A new report from the Congressional Budget Office shows why some military retirees and veterans could face higher out-of-pocket costs if the Obama administration and Congress take bold moves to reform the U.S. health system and to make federal health programs more efficient.

Among 115 "options" presented, though not endorsed, in the CBO report, several focus on raising TRICARE out-of-pocket costs for retirees and one for families. Others would tighten access to VA hospitals and clinics, or raise VA health fees, for veterans with no service-connected conditions.

Working-age military retirees will find here some of those familiar cost-saving ideas endorsed by the Bush administration to raise TRICARE fees, co-payments and deductibles for retirees under age 62 and their spouses.

But other options are new and, if enacted into law, would raise health costs for Medicare-eligible military retirees and for active duty families. One option suggests having the VA health system disenroll millions of current users who have no service-related injuries or ailments.

Every two years CBO presents daring options for Congress and the executive branch to weigh in trying to control federal spending. The new report, "Budget Options, Volume 1: Health Care," is unusual in that it focuses entirely health care, an Obama policy priority, and its arrival is unscheduled.

It's also significant that the CBO director who led this work was Peter R. Orszag, President-elect Obama's nominee to be his director of the Office of Management and Budget. OMB is responsible for assembling the president's annual budget request to Congress. How bold will his economic team be?

"We are going to go through our federal budget, as I promised during the campaign, page by page, line by line, eliminating those programs we don't need and insisting that those that we do need operate in a sensible, cost-effective way," Obama said in November as he announced Orszag's nomination to join his cabinet.

"We're also going to focus on one of the biggest, long-run challenges that our budget faces, namely the rising cost of health care in both the public and private sectors," Obama continued. "This is not just a challenge but also an opportunity to improve the health care that Americans rely on, and to bring down the costs that taxpayers, businesses and families have to pay. That is what (OMB) will do in my administration."

Obama added, "Peter doesn't need a map to tell him where the bodies are buried in the federal budget. He knows what works and what doesn't, what's worth our precious tax dollars and what is not."

Indeed, in the CBO report's preface, Orszag gets "special thanks" for having "conceived" the report and being "instrumental in its development."

Many of its options deal with adjustments to Medicare, Medicaid, private health insurance rules and the Federal Employees Health Benefit Plan for federal civilians. Most ideas are aimed at cutting costs but some would enhance benefits. The 226-page report can be read on line at www.cbo.gov/ftpdocs.

Here are some options that would touch military people and veterans:

TRICARE for working-age retirees -- Fees, co-payments and deductibles would be raised for retirees under 62 to restore the relative costs paid when TRICARE began in 1995. TRICARE Prime enrollment would be raised to $550 a year for individuals from $230. Retiree families would pay $1100 versus $460 today. Co-pays for doctor visits would climb to $28 from $12 and users of TRICARE Standard and Extra would pay an annual deductible of $350 for an individual and $700 for families. Congress has declined to support such increases for the past three years.

Fees for active duty families -- Dependents of active duty members enrolled in TRICARE Prime, the managed care network, would pay new fees equal to 10 percent of the cost of health services obtained either in military treatment facilities or through civilian network providers. Total out of pocket costs would be capped, however.

To help offset these costs, dependents would receive a $500 non-taxable allowance annually. Those who elect to use alternative health insurance, rather than TRICARE, could apply the $500 toward their health insurance premiums, co-payments or deductibles.

CBO estimates these fees would save $7 billion over 10 years and encourage Prime enrollees to "use medical services prudently." It also would entice more spouses to enroll in employer-provided health plans instead of TRICARE. The downside, CBO said, would be financial difficulties for some Prime enrollees despite the cap on out-of-pocket costs. Also, CBO said, spouses induced to rely on employer health plans could see health coverage interrupted during military assignment relocations.

TRICARE-for-life fees -- The military's health insurance supplement to Medicare could see higher user costs. Under this option, beneficiaries would pay the first $525 of yearly medical costs plus one half of the next $4725 of costs charged to Medicare.

So the extra out-of-pocket cost for TFL users would be up to $2887.50 a year. This amount would be indexed to rise with Medicare costs. The change would save $40 billion over 10 years. But CBO said it also could discourage some patients from seeking preventive care or proper management of chronic conditions. So it could negatively affect some patients' health.

Tighten VA enrollment -- The VA healthcare system would be directed to disenroll 2.3 million Priority Groups 7 and 8 -- individuals who are not poor and have no service-related medical needs. Estimated savings would be $53 billion over 10 years but Medicare spending would rise by $26 billion in the same period as elderly among these vets shifted to Medicare.

CBO said 90 percent of these vets have other health care coverage. But this change could leave up to 10 percent unable to find affordable care.

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(Jan. 2, 2009)