Defense Health Care: Health Insurance Stipend Program Expected to Cost More Than TRICARE But Could Improve Continuity of Care for Dependents of Activated Reserve Component Members

Since the September 11, 2001, terrorist attacks, the Department of Defense (DOD) has increased its reliance on its National Guard and reserve forces to support the Global War on Terrorism, and particularly Operation Iraqi Freedom. Congress has been interested in making improvements and enhancements to compensation and benefit programs for reserve component members. When reserve component members are activated for more than 30 days under federal authorities, they are covered under TRICARE, DOD’s health care system. While reserve component members are automatically covered by TRICARE when activated, their spouses and other dependents have the option of using either TRICARE or their private health insurance. However, our prior work found that dependents of reserve component members who had dropped their private health insurance reported problems accessing the TRICARE system–such as difficulty finding a health care provider, establishing eligibility, understanding TRICARE benefits, and knowing where to go when questions and problems arise. In addition, maintaining continuity of care with the same health care providers, especially for dependents with chronic medical conditions, may be problematic after switching to TRICARE. To address these concerns, some legislative proposals would give reserve component members the option of accepting a stipend from DOD to help defray the cost of continuing their private health insurance for their spouses and dependents when they are activated for more than 30 days. The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 requires us to determine the cost and feasibility of providing a stipend to members of the Ready Reserve to offset the cost of continuing their current private health insurance coverage for their dependents while they are on active duty. Specifically, we (1) examined whether the implementation of a health care stipend program would be likely to increase or decrease the cost to DOD of providing health care to the spouses and dependents of reserve component members and (2) identified the potential implications of a stipend program on members and their families, DOD, and the members’ employers.

Offering a health care stipend to reserve component members could cost the Department of Defense (DOD) from $365 million to $735 million over a 5-year period–fiscal years 2006 through 2010–exclusive of program administration costs, for a specific range of reserve component member participation rates. Congressional Budget Office (CBO) officials cautioned that in the absence of specific legislative language that describes the design of a proposed stipend program in detail, CBO’s estimates should be considered preliminary. Final CBO estimates would reflect actual legislative language and CBO’s then current baseline assumptions. For example, in preparing this estimate of cost, CBO assumed that the amount of the stipend would equal the average worker contribution for family health plans. However, for deployments of more than 30 days, employees may be liable for the full health insurance premium, including the employer share, plus an additional 2 percent for administrative costs. This amount may be significantly higher than the amount of the stipend used by CBO in preparing the estimate of cost. In addition, DOD estimated that it would cost about $10 million for startup costs in the first year of implementation and $20 to $25 million annually to administer stipend payments to participating reserve component members. Since the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 did not identify the specific design features of a stipend program, it was difficult to identify a reliable anticipated participation rate for a stipend program.