October 19, 2005 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan L. Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

Subject: Defense Health Care: Health Insurance Stipend Program Expected to Cost 

More Than TRICARE But Could Improve Continuity of Care for Dependents 

of Activated Reserve Component Members 

Since the September 11, 2001, terrorist attacks, the Department of Defense (DOD) has 

increased its reliance on its National Guard and reserve forces to support the Global War 

on Terrorism, and particularly Operation Iraqi Freedom. Congress has been interested in 

making improvements and enhancements to compensation and benefit programs for 

reserve component members.1

 When reserve component members are activated for 

more than 30 days under federal authorities, they are covered under TRICARE, DOD’s 

health care system.2

 While reserve component members are automatically covered by 

TRICARE when activated, their spouses and other dependents have the option of using 

either TRICARE or their private health insurance. However, our prior work3

 found that 

 

1

 DOD’s reserve components include the collective forces of the Army National Guard and the Air National 

Guard, as well as the forces from the Army Reserve, the Naval Reserve, the Marine Corps Reserve, and the 

Air Force Reserve. The Coast Guard Reserve is a service in the Department of Homeland Security, except 

when operating as a service in the Navy during times of war or national emergency. 

2

 DOD provides health care through TRICARE, a regionally structured program that uses civilian 

contractors to maintain health care provider networks that complement health care provided at military 

treatment facilities. 

3

 GAO, Defense Health Care: Most Reservists Have Civilian Health Coverage but More Assistance is 

Needed When TRICARE Is Used, GAO-02-829 (Washington, D.C.: Sept. 6, 2002). 
2 GAO-06-128R Defense Health Care

dependents of reserve component members who had dropped their private health 

insurance reported problems accessing the TRICARE system—such as difficulty finding 

a health care provider, establishing eligibility, understanding TRICARE benefits, and 

knowing where to go when questions and problems arise. In addition, maintaining 

continuity of care with the same health care providers, especially for dependents with 

chronic medical conditions, may be problematic after switching to TRICARE. To 

address these concerns, some legislative proposals would give reserve component 

members the option of accepting a stipend from DOD to help defray the cost of 

continuing their private health insurance for their spouses and dependents when they are 

activated for more than 30 days. 

The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 20054

 requires 

us to determine the cost and feasibility of providing a stipend to members of the Ready 

Reserve5 to offset the cost of continuing their current private health insurance coverage 

for their dependents while they are on active duty. Specifically, we (1) examined 

whether the implementation of a health care stipend program would be likely to increase 

or decrease the cost to DOD of providing health care to the spouses and dependents of 

reserve component members and (2) identified the potential implications of a stipend 

program on members and their families, DOD, and the members’ employers. 

To determine the cost of a stipend program, we requested the Congressional Budget 

Office (CBO) to prepare an estimate of cost for a stipend program for varying rates of 

participation since it is not within our purview, but rather CBO’s, to develop cost 

estimates associated with legislative proposals. CBO also prepared an estimate of cost 

to DOD for spouses and dependents of activated reserve component members using 

TRICARE instead of receiving the stipend. 

To identify the potential implications of a stipend program on recruitment, retention, and 

medical readiness,6

 we discussed and obtained documentation from DOD’s Office of the 

Assistant Secretary of Defense for Reserve Affairs and Office of the Assistant Secretary 

of Defense for Health Affairs and representatives of selected military service 

organizations—the Enlisted Association of the National Guard of the United States, the 

Reserve Officers Association of the United States, and the Military Officers Association 

of America. We also analyzed the November 2004 DOD survey of reserve component 

members to identify those factors reserve component members consider important for 

retention. We also discussed the potential implications of a stipend program with 

representatives of two organizations representing employers—the National Federation 

of Independent Businesses and the National Association of Manufacturers. For more 

detailed information on our scope and methodology, see enclosure I. We performed our 

 

4

 Pub. L. No. 108-375, § 702 (2004). 

5

 The Ready Reserve accounts for about 98 percent of nonretired reserve component members and 

consists of individuals who are subject to activation under the provisions of 10 U.S.C. § 12301 and § 12302. 6

 For this report, we defined medical readiness as the medical fitness of servicemembers to perform their 

mission. 
3 GAO-06-128R Defense Health Care

work from February 2005 through September 2005 in accordance with generally 

accepted government auditing standards. 

Results In Brief 

Offering a health care stipend to reserve component members could cost DOD from $365 

million to $735 million over a 5-year period—fiscal years 2006 through 2010—exclusive 

of program administration costs, for a specific range of reserve component member 

participation rates. CBO officials cautioned that in the absence of specific legislative 

language that describes the design of a proposed stipend program in detail, CBO’s 

estimates should be considered preliminary. Final CBO estimates would reflect actual 

legislative language and CBO’s then current baseline assumptions. For example, in 

preparing this estimate of cost, CBO assumed that the amount of the stipend would equal 

the average worker contribution for family health plans. However, for deployments of 

more than 30 days, employees may be liable for the full health insurance premium, 

including the employer share, plus an additional 2 percent for administrative costs. This 

amount may be significantly higher than the amount of the stipend used by CBO in 

preparing the estimate of cost. In addition, DOD estimated that it would cost about $10 

million for startup costs in the first year of implementation and $20 to $25 million 

annually to administer stipend payments to participating reserve component members. 

Since the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 did 

not identify the specific design features of a stipend program, it was difficult to identify a 

reliable anticipated participation rate for a stipend program. Using CBO’s cost estimate 

of a 75 percent participation level by eligible servicemembers and including DOD’s 

estimate of administrative costs, it could cost DOD $230 million (45.5 percent) more to 

provide health care stipends to spouses and dependents of activated reserve component 

members over a 5-year period (fiscal years 2006 through 2010) than to provide TRICARE 

to these individuals.

The most significant potential impact of a health care stipend program could be to 

improve continuity of care for spouses and dependents of reserve component members 

because the availability of a stipend would potentially allow more reserve component 

members to continue their private health insurance while they are activated. 

Continuation of their private health insurance would help family members avoid 

disruption in ongoing medical treatment caused by switching to TRICARE for their 

health care coverage, by enabling them to keep their current health care providers. 

Civilian employers of reserve component members may also benefit from the availability 

of a stipend since this amount will help to offset the burden on those employers who 

choose to pay the full contribution for their activated employees. However, DOD 

officials are unaware of any evidence to support that a stipend would have any impact on 

several other issues affecting the reserve components, including medical readiness, 

recruitment, or retention of reserve component members. 
4 GAO-06-128R Defense Health Care

Background 

There are seven reserve components: the Army Reserve, Army National Guard, Air 

Force Reserve, Air National Guard, Naval Reserve, Marine Corps Reserve and the Coast 

Guard Reserve. Reserve forces can be divided into three major categories: the Ready 

Reserve, the Standby Reserve, and the Retired Reserve. The Ready Reserve had about 

1.1 million National Guard and reserve members as of July 2005, and as of September 

2005, members of the Ready Reserve have been the only reserve component members 

subject to mobilization under the partial mobilization authority7

 declared by the 

President on September 14, 2001.8

 

Under federal mobilization authorities, members of the reserve component may be 

activated to move the military from its peacetime posture to a heightened state of 

readiness to support national security objectives in times of war or other national 

emergencies. In recent years, DOD has dramatically increased its reliance on reserve 

component members for military operations, particularly those in Afghanistan and Iraq. 

Between September 2001 and May 2005, DOD mobilized more than 436,000 reserve 

component members. The average number of days a reserve component member spent 

on active duty for three ongoing operations (Operations Noble Eagle, Enduring Freedom, 

and Iraqi Freedom) as of March 2004 totaled 342 days. 

The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 included 

several provisions to enhance health care benefits for reserve component members and 

their dependents—which includes spouses, children, and others who qualify—to help 

with their transition from civilian status to active duty status. Generally, these provisions 

provided for the following: 

• Permanent authority for reserve component members and their dependents to be 

eligible for TRICARE benefits when they receive a delayed-effective-date order for 

activation up to 90 days before activation. 

• Permanent authority to provide transitional health care benefits to certain service 

members and their dependents for up to 180 days following separation from 

active duty. 

• Authorized waiver of certain deductibles required by certain TRICARE programs 

for dependents of certain reserve component members who are called or ordered 

to active duty for a period of more than 30 days. 

• Exemption for dependents of reserve component members who are ordered to 

active duty for a period of more than 30 days from paying a health care provider 

any amount above the TRICARE maximum allowable charge. 

 

7

 The partial mobilization authority limits involuntary mobilizations to not more than 1 million reserve 

component members at any one time, for not more than 24 consecutive months during a time of national 

emergency. 

8

 Executive Order 13223 of September 14, 2001. 
5 GAO-06-128R Defense Health Care

Also, the Act gave those reserve component members called up on or after September 

11, 2001 an opportunity to purchase TRICARE health care coverage for themselves and 

their family members after they demobilize.9

 This program, known as TRICARE Reserve 

Select, requires the member to agree to continue serving for a period of one year or more 

in the Selected Reserve after their active duty service ends. 

A reserve component member is covered by TRICARE while activated. The member’s 

dependents, who qualify, have the option of using TRICARE at no premium or continuing 

to use health insurance that may be provided by the member’s employer, which may 

include a cost to the member. TRICARE eligible dependents can obtain health care 

through DOD’s direct care system of military hospitals and clinics, commonly referred to 

as military treatment facilities, and through DOD’s purchased care system of civilian 

providers. DOD uses managed care support contractors to develop networks of 

providers to complement care available in military treatment facilities. The Office of the 

Assistant Secretary of Defense for Health Affairs establishes TRICARE policy. DOD’s 

TRICARE Management Activity, under the Assistant Secretary of Defense for Health 

Affairs, is responsible for procuring, administering, and overseeing the health care 

contracts for purchased care. 

Under the Uniformed Services Employment and Reemployment Rights Act of 1994 

(USERRA),10 activated reserve component members’ employer-provided health benefits 

are protected. Specifically, for absences of 30 days or less, health benefits continue as if 

the employee had not been absent. For absences of 31 days or more, coverage stops 

unless (1) the employee elects to pay for the coverage, including the employer 

contributions,11 or (2) the employer voluntarily agrees to continue coverage.12 Under 

USERRA, employers must reinstate reserve component members’ health coverage upon 

reemployment. 

In May 2003, about 87 percent of reserve component members with dependents 

reportedly had health insurance before they were mobilized. Of these members, only 

about 54 percent reportedly continued their health insurance during their activation.13

 

9

 Reserve component members may be eligible to purchase TRICARE “after the member completes service 

on active duty to which the member was called or ordered for a period of more than 30 days on or after 

September 11, 2001, under a provision of law referred to in section 101(a)(13)(B), if the member (1) served 

continuously on active duty for 90 or more days pursuant to such call or order; and (2) on or before the 

date of the release from such active-duty service, entered into an agreement with the Secretary concerned 

to serve continuously in the Selected Reserve for a period of one or more whole years following such 

date.” See Pub. L. No. 108-375 § 701. 

10 Codified at 38 U.S.C. §§ 4301- 4334, as amended. 

11 For deployments of 31 days or more, USERRA permits the employer to assess an additional 2 percent 

administrative fee if the reserve component members elect to continue with private health insurance and 

pay the full premium, including the employer share. 

12 When the employer elects to continue mobilized reserve component members’ health insurance, the 

reserve component member may continue to be liable for the employee portion of the premium. However, 

some employers pay the full premium. 

13 Based on responses to DOD’s May 2003 Status of Forces Survey of reserve component members. DOD 

officials told us that the May 2003 survey represented a more accurate portrayal of this information than 

the November 2004 survey. 
6 GAO-06-128R Defense Health Care

Estimated Costs For Providing a Health Care Stipend Higher Compared to 

TRICARE 

Providing a health care stipend program to activated reserve component members to 

enable their dependents to maintain their private health insurance would likely cost 

more than TRICARE, according to CBO’s estimates prepared for this study. In 

September 2005, CBO estimated that offering a health care stipend program to reserve 

component members would cost DOD from $365 million to $735 million over a 5-year 

period—fiscal years 2006 through 2010—exclusive of program administration costs, for a 

specific range of reserve component member participation rates. CBO officials 

cautioned that in the absence of specific legislative language that describes the design of 

a proposed stipend program in detail, CBO’s estimates should be considered preliminary. 

Final CBO estimates would reflect actual legislative language and CBO’s then current 

baseline assumptions. For example, in preparing this estimate of cost, CBO assumed 

that the amount of the stipend would equal the average worker contribution of family 

health care plans. Since the Ronald W. Reagan National Defense Authorization Act for 

Fiscal Year 2005 did not identify the specific design features of a stipend program for our 

review, it was difficult to identify a reliable anticipated participation rate for a stipend 

program. In addition, DOD estimated that it would cost about $10 million for startup 

costs in the first year of implementation and $20 to $25 million annually to administer 

stipend payments to participating reserve component members. Adding the DOD 

administrative cost estimates to the CBO program cost estimates and comparing them to 

CBO estimates for TRICARE shows that a stipend program would cost DOD $230 million 

(45.5 percent) more than TRICARE over a 5-year period (fiscal years 2006 through 2010). 

(See enclosure II for estimate of cost assumptions.) 

CBO Estimate of Cost for a Health Care Stipend Program

CBO developed an estimate of cost for a stipend program at varying rates of 

participation by reserve component members in the program. In consultation with CBO 

analysts, we agreed that CBO would prepare an estimate of cost for a stipend program 

equal to the employee’s share of health insurance, excluding federal employees. Since 

the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 did not 

identify the specific design features of a stipend program for our review, it was difficult 

to identify a reliable anticipated participation rate for a stipend program. As proxies for 

varying rates of participation, we requested CBO to prepare an estimate of cost at three 

levels of participation: low range (45 percent of eligible population), medium range (75 

percent of eligible population), and high range (90 percent of eligible population). We 

selected the low range of participation (45 percent) as a marker representing the 

percentage of activated reserve component members with spouses and dependents that 

had private health insurance before the members activated and chose to continue this 

insurance coverage while they were activated and after excluding those members 

expected to participate in the TRICARE Reserve Select program. Similarly, we selected 

the medium range (75 percent) as a marker representing those reserve component 

members with dependents that had private health insurance before they were activated 
7 GAO-06-128R Defense Health Care

and also after excluding those members expected to participate in the TRICARE Reserve 

Select program. We selected the high range (90 percent) rather than 100 percent since 

full participation in a program is rarely achieved. 

Using a range of specified participation rates in a stipend program, CBO estimated that 

DOD’s cost for a stipend program, exclusive of administrative costs, ranged from $365 

million to $735 million for fiscal years 2006 through 2010, as shown in table 1.14

Table 1: CBO Estimate of Cost for a Health Care Stipend Program At Varying Rates of Participation, 

Exclusive of Administrative Costs, Fiscal Years (FY) 2006 – 2010a

Dollars in millions 

Rates of 

Participation in 

Stipend Program 

FY 2006b

 FY 2007 FY 2008 FY 2009 FY 2010 Total Cost For 

FY 2006-2010 

Low range (45 percent 

of eligible population) 

60 105 85 60 55 365 

Medium range (75 

percent of eligible 

population) 

100 170 140 110 90 610 

High range (90 

percent of eligible 

population) 

120 205 170 135 105 735 

Sources: Estimate of cost from CBO; rates of participation provided by GAO. 

a

CBO officials cautioned that in the absence of specific legislative language that describes the design of a proposed stipend program in detail, CBO’s estimates should be 

considered preliminary. Final CBO estimates would reflect actual legislative language and CBO’s then current baseline assumptions. b

CBO’s estimate assumed that costs would be less in 2006 as the first year of the program because it takes time for potential participants to become aware of and actually enroll 

in the program. For this reason, CBO estimated that participants would receive the stipend for only part of the year in the first year of the program.

Administrative Costs

DOD officials believe that the method of paying the stipend—directly to reserve 

component members, to employers, or to insurance companies—would affect DOD’s 

administrative costs. Office of the Assistant Secretary of Defense for Reserve Affairs 

(OASD/RA) officials commented that there would be administrative costs to establish 

and administer the payment system, regardless of which method is mandated. However, 

OASD/RA officials believe that the administrative costs might be smaller if the payments 

were provided directly to the reserve component member. This would avoid the need to 

establish a new, unique process to handle payments/claims from hundreds or thousands 

of employers/insurance companies. 

If stipend payments are made directly to the reserve component member, OASD/RA 

officials commented that some members may use the payments for expenses other than 

health insurance unless appropriate internal control processes are incorporated. In 

addition, CBO advised us that the decision to pay stipends directly to the reserve 

component member could affect participation rates, and therefore, program costs. 

 

14 We did not assess the implications of making a stipend payment taxable or non-taxable to the reserve 

component member. If the stipend is taxable to the member, any taxes would effectively reduce the net 

cost to the government and the amount available to the member for defraying the cost of his or her private 

health insurance. We did not determine whether taxing the stipend would significantly affect the extent to 

which members would participate in a stipend program. 
8 GAO-06-128R Defense Health Care

In order to calculate administrative costs for a stipend program, DOD officials 

commented that the requirements of the stipend program would need to be defined, 

including the eligibility rules, portion of the premium to be covered by stipend, and 

required documentation. 

DOD’s TRICARE Management Activity estimated that administrative costs for a stipend 

being paid directly to the member would approximate $10 million in startup costs and 

$20 to $25 million annually to administer the program. We were told that DOD had not 

estimated administrative costs for stipend payments being paid directly to employers or 

health insurance companies. 

Comparative Costs Under TRICARE

We compared the estimated cost to DOD of providing health care for dependents of 

activated reserve component members under a stipend program and under TRICARE. 

For this comparison, we used the medium range, or 75 percent participation rate, for a 

health care stipend program.15 Based on CBO’s estimate of cost at the 75 percent 

participation level and DOD’s estimate of administrative costs, a stipend program could 

cost DOD $735 million compared with estimated costs of $505 million to provide 

TRICARE to reserve component members’ spouses and dependents. Thus, the net cost 

of providing a stipend to reserve component members is estimated to be $230 million 

(45.5 percent) more expensive than TRICARE over the 5 year period (fiscal years 2006 

through 2010), as shown in table 2. This net difference will vary depending on the 

participation rate.

Table 2: Estimated Costs to DOD for Health Care Stipend Program Compared to TRICARE 

Dollars in millions 

FY 2006 FY 2007 FY 2008 FY2009 FY 2010 Total Costs 

For FY 

2006-2010 

Under Stipend 

Program At 75 

Percent 

Participation 

Rate including 

Administrative 

Costsa

125 195 165 135 115 735 

Under 

TRICAREb

150 120 100 75 60 505 

Difference <25> 75 65 60 55 230 

Source: Estimate of cost for stipend program and under TRICARE from CBO; estimate of administrative costs from TRICARE Management Activity. a

For this comparison of estimated costs, we used $25 million each year for administrative costs. 

b

See enclosure II for CBO assumptions in the estimate of cost under TRICARE. 

 

15 DOD officials also expressed concern that a stipend payment may represent a dual benefit to the reserve 

component member if the stipend includes a portion for the member even though the member is already 

covered by TRICARE while activated. 
9 GAO-06-128R Defense Health Care

Stipend Program Could Improve Continuity of Health Care For Reserve 

Component Members’ Families, But May Have Minimal Impact On Other 

Reserve Issues 

Implementing a stipend program to help defray a family’s cost of maintaining their 

private health insurance when a reserve component member is activated for duty may 

have positive implications in terms of continuity of care and decreased costs for civilian 

employers; however, DOD officials do not believe that other factors—such as 

recruitment, retention, and medical readiness—would likely be significantly affected. By 

providing a stipend for health coverage to reserve component members, fewer families 

may experience disruptions in medical treatment. In addition, civilian employers may 

decide to reduce their contribution for the reserve component members’ private health 

insurance while the member is activated if a stipend is available. However, a stipend is 

not likely to cause more individuals to join or remain in the reserve components, or 

improve the medical readiness of activated reserve component members. 

Health Care Stipend Program Could Improve Continuity of Care and May Decrease 

Civilian Employer Costs

A DOD health care stipend program could improve the continuity of care for families of 

reserve component members and may decrease costs for civilian employers while the 

member is activated. Officials with the Office of the Assistant Secretary of Defense for 

Health Affairs commented that payment of a stipend might enable families to avoid 

disruption in ongoing medical treatment caused by families shifting to TRICARE when 

the reserve component member is ordered to active duty for a period of more than 30 

days because, with a stipend, dependents would be able to keep their same health care 

providers. Officials pointed out that the Ronald W. Reagan National Defense 

Authorization Act for Fiscal Year 2005 provides authority for waiving TRICARE 

deductibles and enabling higher payments to physicians who do not accept TRICARE 

payment rates, which would also increase the likelihood that family members can 

continue receiving care from the same health care providers. According to an official in 

the Office of the Assistant Secretary of Defense for Reserve Affairs (OASD/RA), DOD is 

still in the process of rule-making for these provisions; however, in the interim, a 

demonstration project for reserve component family members with these provisions has 

been extended until October 2007. Officials with the Military Officers Association of 

America and the Enlisted Association of the National Guard of the United States told us 

that switching to TRICARE may cause disruption of health care because some reserve 

component members live in areas that are not close to military treatment facilities and 

where health care providers may not accept TRICARE patients. In July 2003, we also 

reported that DOD and its contractors have reported long-standing health care provider 

shortages in some geographic areas and that a lack of health care providers in certain 
10 GAO-06-128R Defense Health Care

geographic locations, low reimbursement rates, and administrative requirements 

contribute to potential civilian provider network inadequacy.16

OASD/RA officials commented that the implications of a health care stipend program for 

employers would depend on how such a program is designed. DOD’s survey of reserve 

component members conducted in November 2004 found that employers for 42 percent 

of the respondents paid the entire premium for their private health insurance and 

another 43 percent paid a portion of the insurance premium while the member was 

activated. Because increasing employee health care costs are a major concern for 

employers, we believe that the availability of a stipend may encourage employers to 

transfer all or a portion of their cost for continuing the employer-based health insurance 

to DOD. While there is no empirical evidence that describes employer reactions, 

OASD/RA officials believe that employers who paid some portion or all of the premium 

payments for reserve component members who continue their private health insurance 

while activated are unlikely to continue making such payments if the federal government 

covers the expense. If employers reduce their contribution for the premium because of 

the availability of a stipend, the employee’s share could increase and, therefore, the 

potential cost of a stipend program may increase if the amount of the stipend is linked to 

the employee’s share. 

Neither the National Association of Manufacturers nor the National Federation of 

Independent Businesses had surveyed their employer memberships about the proposed 

stipend program. Similarly, neither had taken any positions on legislative proposals to 

provide stipends to reserve component members. However, officials from both 

organizations commented that they believe the vast majority of their members would 

prefer that stipends be made to employees or insurance companies rather than to 

employers. They added that most employers do not like the idea of dealing with the 

federal government because of the various reporting and verification requirements that 

usually accompany such a program. Also, most of their member-employers are relatively 

small companies with small human resource staffs that would likely have additional 

responsibilities associated with a stipend program. 

Less Impact on Other Reserve Component Issues 

DOD officials are unaware of any evidence to support that a stipend would have any 

impact on several other issues affecting the reserve components, including medical 

readiness, recruitment, or retention of reserve component members. Representatives of 

three military service organizations we contacted had mixed views about the effects of a 

stipend program on recruitment but two of the three organizations believed that it could 

positively affect retention in the reserve component. 

• Recruitment: OASD/RA officials commented that DOD has no evidence that any 

form of medical benefits or the prospect of such benefits during future periods of 

 

16 GAO, Defense Health Care: Oversight of the TRICARE Civilian Provider Network Should Be Improved, 

GAO-03-928 (Washington, D.C.: July 31, 2003). 
11 GAO-06-128R Defense Health Care

active duty affect individuals’ decisions to join the reserve component. Officials 

commented that it is very unlikely that the potential for future medical benefits is 

an important factor in the decision of non-prior service recruits to join the reserve 

component. However, officials commented that a stipend program may 

contribute positively to the decision of prior-service recruits to join the reserve 

component because their families would be able to remain in the same health care 

system and keep the same providers while the members are on active duty. 

Officials with the Reserve Officers Association of the United States commented 

that they do not believe a health care stipend program would draw more people to 

the reserve component. Similarly, officials with the Military Officers Association 

of America said that they are not sure of the extent to which a stipend program 

would impact recruitment. However, officials with the Enlisted Association of the 

National Guard of the United States commented that they believe a stipend 

program may positively impact the recruitment of older individuals with families 

but have less of an impact on younger members without families. 

• Retention: Although DOD has not surveyed reserve component members to 

determine the effect a stipend might have on retention, OASD/RA officials believe 

that it is unlikely that a stipend program would appreciably affect overall reserve 

component member retention. Officials cited recent surveys of National Guard 

and reserve members that found health care, in general, was ninth in relative 

importance in their decision to continue to participate in the reserve component. 

Only four percent of the respondents placed health care as the most important 

factor affecting their decision, and fewer than 15 percent placed it in their top 

three considerations. Some factors that were more important than health care for 

members’ decision making as to whether to continue to participate in the reserve 

component were pay and allowances, military retirement, and predictability, 

frequency, and duration of deployments. Officials with the Enlisted Association 

of the National Guard of the United States said that a stipend program could 

positively impact retention of reserve component members since it would 

improve the continuity of care for families. Officials with the Reserve Officers 

Association of the United States said that they believe a stipend program would 

have a positive impact on retention because the lack of control in choosing health 

care insurance coverage is one of many reasons cited by reserve component 

members who leave military service. Officials with the Military Officers 

Association of America were unsure of the extent to which a stipend would 

impact retention but said that health care disruption is one of many factors 

causing retention problems. 

• Medical readiness: DOD officials commented that it is difficult to understand how 

a stipend program for dependents would improve the medical readiness of reserve 

component members. They added that the only possible impact of a stipend 

program on medical readiness is the peace of mind achieved through the 

knowledge that members’ families would be able to continue their private health 

insurance. However, officials commented that they are not aware of any study 

that supports the assumption that the member, while deployed, may enjoy 
12 GAO-06-128R Defense Health Care

increased peace of mind knowing their family members have health care coverage 

through private health insurance rather than TRICARE. 

Concluding Observations 

DOD officials believe that making stipend payments directly to the reserve component 

member would be more efficient than making such payments to the members’ employers 

or health insurance plans. Further, CBO points out that making stipend payments 

directly to the member could increase the rate of participation in a stipend program and 

thus increase the cost of the program. We believe that making stipend payments 

available to the member creates some risk that the funds may not be used for the 

intended purpose. To mitigate the risk of abuse, appropriate internal controls are 

important in implementing a health care stipend program. 

Agency Comments And Our Evaluation 

DOD provided written comments on a draft of this report, which are found in enclosure 

III. The Assistant Secretary of Defense for Reserve Affairs commented that the 

estimated cost of a stipend program could be substantially more than the CBO estimate 

of cost, depending on the specific requirements included in proposed legislation. Factors 

the Assistant Secretary said could significantly increase the cost of a stipend program 

included: 

• Continued deployment of reserve component members at fiscal year 2006 levels 

rather than assuming a decreasing number of deployed members; 

• Payment of a stipend amount higher than the average worker contribution for 

health insurance for employed workers; and 

• Payment of a stipend during the period before and after the member is activated. 

We agree that the cost of the stipend program could be significantly more than the CBO 

estimate. As noted in our report, the actual cost of a stipend program would depend on 

the number of reserve component members activated over the next five years and the 

specific design of a stipend program. CBO’s estimate of cost is based on the 

assumptions provided in enclosure II. 
13 GAO-06-128R Defense Health Care

Changes were made to the report, where appropriate, to respond to technical comments. 

We are sending copies of this report to the Secretary of Defense and other interested 

parties. We will provide copies of this report to others upon request. In addition, the 

report is available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact me at (202) 512-

5559 or stewartd@gao.gov. Key contributors to this report are listed in enclosure IV. 

Sincerely yours, 

Derek B. Stewart 

Director, Defense Capabilities and Management 
Enclosure I 

14 GAO-06-128R Defense Health Care

Scope and Methodology 

To meet our objectives, we interviewed responsible officials and reviewed pertinent 

documents, reports, and information, when available, related to the cost and effects of 

providing a stipend to activated reserve component members obtained from officials at 

the Office of the Assistant Secretary of Defense for Reserve Affairs; the Office of the 

Assistant Secretary of Defense for Health Affairs; the TRICARE Management Activity; 

the Defense Manpower Data Center (DMDC); representatives of selected military service 

organizations—the Enlisted Association of the National Guard of the United States, the 

Reserve Officers Association of the United States, and the Military Officers Association 

of America; representatives of two organizations representing employers—the National 

Federation of Independent Businesses and the National Association of Manufacturers; 

DOD’s National Committee for Employer Support to the Guard and Reserve; and 

Humana Inc. 

To determine the cost to DOD for providing a stipend to activated reservists, we 

requested CBO to prepare an estimate of cost for fiscal year 2006 through fiscal year 

2010 for varying rates of participation in a stipend program since developing cost 

estimates associated with legislative proposals is not within our purview, but rather 

CBO’s. In consultation with CBO analysts, we agreed that CBO would prepare an 

estimate of cost for a stipend program for a stipend equal to the employee’s share of 

health insurance, excluding federal employees, for the specified participation rates, 

utilizing those assumptions that CBO considered most appropriate and its expertise in 

preparing cost projections.17

Since the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 did 

not identify the specific design features of a stipend program, it was difficult to identify a 

reliable anticipated participation rate for a stipend program. To identify reasonable 

markers for participation rates in a stipend program, we analyzed recent data obtained 

from the May 2003 Status of Forces survey administered to members of the reserve 

component regarding the percentage that have health insurance other than TRICARE 

and the percentage that maintained this coverage when they were activated. Based on 

discussions with DOD officials, we chose the May 2003 Status of Forces survey instead 

of the more recent November 2004 survey for three reasons: (1) the series of questions 

related to other health insurance in the May 2003 survey seemed more straight-forward 

than in the November 2004 survey, which did not ask an overall question on the 

percentage of families with insurance prior to their most recent activation; (2) the May 

2003 survey response percentages for other health insurance coverage were consistent 

with our prior analysis of this issue from 2000 survey data; and (3) quality control checks 

were possible on the May 2003 survey that were not possible on the November 2004 

survey. In addition, DMDC officials had not analyzed the November 2004 survey data to 

 

17 CBO officials cautioned that in the absence of specific legislative language that describes the design of a 

proposed stipend program in detail, CBO’s estimates should be considered preliminary. Final CBO 

estimates would reflect actual legislative language and CBO’s then current baseline assumptions. 

 
Enclosure I 

15 GAO-06-128R Defense Health Care

the same degree that the May 2003 survey data had been analyzed. We found estimates 

from the May 2003 Status of Forces survey to be sufficiently reliable for the purposes of 

this report. 

As proxies for varying rates of participation, we requested CBO to prepare an estimate of 

cost at three levels of participation: low (45 percent of eligible population), medium (75 

percent of eligible population), and high (90 percent of eligible population). We selected 

the low level of participation (45 percent) as a marker representing the percentage of 

activated reserve component members with dependents that had continued their private 

health insurance while they were activated and after excluding those members (17 

percent) expected by the TRICARE Management Activity to participate in the TRICARE 

Reserve Select program. Similarly, we selected the medium level (75 percent) as a 

marker representing those reserve component members with dependents that had 

private health insurance before they were activated and also after excluding those 

members expected by the TRICARE Management Activity to participate in the TRICARE 

Reserve Select program. We selected the high level (90 percent) as a marker, 

recognizing that full participation in a program is rarely achieved. 

At our request, CBO also prepared an estimate of cost to DOD for dependents of 

activated reserve component members using TRICARE instead of receiving the stipend. 

For the estimate of cost for TRICARE, CBO used the average TRICARE cost per 

dependent based on fiscal year 2003 TRICARE costs for active duty dependents. We did 

not independently verify the data used by CBO in preparing its estimate of cost. 

Enclosure II shows the assumptions used by CBO in preparing its estimates of cost for a 

stipend program and comparative costs under TRICARE. 

We discussed administrative and management considerations for DOD in implementing a 

stipend program with DOD officials and obtained related documentation. We also 

obtained an estimate of the cost to administer a stipend program from the TRICARE 

Management Activity. We did not independently assess the reliability of DOD’s estimate 

for administrative costs. 

To identify the potential implications of a stipend program on recruitment, retention, and 

medical readiness, we discussed and obtained documentation from DOD’s Office of the 

Assistant Secretary of Defense for Reserve Affairs and Office of the Assistant Secretary 

of Defense for Health Affairs and representatives of selected military service 

organizations—the Enlisted Association of the National Guard of the United States, the 

Reserve Officers Association of the United States, and the Military Officers Association 

of America. We also analyzed the November 2004 DOD survey of reserve component 

members to identify those factors they consider important for retention. 

We discussed the potential implications of a stipend program on continuity of care for 

dependents with pre-existing health conditions with DOD officials and obtained related 

documentation. We also discussed the prevalence of special medical needs within the 

TRICARE dependent population with a Humana Inc. official since Humana Inc. has the 

contract for administering the TRICARE program for about 2.8 million beneficiaries in 

the 10-state South region. 
Enclosure I 

16 GAO-06-128R Defense Health Care

We also discussed the potential implications of a stipend program for employers with 

representatives of two organizations representing employers—the National Federation 

of Independent Businesses and the National Association of Manufacturers—with 

officials representing DOD’s National Committee for Employer Support to the Guard and 

Reserve, and with DOD officials. We also obtained related documentation, when 

available, from these organizations and officials. 

We performed our work from February 2005 through September 2005 in accordance with 

generally accepted government auditing standards. 
Enclosure II 

17 GAO-06-128R Defense Health Care

 

Assumptions Used In CBO Estimate of Cost For the Stipend Program and 

Comparative Costs Under TRICARE 

In developing the estimate of cost for the stipend program at specified participation 

rates, CBO used the following assumptions: 

• Based on an analysis of the number and types of reserve component members 

currently activated, CBO estimates that 165,000 reserve component members will 

be activated in 2005. CBO assumes that force levels and overseas operations for 

2006 will remain at levels expected for 2005 and decline gradually over several 

years. If the number of reserve component members called to active duty were to 

remain at current levels over the 2006 through 2010 period, the cost of this 

program would be significantly higher. Costs are based on the following numbers 

of reserve component members being activated for more than 30 days: 

Table 3: Number of Reserve Component Members Activated For More Than 30 Days, Fiscal Years 2006 

Through 2010 

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 

Reserve 

component 

members 

activated for 

more than 30 

days 

165,000 130,000 100,000 75,000 55,000 

Source: CBO. 

• The stipend is available only to activated reserve component members with 

dependents. Sixty percent of the activated reservists would have dependents 

based on 2005 data from DOD’s Reserve Component Common Personnel Data 

System. 

• No cost was included for the 11 percent of reserve component members with 

dependents who are assumed to be enrolled in the Federal Employee Health 

Benefits Program based on 2005 data from DOD’s Reserve Component Common 

Personnel Data System and 2004 data from the Office of Personnel Management 

Central Personnel Data File. 

• Amount of the stipend is the average worker contribution of family health 

insurance premiums based on 2004 data from The Kaiser Family Foundation and 

Health Research and Education Trust. 

• Health insurance premiums would increase at an annual inflation rate of 7 

percent. 

In calculating the estimated costs for the dependents of the activated reserve component 

members under TRICARE, CBO used the following assumptions: 
Enclosure II 

18 GAO-06-128R Defense Health Care

• Only 30 percent of activated reserve component members with dependents move 

their dependents to TRICARE when activated. 

• The average number of dependents per activated member is 2.3 based on 2005 

data from DOD’s Reserve Component Common Personnel Data System. 

• Average TRICARE cost per dependent is based on the fiscal year 2003 TRICARE 

costs for active duty dependents. 

• TRICARE costs per dependent will increase annually by CBO’s Consumer Price 

Index—Medical component forecast. 
Enclosure III 

19 GAO-06-128R Defense Health Care

 Comments From the Department Of Defense 
Enclosure III 

20 GAO-06-128R Defense Health Care
Enclosure III 

21 GAO-06-128R Defense Health Care
Enclosure IV 

22 GAO-06-128R Defense Health Care

 

GAO Contact and Staff Acknowledgments 

GAO Contact Derek B. Stewart (202) 512-5559 or stewartd@gao.gov 

Acknowledgments In addition to the individual named above, Brenda Farrell, 

Assistant Director; Steve Fox; Joseph Applebaum; Timothy 

Carr; Alissa Czyz; Jennifer Popovic; William Mathers; Elisha 

Matvay; Terry Richardson; Clifton Spruill; John Van Schaik; 

and Michael Zola made key contributions to this report. 

(350659) 
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