Military Retiree Health Benefits: Enrollment Low in Federal Employee Health Plans under DOD Demonstration
Published: 2003-06-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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 retirees 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. One of those demonstrations was  the DOD Federal Employees Health Benefits Program (FEHBP)  demonstration (“the demonstration”), which lasted from 2000 through  2002. Under the demonstration, military retirees and several smaller  groups of beneficiaries—such as certain former spouses of active duty  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. 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. 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  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.
subsections: section_title: Background
paragraphs: 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.
subsections: section_title: Medicare
paragraphs: 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. 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. Under traditional fee-for-service Medicare, beneficiaries choose  their own providers and Medicare reimburses those providers on a fee-for- service 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  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.
section_title: Medicare Supplemental Coverage
paragraphs: 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.
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. 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  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.
section_title: Health Care for Military Retirees
paragraphs: DOD provides health care to active-duty military personnel and retirees,  and to eligible dependents and survivors through its TRICARE program.  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. 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.
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; 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. 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.
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. 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 mid- November 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-of- pocket 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  provided. 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.
section_title: The FEHBP Demonstration
paragraphs: 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. (See table 1.) Four  sites had MTFs, and 1 site—Dover—also participated in the subvention  demonstration. 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.
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.
About 13 percent of those eligible for the demonstration were under age  65.
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. 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. As a result, plans had to establish  separate reserves for the demonstration and were allowed to charge  different premiums in the demonstration than they charged in the civilian  program.
section_title: Enrollment Was Low, Largely Due to Beneficiaries’ Satisfaction with Existing Coverage
paragraphs: 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.
subsections: section_title: Enrollment Rate Low on U.S. Mainland, Far Greater in Puerto Rico
paragraphs: 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. 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.
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.
section_title: Nonenrollees Emphasized Better Benefits and Lower Costs of Existing Coverage
paragraphs: 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. 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. For the majority  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. 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.
section_title: Lack of Knowledge about Demonstration Accounted for Only Small Part of Low Enrollment
paragraphs: 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  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.
section_title: Factors Spurring Enrollment Included Favorable Assessment of FEHBP and Lack of Existing Coverage
paragraphs: 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.
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 employer- sponsored health plans often resemble FEHBP benefits, retirees with  employer-sponsored coverage would have been less likely to find FEHBP  plans attractive.
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.
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  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.
section_title: Higher Enrollment in Puerto Rico Associated with Greater Lack of Satisfactory Alternative Coverage
paragraphs: 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 employer- sponsored 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.
section_title: Premiums Varied Widely, Reflecting Plans’ Different Assessments of Demonstration Risk
paragraphs: 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.
subsections: section_title: Plans’ Premiums Varied Widely, and Plans with Lower Premiums Attracted the Most Enrollees
paragraphs: 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. 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.)
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  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.
section_title: Plans’ Premium Strategies Diverged despite Common Concerns about Attracting Sicker Enrollees
paragraphs: 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  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.)
section_title: Military Retirees Who Enrolled in Demonstration Not as Sick as Other Retirees
paragraphs: The demonstration did not attract sicker, more costly enrollees—instead,  military retirees who enrolled were less sick on average than eligible  nonenrollees. 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-DOD- OPM 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.
section_title: 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
paragraphs: 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. (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.
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).
section_title: Impact of Demonstration on DOD Was Limited Due to Small Size and Low Enrollment, but Impact on Enrollees Was Greater
paragraphs: 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.
subsections: section_title: DOD Little Affected by Demonstration, Due Primarily to Its Size, but Enrollees More Affected
paragraphs: 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. 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.
Probably because of its small size, the demonstration had no observable  impact on either the ability of MTFs to assist in the training and readiness  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.
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-of- pocket costs under TFL are less than those in the most popular FEHBP  plan.
section_title: Impact of Permanent FEHBP Option Would Depend on Enrollment
paragraphs: 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.
section_title: Agency Comments
paragraphs: 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  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.
section_title: Appendix I: GAO-DOD-OPM Survey of Military Retirees and Others Eligible for the DOD-FEHBP Demonstration
paragraphs: 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.
subsections: section_title: Questionnaire Design
paragraphs: 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.
section_title: Sample Design
paragraphs: 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  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. 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.
section_title: Response Rates
paragraphs: Starting with an overall sample of 5,647 beneficiaries, we obtained usable  questionnaires from 4,787 people—an overall response rate of 85 percent.  (See table 5.) Response rates varied across sites, from 76 percent to 85  percent among nonenrollees, and from 92 percent to 98 percent among  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.
section_title: Appendix II: Data, Methods, and Models Used in Analyzing Factors Affecting DOD-FEHBP Demonstration Enrollment
paragraphs: 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.
subsections: section_title: Analysis of Factors Affecting Knowledge about the Demonstration and Enrollment
paragraphs: 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 individual- level variables as well as variables corresponding to individual sites.  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. These  coefficients pertain to the entire demonstration population, not just those  beneficiaries in our survey sample. To make the estimates generalizable to  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 employer- sponsored 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.
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.)
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.
section_title: Calculating the Impact on Enrollment if Those Eligible Had Known about the Demonstration
paragraphs: 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. 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.
section_title: Estimating Health Status Based on PIP-DCG Scores
paragraphs: 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  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 Medicare- eligible 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 less 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. (See table 9.)
section_title: Medigap Premiums
paragraphs: 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.  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.
section_title: Appendix III: Enrollment in the DOD-FEHBP Demonstration
paragraphs: 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.
section_title: Appendix IV: DOD’s Approach to Informing Beneficiaries about the DOD-FEHBP Demonstration
paragraphs: 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.
subsections: section_title: Mailings
paragraphs: DOD sent a series of mailings to all eligible beneficiaries. These included    a postcard announcing the demonstration, mailed in August 1999, 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  recalled receiving any of the later materials—although the FAQ was cited  more often as being useful. (See table 13.)
section_title: Health Fairs and Town Meetings
paragraphs: 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  answered questions from the audience. A DOD official told us that these  town meetings were more effective than the health fairs.
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.
section_title: DOD’s Call Center and Web Site
paragraphs: 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 toll- free 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.
section_title: Beneficiaries’ Sources of Information
paragraphs: 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.)
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.)
section_title: Appendix V: Enrollees’ and Nonenrollees’ Reasons for Joining or Not Joining a DOD- FEHBP Demonstration Plan
paragraphs: 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.
section_title: Appendix VI: Comments from the Department of Defense
section_title: Appendix VII: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Major contributors to this work were Michael Kendix, Robin Burke,  Jessica Farb, Martha Kelly, Dae Park, and Michael Rose.
section_title: Related GAO Products
paragraphs: 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.