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Exploration of Selection Bias Issues for the DoD Federal Employees Health Benefits Program Demonstration

Abstract : Section 721 of the National Defense Authorization Act for fiscal year 1999 (P.L. 105-261) established a demonstration that allows beneficiaries of the Department of Defense (DoD) health benefits program, who also are Medicare eligible, to enroll in the Federal Employees Health Benefits Program (FEHBP). The three-year demonstration was effective January 1, 2000. The authorizing legislation requires an evaluation of the demonstration that includes consideration of enrollment demand and the demonstration's effects on cost, quality, and access. The potential DoD costs of an FEHBP option for Medicare-eligible DoD beneficiaries will be determined by the extent to which DoD costs for beneficiaries who enroll in the FEHBP demonstration differ from costs that DoD otherwise would incur for them. One source of cost differences may be risk selection, where beneficiaries who choose the FEHBP option are more or less costly than those who do not enroll. Recognizing that complex factors influence risk selection, the DoD Office of Health Affairs asked RAND to apply current theory and knowledge to identify how selection bias might occur as Medicare-eligible DoD beneficiaries enrolled in FEHBP plans under this demonstration, and to suggest an analytic approach to estimate the effects of such selection on DoD costs. DoD beneficiaries who enroll in FEHBP to supplement their Medicare coverage no longer have access to direct-care services by military treatment facilities (MTFs) in the military health system. Therefore, effects of this demonstration on DoD costs will be the net result of several types of changes in costs: * New costs of the DoD contribution to FEHBP premiums, * Elimination of MTF costs of care for FEHBP enrollees who had used MTFs, and * New MTF costs of care for Medicare-eligible beneficiaries who have access to freed up space-available care previously used by FEHBP enrollees.