Well you are well past your cancellation without penalty point now so don't do that. If you only bought insurance for him and not the others in that cabin then I am not sure what the insurance would actually pay out. If you try just to cancel him then the persons traveling at a 3rd passenger per cabin rate would then have to pay full price (which without the military discount would be more than his fare). The insurance (assuming it has a medical clause) would probably pay the fare he would loose but not cover the extra you would have to pay for the change in fare for you. I am not sure how Carnival would do this change because it was booked with a military rate and now the person that got the rate is not able to go. They may make you re-book at the regular rate (and the current on at that which could be higher than it was when you booked.)
All in all it may cost you as much to lose his fare as it would be to just change the booking. So one option is to just hope he can go and if he can't just show up for the cruise and they will treat him as a no show. You lose out on his fare but at this point that may be the cheapest option anyway.
You really need someone with booking experience to help you. Dwayne might know, but how did you book this originally? Did you have a travel agent or did you use a Carnival PVP? This is the time when having a TA is a good thing. Hopefully someone with experience here can help. I would say not to say anything to Carnival until you can get more information on your options.
Carnival Cruise Lines:
Fantasy 90, Celebration 95, Victory 05, Conquest 05, Spirit 6/06, Freedom 6/08, Holiday 7/08, Victory 6/09, Valor 9/09, Dream 6/10, Splendor 8/10,Conquest 8/11,Magic 11/11,Triumph 4/12,Spirit 7/12,Freedom 11/12, Triumph 2/13 - The fire cruise
NCL Dream October 2006, RCCL Mariner OTS June 2007, Celebrity Silhouette 2013