Introduce Enrollment Fees Under TRICARE for Life

Background

TRICARE for Life (TFL) was introduced in 2002 as a supplement to Medicare for military retirees and their Medicare-eligible family members. It pays nearly all medical costs not covered by Medicare, and also provides a pharmacy benefit. Beneficiaries who are eligible for TRICARE are automatically enrolled in TFL and there are no enrollment fees (although beneficiaries must pay their premium for Medicare Part B, which covers physicians' and other outpatient services). In contrast, most public and private programs that cover health care costs require enrollees to pay a premium or an enrollment fee. In 2017, the Department of Defense spent $10 billion for the care delivered to Medicare-eligible beneficiaries both by military treatment facilities and by civilian providers (in addition to the amount spent for those patients through Medicare).

Option

Starting in calendar year 2021, this option would require most Medicare-eligible beneficiaries who choose to enroll in TFL to pay an annual fee of $485 for individual coverage and $970 for family coverage. Those amounts would equal the enrollment fees for the preferred-provider plan in TRICARE paid by retirees who are not yet eligible for Medicare and who entered service after 2017, the Congressional Budget Office estimates. (Members who received a disability retirement and survivors of members who died on active duty could enroll for free.) The new enrollment fees would be in addition to the Medicare Part B premium and would be indexed to growth in average Medicare costs in later years.

Effects on the Budget

This option would reduce spending for TRICARE for Life in two ways: Specifically, it would reduce spending directly by the amount of the fees collected and indirectly by encouraging some beneficiaries to forgo TFL in favor of other Medicare supplemental benefits (or to go without supplemental coverage altogether). CBO estimates that the option would reduce mandatory outlays devoted to TFL-eligible beneficiaries by about $12 billion between 2021 and 2028. This estimate includes the effects of beneficiaries switching to other Medicare supplemental plans, which would cause some costs currently paid by TFL, such as prescription drugs, to shift to Medicare. CBO estimates the costs that would shift from TFL to Medicare would be about $5 billion between 2021 and 2028. Despite that shift, over time, the savings to the federal government from this option would increase by about 5 percent each year. About 75 percent of that annual increase would be related to the indexing of the fees to Medicare cost growth, and the rest would result from changes in the number of people eligible for the TFL benefit, which is expected to increase in future years.

The greatest source of uncertainty in the estimate is the extent to which beneficiaries would enroll in TFL (or not). The new fees would be significantly less than the costs associated with most Medicare supplemental plans that are available through civilian markets. Nevertheless, the requirement to enroll to receive the benefit could cause unanticipated shifts in the number of covered beneficiaries. About 80 percent of the reduction in mandatory spending would come directly from the collection of the enrollment fees, so if the enrollment fees were double the amounts examined here, the reductions in spending stemming from the fees would approximately double. The rest of the reductions in spending would result from beneficiaries switching to other sources to close Medicare coverage gaps. Doubling the enrollment fees suggested by this option would increase the number of beneficiaries who would forgo TFL in favor of other coverage, but the decrease in enrollment—and the decrease in federal spending resulting from changes in enrollment—would be less than double. Although the introduction of an enrollment fee would cause the most price-sensitive beneficiaries to stop using TFL, the out-of-pocket cost of TFL would still be less than many other options for supplementing Medicare. Thus, CBO estimates that most beneficiaries would choose to keep using TFL unless the proposed fee was significantly higher.

Other Effects

An advantage of this option is that the requirement to enroll to receive the benefit could increase TFL beneficiaries' awareness of the benefit, which could encourage those who enroll to use more services, which might improve their health.

A disadvantage of this option is that retirees (including those with lower income) would see their out-of-pocket costs for health care rise. In addition, the change could cause some patients to inadvertently lose coverage if they neglected to pay the fee, which might negatively affect their health.