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Provisions of the Department of Defense Authorization Acts for Fiscal Years 1993 and 1994 require the Congressional Budget Office (CBO) and the General Accounting Office to evaluate any proposals made by the Department of Defense (DoD) to expand contracts for managed health care beyond the states of California and Hawaii (excluding expansion into areas where military bases are being closed). DoD has proposed to expand managed care into Arkansas, Oklahoma, and parts of Louisiana and Texas. This CBO memorandum has been prepared in compliance with the provisions of the authorization acts. The memorandum summarizes the findings of CBO's evaluation, which focused on evaluating DoD's cost analysis.

Ellen Breslin Davidson of CBO's National Security Division and Amy Plapp of CBO's Budget Analysis Division prepared the memorandum under the direction of Neil M. Singer, R. William Thomas, and Michael A. Miller. The authors gratefully acknowledge the useful comments provided by their CBO colleague Carla Pedone, as well as the valuable assistance of Jonathan Berg. Sherwood Kohn edited the manuscript, and Christian Spoor provided editorial assistance. Cynthia Cleveland prepared the paper for publication.

Questions about the analysis may be addressed to Ellen Breslin Davidson or Amy Plapp.
 
 

INTRODUCTION

BACKGROUND ON MILITARY HEALTH CARE

EXPANDING A REVISED CRI PROGRAM INTO WASHINGTON AND OREGON

DOD'S CERTIFICATION OF THE MCS CONTRACT INCLUDING THE TRICARE BENEFIT PACKAGE INTO REGION 6

• DoD Methodology Used to Analyze the Effects on Costs of the MCS Contract with the Tricare Benefit Package
• How the MCS Contract with the Tricare Benefit Package Affects Costs

CBO'S ASSESSMENT OF DOD'S COST ESTIMATES

• CBO Methodology Used to Analyze the Effects on Costs of the MCS Contract with the Tricare Benefit Package
• Defining Three Cases
• Costs Under CBO's Three Cases

APPENDIX - Differences Between the Assumptions Used by DoD and CBO for Estimating the Effects on Costs of the MCS Contract with the Tricare Benefit Package
 

TABLES
1.	DoD's Estimates of Changes in Military Health Services System Costs for the Fiscal Year 1995-1999 Period Under Varying Assumptions About Extending the Managed Care Support Contract Including the Tricare Benefit Package into Region 6
2.	CEO's Estimates of Changes in Military Health Services System Costs for the Fiscal Year 1995-1999 Period Under Varying Assumptions About Extending the Managed Care Support Contract Including the Tricare Benefit Package into Region 6, With and Without Savings from Utilization Management at the MTFs
A-l.	Base-Case Assumptions Used in Estimating the Change in Military Health Services System Costs from Extending the Managed Care Support Contract Including the Tricare Benefit into Region 6
A-2.	Lower-Cost Assumptions Used in Estimating the Change in Military Health Services System Costs from Extending the Managed Care Support Contract Including the Tricare Benefit into Region 6
A-3.	Higher-Cost Assumptions Used in Estimating the Change in Military Health Services System Costs from Extending the Managed Care Support Contract Including the Tricare Benefit into Region 6
BOX
A-l.	Explanation of the Assumptions Used by CBO

 

The Defense Authorization Act for Fiscal Year 1993 required that the Congressional Budget Office (CBO) and the General Accounting Office evaluate the Department of Defense's (DoD's) decision to certify the expansion of managed care contracts beyond the states of California and Hawaii The fiscal year 1994 authorization act amended this requirement by adding that the Secretary of Defense must assure that expanding a managed care contract into another location of the country is indeed cost-effective; that is, that total government costs for the Military Health Services System will not increase. CBO focused on evaluating the department's cost analyses, and this paper summarizes its evaluation of DoD's latest certification of the expansion of managed care into a region that includes Arkansas, Oklahoma, and parts of Louisiana and Texas. CBO's conclusion is that while DoD's analysis may be too optimistic, the proposed expansion of managed care is unlikely either to save or to add very much compared with the current costs of providing care to military beneficiaries. By themselves, the improved benefits associated with DoD's proposed change probably would raise costs, but by less than 3 percent DoD, however, plans to combine the improved benefits with savings from reducing health care use that would offset much or all of the cost increase.

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