Summary

The President's budget request for the Department of Defense's (DOD) Defense Health Program has increased steadily in recent years. For example, from fiscal year 2005 to fiscal year 2009, the budget request for the program increased from about $17.6 billion to about $23.6 billion, an increase of about 34 percent. DOD has attributed a majority of this increase to growth in medical care, dental care, and pharmaceuticals provided in the private sector to active duty personnel and other eligible beneficiaries. These private sector expenses are funded through the Defense Health Program's Private Sector Care Budget Activity Group (BAG). From fiscal year 2005 to fiscal year 2009, the budget request for this BAG increased by about 36 percent--from about $9.0 billion to almost $12.2 billion. The Conference Report accompanying the Fiscal Year 2008 Department of Defense Appropriations bill directed us to review the President's fiscal year 2009 budget request for the Defense Health Program's Private Sector Care BAG. To do this, we reviewed (1) DOD's justification for the request for the Private Sector Care BAG, including the underlying estimates and the extent to which DOD considered historical information; and (2) changes between this request and the request for fiscal year 2008 and factors causing these changes.

DOD based the President's fiscal year 2009 budget request of almost $12.2 billion for DOD's Private Sector Care BAG on models and cost projections that used historical data. The department developed the budget request through a two-step process. The first step involved building an initial budget estimate, which was largely based on fiscal year 2006 data that were adjusted using trend models to reflect changes in the number of TRICARE users, utilization (i.e., health care usage per user), and costs. The second step resulted in a net reduction of almost $2.2 billion to the initial budget estimate of about $14.3 billion. To do this, DOD considered various factors, including projected savings from increased beneficiary cost sharing. While DOD included appropriate factors in developing the President's fiscal year 2009 budget request for the Private Sector Care BAG, it is likely that DOD underestimated its funding needs as we do not believe that all of the cost savings DOD expects to achieve from increased beneficiary cost sharing will be realized. In addition, similar proposals in the past to increase beneficiary cost sharing have not been enacted. The President's fiscal year 2009 budget request of almost $12.2 billion for the Private Sector Care BAG was about $1.7 billion higher than the about $10.5 billion requested for fiscal year 2008. Of this increase, $995 million was due to estimated increases in the number of TRICARE users, utilization, health care costs, and administrative costs. The remainder of this increase was due to several factors, including greater funding needs for congressionally mandated benefit changes.