Monday, July 24, 2006

 

DOD Feeling the Healthcare Crunch

Sunday's Washington Post featured a Cindy Williams article on the Department of Defense's health insurance woes. The cost of the Defense Health Program has more than doubled in the last 6 years. The author correctly attributes the increases to several problems including the general, nationwide cost increases in healthcare. Another significant factor is Clinton era legislation that extended prescription drug benefits to 1.4 million military retirees over the age of 65. While the additional factors Williams identifies are important, an added 1.4 million drug coverage beneficiaries should not be de-emphasized or overlooked.

Current projections predict the DOD's healthcare costs will jump from $33 billion in 2006 to more than $64 billion by 2015. Williams attributes the "galloping" jump in costs to military retirees that are in the workforce but are opting to take their military benefits in lieu of their employer's (we'll come back to this). Even though Miss Williams is a research scientist from MIT, let's take a look at some math. First off, an increase from $33 billion to $64 billion is a 94% increase over 9 years - compared with a 100% increase from 2000 to 2006 that's a positive change in the trend line. Secondly, the actual "galloping" increase represents less than an 8% increase every year. Compared to the 2005 national average of 9.2% according to KFF's 2005 survey, that's not all that bad. I personally know a lot of companies that would be more than ok with an 8% increase. Note to DOD and Miss Williams: Health insurance is getting more expensive - join the club.

Williams does uncover some interesting statistics however.

  • Participants today only pay about 12% of total premiums versus more than 27% in 1995 (caused by a static contribution level that did not change as overall premiums increased)

  • Participants consume 40 to 50 percent more healthcare than people in civilian plans

  • 80% of military retirees under 65 are in the workforce - most of their employers provide health insurance

I am a strong supporter of the military and believe we should hold the men and women of our armed services in the highest regard. That being said, what we have here is a classic "Do as I say, not as I do" situation from the government. Military retirees have largely not had to deal with any premium increases for the last 11 years. Certainly the 50% difference in military consumption of healthcare comes back to shielding participants too much from costs. Let's do some more math. There are 9.2 million participants in the military health plan. If they shoulder only 12% of the overall $33 billion price tag that equates to about $430 per participant per year. That's $35 a month. To be fair, 1.8 million active duty personnel don't pay for benefits (which is as it should be), so really the 7.4 million remainder pay the 12%. That still only equates out to $535/year or $45/mo.

Apparently a noticeable portion of the 80% of retirees that are still in the workforce are jumping ship from their civilian health insurance and opting for their cheaper, government benefits. Nothing new here. I guess they have never heard of the cost savings strategy where if an employee's spouse has coverage available from their employer employees are disencentivized to enroll the spouse into the company's plan. Self-insured companies have employed this technique for many years, as I am sure at least the DOL knows.

Ultimately Williams concludes that the military ought to increase participant cost sharing in a bid to reign in costs. While I do think we owe our military personnel for their sacrifices, the best way to lead is to set an example. Practice what you preach!


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