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104th Congress                                            Rept. 104-837
                      HOUSE OF REPRESENTATIVES

 2d Session                                                      Part 1
_______________________________________________________________________


 
    UNIFORMED SERVICES MEDICARE SUBVENTION DEMONSTRATION PROJECT ACT

                               __________

                              R E P O R T

                                 OF THE

                     COMMITTEE ON NATIONAL SECURITY
                        HOUSE OF REPRESENTATIVES

                                   ON

                               H.R. 3142

      [Including cost estimate of the Congressional Budget Office]

                                     


                                     

               September 25, 1996.--Ordered to be printed


                  HOUSE COMMITTEE ON NATIONAL SECURITY
                      One Hundred Fourth Congress

 FLOYD D. SPENCE, South Carolina, 
             Chairman
RONALD V. DELLUMS, California        BOB STUMP, Arizona
G.V. (SONNY) MONTGOMERY, Mississippi DUNCAN HUNTER, California
PATRICIA SCHROEDER, Colorado         JOHN R. KASICH, Ohio
IKE SKELTON, Missouri                HERBERT H. BATEMAN, Virginia
NORMAN SISISKY, Virginia             JAMES V. HANSEN, Utah
JOHN M. SPRATT, Jr., South Carolina  CURT WELDON, Pennsylvania
SOLOMON P. ORTIZ, Texas              ROBERT K. DORNAN, California
OWEN PICKETT, Virginia               JOEL HEFLEY, Colorado
LANE EVANS, Illinois                 JIM SAXTON, New Jersey
JOHN TANNER, Tennessee               RANDY ``DUKE'' CUNNINGHAM, 
GLEN BROWDER, Alabama                California
GENE TAYLOR, Mississippi             STEVE BUYER, Indiana
NEIL ABERCROMBIE, Hawaii             PETER G. TORKILDSEN, Massachusetts
CHET EDWARDS, Texas                  TILLIE K. FOWLER, Florida
FRANK TEJEDA, Texas                  JOHN M. McHUGH, New York
MARTIN T. MEEHAN, Massachusetts      JAMES TALENT, Missouri
ROBERT A. UNDERWOOD, Guam            TERRY EVERETT, Alabama
JANE HARMAN, California              ROSCOE G. BARTLETT, Maryland
PAUL McHALE, Pennsylvania            HOWARD ``BUCK'' McKEON, California
PETE GEREN, Texas                    RON LEWIS, Kentucky
PETE PETERSON, Florida               J.C. WATTS, Jr., Oklahoma
WILLIAM J. JEFFERSON, Louisiana      MAC THORNBERRY, Texas
ROSA L. DeLAURO, Connecticut         JOHN N. HOSTETTLER, Indiana
MIKE WARD, Kentucky                  SAXBY CHAMBLISS, Georgia
PATRICK J. KENNEDY, Rhode Island     VAN HILLEARY, Tennessee
                                     JOE SCARBOROUGH, Florida
                                     WALTER B. JONES, Jr., North 
                                     Carolina
                                     JAMES B. LONGLEY, Jr., Maine
                                     TODD TIAHRT, Kansas
                                     RICHARD `DOC' HASTINGS, Washington
  Andrew K. Ellis, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

Purpose and Background...........................................     3
Legislative History..............................................     4
Committee Position...............................................     5
Fiscal Data......................................................     5
  Congressional Budget Office Estimate...........................     5
  Congressional Budget Office Cost Estimate......................     6
  Committee Cost Estimate........................................     9
  Inflation-Impact Statement.....................................    11
Oversight Findings...............................................    11
Statement of Federal Mandates....................................    12
Rollcall Votes...................................................    12



104th Congress                                            Rept. 104-837
                        HOUSE OF REPRESENTATIVES

 2d Session                                                      Part 1
_______________________________________________________________________



    UNIFORMED SERVICES MEDICARE SUBVENTION DEMONSTRATION PROJECT ACT

                                _______
                                

               September 25, 1996.--Ordered to be printed

_______________________________________________________________________


  Mr. Spence, from the Committee on National Security, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3142]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on National Security, to whom was referred the 
bill (H.R. 3142) to establish a demonstration project to 
provide that the Department of Defense may receive Medicare 
reimbursement for health care services provided to certain 
Medicare-eligible covered military beneficiaries, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Uniformed Services Medicare Subvention 
Demonstration Project Act''.

SEC. 2. DEFINITIONS.

  For purposes of this Act:
          (1) Medicare-eligible covered military beneficiary.--The term 
        ``medicare-eligible covered military beneficiary'' means a 
        beneficiary under chapter 55 of title 10, United States Code, 
        who--
                  (A) is entitled to hospital insurance benefits under 
                part A of title XVIII of the Social Security Act (42 
                U.S.C. 1395c et seq.); and
                  (B) is enrolled in the supplementary medical 
                insurance program under part B of such title (42 U.S.C. 
                1395j et seq.).
          (2) TRICARE program.--The term ``TRICARE program'' means the 
        managed health care program that is established by the 
        Secretary of Defense under the authority of chapter 55 of title 
        10, United States Code, principally section 1097 of such title, 
        and includes the competitive selection of contractors to 
        financially underwrite the delivery of health care services 
        under the Civilian Health and Medical Program of the Uniformed 
        Services.
          (3) Military treatment facility.--The term ``military 
        treatment facility'' means a facility of the uniformed services 
        used for the provision of medical or dental care.
          (4) Secretaries.--The term ``Secretaries'' means the 
        Secretary of Defense and the Secretary of Health and Human 
        Services acting jointly.

SEC. 3. ESTABLISHMENT OF DEMONSTRATION PROJECT.

  (a) Establishment Required.--The Secretary of Defense and the 
Secretary of Health and Human Services shall jointly establish a 
demonstration project to provide the Department of Defense with 
reimbursement, in accordance with section 4, from the medicare program 
under title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) 
for health care services provided to medicare-eligible covered military 
beneficiaries who participate in the demonstration project and receive 
the health care services through the managed care option of the TRICARE 
program.
  (b) Geographic Regions.--The Secretaries shall conduct the 
demonstration project in two or more geographic regions in which the 
TRICARE program has been implemented.
  (c) Duration.--The Secretaries shall conduct the demonstration 
project during the three-year period beginning on January 1, 1997.
  (d) Expansion of Demonstration Project.--The Secretaries shall 
include in the demonstration project a provision for expanding the 
demonstration project to incorporate health care services provided to 
medicare-eligible covered military beneficiaries under the fee-for-
service options of the TRICARE program if, in the report required by 
section 713 of the National Defense Authorization Act for Fiscal Year 
1997, the Secretaries determine that such expansion of the 
demonstration project is feasible and advisable.
  (e) Reporting Requirements.--Not later than 15 months after the 
establishment of the demonstration project, and then not later than 90 
days after the end of the demonstration project, the Secretaries shall 
submit to Congress a report containing the following:
          (1) The number of medicare-eligible covered military 
        beneficiaries opting to participate in the demonstration 
        project established under this section instead of receiving 
        health benefits through another health insurance plan 
        (including through the medicare program).
          (2) An analysis of whether, and in what manner, easier access 
        to the military treatment system affects the number of 
        medicare-eligible covered military beneficiaries receiving 
        health benefits under the medicare program.
          (3) A list of the health insurance plans and programs that 
        were the primary payers for medicare-eligible covered military 
        beneficiaries during the year prior to their participation in 
        the demonstration project and the distribution of their 
        previous enrollment in such plans and programs.
          (4) An identification of cost-shifting (if any) among medical 
        care programs as a result of the demonstration project and a 
        description of the nature of any such cost-shifting.
          (5) An analysis of how the demonstration project affects the 
        overall accessibility of the military treatment system and the 
        amount of space available for point-of-service care and a 
        description of the unintended effects (if any) upon the normal 
        treatment priority system.
          (6) A description of the difficulties (if any) experienced by 
        the Department of Defense in managing the demonstration 
        project.
          (7) A description of the effects of the demonstration project 
        on military treatment facility readiness and training and the 
        probable effects of the project on overall Department of 
        Defense medical readiness and training.
          (8) A description of the effects that the demonstration 
        project, if permanent, would be expected to have on the overall 
        budget of the military health care system and the budgets of 
        individual military treatment facilities.
          (9) An analysis of whether the demonstration project affects 
        the cost to the Department of Defense of prescription drugs or 
        the accessibility, availability, and cost of such drugs to 
        program beneficiaries.

SEC. 4. REIMBURSEMENT AMOUNTS.

  (a) Payment to Department of Defense.--The Secretary of Health and 
Human Services shall make monthly payments to the Department of Defense 
from the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund (allocated by the Secretary 
of Health and Human Services between each Trust Fund based on the 
relative weight that benefits from each Trust Fund contribute to the 
required payment) in an amount equal to \1/12\ of the amount determined 
under subsection (b) for each medicare-eligible covered military 
beneficiary enrolled during the year in the managed care option of the 
TRICARE program in the geographic region in which the demonstration 
project is conducted, but only if such beneficiary's enrollment is in 
excess of the minimum enrollment number determined under subsection 
(c)(1) for the geographic region.
  (b) Amount Determined.--The amount determined under subsection (a) is 
an amount equal to 93 percent of the average adjusted per capita cost 
determined under section 1876(a)(4) of the Social Security Act (42 
U.S.C. 1395mm(a)(4)) for the year.
  (c) Establishment of Minimum and Maximum Enrollment Levels.--
          (1) Minimum.--Based on the best available data, the 
        Secretaries shall establish a minimum enrollment number of 
        medicare-eligible covered military beneficiaries who are 
        required to enroll in the managed care option of the TRICARE 
        program during a year in each geographic region in which the 
        demonstration project is conducted before the Department of 
        Defense may receive payment under subsection (a).
          (2) Maximum.--The Secretaries shall establish a maximum 
        number of medicare-eligible covered military beneficiaries for 
        which payment may be made by the Secretary of Health and Human 
        Services under subsection (a).
          (3) Determination of baseline costs.--Before the 
        establishment of the demonstration project, the Secretaries 
        shall establish the minimum and maximum enrollment numbers so 
        that--
                  (A) the expenditures by the Department of Defense for 
                such number of medicare-eligible covered military 
                beneficiaries is equivalent to the projected 
                expenditures that would have been made by the 
                Department for such beneficiaries if the demonstration 
                project had not been established; and
                  (B) the cost to the medicare program under the 
                demonstration project does not exceed the cost that the 
                medicare program would otherwise incur with respect to 
                the medicare-eligible covered military beneficiaries 
                participating in the demonstration project in the 
                absence of the project.
  (d) TRICARE Program Enrollment Fee Waiver.--The Secretary of Defense 
shall waive the enrollment fee applicable to any medicare-eligible 
covered military beneficiary enrolled in the managed care option of the 
TRICARE program for whom reimbursement in the amount determined under 
subsection (b) is received under subsection (a).
  (e) Review by Comptroller General.--Not later than December 31 each 
year in which the demonstration project is conducted, the Comptroller 
General shall determine and submit to the Secretaries and Congress a 
report on the extent, if any, to which the costs of the Secretary of 
Defense under the TRICARE program and the costs of the Secretary of 
Health and Human Services under the medicare program have increased as 
a result of the project.
  (f) Demonstration Project Adjustments Following Review.--Based on the 
review prepared under subsection (e), the Secretaries shall modify the 
demonstration project at the end of each year to correct for any 
discrepancy between cost targets and actual spending under the 
demonstration project. From funds available to the Secretary of Defense 
for the defense health care program, the Secretary of Defense shall 
reimburse the Secretary of Health and Human Services for any excess 
costs incurred by the medicare program in violation of subsection 
(c)(3)(B).

                         purpose and background

    H.R. 3142 would establish a demonstration program to 
provide Medicare subvention or reimbursement to the Department 
of Defense (DOD) for health care services provided to certain 
Medicare-eligible military beneficiaries. The goal of the 
demonstration program would be to improve access to needed 
health care services for these military beneficiaries, while 
determining whether subvention can be accomplished in a manner 
that does not increase costs to the federal government or the 
Medicare Trust Fund.
    Presently, there are about 1.2 million Medicare-eligible 
military beneficiaries. Although these beneficiaries are 
eligible to use military medical facilities on a space-
available basis, they are not eligible to enroll in, or 
participate in, the DOD's TRICARE managed health care program. 
With bases being closed and realigned throughout the country, 
access to military medical facilities is becoming increasing 
difficult for these beneficiaries. Exacerbating the situation 
is the fact that the TRICARE program is designed to maximize 
use of military medical facilities by TRICARE program 
enrollees.
    The Department of Defense estimates that about 25 percent 
of military Medicare-eligible beneficiaries currently rely on 
military facilities for the majority of their health care 
needs. Supporting this population, which is projected to grow 
29 percent by the year 2001, costs DOD about $1.4 billion a 
year. Continuing to meet the medical needs of this growing 
military beneficiary population is an extremely difficult 
challenge, particularly in today's budget-constrained 
environment.
    The committee believes that Medicare reimbursement to DOD 
for care provided to Medicare-eligible beneficiaries can 
produce savings to both DOD and the Department of Health and 
Human Services because military hospital care is generally less 
expensive than health care services purchased in the private 
sector. Conducting a Medicare subvention demonstration program 
is a viable means of determining whether subvention will in 
fact save the federal government money, as well as whether 
implementing subvention on a large-scale, national level is 
feasible.
    H.R. 3142 would establish a subvention demonstration 
program to be conducted in two TRICARE regions over a three-
year period. Under the program, Medicare-eligible retirees who 
chose to participate in the demonstration would be required to 
enroll in the TRICARE HMO option--TRICARE Prime--and would 
receive all their medical care through the military health 
services system. As TRICARE enrollees, program participants 
would have a higher priority for receiving medical care in 
military facilities than non-enrollees and would be guaranteed 
access to treatment within a specific amount of time.
    To ensure the demonstration is, at a minimum, cost-neutral 
to the Medicare Trust Fund, DOD would continue to provide the 
same amount of care to Medicare-eligible military beneficiaries 
as it now does. Once that level of effort has been met, 
Medicare would begin to reimburse DOD for additional care 
provided to Medicare-eligible beneficiaries, at a rate lower 
than that at which it reimburses civilian Medicare providers 
and health maintenance organizations. H.R. 3142, as amended by 
the committee, also would provide for an annual General 
Accounting Office review of the program to determine whether 
there have been any cost overruns.
    To ensure that the demonstration is valid and yields 
sufficient data for determining the viability of full-scale 
implementation of subvention, the committee intends that the 
demonstration be conducted throughout the two TRICARE 
demonstration regions--not just at a few specific sites within 
the two regions as has been proposed by the Administration--and 
include the Department's civilian health care providers 
operating within the demonstration region.

                          legislative history

    H.R. 3142, the ``Uniformed Services Medicare Subvention 
Demonstration Project Act,'' was introduced on March 21, 1996. 
It was referred to the Committee on Ways and Means, and in 
addition to the Committees on Commerce and National Security.
    The origins of the legislation can be traced back to the 
National Defense Authorization Act for Fiscal Year 1993 (Public 
Law 102-484) which directed the Secretaries of Defense, Health 
and Human Services and Transportation to examine the option of 
Medicare reimbursement to the Department of Defense for medical 
care provided to military Medicare-eligible retirees.
    H.R. 580, introduced on January 19, 1995, sought to amend 
title XVIII of the Social Security Act and title 10, United 
States Code, to allow the Secretary of Health and Human 
Services to reimburse the Military Health Services System for 
care provided to Medicare-eligible military retirees and their 
spouses in that system. The National Defense Authorization Act 
for Fiscal Year 1996 (section 718 of Public Law 104-106) 
expressed the sense of Congress that the President's budget for 
fiscal year 1997 should provide for reimbursement by the Health 
Care Financing Administration to the Department of Defense for 
health care provided to Medicare-covered beneficiaries. The 
President's budget request for fiscal year 1997 did not include 
Medicare reimbursement to DOD.
    On March 7, 1996, the Subcommittee on Military Personnel 
conducted a hearing on alternatives for military retiree health 
care, including Medicare reimbursement to the Department of 
Defense. On September 11, 1996, the Subcommittee on Military 
Personnel held a hearing to specifically address the issue of 
Medicare subvention and H.R. 3142.
    On September 12, 1996, the Committee on National Security 
met to consider H.R. 3142. The committee agreed to an amendment 
in the nature of a substitute. The bill, as amended, was 
ordered reported favorably to the House by a unanimous voice 
vote.

                           committee position

    On September 12, 1996, the Committee on National Security, 
a quorum being present, approved H.R. 3142, as amended, by a 
unanimous voice vote.

                              fiscal data

    Pursuant to clause 7 of rule XIII of the Rules of the House 
of Representatives, the committee attempted to ascertain annual 
outlays resulting from the bill during fiscal year 1997 and the 
four following fiscal years. The results of such efforts are 
reflected in the cost estimate prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974, which is included in this 
report pursuant to clause 2(l)(3)(C) of House rule XI.

                  congressional budget office estimate

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives, the cost estimate 
prepared by the Congressional Budget Office and submitted 
pursuant to section 403(a) of the Congressional Budget Act of 
1974 is as follows:
                                                September 17, 1996.
Hon. Floyd Spence,
Chairman, Committee on National Security,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate of H.R. 3142, the Uniformed 
Services Medicare Subvention Demonstration Project Act, as 
ordered reported by the House Committee on National Security on 
September 12, 1996.
    The bill will affect direct spending and thus would be 
subject to pay-as-you-go procedures under section 252 of the 
Balanced Budget and Emergency Deficit Control Act of 1985.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

               congressional budget office cost estimate

    1. Bill number: H.R. 3142.
    2. Bill title: Uniformed Services Medicare Subvention 
Demonstration Project Act.
    3. Bill status: As ordered reported by the House Committee 
on National Security on September 12, 1996.
    4. Bill purpose: The bill would create a demonstration 
project to allow Medicare to reimburse the Department of 
Defense (DoD) for health care that Medicare beneficiaries 
receive in military treatment facilities through the managed 
care option of the TRICARE program.
    5. Estimated cost to the Federal Government: The table 
below summarizes the budgetary effects of the bill. It shows 
the effects of the bill on direct spending and authorizations 
of appropriations.

                                    [By fiscal years, in millions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                              1996      1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending Under Current Law:                                                                                     
    Estimated budget authority............   198,191   217,200   238,144   259,683   281,215   304,913   330,923
    Estimated outlays.....................   196,051   215,516   236,419   257,411   279,466   303,179   328,522
Proposed Changes:                                                                                               
    Estimated budget authority............         0       150       200       200        50         0         0
    Estimated outlays.....................         0       150       200       200        50         0         0
Spending Under the Bill:                                                                                        
    Estimated budget authority............   198,191   217,350   238,344   259,883   281,265   304,913   330,923
    Estimated outlays.....................   196,051   215,666   236,619   257,611   257,516   303,179   328,522
                                                                                                                
                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                                                                                                
Spending Under Current Law:                                                                                     
    Estimated auth. level \1\ \2\.........    15,117    15,117    15,117    15,117    15,117    15,117    15,117
    Estimated outlays.....................    15,166    15,196    15,092    15,080    15,084    15,084    15,084
Proposed Changes:                                                                                               
    Estimated auth. level \3\.............         0      -150      -200      -200       -50         0         0
    Estimated outlays.....................         0      -100      -200      -200      -100         0         0
Spending Under the Bill:                                                                                        
    Estimated auth. level \1\ \2\.........    15,117    14,967    14,917    14,917    15,067    15,117    15,117
    Estimated outlays.....................    15,166    15,096    14,892    14,880    14,984    15,084    15,084
----------------------------------------------------------------------------------------------------------------
\1\ The 1996 figure is the amount already appropriated.                                                         
\2\ Amounts for fiscal year 1997 through 2002 are authorizations subject to appropriations action and assume    
  that appropriations under current law remain at the 1996 level. If they are adjusted for inflation the base   
  amounts would increase by about $450 million a year, but the proposed changes would remain as shown in the    
  table.                                                                                                        
\3\ These estimates exclude the costs to administer and evaluate the demonstration program.                     

    6. Basis of estimate: The bill would require that the 
demonstration occur in two or more geographic regions over a 
three-year period beginning on January 1, 1997. The estimate 
assumes that the project is limited to three of the Department 
of Defense's administrative regions--fewer than the bill would 
allow, but more than anticipated in a recent memorandum of 
agreement (MOA) between DoD and the Health Care Financing 
Administration (HCFA). The MOA defines a demonstration at 
several specific sites, but CBO assumes that under legislation 
that would give broader authority the MOA would be revised.
    Under the bill, Medicare would reimburse DoD for 
expenditures above a base level of effort, which would be 
determined by DoD and HCFA in order that the demonstration 
project not raise overall Medicare costs. (The MOA contains a 
similar objective but would attempt to achieve it in a 
different way.)

Direct spending

    Even though the bill aims at no change in Medicare's or 
DoD's costs, CBO believes Medicare costs would rise by about 
$200 million a year. This increase would stem from information 
and administrative problems in determining what each agency 
would have spent under current law.
    The stipulation that the project be budget neutral for both 
DoD and Medicare would be extremely difficult to implement. 
Although one could argue that the measurement problems could go 
either way, there are at least three reasons to believe that 
Medicare's costs would rise under the subvention demonstration 
program.
    First, knowing how many Medicare beneficiaries will seek 
care directly from DoD is difficult enough in the short term, 
and that uncertainty only grows over time as populations change 
and the availability of discretionary funding for DoD's health 
care programs varies. DoD does not have complete information 
about the extent to which its beneficiaries currently receive 
additional care from other sources, such as Medicare. Thus, 
establishing a baseline level is subject to considerable 
uncertainty about the numbers of beneficiaries, the extent of 
their receipt of care from non-DoD sources, and their response 
to being included in the TRICARE enrollment system. Despite the 
current lack of an enrollment system, data from DoD indicate 
that it provides all health care to the equivalent of 68,000 or 
about 30 percent of the 220,000 Medicare-eligible retirees or 
dependents living in the three regions. Probably many more 
people receive at least some care from DoD, but the number 
averages out to being the equivalent of all care for 68,000 
people. If healthy retirees are undercounted in the baseline 
level, they would become the financial responsibility of HCFA 
under the bill, even though they now get most of their care 
from DoD.
    Second, DoD and HCFA face different incentives and access 
to information. As a result, DoD would have an advantage in the 
negotiations with HCFA over the baseline level of care that 
would work against budget neutrality. The demonstration would 
tend to attract beneficiaries who had previously used a 
military treatment facility. DoD would therefore have 
information on potential participants' medical people to the 
demonstration. Moreover, DoD has a greater incentive to shift 
its costs to Medicare than HSCA has to prevent shifting. 
Because annual discretionary appropriations currently limit 
DoD's health care funding, the department would have to 
eliminate personnel or otherwise reduce its program in the face 
of losses from an inaccurate baseline level (alternatively, it 
could expand its programs if it can shift costs to Medicare). 
However, HCFA pays Medicare costs from a permanent and 
indefinite appropriation that is very large and would not 
readily reveal a loss stemming from a demonstration program 
such as this one. Even after the fact, it would not be easy for 
the General Accounting Office or any other auditing agency to 
determine the financial outcome of the demonstration because 
it, too, would have to rely on estimates and assumptions about 
events and behavior that would have otherwise occurred under 
current law.
    Third, because Medicare's current method of paying risk 
plans does not adequately adjust for differences in health 
status among beneficiaries, Medicare's costs would rise if 
relatively healthy beneficiaries who would otherwise receive 
care in the private sector on a fee-for-service (FFS) basis 
choose to receive it in DoD's managed care (MC) program. (The 
demonstration program would pay slightly less for participants 
who would otherwise be enrolled in a managed care plan under 
Medicare.) The sector in which participants would otherwise be 
enrolled has important implications for the bill's potential 
costs: Maximum enrollment in the demonstration project would 
depend on an estimate of whether the participants would 
otherwise be enrolled in FFS or MC. If the estimate was that a 
large number of MC enrollees would participate, the maximum 
enrollment permitted under the bill would be high. If 
participants actually would have been FFS enrollees, however, 
the demonstration would incur costs for a large number of 
participants.
    On balance, CBO estimates that DoD could shift 50 percent 
of its costs under the demonstration to Medicare because of 
measurement problems and institutional features. First, a 20 
percent to 30 percent error could easily occur in measuring 
current efforts, and uncertainty about the future could add 
another 20 percent to 30 percent at least. Second, the 
differing incentives and access to information would lead to 
errors that compound rather than offset.
    This estimate also assumes that the demonstration project 
would take place in three of DoD's administrative regions--
Region 6 (Texas), Region 11 (Washington/Oregon), and Region 12 
(Hawaii/Pacific). Those regions contain approximately 220,000 
retired military personnel and their dependents who are 
entitled to Medicare insurance coverage in addition to being 
eligible to receive care in DoD medical facilities. The 
estimate assumes that 30 percent of the eligible population in 
those regions would ultimately enroll in DoD's managed care 
program to continue to receive their care from DoD. Finally, 
Medicare is assumed to reimburse DoD at a rate of $5,425 per 
capita in 1997, a rate that would rise to about $6,775 in 2000.

Spending subject to appropriations action

    In terms of its relationship with DoD, HCFA would pay more 
to DoD than it now pays to the private sector, and DoD would be 
free to spend the extra reimbursement on things other than 
medical care for the beneficiaries eligible for Medicare.
    The increase in mandatory spending would allow 
discretionary authorizations to decline by the same amount 
because DoD would be able to spend the receipts from Medicare. 
The same factors that would lead to higher Medicare costs would 
obscure whether or in what amounts this demonstration project 
was providing net additional resources to DoD. Whether 
discretionary savings would actually occur would depend on 
annual appropriation action.
    On the other hand, discretionary costs would rise to cover 
HCFA's and DoD's administrative costs to manage and evaluate 
the demonstration project. These costs would probably amount to 
a few million dollars.
    7. Pay-as-you-go considerations: The balanced Budget and 
Emergency Deficit Control Act of 1985 sets up pay-as-you-go 
procedures for legislation affecting direct spending or 
receipts through 1998. The bill would have the following pay-
as-you-go impact:

                [By fiscal years, in millions of dollars]               
------------------------------------------------------------------------
                                            1996       1997       1998  
------------------------------------------------------------------------
Change in outlays......................          0        150        200
Change in receipts.....................      (\1\)      (\1\)      (\1\)
------------------------------------------------------------------------
\1\ Not applicable.                                                     

    8. Estimated cost to State, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined by 
the Unfunded Mandates Reform Act of 1995 (Public Law 104-4) and 
would have no significant impacts on the budgets of state, 
local, or tribal governments.
    9. Estimated impact on the private sector: This bill would 
impose no new federal private-sector mandates as defined in 
Public Law 104-4.
    10. Previous CBO estimate: None.
    11. Estimate prepared by: Federal Cost Estimate: Michael A. 
Miller; Impact on State, Local and Tribal Governments: Pepper 
Santalucia; Impact on Private Sector: Neil Singer.
    12. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                        committee cost estimate

    With respect to clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the committee disagrees with the 
Congressional Budget Office (CBO) cost estimate of H.R. 3142, 
particularly as it pertains to the validity of certain 
assumptions underlying this estimate.
    The CBO cost estimate asserts limited confidence in the 
ability of the Department of Defense (DOD) and the Health Care 
Financing Administration (HCFA) to arrive at an accurate 
baseline level of beneficiary enrollment because of a paucity 
of good enrollment data. CBO also contends that, to the extent 
that such data exists, DOD has better data than HCFA and would 
use this advantage to negotiate an enrollment baseline and 
reimbursement arrangement which would shift health care costs 
to the Medicare program. DOD would then be free to use any 
savings for other purposes.
    CBO has based its scoring upon these assumptions despite 
provisions in H.R. 3142 which specifically prohibit such cost 
shifting actions and which limit HCFA's potential liability for 
Medicare eligible beneficiaries to current law levels. CBO also 
dismisses, without analytical justification, HCFA's ability to 
act as an informed participant in the negotiations with DOD and 
to establish the appropriate level of reimbursement. The CBO 
assumes a level of concerted bureaucratic malfeasance that is 
unsupported by any empirical data and that runs counter to the 
experience of this committee.
    CBO also asserts that relatively healthy retirees who 
currently receive care on a fee-for-service basis under 
Medicare would move in great numbers to a DOD managed care 
system. CBO claims this migration of relatively healthy, low 
cost, beneficiaries would result in higher direct spending 
because HCFA would reimburse DOD on a per-capita basis that 
would exceed the current per-capita cost of care for this 
group. CBO provides no justification for this assumption. 
Indeed, the ability to choose health care providers is one of 
the key features of Medicare that most beneficiaries want to 
see preserved under any reform proposal. CBO offers no 
compelling analysis to support the proposition that military 
retirees receiving care on a fee-for-service basis would behave 
differently than other people and migrate in large numbers to a 
managed care system. This specific concern is addressed in the 
evaluation design contained in the memorandum of agreement 
(MOA) between DOD and HCFA--the Administration's specific plan 
for implementing the demonstration required by this bill.
    Furthermore, both the bill and the implementing plan would 
require any eligible beneficiaries who participate in the 
demonstration to receive all their medical care through the 
Department's TRICARE managed health care program. This 
requirement could actually produce savings to the federal 
government by limiting the current practice of ``double 
dipping''--military beneficiaries who use both their Medicare 
benefits and the military health services system depending on 
which option is more convenient or less costly. This practice 
frequently results in the federal government paying twice for 
health services provided to these individuals. The requirement 
for demonstration participants to use only one of these two 
health care system would serve to prevent this prevent this 
practice and save the federal government money. The CBO 
estimate wholly failed to address such potential savings.
    Finally, CBO's scoring of H.R. 3142 assumes a demonstration 
conducted in three TRICARE regions. While the bill does allow 
for the demonstration to be conducted in two or more regions, 
it does not require that it be conducted in more than two 
TRICARE regions. Additionally, the Administration's specific 
plan for implementing this bill--the MOA between DOD and HCFA--
would require the demonstration to be limited to only two 
TRICARE regions. Thus, the CBO estimate likely significantly 
overstates the actual cost of the demonstration program.
    H.R. 3142 would not affect any retiree who is not currently 
entitled to receive benefits under the Medicare program. The 
bill would do nothing to increase or decrease the potential 
liability of the Medicare program. CBO's scoring of the bill 
reflects an unrealistic, worst case scenario. Under the current 
system, DOD is essentially buying down the Medicare program's 
liabilities by using defense discretionary funds to provide 
health care benefits to Medicare eligible military retirees. 
CBO's argument that this bill will lead to an increase in 
entitlement spending is therefore misleading since the legal 
entitlement, and attendant liability on the part of the 
government, already exists.
    The budgetary implications of H.R. 3142 should be 
considered in light of the following example: when a military 
hospital is closed, the secondary effect of eligible military 
retirees who received care at that facility migrating to the 
Medicare program is not considered as a direct spending 
argument against closing the hospital. Similarly, HCFA's duty 
to provide health care for all Medicare eligible retirees 
should not be considered reduced simply because DOD has 
annually spent a portion of its limited discretionary funds to 
provide adequate health care for military retirees.
    The committee believes that the bill may result in some 
small increases in discretionary costs to DOD associated with 
management of the demonstration project. However, the bill 
contains specific safeguards to prevent any of the increases in 
direct spending assumed in the CBO estimate. As a result, the 
committee does not agree with the principal assumptions which 
form the basis of the CBO cost estimate and therefore does not 
believe that the estimate is an accurate forecast of the actual 
costs to the government of this legislation.

                       INFLATION IMPACT STATEMENT

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the committee concludes that the bill 
would have no significant inflationary impact.

                           OVERSIGHT FINDINGS

    With respect to clause 2(l)(3)(A) of rule XI of the Rules 
of the House of Representatives, this legislation results from 
hearings and other oversight activities conducted by the 
committee pursuant to clause 2(b)(1) of rule X.
    With respect to clause 2(l)(3)(B) of rule XI of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974, this legislation does not 
include any new spending or credit authority, nor does it 
provide for any increase or decrease in tax revenues or 
expenditures. The fiscal features of this legislation are 
addressed in the estimate prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974.
    With respect to clause 2(l)(3)(D) of rule XI of the Rules 
of the House of Representatives, the committee has not received 
a report from the Committee on Government Reform and Oversight 
pertaining to the subject matter of H.R. 3142.

                     STATEMENT OF FEDERAL MANDATES

    Pursuant to section 423 of Public Law 104-4, this 
legislation contains no federal mandates with respect to state, 
local, and tribal governments, nor with respect to the private 
sector. Similarly, the bill would provide no unfunded federal 
intergovernmental mandates.

                             ROLLCALL VOTES

    With respect to clause 2(l)(2)(B) of rule XI of the Rules 
of the House of Representatives, no roll call votes were taken 
with respect to the committee's consideration of H.R. 3142.
    The committee ordered H.R. 3142 reported to the House with 
a favorable recommendation by a unanimous voice vote, a quorum 
being present.