Issue Briefs

Following is the section of a recent report by a special commission reviewing military pay and benefits in which the military Tricare program is compared with the FEHB program for federal employees.

Managing the TRICARE program, including associated overhead costs, is more expensive than administering a program that offers commercial insurance plans. The Commission estimates DoD will have spentapproximately $314 million in FY 2013 to administer the TRICARE health care benefit. These figures are calculated based on Budget Activity Group (BAG),“Management Activities,” which finances headquarters operations in the Defense Health Agency and military Services. Of the seven BAGs, Management Activities is theone most closely associated with overhead functions. The Commission found itchallenging to estimate the true costs to administer TRICARE because such costs arenot readily visible in the Defense Health Program budget accounts. Although it is difficult to calculate the amount of military, civilian, and contractor personnel engaged in the administration of TRICARE, the Commission notes DoD allocated almost2,900 total personnel to BAG 5, Management Activities in FY 2013.

Although it differs from TRICARE, the FEHBP provides health care to more than 8.2 million participants, making it about the same size as TRICARE in terms of beneficiary population. FEHBP offers beneficiaries more than 250 insurance plan choices provided by nearly 100 different contracts. These plans are purchased on “evergreen” contracts that are renewed each year, allowing for flexibility, adaptation to current trends, and low contracting costs. Yet the Office of Personnel Management (OPM) administers this program with about 100 employees who are paid for out ofthe FEHBP trust fund using resources from plan premiums instead of appropriatedfunds.

OPM is required by statute to dedicate no more than 1 percent of plan premiums forFEHBP administrative expenses. In 2014, the total cost of FEHBP premiums (theGovernment share plus the employees’ share) was $47 billion, 1 percent of which equals $470 million. OPM informed the Commission that it routinely requires lessthan 0.1 percent of the premiums to administer FEHBP. This means that OPMrequired less than $47 million in 2014 to administer FEHBP. If OPM does not use thefull 1 percent dedicated for administrative expenses, the unused portion returns to thetrust fund for contingency reserves.

The difference in operating costs and personnel required to manage the TRICARE and FEHBP programs is profound. Nevertheless, the TRICARE and FEHBP programs, aswell as the roles of DoD and OPM, are fundamentally different. Essentially, OPMfunctions as the program manager, while DoD performs that role and others, includingself-funded insurance and hospital administrator.

Although FEHBP has many attractive features, the Commission believes that it would not be appropriate for military beneficiaries to be enrolled with Federal civilians in theFEHBP as currently configured because of the unique requirements of the military,such as those related to readiness, and recognition of military service. MTFs provide a training platform that maintains the readiness of the military medical force. To continue to attract the right kind of complex medical cases to support this training mission (e.g., trauma surgery), the MTFs need to remain a key element of military health care delivery. Typically, FEHBP plans do not incorporate MTFs as venues of care.

Additionally, military members have made great sacrifices for their country and their health benefit should reflect this sacrifice. The Commission believes FEHBP cost shares of approximately 30 percent for employees and 70 percent for the Government479 are not appropriate for military members. Although it is possible to have different cost shares for different subpopulations in FEHBP (e.g., Postal employees), doing so could create confusion and might increase the chance that later decisions are made to harmonize the cost shares of the populations. Military beneficiaries need a concrete recognition of military service that is reflected in theircost shares and protected in the basic program design.

Additionally, the FEHBP program demonstrates that OPM is able to administer astrong health benefit with relatively low overhead expenses. Under a program of commercial health insurance that can use both monetary and nonmonetary tools toachieve efficiency, DoD, with the assistance of OPM, could offer a robust benefit at abetter value with far less of the burden and expense required of DoD today.