NCPA - National Center for Policy Analysis

Federal Health Plan Failed to Attract Military Retirees

June 10, 2003

Some plans for reducing the number of Americans without health insurance propose allowing uninsured individuals to enroll in the Federal Employees Health Benefits Program (FEHBP). The FEHBP has also been suggested as a model for Medicare reform.

However, a Department of Defense (DOD) demonstration project that allowed military retirees to enroll in the FEHBP found that relatively few took up the coverage.

Prior to 2001, military retirees who turned age 65 and became eligible for Medicare lost most of their DOD health benefits. The DOD established the demonstration to examine alternatives for addressing retirees' lack of Medicare supplemental coverage.

According to a new evaluation by the General Accounting Office (GAO):

  • Enrollment in the DOD-FEHBP demonstration peaked at only 5.5 percent of eligible beneficiaries in 2001 (7,521 enrollees) and then fell 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.
  • Those who enrolled thought that FEHBP offered better benefits, particularly prescription drugs, than their current coverage, or lacked any existing coverage.
  • Nonenrollees said they were satisfied with their current coverage, which had better benefits and lower costs than FEHBP.

In setting premiums initially, plans had little information about the health and probable cost of care for eligible beneficiaries.

  • Enrollees had lower average health care costs than either civilians in the FEHBP or those who did not enroll.
  • Monthly premiums for individual policies varied widely -- from $65 to $208 in 2000 -- with those plans that had lower premiums capturing the most enrollees.
  • But plans enrolled similar proportions of beneficiaries in poor health, regardless of whether they charged higher, lower or the same premiums as the civilian FEHBP.

Source: "Military Retiree Health Benefits: Enrollment Low in Federal Employee Health Plans Under DOD Demonstration," GAO-03-547, June 6, General Accounting Office, Washington, D.C.

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