Health Coverage Opportunities for Retirees

The U.S. Department of Defense (DoD) has traditionally provided health benefits to active and retired military personnel and their families. Active duty personnel who retire after 20 or more years of service are entitled to continue to receive medical benefits for themselves, their spouses, and dependent children through the military health care plan (TRICARE). However, as the cost of health care increases, the Department of Defense may need to consider benefit design changes to limit its expenses and continue to provide health benefits to retirees.

One option being considered would be to change the military benefit structure so that more retirees entering second careers opt for employer-sponsored health benefits, if available. The RAND survey results provide insight into the feasibility of this option:

Although most retirees surveyed have access to EHB, only half of those who do use it, likely due to the growing gap between EHB premiums and TRICARE enrollment rates.
A modest increase in civil insurance premiums would likely trigger a significant shift to TRICARE, while a corresponding decrease in civil insurance premiums would not encourage TRICARE enrollees to switch to civil insurance.

Key Findings

  • The majority of military retirees under age 65 who responded to a recent survey are eligible for civilian insurance.
  • However, only half of those who have access to insurance choose to use it, likely due to the growing gap between civilian insurance premiums and TRICARE (military health plan) premiums.
  • A modest increase in civilian premiums would likely result in a significant shift to TRICARE, while a corresponding decrease in civilian premiums would not encourage TRICARE enrollees to switch to civilian insurance.

Current Situation

Since TRICARE's inception in 1996, the annual premium for retirees enrolled in the Prime health plan option has remained fixed at $230 for single coverage and $460 for family coverage. Retirees who do not wish to enroll can use TRICARE Standard/Extra, a preferred provider option that does not charge an enrollment fee but has somewhat less generous cost-sharing provisions than TRICARE Prime.

For comparison, civilian employer health insurance premiums averaged $2,713 per family in 2005. The large and growing gap between civilian premiums and TRICARE enrollment costs makes TRICARE Prime an increasingly attractive option.

Because military personnel can accumulate 20 years of service by age 40, many will have a second career after retirement and will be able to participate in civilian health insurance plans, either through their own military personnel or through their spouse's employer.

At the request of the Under Secretary of Defense for Personnel and Readiness, RAND researchers conducted the 2005 Military Retiree Survey, a pilot study of retirees under age 65 to assess their eligibility for and use of civilian health insurance and their reliance on TRICARE.

Who we interviewed and what we asked

We randomly selected a sample of 1,600 retired officers and military personnel (800 officers and 800 military personnel) who were under age 65, lived in the continental United States, and had been retired for at least 1 year. Our computer-assisted telephone survey asked respondents and their spouses about their employment status, eligibility and participation in civilian health insurance options, reasons for participating or not participating, use of TRICARE and other coverage to pay for medical expenses, and the likely impact of premium increases or decreases on participation in civilian health insurance plans (if eligible). The overall response rate was 60%.


Overall, the survey found that approximately 80% of the survey population was employed. The majority of military retirees were married and living with their spouse at the time of the survey. Just over 50% of military retirees' spouses were also employed. Overall, about 78% of the survey population had civilian insurance through their own or their spouse's employer or union.

About half of those who were eligible to have at least one family member covered by civilian insurance chose not to do so. Overall, only 39% of the population had at least one family member enrolled in the plan. Another 3% had at least one family member covered by liability insurance through a source other than their employer.

By far the most common reason for not enrolling in a civil insurance plan was the high cost of premiums, cited by nearly 80% of those eligible but not enrolled, high deductibles (58%), and high co-payments (57%). A very small proportion of eligibles – 5% – said their employer offered them an incentive not to buy liability insurance.

Of the 42% of retirees who had purchased liability insurance, about half said they would drop liability insurance if premiums were increased by 25%. Thus, health insurance enrollment appears to be very sensitive to price increases. However, only about 20% of military retirees who were eligible for but did not enroll in other health insurance indicated that they would be likely to do so if premiums dropped by 25%.

What accounts for the large difference in responses to questions about civilian premium increases and decreases? Most retirees enrolled in civil insurance pay the premium, and their preference for civil insurance does not appear to be strong enough to prevent them from opting out if the premium increases. On the other hand, retirees who are not covered by civil insurance are likely to avoid a high premium and will not reconsider even if premiums drop significantly.

Policy implications

The Department of Defense's FY 2007 budget request proposed an increase in TRICARE retiree premiums, deductibles, and pharmacy co-payments to reduce the difference between TRICARE and civilian premium rates.

Congress did not support these changes. The results of this study suggest that as long as DoD payments are significantly lower than civilian payments, it is unlikely that increases in TRICARE payments will result in meaningful changes to TRICARE. If TRICARE rates remain unchanged while civilian rates increase, TRICARE use is likely to increase.

The survey we used provided important information. However, it was a pilot study with a small sample size. To better understand choices and likely behavior in response to changes in TRICARE benefits, a larger study that collects more detailed data from retirees, as well as information on their civilian employers' health plan choices, would be needed.

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