United States General Accounting Office

GAO Report to Congressional Committees

May 1996 DEFENSE HEALTH

CARE

Effects of Mandated

Cost Sharing on

Uniformed Services

Treatment Facilities

Likely to Be Minor

G O A

years

1921 - 1996

GAO/HEHS-96-141

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-271864 

May 13, 1996

The Honorable Daniel R. Coats

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Subcommittee on Personnel

Committee on Armed Services

United States Senate

The Honorable Robert K. Dornan

Chairman

The Honorable Owen B. Pickett

Ranking Minority Member

Subcommittee on Military Personnel 

Committee on National Security 

House of Representatives

As required by the National Defense Authorization Act for Fiscal Year 1996

(P.L. 104-106), this report describes the financial and other effects that the

Department of Defense’s (DOD) new health care benefit and cost-sharing

package will likely have on the Uniformed Services Treatment Facilities

(USTF).1 USTFs are former Public Health Service hospitals now under

civilian ownership and designated by the Congress in the Military

Construction Authorization Act of 1982 (42 U.S.C. 248c) to be part of the

Military Health Services System (MHSS). The Congress has periodically

renewed this legislative authority, which is now set to expire

September 30, 1997. Under the USTF program, the Congress has

appropriated nearly $1 billion since fiscal year 1994 for the USTFs to deliver

health care to what now totals 124,000 beneficiaries.

DOD’s health care benefit and cost-sharing package is an integral part of

TRICARE, DOD’s nationwide managed health care initiative. Section 726(a)

of P.L. 104-106 requires that DOD extend TRICARE cost shares to the USTFs

after either October 1, 1996, or the start of TRICARE in the USTF service

area, whichever is later. Currently, USTF members pay no enrollment fees

and low or no copayments for health services. Appendix I shows the

TRICARE cost-sharing provisions and the current USTF cost-sharing

requirements. The USTFs contend that the new cost shares will harm them

financially. This is because a substantial number of healthy USTF members

1

“Cost sharing” refers to the requirement that enrollees pay copayments for the care they receive

and/or enrollment fees for joining a health plan.

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B-271864 

may disenroll to seek less costly coverage, leaving the USTFs at risk from

their less healthy members’ higher care costs—an outcome known as

adverse selection. Accordingly, P.L. 104-106 provides that the USTFs could

submit to us, within 30 days of its enactment, evidence on the likely

financial effects of the new cost shares. The act further requires that if the

USTFs submitted such evidence, we review whether the cost shares will

(1) cause adverse selection of USTF members; (2) be inappropriate for a

fully at-risk managed care facility; and (3) result in a USTF member

population different from DOD’s general population. In March 1996, the

USTFs submitted a report to us detailing their position.2

To do our work, we contracted with the Hay Group for actuarial

assistance. In reviewing the USTFs’ actuarial estimates, we examined

various supporting documents, including adverse selection literature;

records from a telephone survey of USTF members asking whether

members would disenroll because of the new cost shares and instead use

TRICARE Standard;3

 and the health care costs of surveyed members. We

also interviewed the USTFs’ actuary (Milliman & Robertson, Inc.), the USTF

market research firm (Market Street Research, Inc.), and USTF and DOD

representatives in Washington, D.C. We did our work from February 17

through May 9, 1996, in accordance with generally accepted government

auditing standards.

Results in Brief While the new cost-sharing arrangement mandated under TRICARE may

cause some adverse selection, it will have no lasting negative financial

effects on the USTFs. We estimate that less than 10 percent of the USTFs’

current members will disenroll and USTF costs will increase by less than

2 percent of their current reimbursement levels. DOD’s reimbursement

approach, however, automatically adjusts USTFs’ capitation payments for

higher USTF costs due to enrollee age and gender. It also allows for

negotiated adjustments in reimbursement rates for the effects of benefit

and cost-sharing revisions, which may result in adverse selection.

In contrast, the USTFs estimated in their March 1996 report to us that the

cost shares will cause about a 40-percent USTF disenrollment rate and cost

increases of about 11 percent over current reimbursement levels. We

found weaknesses in the USTFs’ data gathering and health claims analysis,

2

Stanley A. Roberts and Robert G. Cosway, Impact on Uniformed Services Treatment Facilities of the

Implementation of the TRICARE Uniform HMO Benefit Cost Shares Provisions (Seattle, Wash.:

Milliman & Robertson, Inc., 1996).

3

Under TRICARE, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) is

renamed TRICARE Standard.

Page 2 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

however, that tend to overstate the disenrollment estimate and reduce the

results’ reliability. Also, according to actuarial research, a major

disenrollment incentive is a high out-of-pocket cost difference between an

individual’s current health plan and competing plans. But such differences

between the USTFs’ new cost shares and TRICARE Standard’s

out-of-pocket costs (a maximum of $460 per year less under TRICARE

Standard) are not likely to be great enough to cause disenrollment in

excess of 10 percent. Further, in estimating an 11-percent cost increase,

the USTFs included all large claims incurred in the prior year. Actuarial

research shows, however, that individuals who incur a large claim in one

year will not necessarily do so the following year because large claims may

be for one-time high-cost events. Moreover, our analysis showed that these

estimates are greatly influenced by just a few large claims.

Contrary to the USTFs’ contention, the new cost shares are appropriate for

the risks to be borne by the USTFs. Although the cost shares could create

some problems for a managed care plan not able to adjust its capitation,

any USTF loss attributable to age and gender would be covered through

automatic capitation adjustments. Any costs attributable to revisions of

the benefit and cost-sharing provisions are negotiable between DOD and

the USTFs. DOD has recently reiterated this position in its discussions with

us and the USTFs. As a result, the new cost shares are not expected to

create a financial burden on the USTFs. Furthermore, the new cost-sharing

structure is similar to that of health maintenance organization (HMO) plans

in the Federal Employees Health Benefits Program (FEHBP), although with

lower out-of-pocket costs. Compared with the 1996 FEHBP HMO plan costs in

USTF regions, for example, the TRICARE enrollment fee for family

coverage is from $614 to $6,975 less per year than FEHBP’s HMO plan

premiums.

Finally, the USTFs believe that adoption of the new cost shares will result in

their enrolling an older, perhaps less healthy beneficiary population than is

enrolled under TRICARE. This, in their opinion, will increase USTF costs.

The USTF and DOD beneficiary populations, however, are already different

in that the USTFs serve proportionately more retirees and their dependents

than exist in the DOD populations in their regions. At issue, therefore, is to

what degree this difference is expected to change as a result of the USTFs’

new cost shares. Adopting the cost shares may make the USTF population

more like DOD’s general population by reducing the number of USTF retirees

and their dependents under age 65.

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B-271864 

Background DOD offers medical services to 8.3 million eligible people through the

MHSS—1.7 million active duty members4 and another 6.6 million non-active

duty members, such as dependents of active duty personnel and military

retirees and their dependents. The bulk of the health care is provided at

more than 600 military hospitals and clinics worldwide; through CHAMPUS;

and, to a comparatively minor extent, at USTFs.5

The USTF managed care program involves the formation of provider

networks to deliver a full spectrum of inpatient and outpatient care and

preventive services; beneficiary enrollment; and a monthly capitated

reimbursement system. DOD’s capitation payment rates cover all the

medical care a member would need in a year. Subject to annual

appropriations, USTFs are permitted to enroll any person eligible for MHSS

benefits except for active duty members, who receive their care at military

hospitals and clinics. But unlike those under CHAMPUS, USTF members do

not lose their participation rights when they reach age 65 and become

eligible for Medicare. At the beginning of fiscal year 1996, the USTFs had

124,012 members, including about 27,000 Medicare-eligibles, and an

appropriated funding level of $339 million (see table 1).

4

Includes members of the Coast Guard and Commissioned Corps of the Public Health Service and of

the National Oceanic and Atmospheric Administration, who are also eligible for military health care.

5

DOD administers CHAMPUS, an insurance-like program that pays for a portion of the care military

families and retirees receive from private sector health care providers. Military retirees and their

dependents who are covered under Medicare are also eligible for care at military medical facilities on a

space-available basis but are not eligible for CHAMPUS.

Page 4 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

Table 1: USTF Enrollment and Program

Budget, FY 1996 Dollars in Millions

Facility name Location

Members

enrolled

Share of

program

Bayley Seton Hospital Staten Island, N.Y 15,772 $53.2

Brighton Marine Public Health

Care Center

Boston, Mass.

11,892 40.0

Johns Hopkins Medical

Services Corporation

Baltimore, Md.

23,881 57.0

Lutheran Medical Center Cleveland, Ohio 6,570 13.9

Martin’s Point Health Care

Center

Portland, Me.

18,795 41.3

Pacific Medical Center and

Clinics

Seattle, Wash.

20,048 58.8

Sisters of Charity Hospitalsa Texas 27,054 75.0

Total 124,012 $339.3b

Note: See app. II for annual USTF funding and enrollment since fiscal year 1994.

aSisters of Charity Hospitals operates three USTF facilities in Texas (St. John’s Hospital, Nassau

Bay; St. Joseph’s Hospital, Houston; and St. Mary’s Hospital, Port Arthur). Sisters of Charity

recently sold its fourth USTF facility, St. Mary’s Hospital, Galveston, to the University of Texas

Medical Branch, which is no longer a USTF.

bIn addition to DOD’s covered beneficiaries, this appropriation includes $24.3 million for the

Department of Transportation’s Coast Guard beneficiaries and the Department of Health and

Human Services’ Commissioned Corps beneficiaries of the Public Health Service and the National

Oceanic and Atmospheric Administration.

By September 1997, DOD plans to complete its implementation of

TRICARE—a nationwide managed care program. TRICARE is aimed at

improving access to high-quality care while containing costs. TRICARE

involves coordinating and managing beneficiary care on a regional basis

using all available military hospitals and clinics supplemented by

competitively contracted civilian services. TRICARE offers beneficiaries

three plans: (1) TRICARE Standard, a fee-for-service arrangement to

replace the present CHAMPUS program; (2) TRICARE Extra, a preferred

provider plan; and (3) TRICARE Prime, an HMO that provides

comprehensive medical care to beneficiaries through an integrated

network of military and contracted civilian providers. (App. I compares

the cost-sharing provisions of the three TRICARE plans.)

As required by P.L. 104-106, DOD is to develop a plan to integrate the USTFs

into TRICARE. We will soon report on several issues regarding the USTFs’

integration into TRICARE, including whether the USTFs should retain their

special, noncompetitive relationship with DOD. The managed care support

Page 5 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

contractors under TRICARE compete on a cost-effectiveness basis rather

than through a noncompetitive negotiation of rates as is done with the

USTFs.

Potential Adverse

Selection Effects Will

Likely Be Minor and

Offset by Capitation

Adjustments

Our analysis of the potential effects on the USTFs of adopting the TRICARE

cost shares showed that less than 10 percent of the members will

disenroll, causing less than a 2-percent increase in operating costs. But

DOD’s reimbursement approach takes into account and otherwise adjusts

the USTFs’ capitation payments for higher costs that may result from

changes in the population’s age and gender. It also allows for negotiated

adjustments in reimbursement rates for the effects of benefit and

cost-sharing revisions, which may result in adverse selection.

In contrast, the USTFs estimated that the new cost shares will cause about a

40-percent USTF disenrollment rate and cost increases of about 11 percent.

However, the USTFs’ estimates are overstated because of weaknesses in

their survey and health claims data, and the absence of out-of-pocket cost

differences among the key plans that are significant enough to cause

disenrollment of more than 10 percent.

Survey and Claims Data

Weaknesses Reduce

Reliability of USTFs’

Estimates

The USTFs’ estimates of the effects of the new cost shares were based

largely on the results of a telephone survey of USTF households and an

analysis of health claims data. In February 1996, the USTFs conducted a

survey of 2,100 member households (300 from each USTF) to determine

whether, with the new cost shares, members would disenroll and choose

TRICARE Standard.6

 Retirees under age 65 and their households were

surveyed because only this group—not the Medicare-eligible or active duty

dependent members—will be subject to the new enrollment fee.7

 Also,

USTF health claims data for the surveyed households covering the 12

months ending September 30, 1995, were analyzed to determine the costs

for members who said they would remain and those who would disenroll.

Our review of the USTFs’ survey approach and data analysis raised several

concerns about the reliability of their estimates. First, the survey questions

focused solely on the households’ out-of-pocket cost increases and did not

6

Because TRICARE is currently available at the Pacific Medical USTF in Seattle, members there were

asked whether they would leave the USTF and choose TRICARE Prime, TRICARE Extra, or TRICARE

Standard.

7

DOD has exempted active duty families and eligible USTF members who are paying Medicare part B

premiums from paying TRICARE’s annual enrollment fee.

Page 6 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

probe respondents’ views about the quality of or access to care at the USTF

versus other options available to them. (See app. III for the questionnaires

used in the USTF survey.) Since households may base their health plan

decisions on factors other than out-of-pocket costs, such as access and

quality, questions on these other factors would have added needed

perspective to the survey responses. Second, the wording of several

questions could have misled respondents and produced incorrect

responses. For example, one question asked: “If you have to choose

between CHAMPUS [or TRICARE Standard, TRICARE Extra, or TRICARE

Prime at the Pacific Medical USTF] and the [subject] USTF with higher

copays and enrollment fees for your household in the future, which would

you select?” The question’s phrasing could have led respondents to

believe that with the new cost shares the USTFs will have higher

copayments than the other choices. This is not the case.

Furthermore, survey choices were categorized as “would stay,” “would

leave and choose TRICARE Standard,” “neither, or would choose different

plan,” and “don’t know.” To reduce the number of “don’t know” responses,

interviewers were instructed to probe respondents and try to force them

to make a decision. One probe was “We’re not asking you to make a firm

commitment right now, but we are interested in knowing which one you

would be most likely to choose on the basis of the information I just read

to you.” Because interviewers tried to force respondents to change “don’t

know” answers, the responses in these cases may not reliably predict the

respondent’s answer. Finally, the average length of time individuals took

to respond to the survey was about 4 minutes. This short period probably

did not allow most individuals to weigh and respond thoughtfully about

the medical plan they would choose.

When analyzing cost differences among respondents, the USTF actuaries

combined the “don’t know” responses with the group who responded they

would disenroll. This caused an overstatement of the number of

respondents the USTFs estimated will leave. Also, in analyzing potential

cost differences, the USTF actuaries did not verify the claims data the USTFs

reported. In addition, four of the USTFs provided incomplete data for the

surveyed households. They provided less than 12 months of claims data

and/or omitted such services as outpatient prescription drugs and care

provided under subcontract with non-USTF providers. For Bayley Seton and

Johns Hopkins, 172 and 106, respectively, of the 300 surveyed households

for each facility were dropped because no claims data were available for

these households. Furthermore, the USTF report stated that the USTFs had

to perform some adjustments to produce theoretical billed charges. In

Page 7 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

effect, a percentage of the claims costs the USTFs provided is incomplete,

or estimated; thus, such data cannot be validated and are of questionable

use for estimating the potential cost effects of adverse selection.

USTFs Overestimated

Disenrollment Resulting

From Adverse Selection

According to actuarial research, any time a health plan increases a

member’s out-of-pocket costs relative to competing plan choices, some

adverse selection can occur. But for the USTFs to experience the 40-percent

disenrollment rate they estimated, the cost differences would have to be

significantly higher than what would exist between the USTFs’ new cost

shares and TRICARE Standard. As table 2 shows, the USTF households that

face the greatest out-of-pocket increase—$460—relative to TRICARE

Standard are those incurring no medical expenditures. Most USTF

households, or those incurring some medical expenditures, will have even

lower relative cost differences. According to actuarial experience, such

relative cost difference levels will not result in major enrollment shifts.

Moreover, a Congressional Research Service study of the 1987 FEHBP open

season found that out-of-pocket cost differences among plans had to be at

least $1,000—$2,000 in 1996 dollars—to result in more than a 10-percent

plan disenrollment rate.8

 But as table 2 shows, no USTF household will

reach an out-of-pocket cost difference that high when compared with

TRICARE Standard.

8

Congressional Research Service, Federal Employees Health Benefits Team, The Federal Employees

Health Benefits Program and Possible Strategies for Reform, House Committee Print 101-5

(Washington, D.C.: House Committee on Post Office and Civil Service, Subcommittee on

Compensation and Employee Benefits, 1989).

Page 8 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

Table 2: Comparison of Household

Out-Of-Pocket Costs Under the USTFs’

New Cost Shares and TRICARE

Standard

Out-of-pocket costs

Annual medical costs

USTFs’ new cost

shares

TRICARE

Standard Difference

0 $460a 0 $460

$400 520 $325 195

600 550 375 175

800 580 425 155

1,000 610 475 135

5,000 890 1,475 (585)

10,000 1,140 2,725 (1,585)

15,000 1,390 3,975 (2,585)

25,000 1,890 6,475 (4,585)

30,000 2,140 7,500b (5,360)

50,000 3,000b 7,500 (4,500)

aThe annual enrollment fee.

bThe catastrophic limit to out-of-pocket costs.

The disenrollment rate that will likely result from the USTFs’ adopting the

new cost shares will be less than 10 percent. But to be actuarially

conservative, we allowed for a 20-percent outcome and reestimated the

USTFs’ disenrollment and cost increases. Table 3 shows the comparative

results of these adjustments.

Table 3: Estimated Cost Increases

With 20- and 40-Percent Disenrollment

Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Number of respondents 1,095 1,456 721 360 1,816

Monthly claims cost $206.51 $193.51 $155.31 $155.31 $185.78

Estimated cost

increasea 11% 4%

aDerived by subtracting the total respondents’ monthly claims cost from the claims cost of those

respondents who would remain in USTF, and dividing this increase by the total respondents’ cost.

As shown, the 20-percent disenrollment estimate reduces the USTFs’

estimated 11-percent cost increase to 4 percent. Reductions in the USTFs’

estimated cost increases are greater for the USTFs that may experience the

most adverse selection, such as Pacific Medical. (App. IV provides a

breakdown on the effects for each USTF.)

Page 9 GAO/HEHS-96-141 Effects of USTF Cost Sharing
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Also, although active duty and Medicare-eligible family members are not

subject to the new enrollment fee, the USTFs estimated that some of these

family members will also disenroll. The USTFs estimated up to 5-percent

cost increases for each group as a result of adverse selection. We found,

however, that there would be negligible or no adverse selection of such

members and thus no cost increase would occur with the new cost shares.

Family members of active duty personnel would incur the same

out-of-pocket costs at the USTFs as elsewhere in the TRICARE system and

thus would not have a relative cost difference incentive to disenroll.9

Medicare-eligible family members would incur the same costs but have

better benefits and better access to care at the USTFs than in TRICARE. We

believe, moreover, that individuals from these two categories would

replace those retirees under age 65 and their dependents who disenroll

because of adverse selection.

Estimating the USTFs’

Next-Year Costs With Last

Year’s Claims Distorts

Results

In estimating an 11-percent cost increase resulting from the new cost

shares, the USTFs assumed that each affected member would have the

same claims costs in the year after adverse selection occurred as they had

in the year before. Also, they concluded that members with the most costly

claims would be most likely to stay with the USTF, and new enrollees would

have the same claims costs as those respondents who said they would

stay. According to actuarial research, however, individuals that incur a

large claim in one year will not necessarily do so the following year. This is

because large claims may be for one-time high-cost events. A recent study

of year-to-year health care expenditures for a large manufacturing firm

showed that most large claims incurred in a given year are from

individuals incurring much lower claims the prior year.10 Conversely, most

of the future large claims will come from individuals with low claims in the

current year. According to the USTFs’ estimates of adverse selection,

members with the least costly claims will be most likely to disenroll.

Also, in any given year, a small number of enrollees will have large claims.

If enrollees could predict such claims—and some can—when faced with

choosing between competing plans, they would join the plan most

cost-beneficial to them (the USTFs, in this case). According to actuarial

research, however, many such claims cannot be predicted, so many of the

USTF members with high claims in the year after adverse selection would

9

Any care provided in a military hospital or clinic does not require a copayment.

10Matthew Eichner, Mark McClellan, and David Wise, Insurance or Self-Insurance?: Variation,

Persistence, and Individual Health Accounts (Cambridge, Mass.: National Bureau of Economic

Research, 1995).

Page 10 GAO/HEHS-96-141 Effects of USTF Cost Sharing
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have had no reason to have selected the USTF plan before adverse selection

occurred.

To illustrate the sensitivity of the USTF analysis to the inclusion of all

high-cost claims, we recomputed the USTFs’ cost estimates by removing the

two largest claimants from each facility. The largest claimants’ costs

ranged from about $49,000 to $337,000. The comparative results are shown

in table 4.

Table 4: Estimated Cost Increases

With and Without the Two Largest

Claimants

Respondents staying Total respondents Estimated

cost

increasea Number

Monthly

claims cost Number

Monthly

claims cost

Including all

claimants 11% 1,095 $206.51 1,816 $185.78

Excluding two

largest claimants

at each facility 4% 1,084 $157.31 1,802 $151.75

aDerived by subtracting the total respondents’ monthly claims cost from that of the respondents

who stay, and dividing this increase by the total respondents’ cost.

As shown, removing such high claims costs from the USTFs’ estimating

base reduces their 11-percent cost increase estimate to 4 percent.11

Coincidentally, this is the same effect produced by reducing their

estimated disenrollment rate from 40 percent to our conservatively applied

20 percent rate. Because less than 1 percent of the surveyed households

had high claims that accounted for almost 20 percent of the total claims

costs, including or removing such claimants from the estimating base

significantly affects the estimating outcome. Moreover, on the basis of the

actuarial assumption that individuals who have large cost claims in one

year are likely to have lower claims the following year, the USTFs’

11-percent cost increase estimate appears to be unnecessarily high.

Finally, actuarial studies focusing on adverse selection and ways to predict

the effects of beneficiary choice have concluded that future-year costs

resulting from adverse selection cannot be accurately predicted by any set

of known characteristics and circumstances from past years.12 According

to actuarial research, the most reliable way to gauge the effects of adverse

11Another approach would be to assume such large claims were randomly distributed between

respondents saying they would stay and those who would disenroll, but the cost-increase effect also

would approximate 4 percent.

12Daniel Dunn and others, A Comparative Analysis of Methods of Health Risk Assessment—Final

Report (Schaumburg, Ill.: Society of Actuaries, 1995).

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selection is to examine actual experience under the benefit change in

question.

Capitation Adjustments

Will Likely Offset USTF

Cost Increases

Our adjustments to the USTFs’ estimated 11-percent cost increase covering

the adverse selection for retirees and their dependents under 65 years old

resulted in a reduced estimate of 4 percent. Using the 4-percent cost

increase, we estimated that the weighted average cost effect of adverse

selection for the USTFs in 1996 would be less than 2 percent of their 1996

reimbursement level, or about $5.5 million dollars.

This estimated increase, however, will likely have no lasting negative

financial impact on USTFs because DOD’s current reimbursement approach

automatically adjusts USTF payments to account for changes in members’

age and gender. For example, our analysis of the survey data available for

Johns Hopkins beneficiaries13 who had a claims history shows that the

facility may gain financially from adverse selction. The Johns Hopkins data

indicate that respondents who said they would stay there are, on average,

1.7 years older than all respondents. Because USTF capitation rates

generally increase as the members age, some of the older remaining

members would cause substantial payment increases as they move to

higher capitation bands. For example, DOD pays the Johns Hopkins USTF

$885 more per year for a 55-year-old male than a 54-year-old male. For

females, the difference between 55- and 54-year-olds is $483 per year (see

DOD’s capitation bands by age and gender category in app. V). Thus, if its

remaining members’ average age increases by 1.7 years, we estimate that

capitation payments would automatically rise by 4.9 percent. The higher

revenue would exceed the USTFs’ 4-percent estimate of Johns Hopkins’

cost increase resulting from adverse selection.14

DOD’s current reimbursement approach also allows for negotiated

adjustments in reimbursement rates for the effects of benefit and

cost-sharing revisions, which may result in adverse selection. DOD’s current

USTF capitation rates were set through intensive negotiations with each

13Other than limiting its study to households with members aged 45 to 64, Milliman did not request age

data or include an analysis of the claims by age. However, we received such data on files provided to

us by Market Street Research, which conducted the telephone survey.

14The average age of USTF respondents with a claims history electing to stay at Johns Hopkins is 54.53

years compared with 52.82 years for the entire Johns Hopkins population surveyed. The average

increase in capitation between the 25-to-34 age group ($1,047, the mid-point at age 30) and the 55-to-64

age group ($2,495, the mid-point at age 60) is 2.9 percent. The total increase over the 30-year period

(age 30 to age 60) is 138 percent (the annual rate of 2.9 percent compounded: 1.02930 = 2.38). As a

result, the capitation increase resulting from a 1.7-year age increase would be 4.9 percent (1.7 years x

2.9 percent per year).

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USTF, and the process for periodically adjusting them is set forth in their

participation agreements with DOD.

15

TRICARE Cost Shares

Are Appropriate for

the USTFs

The TRICARE cost shares are appropriate for the risks to be borne by the

USTFs. The cost shares would create some problems for a managed care

plan unable to adjust its capitation. But any initial USTF loss would be

covered through automatic capitation adjustments based on members’ age

and gender, and later losses could be offset by future negotiated capitation

adjustments. As a result, the TRICARE cost shares will not create a

financial burden on the USTFs.

Furthermore, the TRICARE cost sharing is similar to HMO plans in the

FEHBP. However, the new $230 to $460 USTF enrollment fees are lower than

the employee shares of the typical private sector HMO and signficantly less

than those in the FEHBP (see table 5).

15We did not evaluate DOD’s current capitation rates to determine their actuarial soundness.

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Table 5: Comparison of USTFs’ New

Enrollment Fee With Enrollee

Premiums for FEHBP and Other

Private Sector HMOs Plan type

Enrollee

cost

Cost

difference

with USTF

USTF enrollment fee

Single $230

Family 460

Typical private sector HMO premium in 1995a

Single 237 $7

Family 804 344

1996 premiums for FEHBP HMOs with largest enrollment in a USTF locationb

GHI Health Plan (Bayley Seton USTF)

Single 722 492

Family 1,917 1,457

Harvard CHP (Brighton Marine USTF)

Single 812 582

Family 2,958 2,498

Kaiser (Johns Hopkins USTF)

Single 451 221

Family 1,136 676

HMP/Ohio (Lutheran Medical USTF)

Single 640 410

Family 1,941 1,481

HMO Maine (Martin’s Point USTF)

Single 2,875 2,645

Family 7,435 6,975

Group Health (Pacific Medical USTF)

Single 464 234

Family 1,074 614

Humana (Sisters of Charity USTF)

Single 440 210

Family 1,131 671

aSource: The Hay Group, Hay/Huggins Benefits Report: Prevalence of Benefits Practices and

Executive Summary, Vol. 1 (Philadelphia: Hay/Huggins Company, 1995).

bThe FEHBP HMOs with the largest enrollments in 1994.

Page 14 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

Cost Sharing Could

Make USTF and DOD

Populations More

Alike

The USTFs believe that adoption of the new cost shares will result in their

enrolling an older, perhaps less healthy beneficiary population than is

enrolled under TRICARE. This in their opinion will increase USTF costs.

The USTF and DOD beneficiary populations are already dissimilar. The USTFs

serve proportionately more retirees and their dependents. At issue,

therefore, is to what degree this dissimilarity is likely to change as a result

of the USTFs’ new cost shares. In 1994, the USTF population consisted of a

larger proportion of retirees and dependents under age 65 than the DOD

populations in the USTF regions. This disparity grew during the 1996 USTF

enrollment period, as shown in table 6.

Table 6: Comparison of USTF and DOD

Beneficiary Populations Within a

60-Mile Radius of the USTF, FY 1994

and 1996

FY 1994 FY 1996

Numbers in percent

Enrollee group

USTF

enrollees

DOD

population

in USTF

regions

USTF

enrollees

DOD

population

in USTF

regions

Active duty dependents 20 37 18 36

Retirees and non-active duty

dependents under age 65 55 47 59 47

Retirees and non-active duty

dependents aged 65 and over 25 16 22 18

Note: The percentages for each beneficiary group may not add to 100 because of rounding.

Thus, the USTF population, already dissimilar to the DOD population, is

becoming more so. But with the new USTF cost shares, the USTF population

will actually move closer to the general DOD population as the healthy

retirees under age 65 seek less costly medical coverage. Further, those

who disenroll will likely be replaced by new enrollees who are dependents

of active duty personnel or Medicare-eligible retirees and their families

over age 64. But no matter how dissimilar the populations are, DOD’s

reimbursement approach will account for USTF population changes and

offset any resulting negative financial effect.

Conclusions The establishment of uniform benefits and cost sharing for DOD

beneficiaries is a key component of the TRICARE program and something

that we and others have long advocated. Such uniformity would, in our

view, eliminate inequities and confusion that now exist among

beneficiaries of military health plans. While adopting the TRICARE cost

shares may cause some minor adverse selection for the USTFs, our analysis

Page 15 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

indicates that there will be no lasting negative financial effect on USTF

operations. Further, the new cost shares, which are similar to HMOs, are

appropriate for the risks to be borne by the USTFs and will likely make the

USTF population more similar to DOD’s general beneficiary population. More

importantly, should there be a financial impact, DOD’s current USTF

capitation methodology takes into account and allows for adjusted

reimbursement levels for such higher costs that result from changes in the

enrollee cost shares and population characteristics.

Comments From DOD

and the USTFs and

Our Evaluation

We received comments on a draft of the report from DOD’s Principal

Deputy Assistant Secretary for Health Affairs and other DOD officials, and

on the USTFs’ behalf from officials of the Seattle and Texas facilities.

DOD officials stated that they agreed with the report’s analysis and findings.

They pointed out, however, that the draft report’s language discussing

DOD’s reimbursement approach should clearly set forth that the capitation

rates make automatic age and gender adjustments and also allow for

negotiated rate adjustments to cover the possible adverse selection effects

of benefit/cost-sharing revisions. We clarified the report’s language on this

matter and incorporated the officials’ other suggested technical report

changes as appropriate.

USTF officials also took issue with the report’s discussion of factors for

which the capitation rates automatically adjust. They stated that there is

no provision in their participation agreements with DOD that allows for

negotiated capitation rate adjustments for possible adverse selection due

to cost-sharing changes. The officials stated that, while the agreements

allow for negotiated rate changes due to benefit revisions, the USTFs do not

consider the new cost shares to be benefit changes—although they stated

they have not consulted DOD on the matter. We believe that because the

new cost shares represent a change in the health care package offered to

USTF beneficiaries and materially affect the actuarial value or cost of the

package, the new cost shares constitute a benefit change. Also, as pointed

out, DOD considers the effects of such changes to be subject to negotiated

capitation rate adjustments.

USTF officials stated that, contrary to our assertion that the USTFs’ survey

should have included questions on quality and access along with the

questions on higher cost shares, such additional questions were not

relevant. They stated that their annual member surveys repeatedly show

high member satisfaction with the USTFs, tending to affirm their historic

Page 16 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

2-percent disenrollment rate. Adding questions on quality and access

would have, in our view, added perspective for more fully understanding

why survey respondents gave the answers they did. Moreover, the high

levels of member satisfaction referred to by the USTF officials tend to raise

further questions as to whether members would disenroll at the USTFs’

estimated 40 percent rate.

The USTF officials stated that our removing the two highest claimants per

USTF from their database and reestimating the potential cost increase is

incorrect. They stated that there will be high claims in each year—or new

enrollees with high claims—so that removing the two highest claimants

would not reflect the USTFs’ actual costs. Also, the officials stated that

while it is true that a member with high claims in one year will not

necessarily have such claims the next year because the member may have

died, the costs should be included in the estimating base to have a true

picture of the total costs.

We disagree. The USTFs’ cost-effect estimates assume that all claims,

including the high claims, for all members whether they said they would

stay or leave will be the same in the year after the choice as before the

choice. According to actuarial research, however, many of the high claims

in one year will not be for the same individuals as in the prior year, which,

for example, as the USTFs point out, would occur if the member died.

To illustrate the major impact that a few respondents with high claims

costs had on the USTFs’ estimated cost increases, we removed the two

largest claimants in each USTF. We agree that the USTFs will have some high

claims each year. But the level of cost increase the USTFs estimated as a

result of adverse selection will depend on the same members (with the

highest claims in the year before the choice) staying and having the same

high claims in the year after the choice. The USTFs’ assumption is

actuarially questionable and greatly overstates the adverse selection

effect. Even if we had included the two highest claimants per USTF in our

illustration, but distributed them randomly among those who stay and

those who leave, the net adverse selection effect would have only been

approximately 4 percent.

USTF officials also said we were incorrect in basing the estimated cost

increase due to adverse selection on their total reimbursement. They said

it should be based only on reimbursement for the segment of the USTF

members most affected by adverse selection—the retirees and their

dependents under age 65.

Page 17 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

We disagree. One purpose of our evaluation was to determine if the new

cost shares would be inappropriate for fully at-risk managed care facilities.

To do so, it is necessary to consider the financial impact of adverse

selection on the facilities’ total income—in this case, DOD’s total capitation

payments for all USTF members. Also, since the active duty dependents and

retirees and their dependents aged 65 and over will not pay any enrollment

fee, the impact of adverse selection on these two groups would be

negligible. Thus, in our view it is appropriate to compare the potential

adverse selection cost increase for the retirees and dependents under age

65 ($5.5 million) to the total income of the USTF facilities ($323.5 million) in

determining the 1.7-percent increase in financial risk to the facilities.

Finally, the USTF officials stated that their members cannot be compared to

FEHBP or private plan enrollees; that their members are used to and believe

they are entitled to free care such that the enrollment fees would be

strongly resisted; and that our use of a 20-percent disenrollment rate is not

substantiated nor valid.

We disagree. Fewer than 10 percent of the USTFs’ members would

disenroll, but to be actuarially conservative, we used a 20-percent rate to

estimate the cost shares’ effects. We based our approach on actuarial

research and experience with a wide range of private and public health

plans. As the report states, there is very little disenrollment as a result of

relative increases in out-of-pocket differences of $460 or less per family.

While plans do vary widely in structure and demographics, the relative

effect of changes in out-of-pocket costs on choice is similar, and one set of

plans can safely be used to predict the results in another set. Also, neither

the USTF officials nor their report cited any evidence or studies that

showed that disenrollment had been higher than 10 percent for similar

out-of-pocket changes in any other plan.

Page 18 GAO/HEHS-96-141 Effects of USTF Cost Sharing
B-271864 

We will send copies of this report to the Secretaries of Defense, Health and

Human Services, Transportation, and Commerce; and the USTFs. We will

make copies available to others upon request.

If you have any questions about this report, please call me on

(202) 512-7111. Other major contributors are listed in appendix VI.

Stephen P. Backhus

Associate Director, Health Care Delivery

 and Quality Issues

Page 19 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Contents

Letter 1

Appendix I 

Cost-Sharing

Provisions in

TRICARE and USTF

Plans

24

Appendix II 

USTF Funding and

Enrollment, FY

1994-96

27

Appendix III 

Questionnaires Used

to Survey Member

Reactions to

Proposed Cost Shares

28

Appendix IV 

Adjustments to USTF

Estimated Cost

Increases Due to

Adverse Selection

33

Appendix V 

USTF Capitation

Rates, FY 1996

37

Page 20 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Contents

Appendix VI 

Major Contributors to

This Report

38

Tables Table 1: USTF Enrollment and Program Budget, FY 1996 5

Table 2: Comparison of Household Out-of-Pocket Costs Under

the USTFs’ New Cost Shares and TRICARE Standard

9

Table 3: Estimated Cost Increases With 20- and 40-Percent

Disenrollment Rates

9

Table 4: Estimated Cost Increases With and Without the Two

Largest Claimants

11

Table 5: Comparison of USTFs’ New Enrollment Fee With

Enrollee Premiums for FEHBP and Other Private Sector HMOs

14

Table 6: Comparison of USTF and DOD Beneficiary Populations

Within a 60-Mile Radius of the USTF, FY 1994 and 1996

15

Table I.1: TRICARE Prime, Extra, and Standard Benefits 24

Table I.2: Comparison of USTFs’ Current and New Cost-Sharing

Provisions

26

Table II.1: Allocation of USTF Managed Care Program Budget 27

Table II.2: USTF Managed Care Program Enrollment, FY 1994-96 27

Table IV.1: Estimated Bayley Seton Cost Increases With and

Without the Two Largest Claimants

33

Table IV.2: Estimated Bayley Seton Cost Increases With 20- and

40-Percent Disenrollment Rates

33

Table IV.3 Estimated Brighton Marine Cost Increases With and

Without the Two Largest Claimants

34

Table IV.4: Estimated Brighton Marine Cost Increases With 20-

and 40-Percent Disenrollment Rates

34

Table IV.5: Estimated Johns Hopkins Cost Increases With and

Without the Two Largest Claimants

34

Table IV.6: Estimated Johns Hopkins Cost Increases With 20- and

40-Percent Disenrollment Rates

34

Table IV.7: Estimated Lutheran Medical Cost Increases With and

Without the Two Largest Claimants

34

Table IV.8: Estimated Lutheran Medical Cost Increases With 20-

and 40-Percent Disenrollment Rates

35

Table IV.9: Estimated Martin’s Point Cost Increases With and

Without the Two Largest Claimants

35

Table IV.10: Estimated Martin’s Point Cost Increases With 20- and

40-Percent Disenrollment Rates

35

Page 21 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Contents

Table IV.11: Estimated Pacific Medical Cost Increases With and

Without the Two Largest Claimants

35

Table IV.12: Estimated Pacific Medical Cost Increases With 20-

and 40-Percent Disenrollment Rates

35

Table IV.13: Estimated Sisters of Charity Cost Increases With and

Without the Two Largest Claimants

36

Table IV.14: Estimated Sisters of Charity Cost Increases With 20-

and 40-Percent Disenrollment Rates

36

Abbreviations

CHAMPUS Civilian Health and Medical Program of the Uniformed

Services

DOD Department of Defense

FEHBP Federal Employees Health Benefits Program

HMO health maintenance organization

MHSS Military Health Services System

USTF Uniformed Services Treatment Facility

Page 22 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Page 23 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix I 

Cost-Sharing Provisions in TRICARE and

USTF Plans

Table I.1: TRICARE Prime, Extra, and

Standard Benefits TRICARE Prime

Benefits

Active duty family

members, ranks

E1-E4

Active duty family

members, ranks

E5 and above

Retirees and

retiree family

membersa

Enrollment fee

$0 $0

$230(S),

$460(F)

Deductible

$0 $0 $0

Inpatient hospitalization

$11/day,

$25 min.

$11/day,

$25 min.

$11/day,

$25 min.

Inpatient physician $0 $0 $0

Outpatient surgery—

hospital $25 $25 $25

Emergency room $10 $30 $30

Ambulance $10 $15 $20

Physician office $6 $12 $12

Outpatient surgery—office $6 $12 $12

Inpatient psychiatric

$20/day,

$25 min.

$20/day,

$25 min. $40/day

Outpatient psychiatric $10 individual,

$6 group

$20 individual,

$12 group

$25 individual,

$17 group

Prescription drugs

$5 $5 $9

Vision exams $6 $12 $12

Durable medical

equipment 10% 15% 20%

Catastrophic limits (single

or family) $1,000 $1,000 $3,000

Page 24 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix I 

Cost-Sharing Provisions in TRICARE and

USTF Plans

TRICARE Extra TRICARE Standard

d

y

a

Active duty

family members,

ranks E1-E4

Active duty family

members, ranks

E5 and above

Retirees and

retiree family

membersa

Active duty family

members, ranks

E1-E4

Active duty family

members, ranks

E5 and above

Retirees and

retiree family

membersa

,

) $0 $0 $0 $0 $0 $0

0

$50(S),

$100(F)

$150(S),

$300(F)

$150(S),

$300(F)

$50(S),

$100(F)

$150(S),

$300(F)

$150(S),

$300(F)

,

.

$10.50/day,

$25 min.

$10.50/day,

$25 min.

The lesser of

$250/day or 25%

institution charges

$10.50/day,

$25 min.

$10.50/day,

$25 min.

The lesser of

$330/day or 25%

institution charges

0 $0 $0 20% $0 $0 25%

5 $25 $25 20% $25 $25 25%

0 15% 15% 20% 20% 20% 25%

0 15% 15% 20% 20% 20% 25%

2 15% 15% 20% 20% 20% 25%

2 15% 15% 20% 20% 20% 25%

y

The greater

of $25/admission

or $20/day

The greater

of $25/admission

or $20/day

20% institution

charges + 20%

prof. fees

The greater

of $25/admission

or $20/day

The greater

of $25/admission

or $20/day

25% institution

charges + 25%

prof. fees

,

p 15% 15% 20% 20% 20% 25%

9

15%,

no deductible

15%,

no deductible

20%,

no deductible

20% after

deductible

20% after

deductible

25% after

deductible

2 15% 15% 20% 20% 20% 25%

% 15% 15% 20% 20% 20% 25%

0 $1,000 $1,000 $7,500 $1,000 $1,000 $7,500

Notes: For TRICARE Prime, any care provided in a military hospital or clinic does not require a

copayment. Some beneficiaries are required to pay a subsistance allowance.

(S) = single; (F) = family.

aRetirees must be under 65 years old to be eligible for TRICARE.

Source: DOD.

Page 25 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix I 

Cost-Sharing Provisions in TRICARE and

USTF Plans

Table I.2: Comparison of USTFs’ Current and New Cost-Sharing Provisions

Current cost shares New cost shares

Category

Active

duty family

members,

ranks

E1-E4

Active

duty family

members,

ranks E5

and above Retirees

Retiree

family

members

Active

duty family

members,

ranks

E1-E4

Active

duty family

members,

ranks E5

and above Retireesa

Retiree

family

membersa

Enrollment fee

$0 $0 $0 $0 $0 $0

$230(S),

$460(F)

$230(S),

$460(F)

Deductible $0 $0 $0 $0 $0 $0 $0 $0

Inpatient hospitalization

(includes physicians) $0

$25/

admission

$25/

admission

$25/

admission

$11/day,

$25 min.

$11/day,

$25 min.

$11/day,

$25 min.

$11/day,

$25 min.

Outpatient surgery—hospital $0 $25 $0 $25 $25 $25 $25 $25

Emergency

room $0 $25 $0 $25 $10 $30 $30 $30

Ambulance $0 $0 $0 $0 $10 $15 $20 $20

Physician office $0 $5 $0 $5 $6 $12 $12 $12

Outpatient surgery—office $0 $25 $0 $25 $6 $12 $12 $12

Inpatient psychiatric

$0

$50/

admission

$50/

admission

$50/

admission

$20/day,

$25 min.

$20/day,

$25 min. $40/day $40/day

Outpatient psychiatric

$0 $10 $0 $10

$10/$6

group

$20/$12

group

$25/$17

group

$25/$17

group

Prescription drugs $0 $5 $0 $5 $5 $5 $9 $9

Vision exams $0 $10 $0 $10 $6 $12 $12 $12

Durable medical equipment $0 10% $0 10% 10% 15% 20% 20%

Catastrophic limit (single or

family)

Not

applicable

Not

applicable

Not

applicable

Not

applicable $1,000 $1,000 $3,000 $3,000

Note: (S) = single; (F) = family.

aRetirees aged 65 and older who are paying Medicare part B premiums do not have to pay an

enrollment fee.

Page 26 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix II 

USTF Funding and Enrollment, FY 1994-96

Table II.1: Allocation of USTF Managed

Care Program Budget USTF FY 1994 FY 1995 FY 1996

Bayley Seton $29,695,800 $45,600,000 $53,236,085

Brighton Marine 36,776,800 38,700,000 40,010,161

Johns Hopkins 45,290,300 52,000,000 57,020,329

Lutheran Medical 15,641,000 14,400,000 13,915,480

Martin’s Point 42,300,500 39,200,000 41,340,896

Pacific Medical 49,539,600 59,000,000 58,802,354

Sisters of Charity 75,756,000 72,100,000 75,022,395

Total $295,000,000 $321,000,000 $339,347,700

Note: Data include appropriations for the Army, Navy, Marine Corps, Air Force, Coast Guard, and

the Commissioned Corps of the Public Health Service and the National Oceanic and Atmospheric

Administration. This table lists the budget ceiling DOD has established for each USTF program on

the basis of the total USTF appropriation.

Source: DOD.

Table II.2: USTF Managed Care

Program Enrollment, FY 1994-96 USTF FY 1994 FY 1995 FY 1996

Bayley Seton 8,574 13,858 15,772

Brighton Marine 10,290 11,411 11,892

Johns Hopkins 16,832 21,847 23,881

Lutheran Medical 3,878 6,001 6,570

Martin’s Point 14,334 18,047 18,795

Pacific Medical 16,064 20,439 20,048

Sisters of Charity 24,720 26,903 27,054

Total 94,692 118,506 124,012

Source: DOD.

Page 27 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix III 

Questionnaires Used to Survey Member

Reactions to Proposed Cost Shares

Page 28 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix III 

Questionnaires Used to Survey Member

Reactions to Proposed Cost Shares

Page 29 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix III 

Questionnaires Used to Survey Member

Reactions to Proposed Cost Shares

Page 30 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix III 

Questionnaires Used to Survey Member

Reactions to Proposed Cost Shares

Page 31 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix III 

Questionnaires Used to Survey Member

Reactions to Proposed Cost Shares

Page 32 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix IV 

Adjustments to USTF Estimated Cost

Increases Due to Adverse Selection

This appendix contains estimates of the cost impact on each USTF resulting

from adverse selection (1) with and without the two largest claimants of

each facility in the computation and (2) using disenrollment rates of

20 percent and 40 percent.

The cost impact with and without the two largest claimants is derived by

subtracting the cost for total respondents’ monthly claims from the

monthly claims cost of the respondents who stay and dividing this

increase by the total respondents’ monthly claims costs. For example, as

shown in table IV.1, the cost for total respondents’ monthly claims

(including all claimants) is $257. The monthly claims cost of the

respondents who stay is $279. Subtracting $257 from $279 yields a cost

increase of $22, which is about 8 percent of $257.

The cost impact of using different disenrollment rates is derived by

subtracting the total respondents’ monthly claims costs from those of the

respondents who stay and dividing this increase by the total respondents’

costs. For example, as shown in table IV.2, the cost for the total

respondents’ monthly claims is $257. For a 20-percent disenrollment rate,

the monthly claims cost of the respondents who stay is $265. Subtracting

$257 from $265 yields a cost increase of $8, which is about 3 percent of

$257.

Table IV.1: Estimated Bayley Seton

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 8% 75 $279 128 $257

Excluding two largest

claimants 8% 74 $215 126 $198

Table IV.2: Estimated Bayley Seton

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Number of

respondents 75 102 53 26 128

Monthly claims cost $279 $265 $225 $225 $257

Estimated cost

increase 8% 3%

Page 33 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix IV 

Adjustments to USTF Estimated Cost

Increases Due to Adverse Selection

Table IV.3 Estimated Brighton Marine

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 24% 192 $230 300 $186

Excluding two largest

claimants 6% 190 $132 298 $124

Table IV.4: Estimated Brighton Marine

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 192 246 108 54 300

Monthly claims cost $230 $203 $112 $112 $186

Estimated cost

increase 24% 9%

Table IV.5: Estimated Johns Hopkins

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 4% 111 $193 194 $185

Excluding two largest

claimants –9% 109 $143 192 $157

Table IV.6: Estimated Johns Hopkins

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 111 153 83 41 194

Monthly claims cost $193 $188 $176 $176 $185

Estimated cost

increase 4% 1%

Table IV.7: Estimated Lutheran Medical

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 20% 188 $159 294 $133

Excluding two largest

claimants 11% 186 $122 292 $110

Page 34 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix IV 

Adjustments to USTF Estimated Cost

Increases Due to Adverse Selection

Table IV.8: Estimated Lutheran Medical

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 188 241 106 53 294

Monthly claims cost $159 $143 $90 $90 $133

Estimated cost

increase 20% 8%

Table IV.9: Estimated Martin’s Point

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants –16% 200 $98 300 $116

Excluding two largest

claimants –1% 200 $98 298 $99

Table IV.10: Estimated Martin’s Point

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 200 250 100 50 300

Monthly claims cost $98 $109 $152 $152 $116

Estimated cost

increase –16% –6%

Table IV.11: Estimated Pacific Medical

Cost Increases With and Without the

Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 53% 142 $293 300 $192

Excluding two largest

claimants 30% 140 $179 298 $137

Table IV.12: Estimated Pacific Medical

Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 142 221 158 79 300

Monthly claims cost $293 $224 $101 $101 $192

Estimated cost

increase 53% 17%

Page 35 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix IV 

Adjustments to USTF Estimated Cost

Increases Due to Adverse Selection

Table IV.13: Estimated Sisters of

Charity Cost Increases With and

Without the Two Largest Claimants

Respondents staying Total respondents Estimated

cost

increase Number

Monthly

claims cost Number

Monthly

claims cost

Including all claimants 2% 187 $280 300 $275

Excluding two largest

claimants –4% 185 $241 298 $251

Table IV.14: Estimated Sisters of

Charity Cost Increases With 20- and

40-Percent Disenrollment Rates

Staying Disenrolling

At 40% At 20% At 40% At 20%

Total

respondents

Respondents 187 244 113 56 300

Monthly claims cost $280 $277 $267 $267 $275

Estimated cost

increase 2% 1%

Page 36 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix V 

USTF Capitation Rates, FY 1996

Gender/age

Bayley

Seton

Brighton

Marine

Johns

Hopkins

Lutheran

Medical

Martin’s

Point

Pacific

Medical

Sisters of

Charity

Male

<2 $3,706 $3,828 $3,059 $3,381 $3,447 $3,505 $3,346

2-14 1,073 1,108 886 978 998 1,014 969

15-24 1,170 1,209 966 1,067 1,088 1,107 1,057

25-34 1,263 1,310 1,047 1,157 1,180 1,199 1,141

35-44 1,554 1,612 1,287 1,424 1,452 1,475 1,403

45-54 1,949 2,015 1,610 1,780 1,814 1,845 1,760

55-64 3,023 3,123 2,495 2,758 2,812 2,859 2,730

65-69 7,252 6,089 5,975 5,377 4,123 4,538 5,482

70-74 8,631 7,202 7,117 6,365 4,821 5,330 6,497

75-79 10,372 8,574 8,512 7,539 5,648 6,243 7,694

80-84 11,092 9,143 9,092 8,029 5,994 6,626 8,194

85+ 11,692 9,610 9,563 8,418 6,267 6,922 8,587

Female

<2 3,706 3,828 3,059 3,381 3,447 3,505 3,346

2-14 1,073 1,108 886 978 998 1,014 969

15-24 1,656 1,814 1,448 1,601 1,632 1,660 1,497

25-34 2,330 2,519 2,012 2,224 2,268 2,306 2,103

35-44 2,161 2,317 1,851 2,046 2,086 2,121 1,952

45-54 2,438 2,519 2,012 2,224 2,268 2,306 2,201

55-64 3,023 3,123 2,495 2,758 2,812 2,859 2,730

65-69 6,112 5,183 5,051 4,592 3,568 3,920 4,679

70-74 7,372 6,193 6,084 5,478 4,195 4,625 5,588

75-79 8,511 7,098 7,008 6,264 4,749 5,243 6,391

80-84 9,713 8,031 7,951 7,041 5,296 5,834 7,178

85+ 10,433 8,601 8,531 7,531 5,641 6,217 7,678

Source: DOD.

Page 37 GAO/HEHS-96-141 Effects of USTF Cost Sharing
Appendix VI 

Major Contributors to This Report

Daniel M. Brier, Assistant Director, (202) 512-6803

Carolyn R. Kirby, Senior Evaluator, (202) 512-9843

Jean N. Chase, Evaluator

(101487) Page 38 GAO/HEHS-96-141 Effects of USTF Cost Sharing
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