Phil Peterson, a retired Navy chief petty officer working for a major defense contractor in Greenville, S.C., got word last week that his company's Tricare supplemental insurance plan, which covers all costs not picked up by Peterson's Tricare Standard benefit, must end by Jan. 1.

Peterson is among working retirees who will see their health costs rise from a law Congress enacted last year that prohibits companies as well as state and local governments from offering health plans or other incentives to encourage military retirees who work for them to drop employer-provided health plans and use their Tricare benefits instead.

Peterson, 53, dropped his company's group health insurance four years ago when it began offering a free supplement to Tricare Standard, the military's traditional fee-for-service health insurance.

Peterson saw family out-of-pocket medical costs fall to zero that year.

"It turned out to be a very good thing because I didn't have to worry about deductibles or co-payments for office visits, prescriptions or anything else," Peterson said. "It's not right now that somebody up in Washington is telling me, 'We don't want you to use it so we can save money.' "

Employers who offer a Tricare supplement have saved themselves a lot of money, says the Congressional Budget Office. Wrap-around insurance to Tricare Standard might cost a company just more than $1,200 a year.

But if a military retiree on the payroll can be enticed to use Tricare instead of the company's group health plan, the company avoids a cost of up $5,500 a year.

CBO, citing Defense Department survey results, estimated that 50,000 people a year were "being diverted from employer-sponsored plan to Tricare." Outlawing employer-paid supplements, CBO predicted, will save $119 million in 2008 and $700 million through 2011.

Lee Grieve, a retired Air Force master sergeant in Fort Walton Beach, Fla., said his company, Jacobs Technology, began offering a Tricare supplement last year. Though Congress has banned such offers and raised his costs, Grieve said, it won't stop him from using Tricare Standard.

"The intent is to reduce the cost to Tricare by making me use my company-provided benefit," said Grieve, who is 49 and has heart disease. "What Congress has failed to see is (that Tricare) is cheaper than my Blue Cross alternative, even if I have to pay my own supplement."

The decision he now faces, Grieve said, is whether to buy the supplement himself "or take my chances with co-pays."

Congress last year rejected the Bush administration's call to raise Tricare fees and co-payments for retirees under age 65 and their families.

But then defense officials lobbied hard for a fiscal consolation prize: an end to employer-paid Tricare supplements.

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