The National Defense Authorization Act (NDAA) for fiscal year (FY) 2001 made sweeping changes to the way that health care furnished by civilian providers to Medicare-eligible military retirees is financed. The law directed the Department of Defense (DoD) to implement what is now commonly referred to as TRICARE for Life (TFL). As of October 1, 2001, TFL provides TRICARE as supplemental health insurance for all Medicare-eligible military retirees age 65 or older who are enrolled in Medicare Part B. As of 2003, approximately 1.6 mil- lion military retirees are eligible for TFL. In general, TRICARE for Life covers all cost-sharing for Medicare-covered services and standard TRICARE cost-sharing for services that are covered by TRICARE but not by Medicare. Thus, TFL provides Medicare-eligible military retirees with one of the most comprehensive health insurance benefit packages in the United States.

The National Defense Authorization Act (NDAA) for fiscal year (FY) 2001 made sweeping changes to the way that health care furnished by civilian providers to Medicare-eligible military retirees is financed. The law directed the Department of Defense (DoD) to implement what is now commonly referred to as TRICARE for Life (TFL). As of October 1, 2001, TFL provides TRICARE as supplemental health insurance for all Medicare-eligible military retirees age 65 or older who are enrolled in Medicare Part B. As of 2003, approximately 1.6 mil- lion military retirees are eligible for TFL. In general, TRICARE for Life covers all cost-sharing for Medicare-covered services and standard TRICARE cost-sharing for services that are covered by TRICARE but not by Medicare. Thus, TFL provides Medicare-eligible military retirees with one of the most comprehensive health insurance benefit packages in the United States.

The TRICARE Senior Supplement Demonstration (TSSD), conducted from March 2000 through December 2002, offers Medicare-eligible military beneficiaries the option of enrolling in TRICARE as a supplement to Medicare. This book describes RAND's evaluation of the TSSD program. Enrollment in TSSD was very low because of several factors, particularly the introduction of the permanent TRICARE for Life (TFL) that supercedes TSSD. However, implementation of TSSD as a permanent national program is feasible and would benefit many Medicare-eligible military retirees.

Historically, the Department of Defense (DOD) health system and Medicare were entirely separate. DOD's TRICARE health plans covered military retirees to age 65. 1 However, once eligible for Medicare, retirees were no longer eligible for TRICARE and could not enroll in DOD s managed care plan, TRICARE Prime. As nonenrollees, Medicare-eligibles had access to care at military treatment facilities (MTF) only to the extent that space not utilized by TRICARE s enrolled population was available. By law, DOD could not receive payments from Medicare and was not responsible for providing the full range of benefits to Medicare-eligibles. Recently, the situation has changed. In 1997, Congress authorized the DOD Medicare subvention demonstration for a 3-year period. 2 Under this demonstration, DOD formed Medicare managed care organizations that enrolled and served Medicare-eligible military retirees at six sites. The DOD Medicare plan, which was called TRICARE Senior Prime, combined TRICARE with Medicare benefits and requirements. The demonstration also authorized DOD to receive payment from Medicare if certain conditions were met. Senior Prime gave enrollees the same priority for military care as younger retirees enrolled in TRICARE Prime, with minimal out-of-pocket costs. With TRICARE Prime as its foundation, Senior Prime illustrated issues that arose in bringing older retirees into DOD managed care. A major change in health care arrangements for Medicare-eligible retirees from the uniformed services will take place October 1, 2001. Under provisions of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, 3 these retirees will become eligible for TRICARE and will be able to use their Medicare benefit within TRICARE. The new program is commonly termed TRICARE For Life. Experience under Senior Prime illustrated some issues that TRICARE might face.

This work presents a new method of estimating the cost of a military person-year that focuses on the actual cost of the retirement benefits that the federal government must provide to military personal, where previously available measures focused only on annual retirement-fund accrual costs. A major implication of this alternative calculus is that truly effective force management requires an increased focus on the cost of personnel.