To amend title 10, United States Code, to establish a demonstration project to evaluate the feasibility of using the Federal Employees Health Benefits program to ensure the availability of adequate health care for Medicare-eligible beneficiaries under the military health care system.

SECTION 1. DEMONSTRATION PROJECT TO INCLUDE CERTAIN COVERED 
              BENEFICIARIES WITHIN FEDERAL EMPLOYEES HEALTH BENEFITS 
              PROGRAM.

    (a) Demonstration Project.--(1) Chapter 55 of title 10, United 
States Code, is amended by adding at the end the following new section:
``Sec. 1107. Health care coverage through Federal Employees Health 
              Benefits program: demonstration project
    ``(a) FEHBP Option Demonstration.--(1) Subject to paragraph (2), 
the Secretary of Defense, after consulting with the other administering 
Secretaries, shall enter into an agreement with the Office of Personnel 
Management to conduct a demonstration project under which covered 
beneficiaries described in subsection (b) and residing within the area 
covered by the demonstration project will be eligible to enroll in 
health benefits plans offered through the Federal Employees Health 
Benefits program under chapter 89 of title 5.
    ``(2) The authority to enter into the agreement described in 
paragraph (1) and to conduct the demonstration project provided for by 
the agreement shall be subject to the availability of appropriations to 
carry out the demonstration project.
    ``(b) Eligible Covered Beneficiaries.--(1) A covered beneficiary 
referred to in subsection (a) is a member or former member of the 
uniformed services described in section 1074(b) of this title, or a 
dependent of the member described in section 1076(b) of this title, who 
is or becomes entitled to hospital insurance benefits under part A of 
title XVIII of the Social Security Act (42 U.S.C. 1395c et seq.).
    ``(2) A covered beneficiary described in paragraph (1) shall not be 
required to satisfy any eligibility criteria specified in chapter 89 of 
title 5 as a condition for enrollment in health benefits plans offered 
through the Federal Employee Health Benefits program under the 
demonstration project. However, if the covered beneficiary is enrolled 
in the supplemental medical insurance program under part B of title 
XVIII of the Social Security Act (42 U.S.C. 1395j et seq.) before the 
covered beneficiary enrolls in a health benefits plan offered pursuant 
to subsection (a), the covered beneficiary shall be required to remain 
enrolled in such supplemental medical insurance program during the term 
of the demonstration project.
    ``(c) Area of Demonstration Project.--The Secretary of Defense 
shall carry out the demonstration project in two geographic areas as 
follows:
            ``(1) One area shall include the catchment area of one or 
        more military medical treatment facilities, within which not 
        more than 25,000 eligible covered beneficiaries reside.
            ``(2) The other area shall not include the catchment area 
        of any military medical treatment facility and not more than 
        25,000 eligible covered beneficiaries may reside in the area.
    ``(d) Time for Demonstration Project.--The Secretary of Defense 
shall conduct the demonstration project during at least two, but not 
more than three, contract years under the Federal Employees Health 
Benefits program.
    ``(e) Management of Participation.--The authority responsible for 
approving retired or retainer pay or equivalent pay in the case of a 
member or former member shall manage the participation of the member or 
former member, or dependents of the member or former member, who enroll 
in health benefits plans offered through the Federal Employee Health 
Benefits program pursuant to subsection (a). Such authority shall 
distribute program information to eligible covered beneficiaries, 
process enrollment applications, forward all required contributions to 
the Employees Health Benefits Fund established under section 8909 of 
title 5 in a timely manner, assist in the reconciliation of enrollment 
records with health plans, and prepare such reports as the Office of 
Personnel Management may require in its administration of chapter 89 of 
title 5.
    ``(f) Separate Risk Pools; Charges.--(1) The Office of Personnel 
Management shall require health benefits plans under chapter 89 of 
title 5 that participate in the demonstration project to maintain a 
separate risk pool for purposes of establishing premium rates for 
covered beneficiaries who enroll in such a plan in accordance with this 
section.
    ``(2) The Office shall determine total subscription charges for 
self only or for family coverage for covered beneficiaries who enroll 
in a health benefits plan under chapter 89 of title 5 in accordance 
with this section, which shall include premium charges paid to the plan 
and amounts described in section 8906(c) of title 5 for administrative 
expenses and contingency reserves.
    ``(g) Government Contributions.--The Secretary of Defense shall be 
responsible for the Government contribution for an eligible covered 
beneficiary who enrolls in a health benefits plan under chapter 89 of 
title 5 in accordance with this section, except that the amount of the 
contribution may not exceed the amount of the Government contribution 
which would be payable if the electing individual were an employee 
enrolled in the same health benefits plan and level of benefits.
    ``(h) Effect of Cancellation.--The cancellation by a covered 
beneficiary of coverage under the Federal Employee Health Benefits 
program shall be irrevocable during the term of the demonstration 
project.
    ``(i) Reporting Requirements.--Not later than May 31 of each year 
in which the demonstration project is conducted, the Secretary of 
Defense and the Director of the Office of Personnel Management shall 
jointly submit a report to Congress describing the provision of health 
care services to covered beneficiaries under this section during the 
preceding calendar year. The report shall address or contain the 
following:
            ``(1) The number of covered beneficiaries enrolled in 
        health benefits plans offered through the Federal Employee 
        Health Benefits program pursuant to subsection (a), both in 
        terms of total number and as a percentage of all covered 
        beneficiaries receiving health care through the health care 
        system of the uniformed services.
            ``(2) Any changes in enrollment patterns and numbers 
        compared to previous open seasons under the demonstration 
        project.
            ``(3) The out-of-pocket cost to enrollees under such health 
        benefits plans and a comparison of those costs to the costs 
        incurred by other enrollees under the Federal Employee Health 
        Benefits program.
            ``(4) The cost to the Government (including the Department 
        of Defense, the Department of Transportation, and the 
        Department of Health and Human Services) of providing care 
        under such health benefits plans.
            ``(5) A comparison of the costs determined under paragraphs 
        (3) and (4) and the costs that would have otherwise been 
        incurred by the Government and enrollees under alternative 
        health care options available to the administering Secretaries.
            ``(6) The effect of this section on the cost, access, and 
        utilization rates of other health care options under the health 
        care system of the uniformed services.''.
    (2) The table of sections at the beginning of such chapter is 
amended by adding at the end the following new item:

``1107. Health care coverage through Federal Employees Health Benefits 
                            program: demonstration project.''.
    (b) Chapter 89 of title 5, United States Code, is amended--
            (1) in section 8905--
                    (A) by redesignating subsections (d) through (f) as 
                subsections (e) through (g), respectively; and
                    (B) by inserting after subsection (c) the following 
                new subsection:
    ``(d) An individual whom the Secretary of Defense determines is an 
eligible covered beneficiary under subsection (b) of section 1107 of 
title 10 may enroll, as part of the demonstration project under such 
section, in a health benefits plan under this chapter in accordance 
with the agreement under subsection (a) of such section between the 
Secretary and the Office and applicable regulations under this 
chapter.'';
            (2) in section 8906(b)--
                    (A) in paragraph (1), by striking ``paragraphs (2) 
                and (3)'' and inserting in lieu thereof ``paragraphs 
                (2), (3), and (4)''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(4) In the case of individuals who enroll, as part of the 
demonstration project under section 1107 of title 10, in a health 
benefits plan in accordance with section 8905(d) of this title, the 
Government contribution shall be determined in accordance with section 
1107(g) of title 10.''; and
            (3) in section 8906(g)--
                    (A) in paragraph (1), by striking ``paragraph (2)'' 
                and inserting in lieu thereof ``paragraphs (2) and 
                (3)''; and
                    (B) by adding at the end the following new 
                paragraph:
    ``(3) The Government contribution described in subsection (b)(4) 
for beneficiaries who enroll, as part of the demonstration project 
under section 1107 of title 10, in accordance with section 8905(d) of 
this title shall be paid as provided in section 1107(g) of title 10.''.

Summary: Directs the Secretary of Defense to enter into an agreement with the Office of Personnel Management to conduct a demonstration project under which covered members and beneficiaries under the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) who are or become entitled to hospital insurance benefits under part A of title XVIII (Medicare) of the Social Security Act will be eligible to enroll in health benefits plans offered through the Federal Employees Health Benefits (FEHB) program. Requires the demonstration project to be conducted in two geographic areas and to last at least two, but not more than three, contract years. Provides for: (1) management of participation in the project, (2) Government contributions for beneficiary coverage under the FEHB program, and (3) reporting requirements.