Personnel and Readiness

Military Health Care Financial Implications

AgendaMilitary Health System 101

Why are we growing?

Efficiency InitiativesWhat are we doing?

Beneficiary Cost SharesOther things we can be doing

Sustainable over time?

Military Health System 101

Patient Care, Sustain Skillsand Training

Promote & Protect Health of Force and Communities

Deploy toSupport CombatantCommanders

to and

Manage and Deliver

Beneficiary Care

Deploy Fit and Protected Force

Deploy Medical

Capability

Support Homeland Defense

The Military Health System Has an Interconnected, Mutually-Supporting, Multi-Pronged Mission

Be prepared to deploy to support COCOMs – combat casualty care, humanitarian assistance, disaster relief; and SSTRO – stability, security, transition and reconstruction operations Ensure a healthy, fit, protected force Manage/deliver care to build healthy, resilient families & communities

The MHS Ensures a Joint En-Route Patient Evacuation System…from Foxhole to Home

VA

US Based Medical Centers and

Research Expertise

Hospitalization

National Naval Medical Center

Walter Reed Army Medical Center

3500nm/7hr 32min

1415nm/ 3hr 37min

Landstuhl Army Regional Medical Center

Baghdad1486nm/ 3hr 52min

Forward Surgery

Emergency Medicine

USNS Comfort

Wilford Hall Air Force Medical Center

1825nm/ 4hr 39min

Aerovac

Balad

Mosul

MedevacBagram

The MHS is a Vast Healthcare Enterprise, Serving the World’s Best Patients

RESOURCES• $51 Billion FY2011 Unified

DoD Medical Budget• 138K military and civilian

personnel • Expansive Infra- and Info-

Structure

ROBUST NETWORK• TRICARE network of 210K+

private-sector physicians, nearly all civilian hospitals, and 55K pharmacies

• VA partnerships

FY 2011 FACILITIES• 56 Hospitals• 363 Ambulatory Clinics• 275 Dental Clinics• 288 Veterinary Clinics• 10 Medical Installations• USUHS / METC • 7 Research Laboratories

9.5 M BENEFICIARIES• AD and families, RC and

families, retirees and families, survivors, and others – worldwide

• 5.0M Prime Enrollees

WORLD CLASS DEPLOYED SYSTEM

• Foxhole to Home – doctrinally aligned Joint execution

EVERY WEEK• 21K Admissions (5K MTF)• 1.8M Visits (642K MTF)• 2.1K Births (1K MTF)• 2.2M Scripts (948K MTF)• 103K Dental Visits (MTF)• 3.5M claims processed

Our Ultimate Goal

Readiness

• Readiness• Pre- and Post-deployment• Family Health • Behavioral Health • Professional Competency/Currency

• Quality OutcomesHealthy Service Members, Families, and Retirees

• A Positive Patient ExperiencePatient- and Family-centered Care, Access, Satisfaction

• CostResponsibly Managed

Military Health System Components

Office of the Assistant Secretary of Defense (Health Affairs)

TRICARE Management Activity

Military Medical Departments / Services – Units / Personnel DHP Funded

Line and Deployed Medical Units / Personnel

Chairman of the Joint Chiefs of Staff medical personnel

Combatant Commanders’ Surgeons staffs

Education, Training, and Research Assets

TRICARE Providers (individual providers, hospitals, pharmacies)

Strategic Partnerships (e.g., interagency, international, and internal/external stakeholders)

Operation and Maintenance

FY2011 Defense Health Program Budget

(In Billions)

Private Sector Care 54%Pharmacy (CONUS/OCONUS) $2.2Health Care/Administrative $12.3Active Duty Dental $0.1Overseas Health Care $0.3Other $1.1Total $16.0

In-House Support* 26%Pharmacy (CONUS/OCONUS) $1.5Health Care/Administrative $5.3Active Duty Dental $0.6Overseas Health Care $0.4Other $0.0Total $7.8*Excludes $4.2B associated with MilPers

Data Source: Defense Health Program FY2011 Budget Submission Health Care Support* 20%Consolidated Health $2.1Information Management/Technology $1.5Management Activities $0.3Education and Training $0.6Base Operations $1.6Total $6.1*Excludes $3.6B associated with MilPers

Private Sector Care In-House Care

Health Care Support

In-House Care Private Sector Care Health Care Support

$16.1B 54%

$6.0B 20%

$7.8B 26%

FY2011 Defense Health Program Budget

(Operation and Maintenance)

DHP Appropriation: Army Navy Air Force TMA OPNS USUHS TMA PSC TotalO&M $6,588 $3,195 $2,297 $1,657 $131 $16,047 $29,915

Procurement $118 $69 $56 $276 $0 $1 $520RDT&E $50 $38 $37 $348 $21 $6 $500

Total DHP $6,757 $3,303 $2,390 $2,280 $153 $16,053 $30,935Other Sources:

MILPERS* $2,479 $2,511 $2,801 $7,791MILCON $479 $150 $165 $235 $1,030

BRAC $410 $410MERHCF O&M Receipts $566 $306 $418 $10 $7,641 $8,940

MERHCF MILPERS Receipts $133 $119 $165 $416Total Budget Authority $10,413 $6,389 $5,938 $2,936 $153 $23,694 $49,522

FY 2011 Unified Medical Budget (millions)As of FY 2011 Budget Estimates Submission

Army Navy Air Force Total

Inpatient Facilities 24 19 13 56

Medical Clinics 157 126 80 363

Dental Clinics 144 38 93 275

Veterinary Clinics 288 0 0 288

Infrastructure

Army Navy Air Force TMA¹ Total

Military End Strength 26,207 27,220 31,519 47 84,946

Civilian FTEs 31,685 13,257 6,953 1,383 53,278

Total (FY 2010) 57,892 40,477 38,472 1,430 138,224

Percent Military 45% 67% 82%

Manpower

¹ TMA Military included in Service totals; USUHS Civilians (669) included in TMA total

*MILPERS reflects updated rates as of 20 Jan 2010

Defense Health Program Component Overview

Budget ImpactDoD Forecast

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Maintain Health Budget at 8% of Total DoD Budget Projections are for 10.4% by FY2015

If DoD Health Budget grows at recent trend rates, it will reach $64B, or 10.4% of DoD top-line in 2015

If DoD Health Budget managed to 8% of DoD top-line, budget would be $46 in 2015

Annual Total Defense Health Expenditures ($B)

Why Are We Growing?

Evolution of Health Benefits1940s-1950s

Title 10 Legislated Benefit

Space Required for Active Duty

Space Available for Families and Retirees

1966CHAMPUS Legislated Benefit

Civilian Health Care Where MTFs Do Not Exist

Families and Retirees <65

1993TRICARE Managed Care Legislation

Automatic enrollment for Active Duty

Space Required for TRICARE Prime Enrollees

Space Available for Non-enrollees

1995-1998TRICARE Triple Option Benefits

Prime, Extra and Standard

TRICARE Senior Prime Demonstration

1999-2000Further Expansion:

Prime Remote for Active Duty

TRICARE provider rates >=Medicare

Beneficiary Counseling & Assistance Coordinators

2001Catastrophic Cap Reduced to $3,000

Enhanced TRICARE Retiree Dental Program

TRICARE Senior Pharmacy

Elimination of Prime Co-pays for AD Family Members

Extension of Medical and Dental Benefits to Survivors

School Physicals

Entitlement for Medal of Honor Recipients

TRICARE Prime Travel Entitlement

Chiropractic Care Program

2002TRICARE Plus

TRICARE For Life

TRICARE Prime Remote for AD Family Members

2003TRICARE Online

TRICARE implements HIPPA Patient Privacy Standard

Elimination of AD Family Member Co-Pays

2004Transitional Assistance Management Program (TAMP) Expansion

Guard/Reserve TRICARE (Early Eligibility, Reserve Family Demo)

Elimination of Non-Availability Statements (NAS)

2005TRICARE Reserve Select

Extended Health Care Option/Home Health Care (ECHO / EHHC)

TRICARE Maternity Care Options

2006

Extended TRICARE Benefits for Dependents Whose Sponsor Dies on Active Duty

Limit Deductibles/co-Pays for Nursing Home Residents under the Pharmacy Program

Enhancement of TRICARE Reserve Select Coverage

2007Expansion of TRICARE Reserve Select coverage to All Reservists

Three year Extension of Joint DoD/VA Incentive Program

Planning/Management – Claims Processing Standardization

Expanded Disease Management Programs

Coverage of Forensic Exams for Sexual Assaults

Dental Anesthesia for Pediatric Cases

TRICARE Beneficiary Cost Share Has Gone Down

For Family of Three

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Patient Cost Share Govt/Employer

TRICARE FEHBP Kaiser HMO*FEHBP BCBS Standard

Reason for decrease: Kaiser changes between High and Standard in 2007

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009TRICARE 17.6% 12.1% 11.9% 11.7% 11.5%BCBS 37.5% 39.9% 39.4% 39.5% 38.1% 38.0% 38.9% 38.0% 39.5% 40.9%Kaiser HMO* 29.8% 29.6% 31.5% 32.5% 32.1% 32.0% 31.8% 36.6% 38.5% 37.7%

Patient % of Total Health Care Costs

TRICARE: Assumes all care received in the civilian sector for a family of 3FEHBPBCBS and Kaiser HMO: Premiums and other out-of-pocket (OOP) levels for a family of 3 from Washington Consumers' CheckbookKaiser HMO available data based on Kaiser "High" plan for 2000-2006, and Kaiser "Standard" plan for 2007-2009

Inpatient Weighted Workload

Outpatient Weighted Workload

Pharmacy Prescription Count

Private Sector Care Demand is Rapidly Increasing

Cost Drivers

1. New users – beneficiaries are dropping costly private health insurance and returning to TRICARE

2. Utilization – existing users are consuming more health care per capita

3. Inflation – health care remains above other sectors

4. New Benefits – added by Congress

5. Migration – In-House Care workload is flat to declining, shifting cost to Private Sector Care

(Excludes MERHCF)

(Excludes MERHCF)

(Includes MERHCF)

Health Costs Going Up

And…Requirements Continue to Increase

FY 2010 FY 2011Psychological Health 472$ 479$ Traumatic Brain Injury 178$ 190$ Wounded, Ill, and Injured 661$ 685$ Total 1,311$ 1,354$

($M)

• New requirements have been added to the health care budget as the result of ongoing actions

Newest Requirement:Coverage Until Age 26

• Health Reform Law included provision that health plans must provide coverage to adult children (those less than 26 years old)• Provision not applicable to TRICARE

• Legislation (HR 4923 and S 3201) has been introduced to extend TRICARE to this population and authorizes the collection of premiums “not to exceed the cost of coverage”• Proposed rules under the Health Care Reform Law will

not allow insurance companies to charge a separate premium

How Much Will This Cost?

• Unless the legislation changes, the department, in coordination with OMB will need to decide what portion of the costs will be charged as premiums

• Four options have been analyzed:• No separate premium • 28% premium (same as TRS, FEHBP)• 50% premium• 100% premium (no cost to the Department)

• Total cost to DoD depends on premium amount and take rate

Efficiency Initiatives “What Are We Doing?”

MHS Savings Initiatives Developed Prior to FY 2011 PB

Outpatient Prospective Payment System (OPPS): The 2002 National Defense Authorization Act directs that TRICARE

payment methods for institutional care shall be determined, to the extent practical, in accordance with the same reimbursement rules used by Medicare

Based on these statutory mandates, TRICARE adopted Medicare’s OPPS reimbursement methodology for certain outpatient procedures on May 1, 2009

The estimated savings to be realized within the DHP assume a 4-year phase-in of these rates for network hospitals and a 3-year phase-in for non-network hospitals

Current Estimate of Savings:FY 2010: $688MFY 2011: $793M

MHS Savings Initiatives Developed Prior to FY 2011 PB

Federal Ceiling Pricing (FCP): The 2008 National Defense Authorization Act authorized the

procurement of pharmaceuticals under the TRICARE retail pharmacy program. This will make any prescription filled on or after January 28, 2008 subject to Federal pricing, which is significantly lower than regular retail prices.

FCP will be achieved through refunds from pharmaceutical manufacturers on a quarterly basis. Refunds in FY 2010 are projected to be $376M. It is uncertain when retroactive refunds covering the period of 28 January 2008 through 26 May 2009 (date of the Final Rule) will (may) be received.

Current Estimate of Savings:FY 2010: $376MFY 2011: $434M

22

Other TRICARE Cost Saving InitiativesPrior to FY2011

•Mail Order Marketing• Educating beneficiaries on the convenience and cost savings associated

with having prescriptions filled by mail instead of retail

•Innovation Investment Program• Investing seed money in significant projects that will have positive ROIs

•T-3 Contracts• Restructured purchase of health care services to reduce administrative

costs

•Direct Care Prospective Payment System• Incentivizing the Direct Care System by basing budgets on performance

rather than historical funding

•VA/DoD Sharing• Taking advantage of economies of scale with other Federal health service

providers •BRAC

• Reducing and consolidating unneeded capacity

23

FY2011 Proposed TRICARE Cost Saving Initiatives

•Acceleration of standardization with Medicare payment policies• Reducing time from Medicare implementation of payment changes

to TRICARE implementation

•Fraud Waste and Abuse• Hiring increased personnel for detection and prosecution of

fraudulent health care claims

•Supply Chain Standardization (2011 proposal)• Improving purchasing within the direct care system through

standardization

•Patient Centered Medical Homes• Emphasis on prevention, access, and per capita costs

Beneficiary Cost Shares(Other Things We

Can Be Doing)

Health Plan Options

• HMO-type Options• TRICARE Prime• TRICARE Prime Remote - For AD and their families in remote

locations• US Family Health Plan – Former public health hospitals that

provide a Prime-like benefit

• Fee-for-Service Options• TRICARE Standard and Extra • TRICARE Reserve Select – Premium based plan for Select

Reservists

• Medicare Wrap-around Coverage• TRICARE For Life

Benefit Structure: Based on a FamilyOption Premium Deductible Visit

Copay*Inpatient Copay*

Catastrophic Cap

TRICARE Prime

ADFMs None None None None $1,000

Retirees $460/year None $12 $11/day $3,000

TRICARE Standard

ADFMs None $300 E-5+

$100 E-1/4

20% $15.65/day $1,000

Retirees None $300 25% $535/day $3,000

TRICARE Reserve Select

$198/month $300E-5+

$100 E-1/4

20% $15.65/day $1,000

TRICARE for Life Medicare Part B

Second Pay to MedicareUsually no cost share remaining

$3,000

* No copays when care is received in an MTF

Pharmacy Benefit Copays

Venue Generic Brand Formulary Non-Formulary

MTF None None None

Retail (30 days) $3 $9 $22

Mail-Order (90 days) $3 $9 $22

Cost Comparison and Beneficiary Share

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Patient Cost Share Govt/EmployerTRICARE FEHBP Kaiser HMO*FEHBP BCBS Standard

Note: Kaiser changes between High and Standard in 2007that is reason for decrease

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009TRICARE 17.6% 12.2% 12.0% 11.7% 12.1% 12.1%BCBS 37.5% 39.9% 39.4% 39.5% 38.1% 38.0% 38.9% 38.0% 39.5% 40.9%Kaiser HMO* 29.8% 29.6% 31.5% 32.5% 32.1% 32.0% 31.8% 36.6% 38.5% 37.7%

Patient % of Total Health Care Costs

TRICARE: Assumes all care received in the civilian sector for a family of 3FEHBPBCBS and Kaiser HMO: Premiums and other out-of-pocket (OOP) levels for a family of 3 from Washington Consumers' CheckbookKaiser HMO available data based on Kaiser "High" plan for 2000-2006, and Kaiser "Standard" plan for 2007-2009

Family Coverage

28

Overview: TRICARE Fees• Total budget for healthcare in the department exceeds $51B for FY 2011

• Includes O&M, military personnel, procurement, R&D, MILCON, and contributions to the Medicare Eligible Retiree fund to support TRICARE for Life

• Projected estimates indicate healthcare will be over 10% of DoD top-line by 2015

• Beneficiary fees (PRIME enrollment, co-pays, deductibles have not risen since mid-1990s)

• Beneficiary cost share now less than half of what they were when TRICARE was initiated• Meanwhile, civilian employee premium shares have increased dramatically

• Example: Federal Employee BC/BS employee premiums increased 249% from $1,380 to $4,812/year

• Efforts to rebalance cost shares were proposed in FY 2007, 2008 and 2009 budgets• Increase enrollments fees, deductibles, and pharmacy and care co-pays• Did not impact AD or ADD (other than retail/mail order pharmacy co-pays)• Congressionally directed Task Force on Future of Military Healthcare recommended fee

increases similar to DoD’s position

• Congressional action stopped savings and froze fees (ended Sep 30 2009)

• FY 2010 and current FY 2011 Budget assumes no fee change

• NDAA 2010 did not freeze enrollment or co-pay fees, but clear indication that fee increases were not supported by Congress

29

Details of Previous Proposals

• Initial Proposal – FY 2007 President’s Budget• Increase Prime Enrollment fees, Standard deductibles

• Based on rank – Officer, Senior Enlisted, Junior Enlisted• Institute Standard Enrollment Fee

• Based on rank• Adjust Pharmacy co-pays

• Incentivize mail order• Savings: $11B over five years

• FY 2008• Assumed similar savings to FY2007 budget• No specifics on increases in fees• Awaiting Task Force proposal

• FY 2009• Submitted proposal based on Task Force proposal

• Similar increases, but based on retired pay level - <$20K, $20K-$40K, >$40K• Savings: $10B over five years

• FY 2010• No savings assumed for FY 2010 from increased fees

What DoD Can Change Without Congressional Action (Assuming No Prohibitions)

Program Beneficiary Cost Authority FY2011 Adjustment?

TRICARE Prime Enrollment Fees

Retirees: $230/person or $460/family. Within DoD’s authority.10 U.S.C. § 1097(e),NDAA-94, § 731.32 C.F.R. § 199.18(c), (g).

DoD intends no change in FY2011.

TRICARE Prime Outpatient Charges

ADFM: $0;Retirees: set per visit charge, $12 for most visits, $30 for

emergency room, $25 individual mental health visits.

Fixed dollar charges within DoD’s authority.10 U.S.C. § 1097(e).32 C.F.R. § 199.18(d).

DoD intends no change in FY2011.

TRICARE Standard Inpatient Copays

AFDM: $20 per diem (min.$25/admission);Retirees: Lesser of 25% of fixed daily amount (currently $535)

or 25% of TRICARE allowable amount. Fixed daily amount is based on 25% of average allowable amount. (Does not apply to TFL or retirees with other health insurance.)

Annual updates to the fixed daily amount are required by 10 U.S.C. § 1086(b)(3) for hospitals paid by DRG-based payment method (except freeze in effect FY-06 through FY-10).

32 C.F.R. § 199.4(f)(3)(ii).

Yes. Current law requires update for FY2011. The fixed amount is updated by the Medicare update factor (2.1% in FY2010). Estimated increase for FY2011 would be from $535 to $745.

TRICARE Dental Program

Premiums vary for ADFM, RC, RCFM, single, family.ADFM premium = 40% of cost.RC Sponsor premium = 40% of cost.RCFM premium = 100% of cost.

10 U.S.C. § 1076a.32 C.F.R. § 199.13.

Yes, annually on Feb. 1.

TRICARE Retiree Dental Program

Premiums vary based on level of coverage, and number of individuals covered. Premium = 100% of cost.

10 U.S.C. § 1076c.32 C.F.R. § 199.22Contractual requirement.

Yes, annually on Oct. 1.

Pharmacy Copays MTF: $0.Retail: $3/$9/$22 (30 day supply).Mail: $3/$9/$22 (90 day supply).Respective amounts are for Generic/Formulary/Non-Formulary.

Amounts are within DoD’s discretion, subject to maximum of 20% (ADFM) or 25% (retiree) of cost.

10 U.S.C. § 1074g.32 C.F.R. § 199.21(i).

DoD intends no change in FY2011.

TRICARE Reserve Select

Premiums based on cost, 28% for member. Premiums for member only (currently $49.62/mo) and member + family (currently $197.65/mo).

10 U.S.C. § 1076d(d).32 C.F.R. § 199.24(b).

Yes, annually on Jan. 1.

TRICARE Retired Reserve

Premiums based on cost, 100% by member. Premiums for member only and member + family. Premium amounts to be decided.

Program to begin FY2011.

10 U.S.C. § 1076e(d).Regulation under development.

Will provide for annual adjustment.

Continued Health Care Benefits Program (CHCBP)

Premium based on comparable FEHBP plan, plus up to 10% for administration.

10 U.S.C. 1078a(f)(1).32 C.F.R. § 199.20(q).

May be adjusted annually. FY20l1 amount $988/quarter individual;

$2213/quarter family.

What Changes Require Congressional Action

InitiativeRegulatory Legislative

Increase DeductiblesFor ADDFor Retirees & NADD

Amend 10 USC 1079(b)(2)-(3)Amend 10 USC 1086(b)(1)-(2)

Copays for PRIME EnrolleesFor ADD (reintroduce)For Retirees & NADD (increase) Proposed rule change 32 CFR 199.18*

Repeal 10 USC 1097a(e)

Introduce MTF Copays (except AD)For RxFor outpatient visitsFor inpatient admission

Proposed rule change 32 CFR 199.21Amend several sections of law**Amend several sections of law**

Increase Catastrophic CapsFor ADD (index to inflation)For Retirees & NADD (increase)

Amend 10 USC 1079(b)(5)Amend 10 USC 1086(b)(4)

Eliminate TRICARE Triple OptionFor ADDFor Retirees & NADD Proposed rule change 32 CFR 199.18

Repeal or amend 10 USC 1097a and several other sections of law

Sustainable Over Time?

It isn’t!!!!!

Secretary GatesSaturday, May 8, 2010

• “…the dilemmas we face today in providing for – and paying for – our national defense.”

• “Leaving aside the sacred obligation we have to America’s wounded warriors, health care costs are eating the Defense Department alive, rising from $19 billion a decade ago to roughly $50 billion – roughly the entire foreign affairs and assistance budget of the State Department.”