The Obamacare Surge

Cuts in Tricare program could add billions to cost of Affordable Care Act

March 8, 2012

A proposed increase in health care fees for active and retired military members could add to the ballooning costs of President Obama’s health care reforms.

The proposed cuts in health care benefits for service members, which must be approved by Congress, are part of the Pentagon’s $487 billion cut in spending. It seeks to save $1.8 billion from the Tricare medical system in the fiscal 2013 budget and $12.9 billion by 2017.

One of the ways the Patient Protection and Affordable Care Act (PPACA) seeks to expand health care coverage is creating government-subsidized health insurance markets, called "exchanges."

Administration officials told Congress that one goal of the increased fees is to force military retirees to reduce their involvement in Tricare and eventually opt out of the program in favor of alternatives established by the 2010 Patient Protection and Affordable Care Act, aka Obamacare.

"When they talked to us, they did mention the option of healthcare exchanges under Obamacare. So it’s in their mind," a congressional aide involved in the issue told the Washington Free Beacon.

There are currently 9.6 million eligible Tricare beneficiaries, according to the Tricare website. If a significant amount of those beneficiaries opted out of Tricare and entered one of the PPACA’s healthcare exchanges, it could drive up subsidy costs to taxpayers.

A 2011 Employment Policies Institute report concluded the Congressional Budget Office may have substantially underestimated the amount of employees who will leave their employer’s health insurance plan and join one of the government-subsidized exchanges.

In one of its models, the EPI study estimated 8.6 million people joining the exchanges would stick taxpayers with $38 billion more in gross subsidy costs than the CBO originally projected.

"One way or the other, there is a tremendous threat of those exchanges being more expensive than imagined," said Douglas Holtz-Eakin, the president of the American Action Forum, a center-right advocacy organization.

The EPI estimated the average cost of an individual subsidy in the exchange to be $4,017. If a large number of Tricare-eligible ex-military members decided to join the exchanges, it could increase the gross subsidy costs by billions more.

However, since the exchanges are mandatory, it would take the health care costs of former Tricare enrollees out of the Pentagon budget and beyond Congress’ discretion.

"The taxpayer picks up the bill one way or the other, but it does help the Pentagon per se," Holtz-Eakin said.

The Tricare price-hike, however, could just incent current and former service members to settle for less extensive coverage under Tricare.

Kathy Beasley, the deputy director of government relations for the Military Officers Association of America, said the organization expects service members to opt out of Tricare Prime and into the standard Tricare plan.

Under the proposal, the Pentagon would get the bulk of its savings by targeting under-65 and Medicare-eligible military retirees through a tiered increase in annual Tricare premiums that will be based on yearly retirement pay.

The plan calls for between 30 percent to 78 percent increases in Tricare annual premiums for the first year, followed by five-year increases ranging from 94 percent to 345 percent—more than 3 times current levels.

The new plan hits active duty personnel by increasing co-payments for pharmaceuticals and eliminating incentives for generic drugs.

As part of the increased healthcare costs, the Pentagon will also impose an annual fee for a program called Tricare for Life, which all military retirees must join at age 65. Currently, to enroll in Tricare for Life, retirees pay the equivalent of a monthly Medicare premium.

Military retirees would also be hit with an additional annual enrollment fee on top of the monthly premium.

Military advocates have decried the proposal.

"We certainly don't feel that that's fair at all," Beasley said. "That's not keeping faith with your past and future service members. It's breaking faith."

The Department of Defense did not return calls for comment.