The military’s health care system known as Tricare is in need of a major overhaul, according to news articles.
The cost of military health care has almost tripled since 2001, from $19 billion to $53 billion in 2012, and now represents one-tenth of the entire defense budget. The Congressional Budget Office estimates that health care costs for military personnel will increase to $65 billion by 2017 and $95 billion by 2030.
Defense Secretary Chuck Hagel has warned that military health care spending is creating a growing imbalance among Pentagon resources. He implied that money dedicated to health care or benefits is challenging the department’s allocation of resources from preparing our troops for battle and meeting their health care needs at home.
Mr. Hagel is not alone in his concern. Two previous defense secretaries, Leon E. Panetta and Robert M. Gates, also insisted that costs must be brought under control. Mr. Panetta said personnel costs put the Pentagon on an “unsustainable course,” and Mr. Gates bluntly said in 2009 that “health care is eating the department alive.”
However, the Pentagon keeps offering the same old proposals: higher out-of-pocket fees and enrollment costs for military families and retirees. President Obama’s fiscal 2014 budget proposal missed another opportunity to offer a different approach.
Tricare provides health care coverage to nearly 10 million active-duty personnel, retirees, reservists and their families. Retirees and their dependents outnumber active-duty members and their families, 5.5 million to 3.3 million.
It is not uncommon for service members to retire from active duty in their 40s. Some go to work for defense contractors. Others take different civilian jobs. But they retain their Tricare coverage for the rest of their lives.
Military retirees younger than 65 and their family members pay small annual enrollment fees for their coverage — $230 a year for an individual, $460 for a family. There is no deductible. Tricare offers some free options but limits choices of medical providers in an effort to keep down costs.
Unlike the federal government and most private employers (including defense contractors), Tricare does not offer any high-deductible plan that would make individuals eligible for health savings accounts. These types of plans are almost 10 years old and have grown substantially over the past decade.
Studies have shown consistently that health savings accounts keep down costs by encouraging more consumer involvement in maintaining their health. According to Towers Watson and the National Business Group on Health, companies with at least half of their workers enrolled in health savings accounts or similar plans report that their per-employee costs are more than $1,000 lower than companies without these plans. This is hard evidence for “bending the cost curve” that is so elusive for the rest of our nation’s health care system.
Aetna Inc. and Cigna Corp. have reported that their employer clients who switched to the savings accounts and similar plans saved millions of dollars on their employee health benefit costs while the health of their employees improved. Cigna has gone so far as to say that if the share of Americans enrolled in health savings accounts and similar health care plans rose to 50 percent and achieved the same results as their analysis, the United States could save $350 billion over 10 years and the level of patient care would improve.
This potential for reducing health care spending was confirmed last year when researchers at the Rand Corp. published the results of their analysis of the potential impact of account-based plans on the American health care system in the policy journal Health Affairs.
The Rand analysis suggested that if enrollment in health savings accounts and similar plans grows to represent half of all employer-sponsored insurance in the country, health care spending could drop by $57 billion annually. The study acknowledges that the accounts are far more cost-effective and estimates that if all of these people were enrolled in the plans, the annual savings would be as high as $73.6 billion.
Because Tricare does not offer health savings accounts or similar plans, it is missing out on the savings that the Defense Department so desperately needs. If Tricare offered savings accounts, it might lower its costs while allowing its personnel to participate in the many benefits offered by the accounts that millions of other Americans are realizing.
There is a second reason to offer health savings accounts. Because Tricare coverage follows military retirees for life, it prevents them from future participation in the savings plans. Because Tricare doesn’t offer any high-deductible plans, the Tricare coverage carried by military retirees prevents them from contributing to savings accounts even if their employers offer them.
It’s time the Pentagon and Congress create the option of health savings accounts within Tricare. Thousands of their contractors have done it. Federal workers can choose them, too. Indiana has more than 90 percent of its workers enrolled in savings accounts.
If money is truly as tight as our leaders say, health savings accounts deserve serious consideration.
Roy Ramthun is president of HSA Consulting Services and former senior adviser for health initiatives to the U.S. Treasury secretary.