Military Medical Care: Questions and Answers

Military Medical Care:
Questions and Answers
Updated October 31, 2008
Don J. Jansen
Analyst in Defense Health Care Policy
Foreign Affairs, Defense, and Trade Division



Military Medical Care: Questions and Answers
Summary
The primary mission of the military health system, which includes the Defense
Department’s hospitals, clinics, and medical personnel, is to maintain the health of
military personnel so they can carry out their military missions, and to be prepared
to deliver health care during wartime. The military health system also provides
health care services through either Department of Defense (DOD) medical facilities,
known as “military treatment facilities” or “MTFs” as space is available, or, through
private health care providers.
Known as “Tricare,” this system of military and private health care offers
benefits to active duty personnel and other beneficiaries, including dependents of
active duty personnel, military retirees, and dependents of retirees. Tricare
beneficiaries can obtain prescription drugs through a pharmacy system that includes
MTF pharmacies, network retail pharmacies, non-network retail pharmacies, and the
Tricare Mail Order Program (TMOP). Dependents of active duty personnel and
retirees and dependents under age 65 can choose to enroll in Tricare Prime (a
managed care option), or if they choose not to enroll, they can obtain care through
Tricare Standard (a fee-for-service option) or Tricare Extra (preferred-provider
option). Retirees who are eligible for Medicare can enroll in Tricare For Life (TFL).
The military health system currently includes some 63 hospitals and 413 clinics
serving an eligible population of 9.2 million. It operates worldwide and employs
some 44,100 civilians and 89,400 military personnel. Calculating the total cost of
military medical spending is complicated by the different categories of funds
involved; DOD statistics on total medical spending indicate a growth from $17.5
billion in FY2000 to an estimated $41.6 billion in FY2009 (the latter figure includes
$10.4 billion paid to an accrual fund for Medicare eligible retirees). DOD projects
total medical spending to grow, perhaps reaching $64 billion in FY2015.
As of 2007, active duty military and their dependents made up 44% of Tricare
beneficiaries. Thirty-six percent of beneficiaries were retirees under age 65 and their
dependents, and 20% were retirees age 65 and over and their dependents. DOD
estimates that care provided to retirees and their dependents will make up over 65%
of DOD health care costs by 2015, up from 43% in 1999.
The Duncan Hunter National Defense Authorization Act for Fiscal Year 2009
(P.L. 110-417, October 14, 2008), prohibits fee increases proposed in the
Administration’s 2009 budget to help address increased defense health care costs.
However, this act included measures intended to contain costs through increased use
of preventive care services by Tricare beneficiaries. These provisions include
waiving copayments for preventive services, and demonstration projects to provide
incentives for preventive health care.This report will be updated as new information
becomes available. Military health care issues are addressed in annual defense
authorization and appropriations bills; for additional details and the status of current
legislation, see CRS Report RL34473, Defense: FY2009 Authorization and
Appropriations, by Pat Towell, Stephen Daggett, Amy Belasco.



Contents
Most Recent Developments..........................................1
Background ......................................................1
Questions and Answers.............................................2
1. What Is the Purpose of DOD’s Military Health System?.........2
2. What Is the Structure of the Military Health System?...........2
3. What is the Unified Medical Budget?........................4
4. What is the Medicare Eligible Retiree Health Care Fund
(M ER HC F)? .........................................6
5. How Much Does Military Health Care Cost Beneficiaries?.......6
6. In What Ways Has the Military Health System Been Changing in
Recent Years?........................................8
7. Who Is Eligible to Receive This Care?......................10
8. How Are Priorities for Care in Military Medical Facilities
As s i gned? ..........................................11
9. What Is the Relationship of DOD Health Care to Medicare?.....12
10. Have Military Personnel Been Promised Free Medical Care
for Life?...........................................13
11. How Are Private Health Care Providers Paid?...............13
12. What Will Be the Effect of Base Realignment and Closure
(BRAC) on Military Medical Care?......................14
13. What Is the DOD Pharmacy Benefit?......................15
14. What Medical Benefits are Available to Reservists?..........16
List of Tables
Table 1. Tricare Fees for Active Duty Personnel, Eligible Reservists, and
Dependent s ..................................................7
Table 2. Tricare Fees for Retirees Under Age 65 and Their Dependents.......8



Military Medical Care:
Questions and Answers
Most Recent Developments
The Duncan Hunter National Defense Authorization Act for Fiscal Year 2009
(P.L. 110-417, October 14, 2008), prohibits fee increases proposed in the
Administration’s 2009 budget. This act includes measures intended to contain costs
through increased use of preventive care services by Tricare beneficiaries. Other
provisions include waiving copayments for preventive services, a health risk
assessment demonstration program, a smoking cessation program, and a
demonstration project that will use financial incentives to encourage service members
and their families to get all of the preventive health requirements set forth by DOD.
Background
Although the Military Health System is the primary source of medical services
to active duty service members, it is also a major source of medical care, in both
military and civilian facilities, to the dependents of active duty personnel, military
retirees and their dependents, and survivors of deceased service members. Since

1966, civilian care to millions of dependents and retirees (and retirees’ dependents)


has been provided through a program still known in law as the Civilian Health and
Medical Program of the Uniformed Services (CHAMPUS) but more commonly
known as Tricare. Tricare has four main benefit plans including a health
maintenance organization option (Tricare Prime), a preferred provider option (Tricare
Extra), a fee-for-service option (Tricare Standard), and a Medicare wrap-around
option (Tricare for Life) for Medicare-eligible retirees. Options available to
beneficiaries vary by the beneficiaries duty status and location.
This report attempts to answer basic questions about defense health care, its
beneficiary population, the medical services it provides, its costs, and major changes
that are underway or have been proposed. Citations are made to more detailed CRS
studies where appropriate. The Government Accountability Office (GAO) and the
Congressional Budget Office (CBO) have also published important studies. In
addition, the Office of the Assistant Secretary of Defense for Health Affairs Home
Page may be of interest, available at [http://www.health.mil/].



Questions and Answers

1. What Is the Purpose of DOD’s Military Health System?


In law, the purpose of the legislation authorizing the military health system is
“ to create and maintain high morale in the uniformed services by providing an
improved and uniform program of medical and dental care for members and certain1
former members of those services, and for their dependents.” The military health
system helps to maintain the health of military personnel so they can carry out their
military missions. The military health system must also be prepared to deliver health
care required during wartime. Often described as the medical readiness mission, this
effort involves medical testing and screening of recruits, emergency medical
treatment of service members involved in hostilities, and the maintenance of physical
standards of those in the armed services. In addition, recruitment and retention are
supported by the provision of health benefits to military retirees and their dependents.

2. What Is the Structure of the Military Health System?


The military health system consists of (1) the Defense Health Program (DHP)
which is centrally directed by the Office of the Secretary of Defense and decentrally
executed by the military departments, and (2) medical resources under the direction
of the combatant or support command within the military departments. For DOD,
the Assistant Secretary of Defense for Health Affairs (ASD(HA)) controls
nondeployable medical resources, facilities and personnel. The ASD(HA) reports to
the Undersecretary of Defense Personnel and Readiness who reports to the Deputy
Secretary of Defense. The following all currently report to the ASD/HA:
!Deputy Assistant Secretary of Defense for Clinical and Program
Policy
!Deputy Assistant Secretary of Defense for Force Health Protection
and Readiness
!Deputy Assistant Secretary of Defense for Health Budget and
Financial Policy
!Deputy Director Tricare Management Activity
!Chief Information Officer for Health
!Director, Strategy and Development
!Director, Communication and Media Relations
!Director, Defense Center of Excellence for Psychological Health and
Traumatic Brain Injury
!President, Uniformed Services University of the Health Sciences
Other elements within the Office of the Secretary of Defense, such as the Office
of the Director for Program Analysis and Evaluation and the Office of the Under
Secretary of Defense (Comptroller), are also responsible for various aspects of the
military health system.


1 10 U.S.C. 1071.

Within the services, the Surgeons General of the Army, Navy and Air Force
retain considerable responsibility for managing military medical facilities and
personnel. The Joint Staff Surgeon advises the Chairman of the Joint Chiefs of Staff.
The Surgeon General of the Army heads the U.S. Army Medical Command
(MEDCOM) which along with the Office of the Surgeon General itself compose the
Army Medical Department (AMEDD). The Surgeon General of the Army reports
directly to the Secretary of the Army. MEDCOM commands fixed hospitals and
other AMEDD commands and agencies. Field medical units, however, are under the
command of the combat commanders.
The Surgeon General of the Navy reports to the Chief of Naval Operations
through the Chief, Navy Staff and Vice Chief of Naval Operations and heads the
Navy Bureau of Medicine and Surgery (BUMED), the headquarters command for
Navy Medicine. All Defense Health Program resources allocated to the DON are
administered by BUMED. Also within the Department of the Navy, the Medical
Officer, U.S. Marine Corps advises the Commandant of the Marine Corps and
Headquarters staff agencies on all matters about health services.
The Surgeon General of the Air Force serves as functional manager of the U.S.
Air Force Medical Service, an element of Headquarters, U.S. Air Force. The Air
Force Surgeon General advises the Secretary of the Air Force and Air Force Chief
of Staff.
The recent Final Report of the Task Force on Future of Military Health Care
noted that there has been considerable debate about the appropriate command and
control structure for the military health system.2 Alternatives to the current structure
that have been suggested include a defense health agency or a unified medical
command. An October 2007 Government Accountability Office report faulted
DOD’s analysis of these options for the lack of a comprehensive cost-benefit
anal ys i s . 3
The military health system currently includes 63 hospitals and 413 clinics
serving an eligible population of 9.2 million. It operates worldwide and employs
some 44,100 civilians and 89,400 military personnel. Direct care costs include the
provision of medical care directly to beneficiaries, the administrative requirements
of a large medical establishment, and maintaining a capability to provide medical
care to combat forces in case of hostilities. Civilian providers under contract to DOD
have constituted a major portion of the defense health effort in recent years.
The Tricare Management Activity (TMA) listed above supervises and
administers the Tricare program. TMA is organized into six geographic health
service regions:


2 Department of Defense, Task Force on the Future of Military Health Care, December

2007, pp. 113-116.


3 GAO-08-122, Defense Health Care: DOD Needs to Address the Expected Benefits, Costs,
and Risks for Its Newly Approved Medical Command Structure October 2007, p. 15.

!Tricare North Region covering Connecticut, Delaware, the District of
Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, Wisconsin,
and portions of Iowa, Missouri, and Tennessee. The Tricare North
regional contractor is currently Health Net Federal Services.
!Tricare South Region covering Alabama, Arkansas, Florida, Georgia,
Louisiana, Mississippi, Oklahoma, South Carolina, and most of Tennessee
and Texas. The Tricare South regional contractor is currently Humana
Military Health Services.
!Tricare West Region covering Alaska, Arizona, California, Colorado,
Hawaii, Idaho, most of Iowa, Kansas, Minnesota, most of Missouri,
Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South
Dakota, portions of Texas, Utah, Washington, and Wyoming. The Tricare
West regional contractor is TriWest Healthcare Alliance.
!Tricare Europe Area covering Europe, Africa, and the Middle East.
!Tricare Latin America and Canada Area covering Central and South
America, the Caribbean Basin, Canada, Puerto Rico and the Virgin Islands.
!Tricare Pacific Area covering Guam, Japan, Korea, Asia, New Zealand,
India and Western Pacific remote countries.
More information is available at [http://www.tricare.mil/tma/AboutTMA.aspx].
Even if the number of active duty personnel in DOD remained the same over the
next few years, costs associated with the military health system are expected to grow.
This results from general inflation in the cost of health care and an increasing
percentage of care being provided to retirees and their dependents. As of 2007, active
duty military and their dependents made up 44 % of Tricare beneficiaries, 36% of
beneficiaries were retirees under age 65 and their dependents and 20% were retirees
age 65 and over and their dependents. DOD estimates that care provided to retirees
and their dependents will make up over 65% of DOD health care costs by 2015, up
from 43% in 19994.

3. What is the Unified Medical Budget?


ASD(HA) prepares and submits a unified medical budget which includes
resources for the medical activities under his or her control within the DOD. The
unified medical budget includes funding for all fixed medical treatment
facilities/activities, including such costs as real property maintenance, environmental
compliance, minor construction and base operations support. Funds for medical
personnel and accrual payments to the Medicare Eligible Retiree Health Care Fund
(MERHCF - see What is the MERHCF? below) are also included. The unified
medical budget does not include resources associated with combat support medical
units/activities. In these instances the funding responsibility is assigned to military
service combatant or support command.


4 Department of Defense, Report of the The Tenth Quadrennial Review of Military
Compensation: Volume II Deferred and Noncash Compensation, July. 2008, p. 45

Unified medical budget funding has traditionally been appropriated in several
places:
!The defense appropriations bill generally provides under the “Other
Department of Defense Programs” title funding for Operations and
Maintenance (O&M), Procurement, and Research, Development,
Test and Evaluation (RDT&E) are appropriated under the heading
“Defense Health Program.”
!Funding for military personnel and accrual payments are. generally
provided in the defense appropriations bill under the “Military
Personnel”(MILPERS) title.
!Funding for medical military construction (MILCON) is generally
provided under the “Department of Defense” title of the military
construction and veterans affairs bill.
!A standing authorization for transfers from the MERHCF to
reimburse Tricare for the cost of services provided to medicare
eligible retirees is provided by 10 U.S.C. 1113.
!Costs of war related military health care is generally funded through
supplemental appropriations bills.
Other resources are made available to the military health system from third party
collections authorized by 10 U.S.C. 1097b(b) and a number of other reimbursable
program and transfer authorities. The President’s budget typically refers to the
unified medical budget request as its funding request for the military health system
but only includes an exhibit for the DHP in the “Department of Defense - Military”
chapter and exhibits for the MERHCF in the “Other Defense — Civil Programs”
chapter of the Appendix volume. Medical MILCON and MILPERS request levels
are generally found in DOD’s budget submissions to Congress.
The Administration’s 2009 unified medical budget request5 totaled $41.6 billion
and included:
!$23.6 billion for the Defense Health program including $6.5 billion
for in-house care, $12.1 billion for private sector care, $1.3 billion
for consolidated health supports, and $1.1 billion for information
management;
!$7.1 billion for military personnel;
!$0.5 billion for medical military construction, and;
!$10.4 billion for accrual payments to the MERHCF ($9 billion from
which would be transferred to the Defense Health Program).
Much more detailed breakouts are available in budget exhibits published by the
Department of Defense.


5 Department of Defense, Fiscal Year 2009 Budget Request Summary Justification, February

4, 2008, p. 85. Available at [http://www.defenselink.mil/comptroller/defbudget/


fy2009/FY2009_Budget_Request_J ustification.pdf]

4. What is the Medicare Eligible Retiree Health Care Fund
(MERHCF)?
The Floyd D. Spence National Defense Authorization Act for FY2001(NDAA)
directed the establishment of the Medicare-Eligible Retiree Health Care Fund to pay
for Medicare-eligible retiree health care beginning on October 1, 2002. Prior to this
date, care for Medicare-eligible beneficiaries was space available care in MTFs. The
MERHCF covers Medicare-eligible beneficiaries, regardless of age. The NDAA also
established an independent three-member DoD Medicare-Eligible Retiree Health
Care Board of Actuaries appointed by the Secretary of Defense. The Board is
required to review the actuarial status of the fund; to report annually to the Secretary
of Defense, and to report to the President and the Congress on the status of the fund
at least every four years. The DoD Office of the Actuary provides all technical and
administrative support to the Board.
Within DoD, the Office of the Under Secretary of Defense for Personnel and
Readiness, through the Office of the Assistant Secretary of Defense (OASD) for
Health Affairs (HA) has as one of its missions operational oversight of the defense
health program including management of the MERHCF. The Defense Finance and
Accounting Service provides accounting and investment services for the fund.
In FY2007, the MERHCF initially authorized approximately $7.7 billion in total
health care services, civilian providers ($5.9 billion), military medical treatment
facilities ($1.4 billion), and Military Service Personnel Accounts ($0.4 billion), on
behalf of Medicare eligible retirees, retiree dependents, and survivors.6

5. How Much Does Military Health Care Cost Beneficiaries?


Active duty service members receive medical care at no cost. Other
beneficiaries pay differing amounts depending on their status, the Tricare option
enrolled in, and where they receive care. The tables below illustrate.


6 Department of Defense, Fiscal Year 2007 Medicare-Eligible Retiree Health Care Fund
Audited Financial Statements, November 30, 2007, page 2.

Table 1. Tricare Fees for Active Duty Personnel, Eligible
Reservists, and Dependents
P r i m e Ext ra St andard
AnnualNone$150/individual or$150/individual or
Deductible$300/family for E-5 and$300/family for E-5 and
above; $50/$100 underabove; $50/$100 under E-
E-5.5.
Annual PremiumNoneNoneNone
CivilianNone15% of negotiated fee.20% of allowed charges
Outpatient Visitfor covered services.
Cost Share
Civilian InpatientNoneGreater of $25 perGreater of $25 per
Admission Costadmission or $14.35/day. admission or $14.35/day.
ShareNo cost for separatelyNo cost for separately
billed professionalbilled professional
charges. charges.
Civilian InpatientNoneGreater of $25 orGreater of $25 or $20/day.
Behavioral Health$20/day. No cost forNo cost for separately
Cost Shareseparately billedbilled professional
professional charges.charges.
Civilian InpatientNoneGreater of $25 perGreater of $25 per
Skilled Nursingadmission or $11/day. admission or $11/day. No
Facility CostNo cost for separatelycost for separately billed
Sharebilled professionalprofessional charges.
charges.
Source: Department of Defense, Tenth Quadrennial Review of Military Compensation, page

44.



Table 2. Tricare Fees for Retirees Under Age 65 and Their
Dependents
P r i m e Ext ra St andard
AnnualNone$150/individual or$150/individual or
Deduct i bl e $300/family. $300/family.
Annual Premium$230/individuaNoneNone
l or
$460/family
CivilianNone20% of negotiated25% of allowed
Outpatient Visitfee.charges for covered
Cost Shareservices.
Civilian InpatientGreater of $25Lesser of $250/dayGreater of $535/day
Admission Costper admissionor 25% ofor25% of hospital per
Shareor $11/day. Nonegotiated fee, plusdiem plus 25% of
cost for20% of negotiatedallowable charge for
separatelyprofessional fees.separately billed
billedprofessional services.
professional
charges.
Civilian Inpatient$40/day. No20% of total chargeLesser of $175/day or
Behavioral Healthcost forplus 20% of25% of hospital per
Cost Shareseparatelyallowable chargediem plus 25% of
billedfor separately billedallowable charge for
professionalprofessionalseparately billed
charges.services.professional services.
Civilian InpatientGreater of $25Lesser of $250/day25% of allowed
Skilled Nursingper admissionor 20% ofcharges plus 25% of
Facility Costor $11/day.negotiated fee, plusallowable charges for
Share20% of separatelyseparately billed
billed professionalprofessional services.
charges..
Source: Department of Defense, Tenth Quadrennial Review of Military Compensation, page

45.


6. In What Ways Has the Military Health System Been Changing in
Recent Years?
During the Cold War, military health care was designed to support a full-scale,
extremely violent war with the Soviet Union and its allies in Europe. High casualties
were anticipated along with a need for in-theater medical treatment facilities.
However, the collapse of the Soviet Union and the end of the Warsaw Pact led to a
major reassessment of U.S. defense policy. This led defense planners to believe, the
most likely conflicts will be of limited duration and involve smaller numbers of
troops in the future. Indeed, the overall size of the active duty force has been reduced
by one-third since the mid-1980s. Planners expected that casualties can be treated



locally (with greater reliance on telemedicine) or, if necessary, evacuated to military
medical facilities in the continental United States (CONUS). This strategic planning,
along with associated military personnel reductions, required a smaller medical
establishment, fewer military medical personnel, and the closure of a number of
hospitals and clinics.
More recently, considerations driven by the events of September 11, 2001, and
the resulting Global Ware on Terrorism(GWOT) have driven changes in DOD’s
planning. The 2006 edition of the Quadrennial Defense Review (QDR) focused
DOD on better defining its responsibilities for homeland defense within a broader
national framework including GWOT, counterterrorism, counterinserguency, and
military support for stabilization and reconstruction efforts. With respect to the
military health system, the QDR process identified 18 initiatives across 4 focus areas:
(1) transform the force, (2) transform the infrastructure, (3) transform the business,
and (4) sustain the benefit.7 As part of this process, DOD launched a Medical
Readiness Review (MRR) in August 2004. The MRR was intended to determine the
optimal size of the active duty medical force. The results of the MRR led to plans
for converting military health billets to civilian jobs. From FY2005 to FY2007, the
Navy converted 2,676 military positions to civilian positions, created a hiring plan
for 2,116 converted positions, and hired 1,349 civilian employees. The Army
planned to convert 1,588 positions in fiscal years 2006 and 2007. And the Air Force
planned to convert 1,216 military positions to civilian jobs.8 These conversions have
been controversial within the military services and Congress has imposed limitations
on these so called “mil-civ” conversions in each of the last three NDAAs.
In addition to revisions in military planning, nation-wide changes in the practice
of medicine have also affected DOD. In particular, managed care initiatives and
capitated budgeting that are widely adopted in the civilian community are being
implemented in DOD’s Tricare program. Tricare is also designed to coordinate
medical care efforts of the three military departments in three geographical regions,
each under a single military commander known as a lead agent. The lead agents are
responsible for managing care provided by all military medical facilities in their
respective regions, and for contracting for additional care from civilian providers.
These competitively-bid, region-wide contracts represent a significant change in
delivery of defense health care and will, it is anticipated, result in cost savings.
Detailed regulations governing Tricare were made effective on November 1, 1995
(32 CFR 199). Although care continues to be centered around military medical
facilities, heavy reliance is placed on civilian contractors managed by the lead agent
were necessary.
The centerpiece of Tricare is the Tricare Prime option, a DOD version of a
health maintenance organization (HMO) that the beneficiary joins, and which
provides essentially all of his or her medical care. Care is provided through DOD
medical personnel, hospitals, and clinics, as well as affiliated civilian physicians,


7 Office of the Assistant Secretary of Defense for Health Affairs, Quadrennial Defensse
Review: Roadmap for Medical Transformation, April 3, 2006, pages 1-2.
8 Department of Defense, Task Force on the Future of Military Health Care Final Report,
December 2007, page 111.

hospitals, and other providers. Costs are contained through administrative controls
and treatment protocols. In civilian practice, HMOs have been credited with some
success in reducing costs, although opponents of these systems complain about
restrictions on provider choice and incentives that may be created to constrain the
delivery of services.
Tricare Standard has been the military equivalent of a health insurance plan, run
by DOD, for active duty dependents, military retirees and the dependents of retirees,
survivors of deceased members, and certain former spouses.9 Unlike private
insurance plans, Tricare Standard does not require premiums. If care at a military
facility cannot be provided (due to space limitations, limitations on the types of
services that a facility is capable of providing, or due to the fact that a beneficiary
may not live close enough to a military facility to make such travel reasonable),
Tricare Standard will share responsibility with the beneficiary for the payment of care
received from non-military health care providers, subject to regulations. Certain
types of care, such as most dentistry and chiropractic services, are excluded.
In addition to Tricare Standard and Tricare Prime there is a preferred-provider
option, Tricare Extra. In Tricare Extra beneficiaries do not enroll or pay annual
premiums but use physicians and specialists in the Tricare network and are charged

5% less for medical services.


Many of the changes made in the past decade have been intended to improve
medical care available to the active duty population, but they have also resulted in
less medical care available in military facilities for retired personnel and their
dependents. The introduction of Tricare for Life in FY2002 provided coverage for
retired beneficiaries, but most of their care will undoubtedly be obtained from
civilian providers reimbursed by Medicare and Tricare.
The establishment of Tricare for Life and the current pharmaceutical benefit
have contributed to significant growth in health care spending by DOD. The
expanding costs of military healthcare reached an estimated $41.6 billion in FY2009
with the majority of the spending going to provide care to individuals no longer on
active duty or to their family members. The Congressional Budget Office has also
projected that DOD’s medical spending will grow by more than 80% in real terms
by 2024.10

7. Who Is Eligible to Receive This Care?


Current law provides that active duty personnel are entitled to receive health
care at military medical facilities. In addition, active duty dependents, military
retirees and their dependents, and survivors of deceased members are eligible to
receive health care at military medical facilities when space and professional services


9 For more information on those benefits available to former spouses, see CRS Report
RL31663, Military Benefits for Former Spouses: Legislation and Policy Issues, by David
F. Burrelli.
10 Congressional Budget Office, Long-Term Implications of Current Defense Plans and
Alternatives: Summary Update for Fiscal Year 2006, October 2005.

are available. Also eligible to receive care for a fixed fee in these facilities are
certain government officials (including the President and Members of Congress) and
certain foreign military personnel on active duty in the U.S. Reserve Component
(their dependents are also entitled to care in military medical facilities and
participation in Tricare under certain conditions, as discussed in question 14 below).
Since 1967, DOD has funded care by civilian providers to dependents, retirees,
and dependents of retirees who are under age 65 and unable to obtain access in a
military health facility. After 1991 DOD began, with congressional support, moving
towards managed care arrangements under the Tricare program that include greater
use of civilian health care providers even for active duty personnel.
8. How Are Priorities for Care in Military Medical Facilities
Assigned?
Active duty personnel, military retirees, and their respective dependents are not
afforded equal access to care in military medical facilities. Active duty personnel are
entitled to health care in a military medical facility (10 U.S.C. 1074).
According to 10 U.S.C. 1076, dependents of active duty personnel are “entitled,
upon request, to medical and dental care” on a space-available basis at a military
medical facility. Title 10 U.S.C. 1074 states that “a member or former member of
the uniformed services who is entitled to retired or retainer pay ... may, upon request,
be given medical and dental care in any facility of the uniformed service” on a
space-available basis.
This language entitles active duty dependents to medical and dental care subject
to space-available limitations. No such entitlement or “right” is provided to retirees
or their dependents. Instead, retirees and their dependents may be given medical and
dental care, subject to the same space-available limitations. This language gives
active duty personnel and their dependents priority in receiving medical and dental
care at any facility of the uniformed services over military members entitled to
receive retired pay and their dependents. The policy of providing active duty
dependents priority over retirees in the receipt of medical and dental care in any
facility of the uniformed services has existed in law since at least September 2, 1958
(P.L. 85-861).
Since the establishment of Tricare and pursuant to the Defense Authorization
Act of FY1996 (P.L. 104-106), DOD has established the following basic priorities
(with certain special provisions):
Priority 1: Active-duty service members;
Priority 2: Active-duty family members who are enrolled in Tricare Prime;
Priority 3: Retirees, their family members and survivors who are enrolled in
Tricare Prime;
Priority 4: Active-duty family members who are not enrolled in Tricare Prime;
Priority 5: All other eligible persons.
The priority is given to active duty dependents to help them obtain care easily,
and thus make it possible for active duty members to perform their military service



without worrying about health care for their dependents. This is particularly
important for active duty personnel who may be assigned overseas or aboard ship and
separated from their dependents. As retirees are not subject to such imposed
separations, they are considered to be in a better position to see that their dependents
receive care, if care cannot be provided in a military facility. Thus, the role of health
care delivery recognizes the unique needs of the military mission. The role of health
care in the military is qualitatively different, and, therefore, not necessarily
comparable to the civilian sector.
The benefits available to service members or retirees, which require
comparatively little or no contributions from the beneficiaries themselves, are
considered by some to be a more generous benefit package than is available to civil
servants or to most people in the private sector. Retirees may also be eligible to
receive medical care at Department of Veterans Affairs (VA) medical facilities.11

9. What Is the Relationship of DOD Health Care to Medicare?


Active duty military personnel have been fully covered by Social Security and
have paid Social Security taxes since January 1, 1957. Social Security coverage
includes eligibility for health care coverage under Medicare at age 65. It was the
legislative intent of the Congress that retired members of the uniformed services and
their eligible dependents be provided with medical care after they retire from the
military, usually between their late-30s and mid-40s. CHAMPUS was intended to
supplement — not to replace — military health care. Likewise, Congress did not
intend that CHAMPUS should replace Medicare as a supplemental benefit to military
health care. For this reason, retirees became ineligible to receive CHAMPUS
benefits when, at age 65, they become eligible for Medicare.
Many argued that the structure was inherently unfair because retirees lost
Tricare/CHAMPUS benefits at the stage in life when they were increasingly likely
to need them. It was argued that military personnel had been promised free medical
care for life, not just until age 65. After considerable debate over various options for
ensuring medical care to retired beneficiaries, Congress in the FY2001 Defense
Authorization Act (P.L. 106-259) provided that, beginning October 1, 2001, Tricare
pays out-of-pocket costs for services provided under Medicare for beneficiaries over
age 64 if they are enrolled in Medicare Part B. This benefit is known as Tricare for
Life (TFL). Disabled persons under 65 who are entitled to Medicare may continue
to receive CHAMPUS benefits as a second payer to Medicare Parts A and B (with
some restrictions).
The requirement for enrollment in Medicare Part B, which will cost $96.40 per
month in 2008 for most military retirees is a source of concern to some beneficiaries,
especially those who did not enroll in Part B when they became 65 and thus must pay
significant penalties. Some argue that this requirement is unfair since Part B
enrollment was not originally a prerequisite for access to any DOD medical care. On


11 See CRS Report RL32975, Veterans’ Medical Care: FY2006 Appropriations, by Sidath
Viranga Panangala.

the other hand, waiving the penalty for military retirees could be considered unfair
to other Medicare-users who did not enroll in Part B upon turning 65. The Medicare
Prescription Drug, Improvement, and Modernization Act (P.L. 108-173), passed in
December 2003, waived penalties for military retirees in certain circumstances during
an open season in 2004.12
10. Have Military Personnel Been Promised Free Medical Care for
Life?
Some military personnel and former military personnel maintain that they and
their dependents were promised “free medical care for life” at the time of their
enlistment. Such promises may have been made by military recruiters and in
recruiting brochures; however, if they were made, they were not based upon laws or
official regulations which provide only for access to military medical facilities for
non-active duty personnel if space is available as described above. Space was not
always available and Tricare options could involve significant costs to beneficiaries.
Rear Admiral Harold M. Koenig, the Deputy Assistant Secretary of Defense for
Health Affairs, testified in May 1993: “We have a medical care program for life for
our beneficiaries, and it is pretty well defined in the law. That easily gets interpreted
to, or reinterpreted into, free medical care for the rest of your life. That is a pretty
easy transition for people to make in their thinking, and it is pervasive. We [DOD]
spend an incredible amount of effort trying to re-educate people [that] that is not their
benefit.”13
Dr. Stephen C. Joseph, Assistant Secretary of Defense for Health Affairs in
April 1998, however, argued that because retirees believe they have had a promise
of free care, the government did have an obligation. Joseph did not specify the
precise extent of the obligation. The FY1998 Defense Authorization Act (P.L. 105-
85) included (in Section 752) a finding that “many retired military personnel believe
that they were promised lifetime health care in exchange for 20 or more years of
service,” and expressed the sense of Congress that “the United States has incurred a
moral obligation to provide health care to members and [retired] members of the
Armed Services.” Further, it is necessary “to provide quality, affordable care to such
retirees .”14

11. How Are Private Health Care Providers Paid?


By law (P.L. 102-396) and Federal Regulation (32 CFR 199.14), health care
providers treating Tricare patients cannot bill for more than 115% of charges
authorized by a DOD fee schedule. In some geographic areas, providers have been
unwilling to accept Tricare patients because of the limits on fees that can be charged.


12 See CRS Report RS21731, Medicare: Part B Premium Penalty, by Jennifer O’Sullivan.
13 U.S. Congress, House of Representatives, Committee on Armed Services, Military Forces
and Personnel Subcommittee, 103rd Congress, 1st session, National Defense Authorization
Act for Fiscal Year 1994 — H.R. 2401 and Oversight of Previously Authorized Programs,
Hearings, H.A.S.C. No. 103-13, April 27, 28, May 10, 11, and 13, 1993, p. 505.
14 For additional background, see CRS Report 98-1006, Military Health Care: The Issue of
“Promised” Benefits, by David F. Burrelli.

DOD has authority to grant exceptions. Statutes (10 U.S.C. 1079) also require that
payment levels for health care services provided under Tricare be aligned with
Medicare’s fee schedule “to the extent practicable.” Over 90% of Tricare payment
levels are now equivalent to those authorized by Medicare, about 10% are higher,
and steps are being taken to adjust some to Medicare levels.
12. What Will Be the Effect of Base Realignment and Closure
(BRAC) on Military Medical Care?
Base realignment and closures undertaken as part of the restructuring of the
Defense Department in the post-Cold War period have prompted changes in the
military health services system. As a result of base realignment and closure (BRAC)
actions, 35% of the DOD medical treatment facilities providing services in 1987
were closed by the end of 1997 (although the number of eligible beneficiaries
decreased by only 9%). Another BRAC round was undertaken in 2005.15 Criteria
for realignments and closures, established by DOD with congressional consent,
include the need to deploy a force structure capable of protecting the national
security, anticipated funding levels, and a number of military, fiscal, and
environmental considerations that encompass community economic impact and
community infrastructure.
Four BRAC Commissions have specifically considered the effect of closing
DOD hospitals and clinics on active duty military personnel as well as on other
beneficiaries and potential beneficiaries. The first two BRAC Commissions
recommended 18 military hospital closures; the third BRAC Commission
recommended an additional 10. Facilities closed include hospitals in Philadelphia,
PA; Oakland, CA; Orlando, FL; San Francisco, CA; Ft. Devens, MA; Ft. Ord, CA;
and Long Beach, CA. In one case, the Commission overruled a DOD proposal to
close the Naval Hospital in Charleston, SC.
While DOD had commissioned a study group to examine military treatment
facilities for the 1995 BRAC round, the assessment of military medical services
appears to have been more comprehensive in 2005. A Medical Joint Cross-Service
Group (JCSG) was established to review DOD healthcare functions and to provide
BRAC recommendations. The review included healthcare education and training,
healthcare services, medical and dental research, development, and acquisition. The
Surgeon General of the Air Force chaired the Medical JCSG; other members
included representatives from the military services, the Joint Staff, and the Office of
the Secretary of Defense. The recommendations were submitted to senior DOD
leadership for consideration in the preparations of the Secretary of Defense’s
recommended BRAC actions. Recommendations included closing Brooks City-
Base, San Antonio, TX; realigning Walter Reed Medical Center, Washington, DC;
realigning the inpatient medical function at Lackland Air Force Base in San Antonio,
TX and other initiatives.16


15 See CRS Report RL32216, Military Base Closures: Implementing the 2005 Round, by
David E. Lockwood.
16 For further information, see the DOD BRAC website, [http://www.defenselink.mil/brac/].

With congressional encouragement, DOD has developed transition medical
plans for certain closure sites. Medicare-eligible users of closed military hospitals
will be encouraged to avail themselves of Tricare for Life and DOD’s mail order
pharmacy. Nonetheless, the closure of military hospitals and clinics can be a source
of anxiety, especially in communities that have attracted large numbers of residents
seeking access to military medical care.

13. What Is the DOD Pharmacy Benefit?


Those with access to military treatment facilities and those who are enrolled in
Tricare Prime receive prescribed pharmaceuticals free of charge. In accordance with
the provisions of the FY2001 Defense Authorization Act (P.L. 106-398), effective
April 1, 2001, retirees have access to DOD’s National Mail Order Pharmacy and
retail pharmacies in addition to pharmacies in military treatment facilities.
Beneficiaries who turned 65 prior to April 1, 2001, qualify for the benefit whether
or not they purchased Medicare Part B; beneficiaries who attain the age of 65 on or
after April 1, 2001, must be enrolled in Medicare Part B to receive the pharmacy
benefit. (There are deductibles for use of non-network pharmacies and co-payments
for pharmaceuticals received from the National Mail Order Pharmacy and from retail
pharmacies.)
Military pharmacies do not necessarily carry every pharmaceutical available;
thus, even some with access to military facilities must have certain prescriptions
filled in civilian pharmacies; for these prescriptions beneficiaries can be reimbursed
through Tricare. In October 1997, DOD implemented the National Mail Order
Pharmacy (subsequently known as the Tricare Mail Order Pharmacy) that allows
beneficiaries to obtain some pharmaceuticals by mail with small handling charges.
The mail order program is designed to fill long-term prescriptions to treat conditions
such as high blood pressure, asthma, or diabetes; it does not include medications that
require immediate attention such as some antibiotics.
In 2004 DOD, in response to guidance in the FY2000 Defense Authorization
Act (P.L. 106-65, section 701), established a uniform formulary to discourage use
of expensive pharmaceuticals when others are medically appropriate. Regulations
to this effect were published in the Federal Register on April 1, 2004 (vol. 69, pp.
17035-17052). Prescriptions filled by the Tricare Mail Order Pharmacy currently
cost $3 for a 90-day supply of a generic medication, $9 for a 90-day supply of a
brand-name formulary medication, and $22 for a 30-day supply of a non-formulary
medication.
Section 703 of the FY2008 National Defense Authorization (P.L. 110-181)
made pharmaceuticals purchased by Tricare beneficiaries through retail pharmacies
subject to federal pricing schedules. However, to date, regulations to implement this
provision have not been published. DoD expects to realize savings of $1.8 billion
over the next five years through application of this rebate program.17


17 Congressional Budget Office Cost Estimate, S. 1547 National Defense Authorization Act
for FY2008 (June 21, 2007) at 12-13.

Section 702 of the FY2009 Defense Authorization Act (P.L. 110-417)
prohibited increases in pharmacy co-payments for beneficiaries through the end of
FY2009.

14. What Medical Benefits are Available to Reservists?


Reservists and National Guardsmen (members of the “Reserve Component”)
who are serving on active duty have the same medical benefits as regular military
personnel. Reserve personnel while on active duty for training and during weekly or
monthly drills also are covered for illnesses incurred while on training or traveling
to or from their duty station. In recent years, especially as members of the Reserve
Component have had a larger role in combat operations overseas, Congress has
broadened the medical benefits for Reservists. Those who have been notified that
they are to be activated are now covered by Tricare up to 90 days before reporting.
Reservists who have served more than 30 days after having been called up for active
duty in a contingency are eligible for 180 days of Tricare coverage after the end of
their service under the Transitional Assistance Management Program (TAMP). In
addition, in 2004 Congress authorized (in P.L. 108-375, section 701) the Tricare
Reserve Select (TRS) program for Reserve Component members called to active
duty, under Title 10, in support of a contingency operation after September 11, 2001.
To be eligible for TRS, reservists must agree to stay in the Reserves for one or more
years and must pay monthly premiums (in 2008, $81 for an individual; $253 for a
member and family coverage).