Military to Test Medical Plan in California

The Defense Department, in a bid to overhaul its money-losing health insurance program for military dependents and retirees, has chosen California and Hawaii as the sites to test a new health-care delivery system, officials announced Tuesday.

The $3-billion, five-year pilot project, which will be administered by Foundation Health Corp. of Sacramento, could affect as many as 845,000 people in the two states who now participate in the Pentagon’s CHAMPUS health program, officials said.

CHAMPUS, which stands for Civilian Health and Medical Program of the Uniformed Services, pays for medical care for military retirees and family members of active-duty servicemen when no space is available in overcrowded military hospitals. Its budget for the current fiscal year is $2.3 billion.

Offers Prepaid Program

The new program will allow eligible dependents and retirees to enroll in a prepaid medical care program similar to a health maintenance organization as an alternative to the current system, under which the government reimburses private physicians after the patient has met a deductible and paid 25% of the cost of treatment.

If the program works as designed, the Pentagon will save $260 million over the next five years, while participants in the program will see their medical costs fall dramatically, officials said.

“CHAMPUS has long been plagued with dual problems of inadequate services and excessive costs,” said Dr. William Mayer, assistant secretary of defense for health affairs. “Award of this contract begins a unique, highly creative military-civilian health-care partnership to address CHAMPUS’ problems.”

Mayer, calling the scope of the new program “startling, even by Pentagon standards,” said that no other CHAMPUS reform proposal the Pentagon has considered would have gone as far in saving money for taxpayers and military families.

Foundation Health Corp. was the only bidder on the massive Pentagon contract. Other health insurers were intimidated by the program’s complexity and potential risks, Mayer said.

Subcontractors to Be Used

Foundation Health will subcontract parts of the Pentagon program to Voluntary Hospitals of America, Aetna Insurance Co., the Queen’s Health Care Plan of Hawaii and Blue Cross of Washington and Alaska. Foundation Health Plan, a subsidiary of Foundation Health Corp., runs a similar program for 25,000 California state employees.

The Defense Department pilot program will be reviewed after a year, Mayer said. If it is successful, it will be extended nationwide.

The current medical program for military dependents and retirees draws on the nationwide network of military hospitals and clinics as the primary provider of health care. About 70% of eligible recipients are treated at these facilities.

The remaining 30%, because of overcrowding at military hospitals or a lack of specialized facilities, seek care in the private sector. CHAMPUS works essentially as a commercial health insurer in these cases, requiring the beneficiary to meet a $100 annual deductible and to pay 25% of the billed medical expenses.

Under the new program, CHAMPUS participants will be allowed to remain with the current system of deductibles and co-payments or to choose between two new alternatives, dubbed CHAMPUS Prime and CHAMPUS Extra.

$5 for Office Visit

Those who choose to enroll in CHAMPUS Prime will pay only $5 for a doctor’s office visit or outpatient treatment. That fee will be waived for families of enlisted men in the lowest ranks. Hospital costs will be capped at $75 a day and $750 per hospital stay. Under the current program, CHAMPUS beneficiaries pay 25% of hospital charges, which often exceed $1,000 a day.

CHAMPUS Prime participants also no longer will have to file claims with the government; all the paper work will be handled by health-care providers.

CHAMPUS Extra is a narrower program similar to the private sector’s preferred provider organization programs. It offers discounts on co-payments and a cap on hospital costs.