Report to Congressional Committees 

United States General Accounting Office 

GAO 

June 2003 MILITARY RETIREE 

HEALTH BENEFITS 

Enrollment Low in 

Federal Employee 

Health Plans under 

DOD Demonstration 

GAO-03-547 
Enrollment in the DOD-FEHBP demonstration was low, peaking at 5.5 

percent of eligible beneficiaries in 2001 (7,521 enrollees) and then falling to 

3.2 percent in 2002, after the introduction of comprehensive health coverage 

for all Medicare-eligible military retirees. Enrollment was considerably 

greater in Puerto Rico, where it reached 30 percent in 2002. Most retirees 

who knew about the demonstration and did not enroll said they were 

satisfied with their current coverage, which had better benefits and lower 

costs than the coverage they could obtain from FEHBP. Some of these 

retirees cited, for example, not being able to continue getting prescriptions 

filled at military treatment facilities if they enrolled in the demonstration. 

For those who enrolled, the factors that encouraged them to do so included 

the view that FEHBP offered retirees better benefits, particularly 

prescription drugs, than were available from their current coverage, as well 

as the lack of any existing coverage. 

Monthly premiums charged to enrollees for individual policies in the 

demonstration varied widely—from $65 to $208 in 2000—with those plans 

that had lower premiums and were better known to eligible beneficiaries, 

capturing the most enrollees. In setting premiums initially, plans had little 

information about the health and probable cost of care for eligible 

beneficiaries. Demonstration enrollees proved to have lower average health 

care costs than either their counterparts in the civilian FEHBP or those 

eligible for the demonstration who did not enroll. Plans enrolled similar 

proportions of beneficiaries in poor health, regardless of whether they 

charged higher, lower, or the same premiums for the demonstration as for 

the civilian FEHBP. 

In commenting on a draft of the report, DOD concurred with the overall 

findings but disagreed with the description of the demonstration’s impact on 

DOD’s budget as small. As noted in the draft report, DOD’s costs for the 

demonstration relative to its total health care budget were less than 0.1 

percent of that budget. OPM declined to comment. 

DOD-FEHBP Demonstration Enrollment, 2000-2002 

Note: Enrollment is expressed as a percentage of eligible beneficiaries. 

Prior to 2001, military retirees who 

turned age 65 and became eligible 

for Medicare lost most of their 

Department of Defense (DOD) 

health benefits. The DOD-Federal 

Employees Health Benefits 

Program (FEHBP) demonstration 

was one of several demonstrations 

established to examine alternatives 

for addressing retirees’ lack of 

Medicare supplemental coverage. 

The demonstration was mandated 

by the Strom Thurmond National 

Defense Authorization Act for 

Fiscal Year 1999 (NDAA 1999), 

which also required GAO to 

evaluate the demonstration. GAO 

assessed enrollment in the 

demonstration and the premiums 

set by demonstration plans. To do 

this, GAO, in collaboration with the 

Office of Personnel Management 

(OPM) and DOD, conducted a 

survey of enrollees and eligible 

nonenrollees. GAO also examined 

DOD enrollment data, Medicare 

and OPM claims data, and OPM 

premiums data. 

www.gao.gov/cgi-bin/getrpt?GAO-03-547.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Marjorie E. 

Kanof (202) 512-7101. 

Highlights of GAO-03-547, a report to 

Congressional Committees 

June 2003

MILITARY RETIREE HEALTH BENEFITS

Enrollment Low in Federal Employee 

Health Plans under DOD Demonstration 
Page i GAO-03-547 Military Retiree Health Benefits 

Letter 1

Results in Brief 3

Background 5

Enrollment Was Low, Largely Due to Beneficiaries’ Satisfaction 

with Existing Coverage 13

Premiums Varied Widely, Reflecting Plans’ Different Assessments 

of Demonstration Risk 20

Impact of Demonstration on DOD Was Limited Due to Small Size 

and Low Enrollment, but Impact on Enrollees Was Greater 26

Agency Comments 27

Appendix I GAO-DOD-OPM Survey of Military Retirees and 

Others Eligible for the DOD-FEHBP Demonstration 30 

Appendix II Data, Methods, and Models Used in Analyzing 

Factors Affecting DOD-FEHBP Demonstration 

Enrollment 35 

Appendix III Enrollment in the DOD-FEHBP Demonstration 43 

Appendix IV DOD’s Approach to Informing Beneficiaries about 

the DOD-FEHBP Demonstration 45 

Appendix V Enrollees’ and Nonenrollees’ Reasons for Joining 

or Not Joining a DOD-FEHBP Demonstration Plan 50 

Appendix VI Comments from the Department of Defense 52 

Contents 
Page ii GAO-03-547 Military Retiree Health Benefits 

Appendix VII GAO Contacts and Staff Acknowledgments 53 

GAO Contacts 53

Acknowledgments 53

Related GAO Products 54 

Tables 

Table 1: Number of Eligible Beneficiaries by DOD-FEHBP 

 Demonstration Site, 2000-2002 11

Table 2: Monthly Premiums Charged to Enrollees for Individual 

 Policies in the DOD-FEHBP Demonstration, 2000 21

Table 3: Average Spending on Medicare-covered Services for 

 Retirees Eligible for the DOD-FEHBP Demonstration—by 

 Enrollment Status, 2000 25

Table 4: Major Survey Sections and Topics Covered 31

Table 5: Survey Responses and Nonresponses 33

Table 6: Population, Sample Size, and Response Rate, by DOD- 

 FEHBP Demonstration Site and Enrollee Status, 2000 34

Table 7: Estimated Effects of Selected Factors on Whether 

 Eligible Retirees Knew about the DOD-FEHBP 

 Demonstration 37

Table 8: Estimated Effects of Selected Factors on Whether 

 Eligible Retirees Enrolled in an FEHBP Plan 39

Table 9: Health Status Comparisons of DOD-FEHBP 

 Demonstration Enrollees with Eligible Retirees Who Did 

 Not Enroll and with Civilian FEHBP Retirees, Based on 

 PIP-DCG Scores 42

Table 10: Enrollment in the DOD-FEHBP Demonstration, 2000 43

Table 11: Enrollment in the DOD-FEHBP Demonstration, 2001 43

Table 12: Enrollment in the DOD-FEHBP Demonstration, 2002 44

Table 13: Beneficiaries Who Recalled Receiving DOD-FEHBP 

 Demonstration Mailings and Who Found Them Useful 46

Table 14: Beneficiaries’ Sources of Information about the DOD- 

 FEHBP Demonstration 48

Table 15: Sources of Information for Eligible Beneficiaries about 

 Specific FEHBP Plans 49

Table 16: Survey Responses by Enrollees to the Question “Why Did 

 You Join a DOD-FEHBP Health Plan?” 50

Table 17: Survey Responses by Nonenrollees to the Question “Why 

 Didn’t You Join a DOD-FEHBP Health Plan?” 51 
Page iii GAO-03-547 Military Retiree Health Benefits 

Figures 

Figure 1: DOD-FEHBP Demonstration-wide Enrollment, 2000-2002 14

Figure 2: DOD-FEHBP Demonstration Enrollment on the Mainland 

 and in Puerto Rico, 2000-2002 15

Figure 3: DOD-FEHBP Demonstration Enrollment by Type of 

 Previous Health Coverage, 2000 19

Figure 4: Comparison of Premiums for the DOD-FEHBP 

 Demonstration with Civilian FEHBP Premiums, 2000 23

Abbreviations 

CMS Centers for Medicare & Medicaid Services 

DOD Department of Defense 

FAQ frequently asked questions 

FEHBP Federal Employees Health Benefits Program 

HMO health maintenance organization 

MTF military treatment facility 

NMOP National Mail Order Pharmacy 

OBRA 1990 Omnibus Budget Reconciliation Act of 1990 

OPM Office of Personnel Management 

PIP-DCG Principal Inpatient Diagnostic Cost Group 

POS point-of-service 

PPO preferred provider organization 

SNF skilled nursing facility 

TFL TRICARE For Life 

VA Department of Veterans Affairs 

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Page 1 GAO-03-547 Military Retiree Health Benefits 

June 6, 2003 

Congressional Committees 

Prior to 2001, military retirees who turned age 65 and became eligible for 

Medicare lost most of their Department of Defense (DOD) health care 

benefits. DOD did not offer its military retirees1

 Medicare supplemental 

coverage, which some private employers make available to their retirees. 

Such coverage pays for Medicare deductibles and copayments as well as 

certain items not covered by Medicare, including most outpatient 

prescription drugs. Military retirees age 65 and over could obtain free care 

from the more than 600 military treatment facilities (MTF), but only if 

space was available after beneficiaries under age 65 had been treated. 

Older retirees could also get prescription drugs at no charge from MTF 

pharmacies if the drugs were stocked by the MTFs, although only about 40 

percent of retirees age 65 and over lived close to an MTF. 

To gather information on alternative ways of addressing military retirees’ 

lack of Medicare supplemental coverage, Congress established several 

demonstrations that allowed Medicare-eligible military retirees to enroll in 

DOD-sponsored health care programs.2

 One of those demonstrations was 

the DOD Federal Employees Health Benefits Program (FEHBP) 

demonstration (“the demonstration”),3

 which lasted from 2000 through 

2002. Under the demonstration, military retirees and several smaller 

groups of beneficiaries4

—such as certain former spouses of active duty 

 1

Our use of the term “military retirees” includes their dependents and survivors age 65 and 

over. 

2

The Medicare subvention demonstration allowed retirees to enroll in new DOD-run 

Medicare managed care plans at six sites. See U.S. General Accounting Office, Medicare 

Subvention Demonstration: Pilot Satisfies Enrollees, Raises Cost and Management 

Issues for DOD Health Care, GAO-02-284 (Washington, D.C.: Feb. 11, 2002). Another 

demonstration, called TRICARE Senior Supplement, used TRICARE—the DOD health care 

program covering military personnel, younger retirees, and their dependents—to 

supplement retirees’ Medicare coverage. 

3

The demonstration was created by the Strom Thurmond National Defense Authorization 

Act for Fiscal Year 1999, (NDAA 1999) Pub. L. No. 105-261, § 721, 112 Stat. 1920, 2061 

(1998) (codified at 10 U.S.C. § 1108) (2000). 

4

In this report, the term “beneficiaries” refers to all those eligible for the demonstration: 

retirees, their spouses and other dependents, and other beneficiaries designated by law. It 

includes some persons under age 65. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-547 Military Retiree Health Benefits 

military personnel and retirees—could purchase coverage from one of the 

private health plans that participate in FEHBP, the federal government’s 

health insurance program for civilian employees and retirees. DOD 

subsidized this retiree health coverage, paying up to three-quarters of the 

premium. Enrollees could no longer use MTFs or military pharmacies. The 

demonstration was open to about 120,000 of the more than 1.5 million 

military retirees and dependents age 65 and over.5

 It initially included 

retirees and other eligible beneficiaries in eight geographic areas and 

expanded in 2001 to include two additional areas. 

The law establishing the demonstration (the Strom Thurmond National 

Defense Authorization Act for Fiscal Year 1999 (NDAA 1999)) directed us 

to examine a number of topics relating to enrollment and the 

demonstration’s effects on beneficiaries and DOD.6

 Specifically, this report 

addresses (1) enrollment in the demonstration and the factors that 

influenced whether military retirees enrolled, (2) the premiums set by 

FEHBP plans for the demonstration and their strategies for setting 

premiums, and (3) any effects that the demonstration project had on DOD 

and beneficiaries—enrollees and nonenrollees. 

To address these topics, we, in cooperation with DOD and the Office of 

Personnel Management (OPM), which administers FEHBP, surveyed 

between May and August 2000 a representative sample of about 5,600 

persons eligible for the demonstration, of whom 85 percent responded. To 

analyze factors affecting enrollment, we obtained survey information from 

both enrollees and nonenrollees on health status, insurance coverage, and 

other factors potentially affecting their enrollment decisions. We also 

obtained information from DOD on persons eligible for the demonstration 

and their use of military health care. We obtained information from 

Quotesmith Inc. on premiums for private Medigap insurance plans that 

supplement Medicare and are sold directly to individuals. To assess the 

premiums offered by FEHBP plans, we obtained information from OPM on 

premiums in the demonstration and in the civilian FEHBP. To obtain 

information on whether demonstration enrollees were sicker than others, 

we used Medicare claims on the diagnoses and costs of enrollees, eligible 

nonenrollees, and civilian FEHBP enrollees age 65 and over who lived 

near the demonstration sites. To examine the costs of demonstration 

 5

In addition, the demonstration was open to approximately 17,000 eligible beneficiaries 

under age 65. 

6

10 U.S.C. § 1108(k) (2000). 
Page 3 GAO-03-547 Military Retiree Health Benefits 

enrollees, we obtained information from OPM and from Medicare claims. 

We restricted some analyses to retirees age 65 and over for two reasons. 

First, these retirees constituted 85 percent of all enrollees. Second, cost 

and diagnostic information was available for these retirees but not for 

beneficiaries under age 65. We also interviewed representatives of military 

retiree associations as well as DOD and OPM officials. (See app. I for a 

discussion of our survey methods and app. II for a discussion of our 

methods of analyzing health status and factors affecting enrollment, 

including tests of statistical significance.) We found that the size and 

design of the demonstration were adequate for us to evaluate its effects 

and answer the questions that Congress asked. We performed our work in 

phases from November 1999 through May 2003. In 1999 and 2000, we 

observed the initial planning and implementation of the demonstration, 

and in 2000 we conducted the GAO-OPM-DOD survey. At the end of 2002 

and in 2003, after the demonstration had ended, we conducted additional 

analyses. We completed our work in accordance with generally accepted 

government auditing standards. 

Enrollment in the DOD-FEHBP demonstration peaked at 5.5 percent of 

potential beneficiaries in 2001 (7,521 enrollees) and then fell to 3.2 percent 

in 2002, after the introduction of comprehensive health coverage—

TRICARE For Life (TFL) and the senior pharmacy benefit—for Medicareeligible military retirees.7

 Enrollment was considerably greater in Puerto 

Rico than on the mainland,8

 reaching 30 percent in 2002. Most retirees who 

knew about the demonstration and did not enroll said they were satisfied 

with their current coverage—it had better benefits and lower costs than 

the coverage they could obtain through the demonstration. Many 

nonenrollees also cited not being able to continue getting prescriptions 

filled at no charge at MTFs if they enrolled. Among the relatively small 

proportion of people who did enroll, factors that encouraged their 

enrollment included their view that the demonstration offered better 

benefits, such as prescription drugs, than were available to them from 

other plans, and their lack of existing coverage, such as employersponsored insurance or a Medicare managed care plan. These factors also 

 7

The Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 allowed 

Medicare-eligible retirees to begin participating in TRICARE in 2001. Pub. L. No. 106-398, § 

712, 114 Stat.1645A, 1554A-176 (2000). 

8

The mainland refers to the 48 contiguous states. 

Results in Brief 
Page 4 GAO-03-547 Military Retiree Health Benefits 

help explain the high enrollment in Puerto Rico, where the share of 

retirees without existing coverage was much greater than on the mainland. 

Premiums charged enrollees in the demonstration varied widely—from 

$65 to $208 monthly for an individual policy in 2000—with those plans that 

had lower premiums and greater name recognition capturing the largest 

number of enrollees. In setting premiums, plans had little information 

about the health and probable cost of military beneficiaries. Plans adopted 

two different strategies to reduce their financial burden if they attracted 

sick, costly enrollees. One strategy kept premiums relatively low—at or 

near premiums in the civilian FEHBP, with the intent of attracting a 

representative mix of enrollees. The second strategy was to charge higher 

premiums than in the civilian program, which tended to discourage 

enrollment and provided a financial cushion in case those beneficiaries 

who enrolled proved costly. However, plans following the two different 

strategies attracted about the same proportion of enrollees who were in 

poor health. In addition, demonstration enrollees were on average less 

sick and younger than either their counterparts in the civilian program or 

demonstration nonenrollees. During the first year of the demonstration, 

enrolled retirees’ health care was considerably less expensive per person 

than the health care for their counterparts in the civilian FEHBP—$3,529 

(excluding prescription drugs) compared to $5,313. Premiums for 

individual policies rose on average in 2001, but they fell in 2002, the first 

time that a full year’s information on enrollees’ costs was available when 

OPM and the plans negotiated premiums. 

The demonstration’s impact on DOD’s budget, MTFs, and military 

beneficiary access to military health care was small, although its impact on 

beneficiaries who enrolled was considerable. The limited impact on DOD’s 

budget and MTFs was due in part to the demonstration’s small number of 

potential beneficiaries, relative to the more than 1.5 million military 

retirees age 65 and over, and in part to the small proportion that actually 

enrolled. For enrollees, the demonstration substantially expanded their 

choice of health care options. 

In commenting on a draft of this report, DOD said that it concurred with 

our overall findings but disagreed with our description of the 

demonstration’s impact on DOD’s budget as small. DOD’s costs for the 

demonstration relative to its total health care budget were less than 0.1 

percent of that budget. DOD provided technical comments that we 

incorporated as appropriate. OPM declined to comment. 
Page 5 GAO-03-547 Military Retiree Health Benefits 

Medicare is generally the primary source of health insurance for people 

age 65 and over. However, traditional Medicare leaves beneficiaries liable 

for considerable out-of-pocket costs, and most beneficiaries have 

supplemental coverage. Military retirees can also obtain some care from 

MTFs and, since October 1, 2001, DOD has provided comprehensive 

supplemental coverage to its retirees age 65 and over. Civilian federal 

retirees and dependents age 65 and over can obtain supplemental 

coverage from FEHBP. The demonstration tested extending this coverage 

to military retirees age 65 and over, and their dependents. 

Medicare, a federally financed health insurance program for persons age 

65 and older, some people with disabilities, and people with end-stage 

kidney disease, is typically the primary source of health insurance for 

persons age 65 and over. Eligible Medicare beneficiaries are automatically 

covered by part A, which includes inpatient hospital and hospice care, 

most skilled nursing facility (SNF) care, and some home health care.9

 They 

can also pay a monthly premium ($54 in 2002) to join part B, which covers 

physician and outpatient services as well as those home health services 

not covered under part A. Outpatient prescription drugs are generally not 

covered.10 Under traditional fee-for-service Medicare, beneficiaries choose 

their own providers and Medicare reimburses those providers on a fee-forservice basis. Beneficiaries who receive care through traditional Medicare 

are responsible for paying a share of the costs for most services. 

The alternative to traditional Medicare, Medicare+Choice, offers 

beneficiaries the option of enrolling in private managed care plans and 

other private health plans. In 1999, before the demonstration started, 

about 16 percent of all Medicare beneficiaries were enrolled in a 

Medicare+Choice plan; by 2002, the final year of the demonstration, 

enrollment had fallen to 12 percent. Medicare+Choice plans cover all basic 

 9

U.S. citizens and permanent residents are generally eligible for Medicare part A without 

having to pay a premium if they or their spouse worked for at least 10 years in Medicarecovered employment. Certain other persons with disabilities or end-stage kidney disease 

are also covered. Work by members of the armed services has been considered Medicarecovered employment since 1966, when Medicare was established. 

10Medicare generally covers outpatient prescription drugs only if they cannot be selfadministered and are related to a physician’s services, such as cancer chemotherapy, or are 

provided in conjunction with covered durable medical equipment, such as inhalation drugs 

used with a nebulizer. In addition, Medicare covers selected immunizations and certain 

drugs that can be self-administered, such as blood clotting factors and some oral drugs 

used in association with cancer treatment and immunosuppressive therapy. 

Background 

Medicare 
Page 6 GAO-03-547 Military Retiree Health Benefits 

Medicare benefits, and many also offer additional benefits such as 

prescription drugs, although most plans place a limit on the amount of 

drug costs they cover. These plans typically do not pay if their members 

use providers who are not in their plans, and plan members may have to 

obtain approval from their primary care doctors before they see 

specialists. Members of Medicare+Choice plans generally pay less out of 

pocket than they would under traditional Medicare.11

Medicare’s traditional fee-for-service benefit package and cost-sharing 

requirements leave beneficiaries liable for significant out-of-pocket costs, 

and most beneficiaries in traditional fee-for-service Medicare have 

supplemental coverage. This coverage typically pays part of Medicare’s 

deductibles, coinsurance, and copayments, and may also provide benefits 

that Medicare does not cover—notably, outpatient prescription drugs. 

Major sources of supplemental coverage include employer-sponsored 

insurance, the standard Medigap policies sold by private insurers to 

individuals, and Medicaid. 

Employer-sponsored insurance. About one-third of Medicare’s 

beneficiaries have employer-sponsored supplemental coverage. These 

plans, which typically have cost-sharing requirements, pay for some costs 

not covered by Medicare, including part of the cost of prescription drugs.12

Medigap. About one-quarter of Medicare’s beneficiaries have Medigap, the 

only supplemental coverage option available to all beneficiaries when they 

initially enroll in Medicare. Prior to 1992, insurers were free to establish 

the benefits for Medigap policies. The Omnibus Budget Reconciliation Act 

of 1990 (OBRA 1990) required that beginning in 1992, Medigap policies be 

standardized, and OBRA authorized 10 different benefit packages, known 

as plans A through J, that insurers could offer.13 The most popular Medigap 

policy is plan F, which covers Medicare coinsurance and deductibles, but 

not prescription drugs. It had an average annual premium per person of 

 11See U.S. General Accounting Office, Medicare+Choice: Selected Program Requirements 

and Other Entities’ Standards for HMOs, GAO-03-180 (Washington, D.C.: Oct. 31, 2002). 

12Employer-sponsored health benefits have declined over the last decade and continue to 

erode. See U.S. General Accounting Office, Retiree Health Insurance: Gaps in Coverage 

and Availability, GAO-02-178T (Washington, D.C.: Nov. 1, 2001). 

13The Balanced Budget Act of 1997 permitted insurers to offer high deductible versions of 

existing F and J plans. Pub. L. No. 105-33, § 4032. 111 Stat.251, 359 (1997). 

Medicare Supplemental 

Coverage 
Page 7 GAO-03-547 Military Retiree Health Benefits 

about $1,200 in 1999, although in some cases plan F cost twice that 

amount. Among the least popular Medigap policies are those offering 

prescription drug coverage. These policies are the most expensive of the 

10 standard policies—they averaged about $1,600 in 1999, and some cost 

over $5,000. Beneficiaries with these policies pay most of the cost of drugs 

because the Medigap drug benefit has a deductible and high cost sharing 

and does not reimburse policyholders for drug expenses above a set 

limit.14

DOD provides health care to active-duty military personnel and retirees, 

and to eligible dependents and survivors through its TRICARE program.15

Prior to 2001, retirees lost most of their military health coverage when 

they turned age 65, although they could still use MTFs when space was 

available, and they could obtain prescription drugs without charge from 

MTF pharmacies.16 In the Floyd D. Spence National Defense Authorization 

Act for Fiscal Year 2001 (NDAA 2001), Congress established two new 

benefits to supplement military retirees’ Medicare coverage: 

• Pharmacy benefit. Effective April 1, 2001, military retirees age 65 and 

over were given access to prescription drugs through TRICARE’s National 

Mail Order Pharmacy (NMOP) and civilian pharmacies. Retirees make 

lower copayments for prescription drugs purchased through NMOP than 

at civilian pharmacies. Retirees continue to have access to free 

prescription drugs at MTF pharmacies. 

• TFL. Effective October 1, 2001, military retirees age 65 and over who were 

enrolled in Medicare part B became eligible for TFL. As a result, DOD is 

now a secondary payer for these retirees’ Medicare-covered services, 

paying all of their required cost sharing. TFL also offers certain benefits 

not covered by Medicare, including catastrophic coverage. Retirees can 

continue to use MTFs without charge on a “space available” basis. 

 14See U.S. General Accounting Office, Medigap: Current Policies Contain Coverage Gaps, 

Undermine Cost Control Incentives, GAO-02-533T (Washington, D.C.: Mar. 14, 2002) and 

Medigap Insurance: Plans Are Widely Available but Have Limited Benefits and May 

Have High Costs, GAO-01-941 (Washington, D.C.: July 31, 2001). 

15DOD also provides health care to retired reserve service members and their families as 

well as Medal of Honor recipients and their families. 

16Retirees could obtain prescription drugs from an MTF only if the drugs were stocked by 

the MTF. In addition, over 400,000 beneficiaries age 65 and over were eligible for the mail 

order and retail pharmacy benefit as a result of the Base Realignment and Closure (BRAC) 

actions. 

Health Care for Military 

Retirees 
Page 8 GAO-03-547 Military Retiree Health Benefits 

In fiscal year 1999, before TFL was established, DOD’s annual 

appropriations for health care were about $16 billion, of which over 

$1 billion funded the care of military retirees age 65 and over. In fiscal year 

2002, DOD’s annual health care appropriations totaled about $24 billion, of 

which over $5 billion funded the care of retirees age 65 and over who used 

TFL, the pharmacy benefit, and MTF care. 

In addition to their DOD coverage, military retirees—but generally not 

their dependents—can use Department of Veterans Affairs (VA) facilities. 

There are 163 VA medical centers throughout the country that provide 

inpatient and outpatient care as well as over 850 outpatient clinics. VA 

care is free to veterans with certain service-connected disabilities or low 

incomes;17 other veterans are eligible for care but have lower priority than 

those with service-connected disabilities or low incomes and are required 

to make copayments. 

FEHBP, the health insurance program administered by OPM for federal 

civilian employees and retirees, covered about 8.3 million people in 2002. 

Civilian employees become eligible for FEHBP when hired by the federal 

government. Employees and retirees can purchase health insurance from a 

variety of private plans, including both managed care and fee-for-service 

plans, that offer a broad range of benefits, including prescription drugs. 

Insurers offer both self-only plans and family plans, which also cover the 

policyholders’ dependents. Some plans also offer two levels of benefits: a 

standard option and a high option, which has more benefits, less cost 

sharing, or both.18 For retirees age 65 and over, FEHBP supplements 

Medicare, paying beneficiaries’ Medicare deductibles and coinsurance in 

addition to paying some costs not covered by Medicare, such as part of the 

cost of prescription drugs.19

 17Veterans with a service-connected disability rating of 50 percent or more qualify for free 

health care in VA facilities. Their treatment may be for conditions unrelated to military 

service. The disability rating is based on an evaluation that represents the average loss in 

earning capacity associated with the severity of physical and mental conditions. 

Individuals’ ratings range from 0 percent to 100 percent. 

18Some plans refer to the two options as the basic option and the standard option. 

19See U.S. General Accounting Office, Federal Employees’ Health Plans: Premium Growth 

and OPM’s Role in Negotiating Benefits, GAO-03-236 (Washington, D.C.: Dec. 31, 2002). 

FEHBP 
Page 9 GAO-03-547 Military Retiree Health Benefits 

Over two-thirds of FEHBP policyholders are in national plans; the 

remainder are in local plans. National plans include plans that are 

available to all civilian employees and retirees as well as plans that are 

available only to particular groups, for example, foreign service 

employees. In the FEHBP, the largest national plan is Blue Cross Blue 

Shield, accounting for about 45 percent of those insured by an FEHBP 

plan.20 Other national plans account for about 24 percent of insured 

individuals. The national plans are all preferred provider organizations 

(PPO) in which enrollees use doctors, hospitals, and other providers that 

belong to the plan’s network, but are allowed to use providers outside of 

the network for an additional cost. Local plans, which operate in selected 

geographic areas and are mostly managed care, cover the remaining 32 

percent of people insured by the FEHBP. 

Civilian employees who enroll in FEHBP can change plans during an 

annual enrollment period. During this period, which runs from midNovember to mid-December, beneficiaries eligible for FEHBP can select 

new plans for the forthcoming calendar year. To assist these beneficiaries 

in selecting plans, OPM provides general information on FEHBP through 

brochures and its Web site. Also, as part of this information campaign, 

plans’ representatives may visit government agencies to participate in 

health fairs, where they provide detailed information about their specific 

health plans to government employees. 

The premiums charged by these plans, which are negotiated annually 

between OPM and the plans, depend on the benefits offered by the plan, 

the type of plan—fee-for-service or managed care—and the plan’s out-ofpocket costs for the enrollee. Plans may propose changes to benefits as 

well as changes in out-of-pocket payments by enrollees. OPM and the 

plans negotiate these changes and take them into account when 

negotiating premiums. Fee-for-service plans must base their rates on the 

claims experience of their FEHBP enrollees, while adjusting for changes in 

benefits and out-of-pocket payments, and must provide OPM with data to 

justify their proposed rates. Managed care plans must give FEHBP the best 

rate that they offer to groups of similar size in the private sector under 

similar conditions, with adjustments to account for differences in the 

demographic characteristics of FEHBP enrollees and the benefits 

 20Blue Cross Blue Shield is a consortium of local Blue Cross Blue Shield plans across the 

country. It charges the same premium in all locations and distributes that premium to its 

local plans, without any adjustment for local variations in health care costs. 
Page 10 GAO-03-547 Military Retiree Health Benefits 

provided.21 The government pays a maximum of 72 percent of the weighted 

average premium of all plans and no more than 75 percent of any plan’s 

premium. Unlike most other plans, including employer-sponsored 

insurance and Medigap, FEHBP plans charge the same premium to all 

enrollees, regardless of age. As a result, persons over age 65, for whom the 

FEHBP plan supplements Medicare, pay the same rate as those under age 

65, for whom the FEHBP plan is the primary insurer. 

The FEHBP demonstration allowed eligible beneficiaries in the 

demonstration sites to enroll in an FEHBP plan. The demonstration ran for 

3 years, from January 1, 2000, through December 31, 2002. The law that 

established the demonstration capped enrollment at 66,000 beneficiaries 

and specified that DOD and OPM should jointly select from 6 to 10 sites. 

Initially, the agencies selected 8 sites that had about 69,000 eligible 

beneficiaries according to DOD’s calculation for 2000.22 (See table 1.) Four 

sites had MTFs, and 1 site—Dover—also participated in the subvention 

demonstration.23 Two other sites, which had about 57,000 eligible 

beneficiaries, were added in 2001. Demonstration enrollees received the 

same benefits as civilian FEHBP enrollees, but could no longer use MTFs 

or MTF pharmacies. 

 21These private sector groups are referred to as similarly sized subscriber groups. 

22More recent DOD data indicate that the number of eligible beneficiaries was 

approximately 80,000 in the 8 original sites. (See app. III.) This substantial increase in 

eligible beneficiaries, compared to the initial figure, resulted from corrections that DOD 

made to its eligibility and enrollment database. We used the lower figure in implementing 

the sampling strategy for our survey because it was the only information available at the 

time of the survey. To maintain consistency, all analyses for 2000 use the original (lower) 

DOD figure. 

23The law establishing the FEHBP demonstration required that at least one site contain an 

MTF, one site not contain an MTF, one site be a participant in the DOD Medicare 

subvention demonstration, and no TRICARE region have more than one FEHBP 

demonstration site. 10 U.S.C. § 1108(C) (2000). 

The FEHBP 

Demonstration 
Page 11 GAO-03-547 Military Retiree Health Benefits 

Table 1: Number of Eligible Beneficiaries by DOD-FEHBP Demonstration Site, 

2000-2002 

Site 2000 2001 2002 

With MTF: 

Camp Pendleton, Calif. 24,907 27,328 27,287 

Dover, Del.a 4,384 4,868 4,867 

Fort Knox, Ky. 7,757 9,121 9,113 

Puerto Rico 6,907 9,401 9,453 

No MTF: 

Dallas, Tex. 13,607 16,159 16,133 

Greensboro, N.C. 3,278 4,033 4,024 

Humboldt County, Calif. 2,919 3,461 3,454 

New Orleans, La. 5,083 6,095 6,085 

Adair County, Iowa 29,584 29,530 

Coffee County, Ga. 27,329 27,284 

Total—initial 8 sitesb 68,842 

Total—10 sites 137,379 137,230 

Source: DOD. 

Note: The 2000 data are as of January 1, 2000, 2001 data are as of March 14, 2001, and 2002 data 

are as of February 21, 2002. 

a

Dover also participated in the DOD Medicare subvention demonstration. 

b

DOD initially calculated that there were 68,842 beneficiaries in the original 8 sites. Based on this 

figure, the demonstration including the two new sites had approximately 126,000 eligible 

beneficiaries. The higher numbers in 2001 and 2002 resulted from corrections that DOD made to its 

eligibility and enrollment database. 

Military retirees age 65 and over and their dependents age 65 and over 

were permitted to enroll in either self-only or family FEHBP plans. 

Dependents who were under age 65 could be covered only if the eligible 

retiree chose a family plan. Several other groups were permitted to enroll 

including: 

• unremarried former spouses of a member or former member of the armed 

forces entitled to military retiree health care, 

• dependents of a deceased member or former member of the armed forces 

entitled to military retiree health care, and 

• dependents of a member of the armed services who died while on active 

duty for more than 30 days. 
Page 12 GAO-03-547 Military Retiree Health Benefits 

About 13 percent of those eligible for the demonstration were under age 

65.24

DOD, with assistance from OPM, was responsible for providing eligible 

beneficiaries information on the demonstration. A description of this 

information campaign is in appendix IV. 

The demonstration guaranteed enrollees who dropped their Medigap 

policies the right to resume their coverage under 4 of the 10 standard 

Medigap policies—plans A, B, C, and F—at the end of the demonstration. 

However, demonstration enrollees who held any other standard Medigap 

policies, or Medigap policies obtained before the standard plans were 

established, were not given the right to regain the policies. Enrollees who 

dropped their employer-sponsored retiree health coverage had no 

guarantee that they could regain it. 

Each plan was required by OPM to offer the same package of benefits to 

demonstration enrollees that it offered in the civilian FEHBP, and plans 

operating in the demonstration sites were generally required to participate 

in the demonstration. Fee-for-service plans that limit enrollment to 

specific groups, such as foreign service employees, did not participate. In 

addition, health maintenance organizations (HMO) and point-of-service 

(POS) plans were not required to participate if their civilian FEHBP 

enrollment was less than 300 or their service area overlapped only a small 

part of the demonstration site.25 Thirty-one local plans participated in the 

demonstration in 2000; for another 14 local plans participation was 

optional, and none of these participated. 

The law established a separate risk pool for the demonstration, so any 

losses from the demonstration were not covered at the expense of persons 

insured under the civilian FEHBP.26 As a result, plans had to establish 

separate reserves for the demonstration and were allowed to charge 

 24Persons eligible for the civilian FEHBP were not eligible for the demonstration. 

25HMOs are comprehensive medical plans that coordinate health care through a network of 

physicians and hospitals. A POS option provides enrollees with a choice of using the plan’s 

health care providers or paying higher fees to see providers outside of the plan’s network. 

26A risk pool is the group of people with respect to whom the premium is set. In the 

FEHBP, premiums depend upon the expected claims or costs of those enrolled. The 

FEHBP demonstration required that expected costs for the demonstration enrollees and 

for civilian FEHBP enrollees be calculated separately. 10 U.S.C. § 1108(h) (2000). 
Page 13 GAO-03-547 Military Retiree Health Benefits 

different premiums in the demonstration than they charged in the civilian 

program. 

Enrollment in the demonstration was low, although enrollment in Puerto 

Rico was substantially higher than on the U.S. mainland. Among eligible 

beneficiaries who knew about the demonstration yet chose not to enroll, 

most were satisfied with their existing health care coverage and preferred 

it to the demonstration’s benefits. Lack of knowledge about the 

demonstration accounted for only a small part of the low enrollment. 

Although most eligible retirees did not enroll in a demonstration plan, 

several factors encouraged enrollment. Some retirees took the view that 

the demonstration plans’ benefits, notably prescription drug coverage, 

were better than available alternatives. Other retirees mentioned lack of 

satisfactory alternative coverage. In particular, retirees who were not 

covered by an existing Medicare+Choice or employer-sponsored health 

plan were much more likely to enroll. The higher enrollment in Puerto 

Rico reflected a higher proportion of retirees there who considered the 

demonstration’s benefits—ranging from drug coverage to choice of 

doctors—better than what they had. The higher enrollment in Puerto Rico 

also reflected in part Puerto Rico’s greater share of retirees without 

existing coverage, such as an employer-sponsored plan. 

While some military retiree organizations as well as a large FEHBP plan 

predicted at the start of the demonstration that enrollment would reach 25 

percent or more of eligible beneficiaries, demonstration-wide enrollment 

was 3.6 percent in 2000 and 5.5 percent in 2001.27 In 2002, following the 

introduction of the senior pharmacy benefit and TFL the previous year, 

demonstration-wide enrollment fell to 3.2 percent. (See fig. 1.) The 

demonstration’s enrollment peaked at 7,521 beneficiaries, and by 2002 had 

declined to 4,367 of the 137,230 eligible beneficiaries.28

 27Enrollment as a percentage of eligible beneficiaries in 2000 is based on DOD’s initial 

figure of 68,842 eligible beneficiaries. 

28Enrollment for 2000 was as of January 1, 2000, enrollment for 2001 was as of March 14, 

2001, and enrollment for 2002 was as of February 21, 2002. 

Enrollment Was Low, 

Largely Due to 

Beneficiaries’ 

Satisfaction with 

Existing Coverage 

Enrollment Rate Low on 

U.S. Mainland, Far Greater 

in Puerto Rico 
Page 14 GAO-03-547 Military Retiree Health Benefits 

Figure 1: DOD-FEHBP Demonstration-wide Enrollment, 2000-2002 

Note: GAO analysis of DOD data. Enrollment is expressed as a percentage of eligible beneficiaries. 

These low demonstration-wide enrollment rates masked a sizeable 

difference in enrollment between the mainland sites and Puerto Rico. In 

2000, enrollment in Puerto Rico was 13.2 percent of eligible 

beneficiaries—about five times the rate on the mainland. By 2001, Puerto 

Rico’s enrollment had climbed to 28.6 percent. Unlike 2002 enrollment on 

the mainland, which declined, enrollment in Puerto Rico that year rose 

slightly, to 30 percent. (See fig. 2.) Among the mainland sites, there were 

also sizeable differences in enrollment, ranging from 1.3 percent in Dover, 

Delaware, in 2001, to 8.8 percent in Humboldt County, California, that 

year. Enrollment at all mainland sites declined in 2002.29

 29See app. III for enrollment by site. 

3.6

5.5

3.2

0

2

4

6

8

10

12

2000 2001 2002

Percentage

Source: DOD.
Page 15 GAO-03-547 Military Retiree Health Benefits 

Figure 2: DOD-FEHBP Demonstration Enrollment on the Mainland and in Puerto 

Rico, 2000-2002 

Note: GAO analysis of DOD data. Enrollment is expressed as a percentage of eligible beneficiaries. 

Retirees who knew about the demonstration and did not enroll cited many 

reasons for their decision, notably that their existing coverage’s benefits—

in particular its prescription drug benefit—and costs were more attractive 

than those of the demonstration.30 In addition, nonenrollees expressed 

several concerns, including uncertainty about whether they could regain 

their Medicare supplemental coverage after the demonstration ended. 

• Benefits of existing coverage. Almost two-thirds of nonenrollees who 

knew about the demonstration reported that they were satisfied with their 

existing employer-sponsored or other health coverage.31 For the majority 

 30Only nonenrollees who knew about the demonstration (44 percent of eligible 

beneficiaries) were asked to give their reasons for not enrolling. Because respondents to 

our survey gave multiple reasons for not enrolling, percentages reported concerning 

benefits, prescription drugs, and other reasons add to more than 100 percent. 

31Satisfaction with existing coverage was a much less important reason for not enrolling in 

Puerto Rico than on the mainland. In Puerto Rico, 28 percent of nonenrollees were 

satisfied with their existing coverage, compared to 66 percent of nonenrollees on the 

mainland. 

Nonenrollees Emphasized 

Better Benefits and Lower 

Costs of Existing Coverage 

13.2

28.6

30.1

2.6

3.8

1.2

0

5

10

15

20

25

30

35

2000 2001 2002

Puerto Rico

U.S. mainland sites

Percentage

Source: DOD.
Page 16 GAO-03-547 Military Retiree Health Benefits 

of nonenrollees with private employer-sponsored coverage, the 

demonstration’s benefits were no better than those offered by their 

current plan. 

• Costs of existing coverage. Nearly 30 percent of nonenrollees who 

knew about the demonstration stated that its plans were too costly.32 This 

was likely a significant concern for retirees interested in a managed care 

plan, such as a Medicare+Choice plan, whose premiums were generally 

lower than demonstration plans. 

• Prescription drugs and availability of doctors. In explaining their 

decision not to enroll, many eligible beneficiaries who knew about the 

demonstration focused on limitations of specific features of the benefits 

package that they said were less attractive than similar features of their 

existing coverage. More than one-quarter of nonenrollees cited not being 

able to continue getting prescriptions filled without charge at MTF 

pharmacies if they enrolled. More than one-quarter also said their decision 

at least partly reflected not being able to keep their current doctors if they 

enrolled. These nonenrollees may have been considering joining one of the 

demonstration’s managed care plans, which generally limit the number of 

doctors included in their provider networks. Otherwise, they would have 

been able to keep their doctors, because PPOs, while encouraging the use 

of network doctors, permit individuals to select their own doctors at an 

additional cost. 

• Uncertainty. About one-fourth of nonenrollees said they were uncertain 

about the viability of the demonstration and wanted to wait to see how it 

worked out. In addition, more than 20 percent of nonenrollees were 

concerned that the demonstration was temporary and would end in 3 

years. Furthermore, some nonenrollees who looked beyond the 

demonstration period expressed uncertainty about what their coverage 

would be after the demonstration ended: Roughly one-quarter expressed 

concern that joining a demonstration plan meant risking the future loss of 

other coverage—either Medigap or employer-sponsored insurance. 

Finally, about one-quarter of nonenrollees were uncertain about how the 

demonstration would mesh with Medicare. 

Lack of knowledge—although common among eligible retirees—was only 

a small factor in explaining low enrollment. If everyone eligible for the 

demonstration had known about it, enrollment might have doubled, but 

would still have been low. DOD undertook an extensive information 

campaign, intended to inform all eligible beneficiaries about the 

 32See app. V for a complete list of reasons given. 

Lack of Knowledge about 

Demonstration Accounted 

for Only Small Part of Low 

Enrollment 
Page 17 GAO-03-547 Military Retiree Health Benefits 

demonstration, but nearly 54 percent of those eligible for the 

demonstration did not know about it at the time of our survey (May 

through August 2000). Of those who knew about the demonstration, only 

7.4 percent enrolled. Those who did not know about the demonstration 

were different in several respects from those who did: They were more 

likely to be single, female, African American, older than age 75, to have 

annual income of $40,000 or less, to live an hour or more from an MTF, not 

covered by employer-sponsored health insurance, not officers, not to 

belong to military retiree organizations and to live in the demonstration 

areas of Camp Pendleton, California, Dallas, Texas, and Fort Knox, 

Kentucky. 

Accounting for the different characteristics of those retirees who knew 

about the demonstration and those who did not, we found that roughly 7 

percent of those who did not know about the demonstration would have 

enrolled in 2000 if they had known about it. As a result, we estimate that 

demonstration-wide enrollment would have been about 7 percent if all 

eligible retirees knew about the demonstration. (See app. II.) 

Comparison of enrollment in Puerto Rico and the mainland sites also 

suggests that, among the factors that led to low enrollment, knowledge 

about the demonstration was not decisive. In 2000, fewer people in Puerto 

Rico reported knowing about the demonstration than on the mainland (35 

percent versus 47 percent). Nonetheless, enrollment in Puerto Rico was 

much higher. 

In making the decision to enroll, retirees were attracted to an FEHBP plan 

if it had better benefits—particularly prescription drug coverage—or 

lower costs than their current coverage or other available coverage. 

Among those who knew about the demonstration, retirees who enrolled 

were typically positive about one or both of the following: 

• Better FEHBP benefits. Two-thirds of enrollees cited their 

demonstration plan’s benefits package as a reason to enroll, with just over 

half saying the benefits package was better than other coverage available 

to them. Nearly two-thirds of enrollees mentioned the better coverage of 

prescription drugs offered by their demonstration plan. Furthermore, the 

inclusiveness of FEHBP plans’ networks of providers mattered to a 

majority of enrollees: More than three-fifths mentioned as a reason for 

enrolling that they could keep their current doctors under the 

demonstration. 

Factors Spurring 

Enrollment Included 

Favorable Assessment of 

FEHBP and Lack of 

Existing Coverage 
Page 18 GAO-03-547 Military Retiree Health Benefits 

• Lower demonstration plan costs. Among enrollees, about 62 percent 

said that their demonstration FEHBP plan was less costly than other 

coverage they could buy. 

Beneficiaries’ favorable assessments of FEHBP—and their enrollment in 

the demonstration—were related to whether they lacked alternative 

coverage to traditional Medicare and, if they had such coverage, to the 

type of coverage. In 2000, among those who lacked employer-sponsored 

coverage or a Medicare+Choice plan, or lived more than an hour’s travel 

time from an MTF, about 15 percent enrolled. By contrast, among those 

who had such coverage, or had MTF access, 4 percent enrolled. 

In particular, enrollment in an FEHBP plan was more likely for retirees 

who lacked either Medicare+Choice or employer-sponsored coverage. 

• Lack of Medicare+Choice. Controlling for other factors affecting 

enrollment, those who did not use Medicare+Choice were much more 

likely to enroll in a demonstration plan than those who did. (See fig. 3.) 

Several reasons may account for this. First, in contrast to fee-for-service 

Medicare, Medicare+Choice plans are often less costly out-of-pocket, 

typically requiring no deductibles and lower cost sharing for physician 

visits and other outpatient services. Second, unlike fee-for-service 

Medicare, many Medicare+Choice plans offered a prescription drug 

benefit. Third, while Medicare+Choice plan benefits were similar to those 

offered by demonstration FEHBP plans, Medicare+Choice premiums were 

typically less than those charged by the more popular demonstration 

plans, including Blue Cross Blue Shield, the most popular demonstration 

plan on the mainland. 

• Lack of employer-sponsored coverage. Retirees who did not have 

employer-sponsored health coverage were also more likely to join a 

demonstration plan. Of those who did not have employer-sponsored 

coverage, 8.6 percent enrolled in the demonstration, compared to 4.7 

percent of those who had such coverage. Since benefits in employersponsored health plans often resemble FEHBP benefits, retirees with 

employer-sponsored coverage would have been less likely to find FEHBP 

plans attractive.33

 33Like retirees’ employer-sponsored coverage, those with Medicare+Choice coverage were 

significantly less likely to enroll, while retirees covered by Medicare part B were 

significantly more likely to enroll. (See app. IV.) Part B coverage of enrollees and 

nonenrollees differed slightly: 94.7 percent for enrollees and 92.1 percent for nonenrollees. 
Page 19 GAO-03-547 Military Retiree Health Benefits 

Retirees with another type of alternative coverage, Medigap, responded 

differently to the demonstration. Unlike the pattern with other types of 

insurance coverage, more of those with a Medigap plan enrolled (9.3 

percent) than did those without Medigap (5.6 percent). Medigap plans 

generally offered fewer benefits than a demonstration FEHBP plan, but at 

the same or higher cost to the retiree. Seven of the 10 types of Medigap 

plans available to those eligible for the demonstration do not cover 

prescription drugs. As a result of these differences, retirees who were 

covered by Medigap policies would have had an incentive to enroll instead 

in a demonstration FEHBP plan, which offered drug coverage and other 

benefits at a lower premium cost than the most popular Medigap plan. 

Figure 3: DOD-FEHBP Demonstration Enrollment by Type of Previous Health 

Coverage, 2000 

Note: GAO analysis of CMS and GAO-DOD-OPM survey data. Enrollment is expressed, for 

employer-sponsored coverage, as a percentage of eligible beneficiaries who knew about the 

demonstration and, for Medicare+Choice enrollment and Medigap coverage, as a percentage of 

eligible retirees who knew about the demonstration. An eligible beneficiary or retiree may have more 

than one type of coverage. 

Like the lack of Medicare+Choice or employer-sponsored coverage, lack 

of nearby MTF care stimulated enrollment. While living more than an hour 

from an MTF was associated with higher demonstration enrollment, MTF 

care may have served some retirees as a satisfactory supplement to 

Not 

enrolled 

in

Medicare+

Choice

Enrolled 

in

Medicare+

Choice

Did not have

employersponsored

insurance

Had 

employersponsored

insurance

Did not have

Medigap 

policy

Had 

Medigap

policy

Percentage

Source: CMS and GAO-DOD-OPM survey.

8.6

1.8

8.6

4.7

5.6

9.3

0

3

6

9

12
Page 20 GAO-03-547 Military Retiree Health Benefits 

Medicare-covered care, making demonstration FEHBP plans less 

attractive to them. Of eligible retirees who knew of the demonstration and 

lived within 1 hour of an MTF, 3.7 percent enrolled, compared to 11.1 

percent of those who lived more than 1 hour away. 

Higher enrollment in Puerto Rico than on the mainland reflected in part 

the more widespread lack of satisfactory alternative health coverage in 

Puerto Rico compared to the mainland. In Puerto Rico, of those who knew 

of the demonstration, the share of eligible retirees with employersponsored health coverage (14 percent) was about half that on the 

mainland (27 percent). In addition, before September 2001, no 

Medicare+Choice plan was available in Puerto Rico. By contrast, in 

mainland sites where Medicare+Choice plans were available, their 

attractive cost sharing and other benefits discouraged retirees from 

enrolling in demonstration plans. Other factors associated with Puerto 

Rico’s high enrollment and cited by enrollees there included the 

demonstration plan’s better benefits package—especially prescription 

drug coverage—compared to many retirees’ alternatives, the 

demonstration plan’s broader choice of doctors, and the plan’s reputation 

for quality of care.34

The premiums charged by the demonstration plans varied widely, 

reflecting differences in how they dealt with the concern that the 

demonstration would attract a disproportionate number of sick, high-cost 

enrollees. To address these concerns, plans generally followed one of two 

strategies. Most plans charged higher premiums than those they charged 

to their civilian FEHBP enrollees—a strategy that could have provided a 

financial cushion and possibly discouraged enrollment. A small number of 

plans set premiums at or near their premiums for the civilian FEHBP with 

the aim of attracting a mix of enrollees who would not be 

disproportionately sick. Plans’ underlying concern that they would attract 

a sicker population was not borne out. In the first year of the 

demonstration, for example, on average health care for demonstration 

retirees was 50 percent less expensive per enrollee than the care for their 

civilian FEHBP counterparts. 

 34There was only one local plan in the demonstration in Puerto Rico: Triple-S. 

Higher Enrollment in 

Puerto Rico Associated 

with Greater Lack of 

Satisfactory Alternative 

Coverage 

Premiums Varied 

Widely, Reflecting 

Plans’ Different 

Assessments of 

Demonstration Risk 
Page 21 GAO-03-547 Military Retiree Health Benefits 

Demonstration plans charged widely varying premiums to enrollees, with 

the most popular plans offering some of the lowest premiums. In 2000, 

national plans’ monthly premiums for individual coverage ranged from $65 

for Blue Cross Blue Shield to $208 for the Alliance Health Plans. Among 

local plans—most of which were managed care—monthly premiums for 

individual coverage ranged from $43 for NYLCare Health Plans of the 

Southwest to $280 for Aetna U.S. Healthcare. Not surprisingly, few 

enrollees selected the more expensive plans.35 The two most popular plans 

were Blue Cross Blue Shield and Triple-S; the latter offered a POS in 

Puerto Rico. Both plans had relatively low monthly premiums—the 

Triple-S premium charged to individuals was $54 in the demonstration’s 

first year. Average premiums for national plans were about $20 higher than 

for local plans, which were largely managed care plans. (See table 2.) 

Table 2: Monthly Premiums Charged to Enrollees for Individual Policies in the DODFEHBP Demonstration, 2000 

Type of plan Plan or group of plans Enrollee share of premium

National plans 

 Blue Cross Blue Shield $65

 GEHA Benefit Plan 99

 Other national plans—average 142

National plan average 125

Local plans 

 Triple-S 54

Other fee-for-service plans—

average 78

Managed care plans—average 107

Local plan average 103

Average of all plans $107

Source: OPM. 

Note: GAO analysis of OPM premium data. Premiums are for a standard option individual policy 

unless only one option was available. 

Some plans in the demonstration were well known in their market areas, 

while others—especially those open only to government employees—

likely had much lower name recognition. Before the demonstration 

started, OPM officials told us that they expected beneficiaries to be 

unfamiliar with many of the plans included in the demonstration. These 

 35For example, the 10 percent of plans with the highest premiums attracted 0.1 percent of 

enrollees. 

Plans’ Premiums Varied 

Widely, and Plans with 

Lower Premiums Attracted 

the Most Enrollees 
Page 22 GAO-03-547 Military Retiree Health Benefits 

officials said that beneficiaries were likely to have only experience with or 

knowledge of Blue Cross Blue Shield and, possibly, some local HMOs. The 

success of Blue Cross Blue Shield relative to other national plans in 

attracting enrollees appears to support their view, as does Triple-S’s 

success in Puerto Rico, where it is one of the island’s largest insurers. In 

2000, Blue Cross Blue Shield was the most popular plan in the 

demonstration, with 42 percent of demonstration-wide enrollment and 68 

percent of enrollment on the mainland. Among national plans, the GEHA 

Benefit Plan (known as GEHA) was a distant second with 4 percent of 

enrollment. The other five national plans together captured less than 1 

percent of all demonstration enrollment. Among local plans, Triple-S was 

most successful, capturing 96 percent of enrollment in Puerto Rico and 38 

percent of enrollment demonstration-wide. The other local plans, taken 

together, accounted for about 14 percent of demonstration-wide 

enrollment. 

Several factors contributed to plans’ concern that they would attract 

sicker—and therefore more costly—enrollees in the demonstration. Plans 

did not have the information that they usually use to set premiums—

claims history for fee-for-service plans and premiums charged to 

comparable private sector groups for managed care plans. Moreover, 

according to officials, some plans were reluctant to assume that 

demonstration enrollees would be similar to their counterparts in the 

civilian FEHBP. A representative from one of the large plans noted that 

the small size of the demonstration was also a concern. The number of 

people eligible for the demonstration (approaching 140,000, when the 

demonstration was expanded in 2001) was quite small compared to the 

number of people in the civilian program (8.5 million in 2001). If only a 

small number of people enrolled in a plan, one costly case could result in 

losses, because claims could exceed premiums. 

In response to the concern that the demonstration might attract a 

disproportionate number of sick enrollees, plans developed two different 

strategies for setting premiums. Plans in one group, including Blue Cross 

Blue Shield and GEHA, kept their demonstration premiums at or near 

those they charged in the civilian FEHBP. Representatives of one plan 

explained that it could have priced high, but they believed that would have 

resulted in low enrollment and might have attracted a disproportionate 

number of sick—and therefore costly—enrollees. Instead, by keeping their 

premium at the same level as in the civilian program, these plan officials 

hoped to make their plan attractive to those who were in good health as 

Plans’ Premium Strategies 

Diverged despite Common 

Concerns about Attracting 

Sicker Enrollees 
Page 23 GAO-03-547 Military Retiree Health Benefits 

well as to those who were not. Such a balanced mix of enrollees would 

increase the likelihood that a plan’s revenues would exceed its costs. 

By contrast, some plans charged higher premiums in the demonstration—

in some cases, 100 percent higher—than in the civilian FEHBP. Setting 

higher premiums might provide plans with a financial cushion to deal with 

potential high-cost enrollees. While higher premiums might have 

discouraged enrollment and reduced plans’ exposure to high-cost patients, 

this strategy carried the risk that those beneficiaries willing to pay very 

high premiums might be sick, high-cost patients. 

More than four-fifths of plans chose the second strategy, charging higher 

premiums in the demonstration than in the civilian FEHBP. In 2000, only 

two plans—both local plans—charged enrollees less in the demonstration 

than in the civilian program for individual, standard option policies; these 

represented about 6 percent of all plans. By contrast, three plans—about 9 

percent of all plans—set premiums at least twice as high as premiums in 

the civilian FEHBP. (See fig. 4.) 

Figure 4: Comparison of Premiums for the DOD-FEHBP Demonstration with Civilian 

FEHBP Premiums, 2000 

Note: GAO analysis of OPM premium data. Premiums are for a standard option individual policy 

unless only one option was available. 

Demonstration premium at least 

twice as high

Demonstration premium 

100 to 199 percent higher

Demonstration premium 

50 to 99 percent higher

Demonstration premium 

20 to 49 percent higher

Demonstration premium 

0 to 19 percent higher

6.1 Lower premium for demonstration

9.1

21.2

18.2

12.1

33.3

Source: OPM.
Page 24 GAO-03-547 Military Retiree Health Benefits 

The demonstration did not attract sicker, more costly enrollees—instead, 

military retirees who enrolled were less sick on average than eligible 

nonenrollees.36 We found that, as scored by a standard method to assess 

patients’ health, older retirees who enrolled in the demonstration were an 

estimated 13 percent less sick than eligible nonenrollees. At each site 

enrollees were, on average, less sick than nonenrollees. In the GAO-DODOPM survey, fewer enrollees on the U.S. mainland (33 percent) reported 

that they or their spouses were in fair or poor health compared to 

nonenrollees (40 percent). Retirees who enrolled in demonstration plans 

had scores that indicated they were, on average, 19 percent less sick than 

civilian FEHBP enrollees in these plans. 

Plans’ divergent strategies for setting premiums resulted in similar mixes 

of enrollees. Blue Cross Blue Shield and GEHA, both of which did not 

increase premiums, attracted about the same proportion of individuals in 

poor health as plans on the mainland that raised premiums. 

During 2000, the first year of the demonstration, enrolled retirees’ health 

care was 28 percent less expensive—as measured by Medicare claims—

than that of eligible nonenrolled retirees and one-third less expensive than 

that of their FEHBP counterparts.37 (See table 3.) The demonstration 

enrollees’ average age (71.8 years) was lower than eligible nonenrollees’ 

average age (73.1 years), which in turn was lower than the average age of 

civilian FEHBP retirees (75.2 years) in the demonstration areas. OPM has 

obtained from the three largest plans claims information that includes the 

cost of drugs and other services not covered by Medicare. These claims 

show a similar pattern: Demonstration enrollees were considerably less 

expensive than enrollees in the civilian FEHBP. 

 36We assessed enrollees’ health prior to the demonstration, using the Principal Inpatient 

Diagnostic Cost Group, (PIP-DCG), which relies on diagnoses from inpatient hospital stays 

and other patient characteristics. See app. II for discussion of the method and our results. 

37“Their FEHBP counterparts” refers to civilian retirees who were Medicare-eligible and 

enrolled in FEHBP plans. 

Military Retirees Who 

Enrolled in Demonstration 

Not as Sick as Other 

Retirees 

Demonstration Enrollees 

Less Expensive than 

Eligible Nonenrollees and 

Much Less Expensive than 

Their Civilian FEHBP 

Counterparts, Leading to 

Reduced Premiums for 

Most Plans in Final Year of 

Demonstration 
Page 25 GAO-03-547 Military Retiree Health Benefits 

Table 3: Average Spending on Medicare-covered Services for Retirees Eligible for 

the DOD-FEHBP Demonstration—by Enrollment Status, 2000 

Spending 

Demonstration 

enrollees

Eligible 

nonenrollees 

Civilian FEHBP 

retirees

Medicare $3,174 $4,412 $4,785

Coinsurance 213 315 344

Deductible 142 169 184

Total $3,529 $4,896 $5,313

Sources: CMS, DOD, and OPM. 

Note: GAO analysis of CMS Medicare claims data, DOD enrollment data, and OPM enrollment data. 

As of January 1, 2000, the average age of demonstration enrollees was 71.8 years; of eligible 

nonenrollees, 73.1 years; and of civilian FEHBP retirees, 75.2 years. 

Although demonstration enrollees’ costs were lower than those of their 

FEHBP counterparts in the first year, demonstration premiums generally 

remained higher than premiums for the civilian FEHBP. In 2001, the 

second year of the demonstration, only a limited portion of the first year’s 

claims was available when OPM and the plans negotiated the premiums, so 

the lower demonstration costs had no effect on setting 2001 premiums. 

Demonstration premiums in 2001 increased more rapidly than the civilian 

premium charged by the same plans: a 30 percent average increase in the 

demonstration for individual policies compared to a 9 percent increase for 

civilians in the same plans. In 2002, the third year, when both the plans and 

OPM were able to examine a complete set of claims for the first year 

before setting premiums, the pattern was reversed: On average, the 

demonstration premiums for individual policies fell more than 2 percent 

while the civilian premiums rose by 13 percent. However, on average, 2002 

premiums remained higher in the demonstration than in the civilian 

FEHBP. Blue Cross Blue Shield was an exception, charging a higher 

monthly premium for an individual policy to civilian enrollees ($89) in 

2000 than to demonstration enrollees ($74). 
Page 26 GAO-03-547 Military Retiree Health Benefits 

Because the demonstration was open to only a small number of military 

retirees—and only a small fraction of those enrolled—the demonstration 

had little impact on DOD, nonenrollees, and MTFs. However, the impact 

on enrolled retirees was greater. If the FEHBP option were made 

permanent, the impact on DOD, nonenrollees, and MTFs would depend on 

the number of enrollees. 

Because of its small size, the demonstration had little impact on DOD’s 

budget. About 140,000 of the more than 8 million people served by the 

DOD health system were eligible for the demonstration in its last 2 years. 

Enrollment at its highest was 7,521—about 5.5 percent of eligible 

beneficiaries. DOD’s expenditures on enrollees’ premiums that year 

totaled about $17 million—roughly 0.1 percent of its total health care 

budget.38 Under the demonstration, DOD was responsible for about 71 

percent of each individual’s premium, whereas under TFL it is responsible 

for the entire cost of roughly similar Medicare supplemental coverage.39

Probably because of its small size, the demonstration had no observable 

impact on either the ability of MTFs to assist in the training and readiness40

of military health care personnel or on nonenrollees’ access to MTF care. 

Officials at the four MTFs in demonstration sites told us that they had seen 

no impact from the demonstration on either MTFs or nonenrollees’ access 

to care. 

 38We were not able to adjust DOD expenditures to account for any reductions in the cost of 

prescription drugs and MTF care due to the demonstration. While some military retirees 

who enrolled were diverted from military to civilian care, the numbers were small and any 

reductions in MTF costs could not be separated from other factors affecting DOD 

expenditures. In addition, according to DOD, its costs for the demonstration were $28 

million for FEHBP premiums and $11 million for administration, when measured over 3 

years. These costs averaged less than 0.1 percent of the DOD health care budget over the 

life of the demonstration. 

39TFL pays for Medicare-covered services not paid for by Medicare, as well as certain other 

services. 

40Readiness refers to the capability of the military health system to provide medical support 

of military deployments, from small humanitarian engagements to major military actions. 

Impact of 

Demonstration on 

DOD Was Limited Due 

to Small Size and Low 

Enrollment, but 

Impact on Enrollees 

Was Greater 

DOD Little Affected by 

Demonstration, Due 

Primarily to Its Size, but 

Enrollees More Affected 
Page 27 GAO-03-547 Military Retiree Health Benefits 

Since enrollees were typically attracted to the demonstration by both its 

benefits and its relatively low costs, the impact on those who enrolled was 

necessarily substantial. In the first 2 years, the demonstration provided 

enrollees with better supplemental coverage, which was less costly or had 

better benefits, or both. In the third year of the demonstration, after TFL 

and the retirees’ pharmacy benefit were introduced and enrollment 

declined, the number of beneficiaries affected by the demonstration 

decreased. TFL entitled military retirees to low-cost, comprehensive 

coverage, making the more expensive FEHBP unattractive. The average 

enrollee premium for an individual policy in the demonstration’s third year 

was $109 per month. In comparison, to obtain similar coverage under the 

the combined TFL-pharmacy benefit, the only requirement was to pay the 

monthly Medicare part B premium of $54. Further, pharmacy out-ofpocket costs under TFL are less than those in the most popular FEHBP 

plan. 

The impact on DOD of a permanent FEHBP option for military retirees 

nationwide would depend on the number of retirees who enrolled. For 

example, if the same percentage of eligible retirees who enrolled in 2002—

after TFL and the retirees’ pharmacy benefit were introduced—enrolled in 

FEHBP, enrollment would be roughly 20,000 of the more than 1.5 million 

military retirees. As retirees’ experience with TFL grows, their interest in 

an FEHBP alternative may decline further. As long as enrollment in a 

permanent FEHBP option remains small, the impact on DOD’s ability to 

provide care at MTFs and on MTF readiness would also likely be small. 

We provided DOD and OPM with the opportunity to comment on a draft of 

this report. In its written comments DOD stated that, overall, it concurred 

with our findings. However, DOD differed with our description of the 

demonstration’s impact on DOD’s budget as small. In contrast, DOD 

described these costs of the 3-year demonstration–$28 million for FEHBP 

premiums and $11 million for administration—as substantial. While we do 

not disagree with these dollar-cost figures and have included them in this 

report, we consider them to be small when compared to DOD’s health care 

budget, which ranged from about $18 billion in fiscal year 2000 to about 

$24 billion in fiscal year 2002. For example, as we report, DOD’s premium 

costs for the demonstration during 2001, when enrollment peaked, were 

about $17 million—less than 0.1 percent of DOD’s health care budget. 

Although DOD’s cost per enrollee in the demonstration was substantial, 

the number of enrollees was small, resulting in the demonstration’s total 

cost to DOD being small. DOD’s comments appear in appendix VI. DOD 

Impact of Permanent 

FEHBP Option Would 

Depend on Enrollment 

Agency Comments 
Page 28 GAO-03-547 Military Retiree Health Benefits 

also provided technical comments, which we incorporated as appropriate. 

OPM declined to comment. 

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

Director of the Office of Personnel Management. We will make copies 

available to others upon request. In addition, this report will be available 

at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have questions about this report, please contact me at 

(202) 512-7101. Other GAO contacts and staff acknowledgments are listed 

in appendix VII. 

Marjorie E. Kanof 

Director, Health Care—Clinical 

 and Military Health Care Issues 
Page 29 GAO-03-547 Military Retiree Health Benefits 

List of Committees 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Minority Member 

Committee on Armed Services 

United States Senate 

The Honorable Peter G. Fitzgerald 

Chairman 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Financial Management, 

 the Budget, and International Security 

Committee on Governmental Affairs 

United States Senate 

The Honorable Duncan L. Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Minority Member 

Committee on Armed Services 

House of Representatives 

The Honorable Jo Ann S. Davis 

Chair 

The Honorable Danny K. Davis 

Ranking Minority Member 

Subcommittee on Civil Service and 

 Agency Organization 

Committee on Government Reform 

House of Representatives 
Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Page 30 GAO-03-547 Military Retiree Health Benefits 

To determine why those eligible for the Federal Employees Health 

Benefits Program (FEHBP) demonstration enrolled or did not enroll in an 

FEHBP plan, we co-sponsored with the Department of Defense (DOD) and 

the Office of Personnel Management (OPM) a mail survey of eligible 

beneficiaries—military retirees and others eligible to participate in the 

demonstration. The survey was fielded during the first year of the 

demonstration, from May to August 2000, and was sent to a sample of 

eligible beneficiaries, both those who enrolled and those who did not 

enroll, at each of the eight demonstration sites operating at that time. The 

survey was designed to be statistically representative of eligible 

beneficiaries, enrollees, nonenrollees, and sites, and to facilitate valid 

comparisons between enrollees and nonenrollees. 

In constructing the questionnaire, we developed questions pertaining to 

individuals’ previous use of health care services, access to and satisfaction 

with care, health status, knowledge of the demonstration, reasons for 

enrolling or not enrolling in the demonstration, and other topics. Because 

eligible beneficiaries could choose FEHBP plans that also covered their 

family members, we included questions about spouses and dependent 

children. DOD and OPM officials and staff members from Westat, the DOD 

subcontractor with responsibility for administering the survey, provided 

input on the questionnaire’s content and format. After pretesting the 

questionnaire with a group of military retirees and their family members, 

the final questionnaire included the topic areas shown in table 4. We also 

produced a Spanish version of the questionnaire that was mailed to 

beneficiaries living in Puerto Rico. 

Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Questionnaire Design 
Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Page 31 GAO-03-547 Military Retiree Health Benefits 

Table 4: Major Survey Sections and Topics Covered 

Section Topics covered 

Use of Health Care Services in 1999 Health care use, source and use of 

prescription drugs, use of military treatment 

facility (MTF) care, ease of access to MTF 

care, and satisfaction with MTF care. 

Health Status Current health status, health status compared 

to 1 year ago, and need help with personal 

care needs. 

Family Marital status, spouse’s health care use, 

spouse’s use and source of prescription drugs, 

spouse’s health status, dependent children, 

and dependent children’s health status. 

Knowledge of the Demonstration and 

Impact of the Demonstration 

Information Campaign 

Knowledge of the demonstration, source of 

knowledge of the demonstration, whether 

demonstration information materials were 

received, usefulness of the information 

materials, use of the toll-free telephone 

service, source of information received about 

individual demonstration plans, usefulness of 

plans’ information, problems with making the 

enrollment decision, reasons for joining the 

demonstration, and reasons for not joining the 

demonstration. 

Other Insurance Coverage Medicare supplemental insurance of self and 

spouse, other insurance coverage, cost of 

insurance coverage, out-of-pocket costs for 

medical services, and prescription drugs. 

Personal Information Zip code, date of birth, sex, membership in a 

military retiree organization, travel time to 

nearest military hospital, rank at retirement, 

race and ethnicity, educational attainment, 

income, and home ownership. 

Source: GAO-DOD-OPM survey. 

Working with DOD, OPM, and Westat, we defined the survey population as 

all persons living in the initial eight demonstration sites who were eligible 

to enroll in the demonstration. The population included military retirees, 

their spouses and dependents, and other eligible beneficiaries, such as 

unremarried former spouses, designated by law. We drew the survey 

sample from a database provided by DOD that listed all persons eligible 

for the demonstration as of April 1999. 

We stratified the sample by the eight demonstration sites and by 

enrollment status—enrollees and nonenrollees. Specifically, we used a 

stratified two-stage design in which households were selected within each 

Sample Design 
Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Page 32 GAO-03-547 Military Retiree Health Benefits 

of the 16 strata and one eligible person was selected from each household. 

For the enrollee sample, we selected all enrollees who were the sole 

enrollee in their households. In households with multiple enrollees, we 

randomly selected one enrollee to participate. For the nonenrollee sample, 

first we randomly selected a sample of households from all nonenrollee 

households and then randomly selected a single person from each those 

households. We used a modified equal allocation approach, increasing the 

size of the nonenrollee sample in steps, bringing it successively closer to 

the sample size that would be obtained through proportional allocation. 

This modified approach produced the best balance in statistical terms 

between the gain from the equal allocation approach and the gain from the 

proportional allocation approach.1

 If both an enrollee and a nonenrollee 

were selected from the same household, the nonenrollee was dropped 

from the sample and a different nonenrollee was selected. We adjusted the 

nonenrollee sample size to take account of expected nonresponse. Our 

final sample included 1,676 out of 2,507 enrollees and 3,971 out of 66,335 

nonenrollees. 

Starting with an overall sample of 5,647 beneficiaries, we obtained usable 

questionnaires from 4,787 people—an overall response rate of 85 percent.2

(See table 5.) Response rates varied across sites, from 76 percent to 85 

percent among nonenrollees, and from 92 percent to 98 percent among 

 1

We considered (1) a proportional (to the population size) allocation across the sites that 

would provide the greatest precision for population estimates, (2) an equal allocation 

across the sites that would provide the greatest power to detect differences among the 

eight sites, and (3) a matched allocation, in which the same number of enrollees and 

nonenrollees would be selected, and which would provide the greatest power to detect 

differences between enrollees and nonenrollees. We also examined two blended strategies: 

one that blended proportional allocation with equal allocation, and another that blended 

proportional allocation with matched allocation. We conducted a simulation to compare 

the gain in precision and power—increasing the size of the nonenrollee sample under each 

blended strategy. Assessing the gains from the two strategies, we determined that the 

modified equal allocation approach was preferable. We specified the size of the 

nonenrollee sample that would maximize the probability, at the 5 percent significance 

level, of detecting a 5 percentage point difference in proportions between enrollees and 

nonenrollees and a 10 percentage point difference between enrollees and nonenrollees at a 

given site. 

2

Westat, which fielded the survey, sent initial survey packages to all beneficiaries starting 

in May 2000. Nonrespondents were sent follow-up reminder postcards as well as additional 

survey packages as needed. Participants with questions could call toll-free numbers and 

speak with English- or Spanish-speaking survey staff. 

Response Rates 
Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Page 33 GAO-03-547 Military Retiree Health Benefits 

enrollees. (See table 6.) At each site, enrollees responded at higher rates 

than nonenrollees. 

Each of the 16 strata was weighted separately to reflect its population. The 

enrollee strata were given smaller sampling weights, reflecting enrollees’ 

higher response rates and the fact that they were sampled at a higher rate 

than nonenrollees. The weights were also adjusted to reflect the variation 

in response rates across sites. Finally, the sampling weights were further 

adjusted to reflect differences in response rates between male and female 

participants in 8 strata. 

Table 5: Survey Responses and Nonresponses 

Sample size 5,647

Response 4,787

Nonresponse 860

Overall response rate 85%

Reason for nonresponse 

Deceased 27

Refusal 36

Ineligible 11

Other nonresponse 786

Total not completed 860

Source: GAO-DOD-OPM survey. 

Note: Westat analysis of GAO-DOD-OPM survey. 
Appendix I: GAO-DOD-OPM Survey of 

Military Retirees and Others Eligible for the 

DOD-FEHBP Demonstration 

Page 34 GAO-03-547 Military Retiree Health Benefits 

Table 6: Population, Sample Size, and Response Rate, by DOD-FEHBP Demonstration Site and Enrollee Status, 2000 

Site and enrollee status Population Sample size 

Number of 

respondents 

Response rate 

(percentage)

Camp Pendleton, Calif. 

Enrollee 303 197 187 95

Nonenrollee 24,604 752 609 81

Dallas, Tex. 

Enrollee 520 350 323 92

Nonenrollee 13,087 731 618 85

Dover, Del. 

Enrollee 35 26 24 92

Nonenrollee 4,349 388 310 80

Fort Knox, Ky. 

Enrollee 134 98 90 92

Nonenrollee 7,623 676 535 79

Greensboro, N.C. 

Enrollee 285 187 183 98

Nonenrollee 2,993 268 228 85

Humboldt County, Calif. 

Enrollee 221 150 143 95

Nonenrollee 2,698 232 193 83

New Orleans, La. 

Enrollee 96 71 65 92

Nonenrollee 4,987 419 318 76

Puerto Rico 

Enrollee 913 597 561 94

Nonenrollee 5,994 505 400 79

All sites 

Enrollee 2,507 1,676 1,576 94

Nonenrollee 66,335 3,971 3,211 81

Total 68,842 5,647 4,787 85

Sources: DOD, OPM, and GAO-DOD-OPM survey. 

Note: GAO analysis of DOD and OPM data, and Westat analysis of GAO-DOD-OPM survey. 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 35 GAO-03-547 Military Retiree Health Benefits 

In this appendix, we describe the data, methods, and models used to 

(1) analyze the factors explaining how beneficiaries knew about the 

demonstration and why they enrolled in it, (2) assess the health of 

beneficiaries and civilian FEHBP enrollees, and (3) obtain the premiums 

of Medigap insurance in the demonstration areas. 

Our approach to analyzing eligible beneficiaries’ behavior involved two 

steps: first, analyzing the factors related to whether eligible beneficiaries 

knew about the demonstration, and second, analyzing the factors related 

to whether those who knew about the demonstration decided to enroll. 

Knowledge about the demonstration. To account for differences in 

beneficiaries’ knowledge about the demonstration, we used individuallevel variables as well as variables corresponding to individual sites.1

These individual-level categories were demographic and economic 

variables, such as age and income; health status; other sources of health 

coverage, such as having employer-sponsored health insurance; and 

military-related factors. The inclusion of site variables allowed the model 

to take account of differences across the different sites in beneficiaries’ 

knowledge about the demonstration. 

We analyzed the extent to which these variables influenced beneficiaries’ 

knowledge about the demonstration using a logistic regression—a 

standard statistical method of analyzing an either/or (binary) variable. This 

method yields an estimate of each factor’s effect, controlling for the 

effects of all other factors in the regression. In our analysis, either a retiree 

knew about the demonstration or did not. The logistic regression predicts 

the probability that a beneficiary knew about the demonstration, given 

information about the person’s traits—for example, over age 75, had 

employer-sponsored health insurance, and so on. The coefficient on each 

variable measures its effect on beneficiaries’ knowledge.2

 These 

coefficients pertain to the entire demonstration population, not just those 

beneficiaries in our survey sample. To make the estimates generalizable to 

 1

Individual sites were represented by binary or dummy variables; for example, Humboldt 

County, California had a value of one when a beneficiary lived in that site, and a value of 

zero when the beneficiary lived in another site. 

2

To avoid statistical problems with analyzing the probability directly, logistic regression 

analyzes a related dependent variable—a function of the probability, P, divided by (1-P). 

However, the estimated probability, P, can be calculated from the logistic regression. In our 

analysis, P refers to each retiree’s probability of knowing about the demonstration. 

Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Analysis of Factors 

Affecting Knowledge about 

the Demonstration and 

Enrollment 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 36 GAO-03-547 Military Retiree Health Benefits 

the entire eligible population, we applied sample weights to all 

observations. 

In view of the large difference in enrollment between the mainland sites 

and Puerto Rico, we tested whether the same set of coefficient estimates 

was appropriate for the mainland sites and the Puerto Rico site. Our 

results showed that the coefficient estimates for the mainland and for 

Puerto Rico were not significantly different (at the 5 percent level), so it 

was appropriate to estimate a single logistic regression model for all sites. 

Table 7 shows for each variable its estimated effect on knowledge, as 

measured by the variable’s coefficient and odds ratio. The odds ratio 

expresses how much more likely—or less likely—it is that a person with a 

particular characteristic knows about the demonstration, compared to a 

person without that characteristic. The odds ratio is based on the 

coefficient, which indicates each explanatory variable’s estimated effect 

on the dependent variable, holding other variables constant. For the 

mainland sites, retirees were more likely to know about the demonstration 

if they were male, were married, were officers, were covered by employersponsored health insurance, lived less than an hour from a military 

treatment facility (MTF), or belonged to military retiree organizations. 

Retirees were less likely to know about the demonstration if they were 

African American; were older than age 75; or lived in Camp Pendleton, 

California, Dallas, Texas, or Fort Knox, Kentucky. 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 37 GAO-03-547 Military Retiree Health Benefits 

Table 7: Estimated Effects of Selected Factors on Whether Eligible Retirees Knew about the DOD-FEHBP Demonstration 

 Odds ratio Coefficient

Demographic and economic factors African American 0.67 -0.40a

Higher income (over $40,000) 1.29 0.26a

Hispanic 0.61 -0.49b

Male 1.38 0.32c

Married 1.43 0.36c 

Officer 1.49 0.40c

Older than age 75 0.71 -0.35c

Health status Self or spouse in fair or poor health 0.85 -0.16

Health insurance coverage Covered by a Medigap policy 1.10 0.09

Covered by employer-sponsored health insurance 1.39 0.33c

Enrolled in a Medicare+Choice plan in 1999 0.97 -0.03

Enrolled in Medicare part B on January 1, 2000 1.12 0.11

Military-related factors Less than 1 hour from an MTF 1.46 0.38c

Member of military retiree organization 1.70 0.53c

Used VA care during fiscal years 1998 or 1999 0.81 -0.21

Site effectsd

Camp Pendleton, Calif. 0.58 -0.55c

Dallas, Tex. 0.65 -0.43c

Dover, Del. 0.72 -0.33

Fort Knox, Ky. 0.59 -0.52a

Greensboro, N.C. 1.18 0.16

Humboldt County, Calif. 0.93 -0.07

Puerto Rico 0.77 -0.26

Constant -0.73c

Observations 3,504

Sources: GAO-DOD-OPM survey, CMS, and VA. 

Note: GAO analysis of GAO-DOD-OPM survey data, CMS enrollment data and VA enrollment data. 

The odds ratio expresses how much more likely—or less likely—it is that a person with a particular 

characteristic knows about the demonstration, compared to a person without that characteristic. The 

coefficient indicates each explanatory variable’s estimated effect on the dependent variable, holding 

other variables constant. 

a

Significant at the 5 percent level. 

b

Significant at the 10 percent level. 

c

Significant at the 1 percent level. 

d

The site effects consisted of a dummy variable for each site; the comparison site is New Orleans, 

La., selected at random from the eight sites. The mainland site effects were jointly significant at the 5 

percent level. 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 38 GAO-03-547 Military Retiree Health Benefits 

Decision to enroll in the demonstration. To account for a retiree’s 

decision to enroll or not to enroll, we considered four categories of 

individual-level variables similar to those in the “knowledge of the 

demonstration” regressions, and a site-level variable for Puerto Rico. We 

also introduced a set of health insurance factors pertaining to the area in 

which the retiree lived—the premium for a Medigap policy and the 

proportion of Medicare beneficiaries in a retiree’s county of residence 

enrolled in a Medicare+Choice plan. 

In our logistic regression analysis of enrollment, we included only those 

people who knew about the demonstration. Despite the large enrollment 

differences between the mainland sites and Puerto Rico, our statistical 

tests determined that the mainland sites and the Puerto Rico site could be 

combined into a single logistic regression of enrollment. We included a 

variable for persons in the Puerto Rico site. (See table 8.) 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 39 GAO-03-547 Military Retiree Health Benefits 

Table 8: Estimated Effects of Selected Factors on Whether Eligible Retirees Enrolled in an FEHBP Plan 

 Odds ratio Coefficient

Demographic and economic factors African American 0.51 -0.68a

Hispanic 1.19 0.17

Higher income (over $40,000) 1.35 0.30b

Male 0.74 -0.31c

Married 5.06 1.62c

Officer 1.46 0.38a

Older than age 75 1.32 0.28

Health status Self or spouse in fair or poor health 0.93 -0.07

Health insurance coverage Covered by a Medigap policy 1.32 0.28b

Covered by employer-sponsored health insurance 0.40 -0.92a

Enrolled in a Medicare+Choice plan in 1999 0.53 -0.64a

Enrolled in Medicare part B on January 1, 2000 2.01 0.70a

Military-related factors Less than 1 hour from an MTF 0.36 -1.01a

Member of a military retiree organization 1.49 0.40a

Used VA care during fiscal years 1998 or 1999 1.00 0.00

Geographic effects Medicare+Choice enrollment in countyd --e

 -0.01a

Medigap price for county and age category --e

 -0.38a

Puerto Rico site 2.96 1.09a

Constant -2.69a

Observations 1,913

Sources: GAO-DOD-OPM survey, Quotesmith Inc., CMS, and VA. 

Note: GAO analysis of GAO-DOD-OPM survey, DOD enrollment data, CMS enrollment data, VA 

enrollment data, and Quotesmith Inc. Medigap premium data. 

a

Significant at the 1 percent level. 

b

Significant at the 5 percent level. 

c

Significant at the 10 percent level. 

d

The proportion of Medicare beneficiaries in a retiree’s county of residence enrolled in a 

Medicare+Choice plan. 

e

Odds ratios are not reported for continuous variables, such as the number of enrollees and the price 

in dollars, because, unlike binary variables, the choice of values to make a comparison is arbitrary. 

We found that retirees were less likely to enroll in the demonstration if 

they were African American, enrolled in Medicare+Choice plans, had 

employer-sponsored health insurance, lived in areas with a high 

proportion of Medicare beneficiaries enrolled in a Medicare+Choice plan, 

lived in areas where Medigap was more expensive, or lived less than an 

hour from an MTF. Retirees who had higher incomes, were officers, were 

members of a military retiree organization, were enrolled in Medicare part 

B, lived in Puerto Rico, or were covered by a Medigap policy were more 

likely to enroll. 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 40 GAO-03-547 Military Retiree Health Benefits 

We estimated what the demonstration’s enrollment rate would have been 

in 2000 if everyone eligible for the demonstration had known about it. For 

the 54 percent of retirees who did not know about the demonstration, we 

calculated their individual probabilities of enrollment, using their 

characteristics (such as age) and the coefficient estimates from the 

enrollment regression.3

 Aggregating these individual estimated enrollment 

probabilities, we found that if all eligible retirees had known about the 

demonstration, enrollment in 2000 would have been 7.2 percent of eligible 

beneficiaries, compared with actual enrollment of 3.6 percent.4

To measure the health status of retired enrollees and nonenrollees, as well 

as of civilian FEHBP enrollees, we calculated scores for individuals using 

the Principal Inpatient Diagnostic Cost Group (PIP-DCG) method. This 

method—used by the Centers for Medicare & Medicaid Services (CMS) in 

adjusting Medicare+Choice payment rates—yielded a proxy for the 

healthiness of military and civilian retirees as of 1999, the year before the 

demonstration. The method relates individuals’ diagnoses to their annual 

Medicare expenditures. For example, a PIP-DCG score of 1.20 indicates 

that the individual is 20 percent more costly than the average Medicare 

beneficiary. In our analysis, we used Medicare claims and other 

administrative data from 1999 to calculate PIP-DCG scores for eligible 

military retirees and their counterparts in the civilian FEHBP in the 

demonstration sites. 

Using Medicare part A claims for 1999, we calculated PIP-DCG scores for 

Medicare beneficiaries who were eligible for the demonstration. We used a 

 3

In these calculations, we used only the characteristics from the model to simulate 

enrollment, which means we assumed the people who did not know about the 

demonstration would have behaved the same with respect to their decision to enroll, given 

their characteristics, as those who knew. We also adjusted for the difference between the 

enrollment rate in the demonstration as a whole and the enrollment rate of those included 

in the logistic regression analysis for whom there were no missing data. 

4

Retirees who reported that they did not know about the demonstration before the survey 

may have included some retirees who had known about it at one time. About 9 months 

elapsed between DOD’s final mailing to beneficiaries about the demonstration and the end 

of our survey. Our logistic regression for enrollment considered only people who 

responded in the survey that they knew about the demonstration. We excluded people from 

the enrollment regression who were enrolled but responded that they did not know about 

the demonstration. This did not affect our results because nearly all (more than 99 percent) 

of those who said they did not know about the demonstration did not enroll. 

Calculating the Impact on 

Enrollment if Those 

Eligible Had Known about 

the Demonstration 

Estimating Health Status 

Based on PIP-DCG Scores 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 41 GAO-03-547 Military Retiree Health Benefits 

DOD database to identify enrollees as well as those who were eligible for 

the demonstration but did not enroll. 

We also calculated PIP-DCG scores based on 1999 Medicare claims for 

each Medicare-eligible person enrolled in the civilian FEHBP. We obtained 

from OPM data on enrollees in the civilian FEHBP and on the plans in 

which they were enrolled. We restricted our analysis to those Medicareeligible civilian FEHBP enrollees who lived in a demonstration site. 

Results of PIP-DCG calculations. We compared the PIP-DCG scores of 

demonstration enrollees with those of eligible retirees who did not enroll. 

In every site, the average PIP-DCG score was significantly less5

 for 

demonstration enrollees than for those who did not enroll. We also 

compared the PIP-DCG scores of those enrolled in the demonstration with 

those enrolled in the civilian FEHBP: For every site, these scores were 

significantly less for demonstration enrollees than for their counterparts in 

the civilian FEHBP.6

 (See table 9.) 

 5

The scores were significantly less at the 5 percent level. 

6

The scores were significantly less at the 5 percent level. 
Appendix II: Data, Methods, and Models Used 

in Analyzing Factors Affecting DOD-FEHBP 

Demonstration Enrollment 

Page 42 GAO-03-547 Military Retiree Health Benefits 

Table 9: Health Status Comparisons of DOD-FEHBP Demonstration Enrollees with 

Eligible Retirees Who Did Not Enroll and with Civilian FEHBP Retirees, Based on 

PIP-DCG Scores 

Ratio of PIP-DCG scores of enrollees in a 

demonstration plan 

Site 

Compared to eligible 

military retirees who 

did not enroll 

Compared to civilian 

retirees in FEHBP

All sites 0.87 0.81

Camp Pendleton, Calif. 0.88 0.83

Dallas, Tex. 0.82 0.75

Dover, Del. 0.76 0.71

Humboldt County, Calif. 0.91 0.86

Fort Knox, Ky. 0.79 0.73

Greensboro, N.C. 0.84 0.77

New Orleans, La. 0.78 0.73

Puerto Rico 0.94 0.93

Source: CMS, DOD, and OPM. 

Note: GAO analysis of CMS claims data, DOD enrollment data, and OPM enrollment data. 

Comparisons used 1999 claims data and measured enrollment status as of September 2000. The 

difference between the PIP-DCG scores for the enrollees in the demonstration and the scores of 

military retirees who did not enroll was statistically significant at the 5 percent level for each 

demonstration site. The difference between the PIP-DCG scores for the enrollees in the 

demonstration and the scores of civilian retirees in FEHBP was statistically significant at the 5 percent 

level for each demonstration site. 

We compiled data from Quotesmith Inc. to obtain a premium price for 

Medigap plan F in each of the counties in the eight demonstration sites.7

We collected the lowest premium quote for a Medigap plan F policy for 

each sex at 5-year intervals: ages 65, 70, 75, 80, 85, and over 89. A person 

age 65 to 69 was assigned the 65-year-old’s premium, a person age 70 to 74 

was assigned the 70-year-old’s premium, and so on. Using these data, we 

assigned a Medigap plan F premium to each survey respondent age 65 and 

over, according to the person’s age, sex, and location. 

 7

Quotesmith.com, Inc. Instant Medicare Supplemental Insurance Quotes (Darien, Ill.: June 

2000), http://www.quotesmith.com/index.html#medsup (downloaded on June 27, 2000). 

Medigap Premiums 
Appendix III: Enrollment in the DOD-FEHBP 

Demonstration 

Page 43 GAO-03-547 Military Retiree Health Benefits 

Tables 10, 11, and 12 show enrollment rates by site and for the U.S. 

mainland sites as a whole for each year of the demonstration, 2000 

through 2002. 

Table 10: Enrollment in the DOD-FEHBP Demonstration, 2000 

 Enrollees Eligible beneficiaries Percentage enrolled

Mainland sites Camp Pendleton, Calif. 303 24,907 1.2

 Dallas, Tex. 520 13,607 3.8

 Dover, Del. 35 4,384 0.8

 Fort Knox, Ky. 134 7,757 1.7

 Greensboro, N.C. 285 3,278 8.7

 Humboldt County, Calif. 221 2,919 7.6

 New Orleans, La. 96 5,083 1.9

Total for mainland sites 1,594 61,935 2.6

Other site Puerto Rico 913 6,907 13.2

Total 2,507 68,842 3.6

Source: DOD. 

Note: Data are as of January 1, 2000. 

Table 11: Enrollment in the DOD-FEHBP Demonstration, 2001 

 Enrollees Eligible beneficiaries Percentage enrolled

Mainland sites Adair County, Iowa 1,564 29,584 5.3

 Camp Pendleton, Calif. 421 27,328 1.5

 Coffee County, Ga. 867 27,329 3.2

 Dallas, Tex. 949 16,159 5.9

 Dover, Del. 64 4,868 1.3

 Fort Knox, Ky. 188 9,121 2.1

 Greensboro, N.C. 334 4,033 8.3

 Humboldt County, Calif. 305 3,461 8.8

 New Orleans, La. 142 6,095 2.3

Total for mainland sites 4,834 127,978 3.8

Other site Puerto Rico 2,687 9,401 28.6

Total 7,521 137,379 5.5

Source: DOD. 

Note: Data are as of March 14, 2001. 

Appendix III: Enrollment in the DOD-FEHBP 

Demonstration 
Appendix III: Enrollment in the DOD-FEHBP 

Demonstration 

Page 44 GAO-03-547 Military Retiree Health Benefits 

Table 12: Enrollment in the DOD-FEHBP Demonstration, 2002 

 Enrollees Eligible beneficiaries Percentage enrolled

Mainland sites Adair County, Iowa 484 29,530 1.6

 Camp Pendleton, Calif. 145 27,287 0.5

 Coffee County, Ga. 212 27,284 0.8

 Dallas, Tex. 354 16,133 2.2

 Dover, Del. 36 4,867 0.7

 Fort Knox, Ky. 70 9,113 0.8

 Greensboro, N.C. 85 4,024 2.1

 Humboldt County, Calif. 65 3,454 1.9

 New Orleans, La. 74 6,085 1.2

Total for mainland sites 1,525 127,777 1.2

Other site Puerto Rico 2,842 9,453 30.1

Total 4,367 137,230 3.2

Source: DOD. 

Note: Data are as of February 21, 2002. 
Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Page 45 GAO-03-547 Military Retiree Health Benefits 

The program for informing and educating eligible beneficiaries about the 

demonstration was modeled on OPM’s approach to informing eligible 

civilian beneficiaries about FEHBP. Elements of OPM’s approach include 

making available a comparison of FEHBP plans and holding health fairs 

sponsored by individual federal agencies. DOD expanded upon the OPM 

approach–for example, by sending postcards to inform eligible 

beneficiaries about the demonstration because they, unlike civilian federal 

employees and retirees, were unlikely to have any prior knowledge of 

FEHBP. In addition, DOD established a bilingual toll-free number. During 

the first year’s enrollment period, DOD adjusted its information and 

education effort, for example, by changing the education format from 

health fairs to town meetings designed specifically for demonstration 

beneficiaries. In the second year of the demonstration, DOD continued 

with its revised approach. In the third year, after TRICARE For Life (TFL) 

began, DOD significantly reduced its information program but continued 

to mail information to all eligible beneficiaries. It limited town meetings to 

Puerto Rico, the only site where enrollment remained significant during 

the third year. 

DOD sent a series of mailings to all eligible beneficiaries. These included 

• a postcard announcing the demonstration, mailed in August 1999,1 that 

alerted beneficiaries to the demonstration–the returned postcards allowed 

DOD to identify incorrect mailing addresses and to target follow-up 

mailings to beneficiaries with correct addresses; 

• an OPM-produced booklet, The 2000 Guide to Federal Employees Health 

Benefits Plans Participating in the DOD/FEHBP Demonstration Project, 

received by all eligible retirees from November 3 through 5, 1999, that 

contained information on participating FEHBP plans, including coverage 

and consumer satisfaction; 

• a trifold brochure describing the demonstration, which was mailed on 

September 1 and 4, 1999; and 

• a list of Frequently Asked Questions (FAQ) explaining how Medicare and 

FEHBP work together. 

At the time of our survey, after the first year’s information campaign, over 

half of eligible beneficiaries were unaware of the demonstration. Among 

those who knew about it, more recalled receiving the postcard than 

 1

Dates for this and subsequent mailings refer to the first year of the demonstration. 

Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Mailings 
Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Page 46 GAO-03-547 Military Retiree Health Benefits 

recalled receiving any of the later materials—although the FAQ was cited 

more often as being useful. (See table 13.) 

Table 13: Beneficiaries Who Recalled Receiving DOD-FEHBP Demonstration 

Mailings and Who Found Them Useful 

 Percentages 

Beneficiaries 

who recalled 

receiving 

materialsa

Beneficiaries 

who found 

materials usefulb

 

Postcard announcing the DOD-FEHBP 

demonstration 31 61

Booklet entitled, The 2000 Guide to Federal 

Employees Health Benefits Plans Participating 

in the DOD/FEHBP Demonstration Project 27 67

Trifold brochure describing the demonstration 17 69

FAQ about coordination of Medicare and 

FEHBP benefits 17 72

Source: GAO-DOD-OPM survey. 

Note: These materials were mailed in 1999 for the 2000 enrollment period. 

a

The question was asked only of those who knew that, as part of the new demonstration, they could 

join an FEHBP health plan. 

b

Entries are percentages of beneficiaries who recalled receiving them. 

Initially, the health fairs that DOD sponsored for military bases’ civilian 

employees were its main effort—other than the mailings—to provide 

information about the demonstration to eligible beneficiaries. At these 

health fairs, plans set up tables at which their representatives distributed 

brochures and answered questions. At one site, the military base refused 

to allow the demonstration representatives to participate in its health fair 

because of concern about an influx of large numbers of demonstration 

beneficiaries. At another site, the turnout exceeded the capacity of the 

plan representatives to deal with questions and DOD officials told us that 

they accommodated more people by giving another presentation at a 

different facility or at the same facility 1 month later. 

A DOD official discovered, however, that it was difficult to convey 

information about the demonstration to large numbers of individuals at 

the health fairs. DOD officials determined that the health fairs were not 

working well, so by January 2000, DOD replaced them with 2-hour 

briefings, which officials called town meetings. In these meetings, a DOD 

representative explained the demonstration during the first hour and then 

Health Fairs and Town 

Meetings 
Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Page 47 GAO-03-547 Military Retiree Health Benefits 

answered questions from the audience. A DOD official told us that these 

town meetings were more effective than the health fairs.2

For the first year of the demonstration, just under 6 percent of those 

eligible attended either a health fair or a town meeting. The number of 

eligible beneficiaries who reported attending these meetings varied 

considerably by site—from about 3 percent in New Orleans and Camp 

Pendleton to 4 percent in Fort Knox and 18 percent in Humboldt County. 

Roughly 11 percent of beneficiaries reported attending in Puerto Rico, the 

site with the highest enrollment. 

DOD also established a call center and a Web site to inform eligible 

beneficiaries about the demonstration. The call center, which was staffed 

by Spanish and English speakers, answered questions and sent out printed 

materials on request. In the GAO-DOD-OPM survey, about 18 percent of 

those who knew about the demonstration reported calling the center’s tollfree number. The proportion that called the toll-free number was much 

higher among subsequent enrollees (77 percent) than among nonenrollees 

who knew about the demonstration (13 percent). The Web site was 

another source of information about the demonstration. 

Although less than half of eligible beneficiaries knew about the 

demonstration, most of those who did know said they obtained their 

information from DOD’s mailings. Other important sources of information 

included military retiree and military family organizations and FEHBP 

plans. (See table 14.) 

 2

In Puerto Rico, the town hall meetings were conducted in Spanish, which, according to 

one DOD official, was very effective in conveying the information to the eligible 

beneficiaries at that site. 

DOD’s Call Center and 

Web Site 

Beneficiaries’ Sources of 

Information 
Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Page 48 GAO-03-547 Military Retiree Health Benefits 

Table 14: Beneficiaries’ Sources of Information about the DOD-FEHBP Demonstration 

 Percentages 

Source of information All beneficiaries Enrollees Nonenrollees

Received information mailed by DOD 81.8 78.1 82.1

Received information from a military retiree or family organization 33.1 43.3 32.3

Received information from one of the FEHBP plans 25.0 37.3 24.0

Heard about demonstration from family or friends 7.0 10.0 6.8

Attended a health fair or town meeting 5.9 25.6 4.3

Heard about it from office of Member of Congress 2.1 5.5 1.8

Read article about the demonstration in the newspaper 7.6 9.7 7.4

Saw newspaper advertisements by one or more FEHBP plans 1.9 2.2 1.8

Heard about demonstration on radio or television 1.7 1.7 1.7

Othera 6.7 10.4 6.3

Source: GAO-DOD-OPM survey. 

Note: The source of information is given only for those who knew before receiving the survey that, as 

a part of the new demonstration, they could join an FEHBP health plan. Percentages add to more 

than 100 because respondents could select more than one reason. Respondents reported 

information gained relating to 2000 enrollment. 

a

“Other” refers to answers that could not be classified. 

Nearly all of enrollees (93 percent) and more than half of nonenrollees 

who said they considered enrolling in an FEHBP health plan (55 percent) 

reported that they had enough information about specific plans to make an 

informed decision about enrolling in one of them. More than three-fifths of 

these beneficiaries who enrolled or considered enrolling in an FEHBP plan 

said they used The 2000 Guide to FEHBP Plans Participating in the 

DOD/FEHBP Demonstration Project as a source of information. Other 

major sources of information were the plans’ brochures and DOD’s health 

fairs and town meetings. More than 18 percent of those who considered 

joining did not obtain information about any specific plan. (See table 15.) 
Appendix IV: DOD’s Approach to Informing 

Beneficiaries about the DOD-FEHBP 

Demonstration 

Page 49 GAO-03-547 Military Retiree Health Benefits 

Table 15: Sources of Information for Eligible Beneficiaries about Specific FEHBP 

Plans 

 Percentages 

Source of Information Enrollees Nonenrollees Total 

Reading The 2000 Guide to FEHBP Plans 75.1 59.7 63.5 

Reading one or more plans’ brochures 46.5 26.0 31.1 

Health fair or town meeting 35.2 12.5 18.1 

Calling one or more plans 27.2 9.9 14.2 

Friends or family 14.3 8.6 10.0 

Internet 10.3 3.8 5.4 

Advertising in a newspaper or other publication 1.6 3.0 2.7 

Othera

10.1 6.8 7.6 

I did not get information about any specific 

FEHBP plans 1.2 24.3 18.6 

Source: GAO-DOD-OPM survey. 

Note: Entries are percentages of respondents who considered joining an FEHBP plan. Percentages 

add to more than 100 because respondents could select more than one reason. Respondents 

reported information gained relating to 2000 enrollment. 

a

“Other” refers to answers that could not be classified. 
Appendix V: Enrollees’ and Nonenrollees’ 

Reasons for Joining or Not Joining a DODFEHBP Demonstration Plan 

Page 50 GAO-03-547 Military Retiree Health Benefits 

Table 16 shows reasons cited by enrollees for enrolling in a DOD-FEHBP 

health plan in 2000, and table 17 shows reasons cited by nonenrollees for 

not enrolling. 

Table 16: Survey Responses by Enrollees to the Question “Why Did You Join a DOD-FEHBP Health Plan?” 

Percentages 

 Location 

All respondents Mainland Puerto Rico

The plan’s benefits package meets my needs (and those of my family) 66.7 66.1 68.2

I needed better coverage for prescriptions 64.3 60.0 74.7

My current doctors are among those I can select under the plan 62.5 63.0 61.3

It costs less than other coverage that I could buy 62.1 58.8 69.9

The plan’s benefits package is better than other coverage I could get 50.8 47.2 59.2

It costs less than my previous coverage (insurance or health plan) 49.8 48.9 51.8

The plan has a good reputation for quality of care 44.6 39.6 56.6

My spouse joined the plan, and it is more convenient if we’re both in the 

same plan 34.6 28.6 48.7

I can’t count on getting space-available care 27.1 33.1 13.1

It gives me a broader choice of doctors than I had before 26.5 21.8 37.5

I don’t want to use military care 22.2 25.9 13.4

Many civilian doctors don’t accept CHAMPUS/TRICAREa

20.4 17.2 28.2

My friends or relatives recommended that I join the plan 14.2 9.4 25.3

Otherb

10.0 10.9 7.8

Source: GAO-DOD-OPM survey. 

Note: This question was asked only of people who knew about the demonstration at the time of the 

survey. Beneficiaries were given a list of possible answers as well as an “Other” option for which they 

could write their own answers. 

a

CHAMPUS is the name given to the military health care program that preceded TRICARE. 

b

Answers that could not be classified. 

Appendix V: Enrollees’ and Nonenrollees’ 

Reasons for Joining or Not Joining a DODFEHBP Demonstration Plan 
Appendix V: Enrollees’ and Nonenrollees’ 

Reasons for Joining or Not Joining a DODFEHBP Demonstration Plan 

Page 51 GAO-03-547 Military Retiree Health Benefits 

Table 17: Survey Responses by Nonenrollees to the Question “Why Didn’t You Join a DOD-FEHBP Health Plan?” 

Percentages 

 Location 

All respondents Mainland Puerto Rico

I was satisfied with my current coverage 64.1 65.9 28.4

It would cost too much 29.4 29.9 17.6

The program is new, and I’m waiting to see how it works 26.6 26.4 30.2

I wasn’t sure how it would work with Medicare 26.2 25.7 36.2

I wouldn’t be able to use military pharmacies anymore 26.1 26.4 20.8

I couldn’t keep my current doctors 25.5 26.3 8.1

The demonstration will end in 3 years 22.0 22.3 16.5

I was afraid I wouldn’t be able to get my Medicare supplemental policy 

back after the demonstration ended 20.2 20.6 12.1

I can get care at military health care facilities when I need it 14.4 13.6 30.7

I heard about the demonstration, but did not have enough information to 

make a decision 13.9 13.3 27.5

I was afraid I wouldn’t be able to get my retiree health insurance back after 

the demonstration ended 11.1 11.1 11.0

I can get care at the VA when I need it 10.2 9.1 31.4

I couldn’t decide which plan to join 9.5 9.0 20.8

My spouse didn’t want to join so I decided not to 5.7 5.5 9.2

My friends and relatives recommend against it 5.0 5.2 0.0

I was not eligible 4.5 4.7 1.1

I didn’t know about the demonstration project 3.5 3.4 4.4

None of the plans available to me had a good reputation 3.0 3.1 1.1

Othera

15.8 15.9 13.2

Source: GAO-DOD-OPM survey. 

Note: This question was asked only of people who knew about the demonstration at the time of the 

survey. Beneficiaries were given a list of possible answers as well as an “Other” option for which they 

could write their own answers. Answers relate to enrollment in 2000. Because beneficiaries could 

select multiple reasons, the percentages total more than 100. 

a

Answers that could not be classified. 
Appendix VI: Comments from the Department 

of Defense 

Page 52 GAO-03-547 Military Retiree Health Benefits 

Appendix VI: Comments from the 

Department of Defense 
Appendix VII: GAO Contacts and Staff 

Acknowledgments 

Page 53 GAO-03-547 Military Retiree Health Benefits 

Jonathan Ratner, (202) 512-7107 

Phyllis Thorburn, (202) 512-7012 

Major contributors to this work were Michael Kendix, Robin Burke, 

Jessica Farb, Martha Kelly, Dae Park, and Michael Rose. 

Appendix VII: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Acknowledgments 
Related GAO Products 

Page 54 GAO-03-547 Military Retiree Health Benefits 

Defense Health Care: Oversight of the Adequacy of TRICARE’s Civilian 

Provider Network Has Weaknesses. GAO-03-592T. Washington, D.C.: 

March 27, 2003. 

Federal Employees’ Health Benefits: Effects of Using Pharmacy Benefit 

Managers on Health Plans, Enrollees, and Pharmacies. GAO-03-196. 

Washington, D.C.: January 10, 2003. 

Federal Employees’ Health Plans: Premium Growth and OPM’s Role in 

Negotiating Benefits. GAO-03-236. Washington, D.C.: December 31, 2002. 

Medicare+Choice: Selected Program Requirements and Other Entities’ 

Standards for HMOs. GAO-03-180: Washington, D.C.: October 31, 2002. 

Medigap: Current Policies Contain Coverage Gaps, Undermine Cost 

Control Incentives. GAO-02-533T. Washington, D.C.: March 14, 2002. 

Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises 

Cost and Management Issues for DOD Health Care. GAO-02-284. 

Washington, D.C.: February 11, 2002. 

Retiree Health Insurance: Gaps in Coverage and Availability. GAO-02-

178T. Washington, D.C.: November 1, 2001. 

Medigap Insurance: Plans Are Widely Available but Have Limited 

Benefits and May Have High Costs. GAO-01-941. Washington, D.C.: July 

31, 2001. 

Health Insurance: Proposals for Expanding Private and Public 

Coverage. GAO-01-481T. Washington, D.C.: March 15, 2001. 

Defense Health Care: Pharmacy Copayments. GAO/HEHS-99-134R. 

Washington, D.C.: June 8, 1999. 

Federal Health Programs: Comparison of Medicare, the Federal 

Employees Health Benefits Program, Medicaid, Veterans’ Health 

Services, Department of Defense Health Services, and Indian Health 

Services. GAO/HEHS-98-231R. Washington, D.C.: August 7, 1998. 

Defense Health Care: Offering Federal Employees Health Benefits 

Program to DOD Beneficiaries. GAO/HEHS-98-68. Washington, D.C.: 

March 23, 1998. 

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