DOD Health Care:

Cost Impact of Health Care Reform and the Extension of Dependent Coverage

GAO-11-837R: Published: Sep 26, 2011. Publicly Released: Sep 26, 2011.

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Debra A. Draper
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The Department of Defense (DOD) offers health care to eligible beneficiaries through TRICARE, its health care program. 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)--has implications for much of the nation's health care system, including TRICARE. One particular health reform provision directed certain health insurance plans to extend coverage to dependents up to age 26. Though this provision does not apply to TRICARE because it is not considered a health insurance plan, 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. In response, in May 2011, DOD began implementing TRICARE Young Adult (TYA), a premium-based health care plan 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. 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.

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) 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.

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