to department officials, it is awaiting 
regulations from other federal agencies on how to implement them. 
Nonetheless, department officials told us that DOD believes its costs 
to comply with these provisions will also be minimal. Department 
officials said that DOD is unable to determine whether it is 
practicable to implement additional PPACA and HCERA provisions that 
relate to Medicare reimbursement rates until the Department of Health 
and Human Services (HHS)[Footnote 10] issues detailed regulations 
regarding their implementation. 

DOD has estimated that its costs to implement TYA will be about $4.4 
million over fiscal years 2011 and 2012. These costs will be partially 
offset by a 2 percent markup included in the TYA premiums, beyond the 
level it believes to be necessary to cover TYA benefits and associated 
administrative costs. DOD's actual implementation costs for TYA may 
differ from its estimated costs and will not be known until after the 
program has been fully implemented. Additionally, although the NDAA 
2011 requires the premiums for TYA to fully cover DOD's costs of 
providing the benefit, including associated administrative costs, 
these costs may initially exceed premium amounts. According to 
department officials, DOD plans to adjust TYA premiums based on the 
actual average cost of providing benefits and administrative costs 
starting with the calendar year 2014 premiums. In commenting on a 
draft of this report, DOD stated that it concurred with the report as 
written. 

Background: 

Recent health care reform laws affect many aspects of the nation's 
health care delivery and financing systems, including DOD's TRICARE 
program. In addition, the NDAA 2011 expanded TRICARE coverage to 
eligible dependents of TRICARE beneficiaries up to age 26. 

Health Care Reform Laws: 

PPACA was enacted in March 2010. Among other things, by calendar year 
2014, PPACA will require individuals, large employers, and health 
insurers to meet certain health care coverage requirements. For 
example, PPACA will require that most individuals obtain minimum 
essential health care coverage;[Footnote 11] those that opt not to 
will be required to pay a financial penalty beginning in 2014. 
[Footnote 12] Furthermore, PPACA will prohibit private health insurers 
from excluding coverage based on any preexisting conditions,[Footnote 
13] or rejecting applicants based on health status;[Footnote 14] it 
also required an extension of coverage to unmarried dependents up to 
age 26.[Footnote 15] Additionally, PPACA makes various changes to 
Medicare, including provisions that substantially reduce the growth of 
Medicare's payment rates for most services and a provision that 
directs the Secretary of HHS to develop and implement a value-based 
payment modifier that will adjust Medicare physician payments based on 
the quality and cost of the care they deliver. 

HCERA, which also was enacted in March 2010, amended numerous PPACA 
provisions. For example, HCERA eliminated the requirement that adult 
children be unmarried in order to be offered extended dependent 
coverage up to age 26.[Footnote 16] Other sections of HCERA included 
changes to Medicare, such as changes to its reimbursement rates. 

Expansion of TRICARE Dependent Coverage: 

The NDAA 2011 required, among other things, that TRICARE coverage be 
extended to unmarried dependents of TRICARE beneficiaries up to age 26 
who are not eligible for employer-sponsored health insurance, which is 
similar to a provision in PPACA.[Footnote 17] The NDAA 2011 also 
required that the premiums for this extension of coverage be equal to 
DOD's costs to provide it and that coverage would begin on January 1, 
2011. In response, DOD developed TYA, a premium-based health care 
plan, which extended the opportunity for eligible dependents of 
TRICARE beneficiaries, who would otherwise be ineligible for TRICARE 
coverage, to enroll in TRICARE.[Footnote 18] DOD's TRICARE Management 
Activity (TMA) was responsible for developing TYA, and TMA's 
contractors--which develop networks of civilian providers and perform 
other customer service functions--have primary responsibility for 
implementing TYA in the three TRICARE regions (North, South, and West) 
and overseas. 

TYA will eventually offer coverage under two options, TYA 
Standard[Footnote 19] and TYA Prime,[Footnote 20] both of which have 
cost sharing requirements that vary based on the dependent sponsor's 
status. Like other TRICARE beneficiaries, TYA enrollees have the 
option of obtaining health care and pharmacy services from providers 
at military treatment facilities or from civilian providers. (See 
table 1 for a summary of TYA Standard and TYA Prime premiums and 
selected cost sharing requirements.) 

Table 1: Summary of TRICARE Young Adult (TYA) Premiums and Selected 
Cost Sharing Requirements: 

TYA option: Standard; 
Monthly premium: $186; 
Civilian provider status[A]: Nonnetwork or network; 
Deductible: $50-$150[D] per individual for dependents of active duty
personnel[C]; $150 per individual for dependents of military retirees; 
Enrollee cost sharing requirements for outpatient care[B]: 
Dependents of active duty personnel[C]: Nonnetwork provider: 20 
percent of the TRICARE reimbursement rate[E]; Network provider: 15 
percent of the TRICARE reimbursement rate; 
Dependents of military retirees: Nonnetwork provider: 25 percent of 
the TRICARE reimbursement rate[E]; Network provider: 20 percent of
the TRICARE reimbursement rate. 

TYA option: Prime; 
Monthly premium: $213; 
Civilian provider status[A]: Network; 
Deductible: None; 
Enrollee cost sharing requirements for outpatient care[B]: 
Dependents of active duty personnel[C]: None; 
Dependents of military retirees: $12 per visit. 

Source: GAO analysis of Department of Defense data. 

[A] TYA enrollees also may use military treatment facility (MTF) 
providers. When using MTF providers, TYA enrollees are not subject to 
deductibles or other cost sharing requirements. A TYA enrollee's 
priority at an MTF is determined by the sponsor's status (such as 
active duty) and coverage type (such as TRICARE Prime). 

[B] Inpatient care and other types of services, including pharmacy 
benefits, have different cost sharing requirements. TYA Prime 
enrollees who are the dependents of active duty personnel incur no out-
of-pocket costs. 

[C] TYA Standard enrollees whose sponsor is enrolled in TRICARE 
Reserve Select pay the same deductibles and have the same cost sharing 
requirements as those whose sponsor is active duty. 

[D] Dependents of lower-ranked enlisted personnel pay the lower 
deductible amounts. Dependents of higher-ranked military personnel pay 
the higher deductible amounts. 

[E] On a case-by-case basis, nonnetwork civilian providers may charge 
up to 15 percent more than the TRICARE reimbursement rate. In these 
instances, the TYA beneficiary also is responsible for the additional 
amount charged by the provider. 

[End of table] 

TYA Standard was made available for purchase on May 1, 2011. Those 
eligible for TYA Standard have the opportunity to retroactively 
purchase coverage that is effective as of January 1, 2011.[Footnote 
21] TYA Prime is expected to be available for purchase starting in 
October 2011. However, unlike the TYA Standard option, those 
purchasing coverage through TYA Prime will not have the opportunity to 
purchase retroactive coverage. 

DOD Expects to Incur Minimal Implementation Costs to Comply with 
Health Care Reform Laws, but Cannot Fully Estimate All Costs at This 
Time: 

Overall, DOD expects to incur minimal costs to implement the 21 PPACA 
and HCERA provisions with which DOD officials have determined it is 
required to comply. These provisions include a range of requirements, 
such as reporting on amounts DOD paid for brand-name prescription 
drugs and data sharing to identify fraud, waste, and abuse. According 
to DOD officials, more than half of these provisions (11) could be 
implemented at no cost,[Footnote 22] and the estimated costs of 
complying with another third of the provisions (8) are minimal because 
no new staff or significant additional resources will be required to 
implement them. DOD is unable to determine the exact costs, which may 
include travel expenses and other administrative costs, until these 8 
provisions have been fully implemented. For the 2 remaining 
provisions, department officials said that DOD cannot yet estimate its 
costs for complying with them because it is awaiting guidance from 
other federal agencies, in the form of federal rules and regulations, 
on how to implement them. For example, DOD is waiting for the 
Department of the Treasury to issue regulations before it can 
determine how to implement a provision that requires providers of 
health insurance to provide written statements to beneficiaries 
affirming that minimum essential coverage was provided.[Footnote 23] 
Without this guidance, DOD is unable to determine the full costs of 
implementing this provision. While precise estimates are not possible 
at this time, department officials told us that DOD expects the 
compliance costs for these remaining two provisions to also be 
minimal. (See enclosure I for a list of the 21 PPACA and HCERA 
provisions.) 

In addition to the 21 provisions that DOD identified as requiring its 
compliance, DOD identified 29 PPACA and HCERA provisions that relate 
to changes in Medicare payment methodologies and reimbursement rates. 
However, according to department officials, DOD has not yet determined 
whether and how it would implement these provisions.[Footnote 24] For 
example, DOD cannot yet determine if it will implement a provision for 
a value-based payment modifier to be developed by the Secretary of HHS 
that adjusts Medicare's physician payments based on the quality and 
costs of care physicians deliver.[Footnote 25] By law, TRICARE maximum 
allowable reimbursement rates must generally mirror Medicare rates, to 
the extent practicable.[Footnote 26] At this time, however, DOD is 
unable to determine whether it is practicable to implement 
reimbursement rules similar to this and other provisions until HHS 
issues regulations regarding their implementation. Because of this 
uncertainty, DOD officials told us that they could not estimate the 
implementation costs associated with these provisions. DOD officials 
also noted that DOD's contractors may incur costs to implement these 
provisions and that DOD would negotiate any reimbursement with them. 
However, since DOD does not know at this time whether it will 
implement these provisions, it cannot determine whether contractors 
will incur such costs or estimate the magnitude of such costs. 

DOD Will Incur Implementation Costs Associated with TYA and May 
Initially Incur Costs That Exceed Premiums for Providing Program 
Benefits: 

DOD will incur costs in fiscal years 2011 and 2012 associated with 
implementing TYA. Furthermore, DOD may initially incur additional 
costs associated with providing benefits under TYA, if the premiums 
paid by TYA enrollees--which are required to fully cover TYA's 
benefits and administrative costs--are insufficient to fully cover 
these costs. These premiums would then be adjusted as necessary once 
actual claims data are available. 

* Implementation costs for TYA: DOD's estimated costs to implement TYA 
are approximately $4.4 million over fiscal years 2011 and 2012. 
[Footnote 27] These costs will be partially offset by the TYA 
premiums, which include a 2 percent markup that is intended to recoup 
at least some of the implementation costs. However, the extent to 
which premiums offset DOD's implementation costs depends upon the 
number of TYA enrollees over the next several years. Although DOD 
officials told us that they do not have complete data on the number of 
dependents who are eligible for TYA, DOD has estimated that about 
17,000 individuals would enroll in this program in 2011.[Footnote 28] 
As of June 2011, 4,549 individuals had enrolled. 

Initially, implementation costs for TYA will be incurred by DOD's 
contractors, who are responsible for managing civilian health care 
delivery. These costs include updating websites and claims-processing 
systems, enrolling new TYA beneficiaries, and providing staff training 
on TYA. DOD officials told us that estimates for these implementation 
costs were based on the costs for implementing previous TRICARE health 
care plans, such as TRICARE Reserve Select.[Footnote 29] DOD's actual 
implementation costs for TYA may differ from its estimated costs and 
will not be known until fiscal year 2012 after the contractors submit 
all of their costs for implementing TYA to DOD for negotiation of 
reimbursement. 

* Potential, additional costs for providing TYA benefits: Although DOD 
developed TYA premiums to fully cover the costs of program benefits 
and associated administrative costs, the costs may initially exceed 
premium amounts, in part, because of adverse selection.[Footnote 30] 
Specifically, adverse selection may have an impact on TYA in 2011 
because of TYA's retroactive coverage provision. This provision allows 
eligible beneficiaries to enroll in TYA Standard through September 30, 
2011, and receive retroactive coverage effective as of January 1, 
2011, as long as beneficiaries pay the monthly premiums for January 
2011 through their date of enrollment. As of June 2011, 431 of the 
4,549 individuals enrolled in TYA--about 9 percent--had purchased 
retroactive coverage. Although it is likely that only those TYA-
eligible beneficiaries who incurred medical expenses since January 1, 
2011, in excess of the TYA premiums would purchase retroactive 
coverage, we are unable to assess the impact of adverse selection as 
TYA claims data will not be available until fiscal year 2012. 

DOD did not take the impact of adverse selection into account when 
determining TYA premiums because it lacked adequate data on the likely 
impact of adverse selection. DOD officials told us that the department 
plans to adjust TYA premiums to reflect the actual average cost of 
providing benefits and associated administrative costs for calendar 
year 2014.[Footnote 31] DOD calculated its current premiums for TYA 
Standard and TYA Prime by using actual costs of providing benefits to 
21-and 22-year-old beneficiaries currently enrolled in TRICARE Prime 
and by making adjustments to account for several factors that may 
affect TYA costs. These adjustments include subtracting costs 
associated with disabled TRICAREPrime beneficiaries,[Footnote 32] 
subtracting beneficiary cost sharing under TYA Standard,[Footnote 33] 
and accounting for expected medical care inflation and administrative 
costs.[Footnote 34] 

Agency Comments: 

We provided a draft of this report to DOD for review and comment. In 
its comments, DOD concurred with our report. DOD also provided 
technical comments, which we incorporated as appropriate. DOD's 
comments are reprinted in enclosure II. 

We are sending copies of this report to the Secretary of Defense and 
interested congressional committees. In addition, the report is 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or draperd@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff members who made key 
contributions to this report are listed in enclosure III. 

Signed by: 

Debra A. Draper: 
Director, Health Care: 

Enclosures - 3: 

[End of section] 

Enclosure I: Health Care Reform Provisions with Which the Department 
of Defense (DOD) Has Determined It Must Comply and Its Estimated Costs 
for Compliance: 

Patient Protection and Affordable Care Act (PPACA) and Health Care and 
Education Reconciliation Act of 2010 (HCERA) provisions for which DOD 
estimated no costs for compliance: 

1. PPACA  1104 (and related amendments by  10109): Sets forth 
standards and operating rules governing electronic health care 
transactions. Establishes penalties for health plans failing to comply 
with requirements. 

2. PPACA  1557: Prohibits exclusion from participation in, denial of 
benefits, or discrimination under any federal health program or 
activity or any health program or activity receiving federal financial 
assistance on the grounds of race, color, national origin, sex, age, 
or disability. 

3. PPACA  3102 (and related amendments by  10324(c) of PPACA and  
1108 of HCERA): Revises certain geographic adjustments to Medicare's 
physician fee schedule, and directs the Secretary of Health and Human 
Services (HHS) to make further appropriate adjustments. 

4. PPACA  3104: Extends through 2010 an exception to a payment rule 
that permits laboratories to receive direct Medicare reimbursement 
when providing the technical component of certain physician pathology 
services that had been outsourced by certain (rural) hospitals. 

5. PPACA  3105 (and related amendments by  10311): Extends the bonus 
and increased payments for ground ambulance services and certain air 
ambulance services until January 1, 2011. 

6. PPACA  3107: Extends the physician fee schedule mental health add-
on payment provision through December 31, 2010. 

7. PPACA  3111: Sets payments for certain bone density tests 
furnished in 2010 and 2011 at 70 percent of the 2006 reimbursement 
rates. 

8. PPACA  3122: Extends from July 1, 2010, until July 1, 2011, the 
reasonable cost reimbursement for certain clinical diagnostic 
laboratory tests for qualifying rural hospitals with under 50 beds. 

9. PPACA  3128: Allows a critical access hospital to continue to be 
eligible to receive 101 percent of reasonable costs for providing (1) 
outpatient care regardless of the eligible billing method such 
hospital uses and (2) qualifying ambulance services. 

10. PPACA  3401 (and related amendments by  10319 and 10322 of 
PPACA and  1105 of HCERA): Revises certain market basket updates--the 
Centers for Medicare & Medicaid Services (CMS) uses market baskets to 
measure changes in the price of goods and services for Medicare--and 
incorporates a full productivity adjustment into any updates that do 
not already incorporate such adjustments, including inpatient 
hospitals, home health agencies, nursing homes, hospice providers, 
psychiatric hospitals, long-term care hospitals, inpatient 
rehabilitation facilities, and Medicare Part B providers. Also 
establishes a quality measure reporting program for psychiatric 
hospitals beginning in fiscal year 2014. 

11. HCERA  1109: Directs the Secretary of HHS to provide for a 
specified payment for fiscal years 2011 and 2012 to qualifying 
hospitals in counties that rank, based upon age, sex, and race 
adjusted spending per enrollee for Medicare parts A and B benefits, 
within the lowest quartile of such counties in the United States. 

PPACA provisions for which DOD estimated minimal costs for 
compliance[A]: 

12. PPACA  3012: Directs the President to convene the Interagency 
Working Group on Health Care Quality. A senior-level representative of 
DOD is to serve on the working group. 

13. PPACA  3110: Creates a special Medicare Part B enrollment period 
for disabled TRICARE beneficiaries, including military retirees, their 
spouses (including widows or widowers), and dependent children, who 
are entitled to Medicare Part A based on disability or end-stage renal 
disease, but who have elected not to enroll in Medicare Part B. Also 
requires the Secretary of Defense to collaborate with the Secretary of 
HHS and the Commissioner of Social Security to identify eligible 
individuals and provide notification to eligible individuals regarding 
their eligibility. 

14. PPACA  4302: Requires the Secretary of HHS to ensure that any 
federally conducted or supported health care or public health program, 
activity, or survey collects and reports specified demographic data 
regarding health disparities. The Secretary of HHS is required to 
consult with the Secretary of Defense in carrying out this provision. 

15. PPACA  5104 (added by  10501(b)): Establishes the Interagency 
Access to Health Care in Alaska Task Force to (1) assess access to 
health care for beneficiaries of federal health care systems in Alaska 
and (2) develop a strategy to improve delivery to such beneficiaries. 
Requires the Secretary of Defense to appoint one representative of the 
TRICARE Management Activity, the Secretary of the Army to appoint one 
representative of the Army Medical Department, and the Secretary of 
the Air Force to appoint one representative from among officers of the 
Air Force performing medical service functions. Provides for the 
termination of the task force on the date of submission of a report in 
September 2010.[B] 

16. PPACA  6402 (and related amendments by  1303(a) of HCERA): 
Requires CMS to include in the integrated data repository claims and 
payment data from Medicare, Medicaid, the Children's Health Insurance 
Program, and health-related programs administered by the Department of 
Veterans Affairs, DOD, the Social Security Administration, and the 
Indian Health Service (IHS). Also directs the Secretary of HHS to 
enter into data-sharing agreements with the Commissioner of Social 
Security, the Secretaries of Veterans Affairs and Defense, and the 
Director of IHS to help identify fraud, waste, and abuse. 

17. PPACA  6403: Requires the Secretary of HHS to furnish the 
National Practitioner Data Bank with all information reported to the 
national health care fraud and abuse data collection program on 
certain final adverse actions taken against health care providers, 
suppliers, and practitioners. Requires the Secretary to establish a 
process to terminate the Healthcare Integrity and Protection Data Bank 
and ensure that the information formerly collected in it is 
transferred to the National Practitioner Data Bank. 

18. PPACA  9008 (as amended by  1404 of HCERA): Imposes an annual 
fee on the branded prescription drug sales exceeding $5 million by 
manufacturers and importers of such drugs beginning in 2011. Requires 
the Secretaries of HHS, Veterans Affairs, and Defense to report to the 
Secretary of the Treasury on the total branded prescription drug sales 
with respect to government programs within their departments. 

19. PPACA  10409: Requires the Secretary of HHS, acting through the 
Director of the National Institutes of Health (NIH), to implement the 
Cures Acceleration Network under which grants and contracts will be 
awarded to accelerate the development of high-need cures. Defines 
"high-need cure" as a drug, biological product, or device (1) that is 
a priority to diagnose, mitigate, prevent, or treat any disease or 
condition and (2) for which the incentives of the commercial market 
are unlikely to result in its adequate or timely development. Also 
establishes a Cures Acceleration Network Review Board to advise the 
Director of NIH on the conduct of the activities of the Cures 
Acceleration Network. A representative of the Office of the Assistant 
Secretary of Defense for Health Affairs, recommended by the Secretary 
of Defense, is to be appointed by the Secretary of HHS as an ex 
officio member of the board.[C] 

PPACA provisions for which DOD has not yet estimated costs for 
compliance: 

20. PPACA  1502: Requires providers of minimum essential coverage to 
file informational returns providing identifying information of 
covered individuals and the dates of coverage, beginning in 2014.[D] 

21. PPACA  4004 (as amended by  10401(c)): Requires the Secretary of 
HHS to provide for the planning and implementation of a national 
public-private partnership for a prevention and health promotion 
outreach and education campaign to raise public awareness of health 
improvement across the life span. Requires the Secretary of HHS to 
develop and implement a plan for the dissemination of information to 
health care providers who participate in federal programs, including 
programs administered by DOD.[E] 

Source: DOD. 

[A] DOD officials told us that they expect DOD's costs of complying 
with these provisions to be minimal because no new staff or 
significant additional resources will be required to implement them. 
However, DOD is unable to estimate the exact amount of these costs, 
which may include, for example, travel expenses, until these 
provisions have been fully implemented. 

[B] The Interagency Access to Health Care in Alaska Task Force was 
terminated after issuing its final report on September 17, 2010. 

[C] PPACA authorized but did not appropriate funds to implement this 
provision. 

[D] DOD cannot estimate its costs until the Department of the Treasury 
issues regulations implementing this provision. 

[E] DOD cannot estimate its costs until HHS issues regulations 
implementing this provision. PPACA authorized but did not appropriate 
funds to implement this provision. 

[End of table] 

[End of section] 

Enclosure II: Comments from the Department of Defense: 

The Assistant Secretary of Defense: 
Health Affairs: 
1200 Defense Pentagon: 
Washington, DC 20301-1200: 

September 12, 2011: 

Ms. Debra A. Draper:  
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548:  

Dear Ms. Draper:  

This is the Department of Defense (DoD) response to the Government 
Accountability Office (GAO) Draft Report GAO-11-837R, "DoD Health 
Care: Cost Impact of Health Care Reform and the Extension of Dependent 
Coverage," dated August 11, 2011 (GAO Code #290935).  

Thank you for the opportunity to review the draft report and offer 
comments. While the draft report does not provide any specific 
recommendation, the report does address the impacts of recent national 
health reform legislation on TRICARE, as well as the Department's 
implementation of TRICARE Young Adult based upon separate 
Congressional direction. We have carefully reviewed the draft report 
and concur with the report as written. Technical comments are attached 
to address portions of your report regarding DoD's statutory 
requirement to follow Medicare payment rules to the extent 
practicable.  

Thank you again for the opportunity to review and provide a response. 
The points of contact on this issue are Dr. Robert Opsut (Functional) 
and Mr. Gunther Zimmerman (Audit Liaison). Dr. Opsut may be reached at 
(703) 681-8878, and Mr. Zimmerman may be reached at (703) 681-4360.  

Thank you for your interest in the health and well-being of our 
Service members, veterans and their families.  

Sincerely, 

Signed by: 

Jonathan Woodson, M.D.  

Attachments: As stated: 

[End of section] 

Enclosure III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Debra A. Draper, (202) 512-7114 or draperd@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Bonnie W. Anderson, Assistant 
Director; Jeff Mayhew; and Michael Zose made key contributions to this 
report. Jennie Apter assisted in the message and report development, 
Timothy Carr and Frank Todisco provided methodological support, and 
Lisa Motley provided legal support. 

[End of section] 

Footnotes: 

[1] Eligible beneficiaries include active duty personnel and their 
dependents, medically eligible National Guard and Reserve personnel 
and their dependents, and retirees and their dependents and survivors. 
Active duty personnel include members of the National Guard and 
Reserves on active duty for at least 30 days. 

[2] See Pub. L. No. 111-148, 124 Stat. 119 (2010); Pub. L. No. 111-
152, 124 Stat. 1029 (2010). Several sections of HCERA amended sections 
of PPACA. 

[3] PPACA and HCERA include a wide range of provisions, such as those 
that will require individuals, large employers, and health insurers to 
meet certain health care coverage requirements and other provisions 
that make changes to Medicare reimbursement rates. 

[4] See Pub. L. No. 111-148,  1001, 124 Stat. 119, 132 (2010) 
(amended by Pub. L. No. 111-152,  2301(b), 124 Stat. 1029, 1082 
(2010) and to be codified at 42 U.S.C.  300gg-14). 

[5] See 42 U.S.C.  300gg-21 (limiting the applicability of certain 
provisions of the Public Health Service Act, including coverage for 
dependents up to age 26). 

[6] See Pub. L. No. 111-383,  702, 124 Stat. 4137, 4244-45 (2011) (to 
be codified at 10 U.S.C.  1110b). 

[7] TYA enrollees pay a monthly premium to receive health care 
coverage under the program. 

[8] The PPACA provision, as amended by HCERA, extended dependent 
coverage to both married and unmarried adult dependents up to age 26. 

[9] TRICARE Reserve Select is a premium-based health plan established 
in 2005 that qualified National Guard and Reserve members may 
purchase, while TRICARE Retired Reserve is a premium-based health plan 
established in 2010 that qualified retired National Guard and Reserve 
members and survivors may purchase. 

[10] HHS's Centers for Medicare & Medicaid Services administers 
Medicare. 

[11] The TRICARE Affirmation Act, enacted in April 2010, explicitly 
stated that TRICARE coverage satisfies the minimum essential health 
care coverage requirements under PPACA. See Pub. L. No. 111-159, 124 
Stat. 1123 (2010). 

[12] See Pub. L. No. 111-148,  1501(b), 10106(b)-(d), 124 Stat. 119, 
244-49, 909-10 (2010), as amended by HCERA, Pub. L. No. 111-152,  
1002, 1004, 124 Stat. 1029, 1032-33, 1034 (2010) (to be codified at 26 
U.S.C.  5000A). Beginning in January 2014, individuals must maintain 
minimum essential coverage for themselves and their dependents. 
Minimum essential coverage includes employer-sponsored health plans, 
individual plans, and government-sponsored plans. Individuals must pay 
a penalty for each month they fail to do so. Certain individuals, such 
as members of qualifying religious groups, are exempt from this 
requirement, and other individuals, such as federal taxpayers whose 
household income is below the applicable filing threshold, are also 
exempt from the penalty. 

[13] PPACA prohibits group health plans and insurers offering group 
and individual coverage from excluding coverage for any preexisting 
conditions. This prohibition is generally effective for plan years 
beginning on or after January 1, 2014, for adults and for plan years 
beginning on or after September 23, 2010, for individuals under age 
19. See Pub. L. No. 111-148,  1201(2), 1253, 1562(c)(1), 
10103(e),(f), 124 Stat. 119, 154, 162, 264-65, 895 (2010) (to be 
codified at 42 U.S.C.  300gg-3). 

[14] For plan years beginning on or after January 1, 2014, PPACA 
prohibits group health plans and insurers offering group or individual 
coverage from establishing rules for eligibility for enrollment based 
on health status and other related factors. See Pub. L. No. 111-148, 
 1201(4), 1253, 10103(e), (f), 124 Stat. 119, 156, 162, 895 (to be 
codified at 42 U.S.C.  300gg-4). 

[15] See Pub. L. No. 111-148,  1001, 124 Stat. 119, 132 (2010) 
(amended by Pub. L. No. 111-152,  2301(b), 124 Stat. 1029, 1082 
(2010) and to be codified at 42 U.S.C.  300gg-14). 

[16] Pub. L. No. 111-152,  2301(b), 124 Stat. 1029, 1082 (2010). 

[17] Prior to the enactment of the NDAA 2011, dependents of active 
duty personnel and retirees as well as TRICARE Reserve Select and 
TRICARE Retired Reserve enrollees were eligible for TRICARE coverage 
until age 21, or age 23 if they were full-time students. 

[18] See 76 Fed. Reg. 23,479 (Apr. 27, 2011) (to be codified at 32 
C.F.R.  199.2(b), 199.26). Eligible dependents for TYA must be 
unmarried dependents of an eligible uniformed service sponsor (such as 
active duty personnel or retiree), at least 21 but not yet 26 years 
old, and not eligible to enroll in an employer-sponsored health plan 
as defined in the Internal Revenue Code or otherwise eligible for 
TRICARE program coverage. 

[19] TYA Standard mirrors both TRICARE Standard and Extra, DOD's fee- 
for-service and preferred provider options, respectively. Under 
TRICARE Standard, beneficiaries obtain health care from nonnetwork 
providers. Under TRICARE Extra, beneficiaries obtain health care from 
network providers, and have lower cost shares (about 5 percentage 
points less) than they would if they saw nonnetwork providers under 
the TRICARE Standard option. Although non-TYA beneficiaries do not 
have to enroll in the TRICARE Standard and Extra options, eligible 
dependents who use TYA Standard must enroll and pay monthly premiums. 

[20] TYA Prime mirrors TRICARE Prime, DOD's managed care option, for 
which beneficiaries are required to enroll. Under TRICARE Prime, 
beneficiaries have a primary care manager who either provides care or 
authorizes referrals to specialists. Beneficiaries can be assigned to 
a primary care manager at a military treatment facility or, if the 
military treatment facility is at capacity or no military treatment 
facility is available, may select a civilian primary care manager. 

[21] TYA beneficiaries have through September 30, 2011 to purchase 
this retroactive coverage. 

[22] DOD officials told us that DOD did not incur implementation costs 
for some provisions because it had already implemented them before 
PPACA and HCERA were enacted. Additionally, they said that DOD's 
contractors could implement certain payment-related provisions at no 
cost to DOD. 

[23] These written statements are in reference to the PPACA provision 
that will require most individuals to obtain health care coverage 
beginning in 2014. 

[24] Department officials told us that although these provisions do 
not apply directly to TRICARE, DOD may implement some of them if it 
determines that doing so would be practicable. 

[25] See Pub. L. No. 111-148,  3007, 124 Stat. 119, 373-76 (2010) (to 
be codified at 42 U.S.C.  1395w-4(p)). 

[26] See 10 U.S.C.  1079(h)(1), (j)(2), 1086(f), (g). 

[27] DOD performed an independent government cost estimate of 
contractors' probable costs for the implementation of TYA. 

[28] DOD officials told us that this estimate was developed by first 
determining the total number of dependents of active duty personnel 
and military retirees who are from 21 to 26 years of age and 
subsequently subtracting the estimated number of dependents who would 
not be eligible for TYA. DOD officials assumed that about 7 percent of 
those eligible for TYA would enroll in 2011 and that enrollment would 
increase to 28 percent of the eligible population by 2014, although 
they acknowledged that this was a rough estimate. 

[29] As TRICARE Reserve Select was established in 2005, DOD officials 
said that they were able to rely on the implementation costs for this 
program to develop an estimate of implementation costs for TYA. 

[30] Adverse selection occurs when people who know they have a risk of 
incurring health care expenses buy insurance coverage, while those who 
have relatively less risk of incurring health care expenses decide the 
insurance is too expensive and therefore do not buy it. In these 
cases, the resulting insured population is likely to incur greater-
than-average health care costs. Therefore, any premiums set to account 
for an insured population with average health care costs may not be 
sufficient to cover the claims that eventually arise. 

[31] According to DOD officials, the department plans to base calendar 
year 2014 TYA premiums on the actual costs of providing benefits and 
associated administrative costs in calendar year 2012, provided the 
data are reliable. 

[32] Disabled dependent children of active duty personnel and retirees 
may remain eligible for TRICARE after turning age 21 (or age 23 if 
they are full-time students) and would therefore not be expected to 
enroll in TYA. Because costs associated with disabled beneficiaries 
are significantly higher than costs associated with beneficiaries who 
are not disabled, DOD excluded the costs for these beneficiaries from 
the TYA premium calculations. 

[33] Because TYA Standard enrollees pay higher cost sharing amounts 
than TYA Prime enrollees, DOD expects its costs of providing benefits 
under TYA Standard to be lower than its costs of providing benefits 
under TYA Prime. DOD set lower premiums for TYA Standard than for TYA 
Prime to account for the higher beneficiary cost sharing under TYA 
Standard and, therefore, lower costs to DOD for providing care. 

[34] TYA premiums include estimated claims-processing costs and 
estimated monthly fees assessed by DOD's contractors. 

[End of section] 

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