Order Code IB93103
CRS Issue Brief for Congress
Received through the CRS Web
Military Medical Care Services:
Questions and Answers
Updated May 2, 2006
Richard A. Best Jr.
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Questions and Answers
1. What Is the Purpose of DOD’s Military Health Services System?
2. What Is the Structure of the Military Health Services System?
3. How Much Does Military Health Care Cost Beneficiaries?
4. In What Ways Has the MHSS Been Changing in Recent Years?
5. Who Is Eligible to Receive This Care?
6. How Are Priorities for Care in Military Medical Facilities Assigned?
7. What Is the Relationship of DOD Health Care to Medicare?
8. Have Military Personnel Been Promised Free Medical Care for Life?
9. What Actions Are Being Taken to Improve Military Medical Care for Retirees
Aged 65 and Over? What is Tricare for Life?
10. Should the Federal Employees Health Benefits Program (FEHBP) Be Open
to Military Retirees?
11. How Are User’s Fees and Fee Schedules for Medical Services Assessed?
12. What Will Be the Effect of Base Realignment and Closure (BRAC) on
Military Medical Care?
13. What Is the DOD Pharmacy Benefit?
14. What Medical Benefits are Available to Reservists?


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Military Medical Care Services:
Questions and Answers
SUMMARY
The primary mission of the Military
population of 8.9 million. It operates world-
Health Services System (MHSS), which
wide and employs some 39,000 civilians and
encompasses the Defense Department’s hospi-
92,000 active duty military personnel. Calcul-
tals, clinics, and medical personnel, is to
ating the total cost of military medical spend-
maintain the health of military personnel so
ing is complicated by the different categories
they can carry out their military missions, and
of funds involved; DOD statistics on total
to be prepared to deliver health care during
medical spending indicate a growth from
wartime. The military medical system also
$17.5 billion in FY2000 to an estimated $37
provides, where space is available, health care
billion in FY2006 (the latter figure includes an
services in Department of Defense (DOD)
accrual fund for future retirees).
medical facilities to dependents of active duty
service members and to retirees and their
CHAMPUS was originally intended to
dependents.
provide retirees with health care benefits from
the time of their retirement, usually in their
The Civilian Health and Medical Pro-
mid-40s, to the time they become eligible for
gram of the Uniformed Services (CHAMPUS)
Medicare at age 65. In response to concerns
was established in 1966 legislation as the
about growing medical costs for retirees over
military equivalent of a health insurance plan,
age 65, the FY2001 Defense Authorization
run by DOD, for active duty dependents,
Act established a program, known as Tricare
military retirees and the dependents of retir-
for Life, to serve as a second payer to
ees, survivors of deceased members, and
Medicare for retirees and their spouses and
certain former spouses. CHAMPUS reim-
survivors beginning in FY2002. Congress also
burses beneficiaries for portions of the costs
extended a pharmacy benefit to Medicare-
of health care received from civilian provid-
eligible beneficiaries.
ers.
Some retirees groups advocate opening
As a follow-on to CHAMPUS, DOD
the Federal Employees Health Benefits
established Tricare to coordinate the efforts
Program (FEHBP) to military retirees, but an
of the services’ medical facilities. Tricare also
FEHBP demonstration project did not prove
provides beneficiaries with the opportunity to
very popular among beneficiaries.
receive their care through a DOD-managed
health maintenance organization, a preferred
Military health care issues are addressed
provider organization, or to continue to use
in annual defense authorization and appropria-
regular CHAMPUS (now known as Tricare
tions bills; for additional details and the status
Standard).
of current legislation, see CRS Report
RL32924, Defense: FY2006 Authorization
The MHSS currently includes some 75
and Appropriations, by Stephen Daggett.
hospitals and 461 clinics serving an eligible
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MOST RECENT DEVELOPMENTS
As part of the budget submission for FY2007, the Administration is proposing
significant increases in enrollment fees and co-payments for military retirees under the age
of 65. Active duty beneficiaries and Medicare-eligible retirees would be unaffected (except
for relatively small increases in pharmacy co-pays). DOD proposes that retirees not eligible
for Medicare would pay a larger share of their total health care costs and that cost shares be
adjusted annually for inflation. Defense Secretary Rumsfeld has expressed concern that
corporations and state and local governments are encouraging employees who are military
retirees to rely on Tricare, with DOD thus indirectly subsidizing the health care costs of other
employers at the expense of other defense requirements. Widespread opposition to the
proposal has led some Members to support legislation, H.R. 4949, that would freeze current
rates. Media reports indicate that the FY2007 defense authorization bill, H.R. 5122,
currently in markup by the House Armed Services Committee, will not endorse the
Administration’s proposal to increase fees.
BACKGROUND AND ANALYSIS
Although the Military Health Services System (MHSS) is primarily designed to provide
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 retirees’ dependents. Since 1967, civilian care to millions of dependents and
retirees (and retirees’ dependents) has been provided through a program originally known
as the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). Since
1995, the Department of Defense (DOD) has sought to coordinate the medical care efforts
of the Army, Navy, and Air Force, and to institute managed care principles in a program
known as Tricare. Tricare provides beneficiaries with the opportunity of choosing a health
maintenance organization option, a preferred provider option, or a fee-for-service option.
The implementation of Tricare and other efforts to manage DOD health care more
efficiently as well as downsize the MHSS as part of the overall post-cold war reductions of
the entire Defense Department, meant that less care was available to non-active duty
beneficiaries, especially to those aged 65 and over. Informed, articulate, and well-organized,
this population sought authorization to obtain health care benefits after they became eligible
for Medicare. The Defense Authorization Act for FY2001 (P.L. 106-259) provided that
DOD would cover costs not covered by Medicare and also established a pharmacy benefit
in a program known as Tricare for Life.
This issue brief attempts to answer basic questions about the MHSS, 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 [http://www.tricare.osd.mil/].
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Questions and Answers
1. What Is the Purpose of DOD’s Military Health Services System?
DOD provides medical care to active duty military personnel, eligible military retirees,
and eligible dependents of both groups. The primary mission of the medical services system
is to maintain the health of military personnel, so they can carry out their military missions,
and to 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 servicemen and women involved in hostilities, and the
maintenance of physical standards of those in the armed services.
In support of those in uniform, the military medical system also provides, where space
is available, health care services to dependents of active duty service members. Space
available care is also provided to retirees and their dependents. Some former spouses are
also included. Since 1966, civilian medical care for dependents of active duty personnel, and
for retirees and their dependents who are under age 65, has been available (with certain
limitations and co-payments) through CHAMPUS. Since October 2001, retirees and their
dependents eligible for Medicare (and enrolled in Medicare Part B) have had access to
Tricare for Life, which pays most charges that are not covered by Medicare. Retirees also
have a pharmacy benefit.
2. What Is the Structure of the Military Health Services System?
Under the Secretary of Defense, the MHSS is headed by the Assistant Secretary of
Defense for Health Affairs (ASD/HA), currently Dr. William Winkenwerder, Jr. An October
1991 reorganization strengthened the role of the ASD/HA by giving the incumbent planning,
programming, and budgeting responsibilities for defense health care, including facilities
operated by the Army, Navy (which also provides health care services to the Marine Corps),
and Air Force. The Surgeons General of the Army, Navy and Air Force retain considerable
responsibility for managing military medical facilities and personnel.
The defense health system currently includes 75 hospitals and 461 clinics operating
worldwide, and employs more than 39,000 civilians and 92,000 active duty 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.
Although the number of active duty personnel in DOD is not projected to increase over
the next few years, costs associated with the defense health system are not expected to follow
suit. This results from general inflation in the cost of health care and an increasing
percentage of care being provided to retirees and their dependents. (In 1950 retirees made
up 8% of those eligible for military health care; by 1997 it was over 50%.) Reductions in
direct care can actually lead to growth in overall DOD health spending because beneficiaries
whose access to military medical facilities is removed through base closures may turn to
more costly care from civilian providers, for which they can seek reimbursement from DOD.
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Each year the Office of the Secretary of Defense (OSD) forwards a budget request to
Congress for the Defense Health Program (DHP), which includes monies needed for
procuring equipment for the MHSS, operation and maintenance, and care for civilian
beneficiaries. Funding for the compensation of military medical personnel is contained in
the Military Personnel appropriation accounts of the individual military departments.
Additional requests are made in procurement and military construction accounts.
3. How Much Does Military Health Care Cost Beneficiaries?
Active duty service members receive covered medical care in military facilities without
additional costs, other than small per diem charges. Other beneficiaries pay differing
amounts depending on their status and where they receive care. If care can be obtained at
military facilities, there is no charge for medical services, and only small daily charges for
hospital stays.
Tricare costs vary by the option selected. Active duty personnel are automatically
enrolled in Tricare Prime without any premiums; their dependents may join, also without
premiums. Retirees (under age 65) must pay $230 (individual) or $460 (family) each year
in enrollment fees. Small co-payments are required for visits to civilian care providers who
are part of the Tricare network.
Tricare Standard has a more complicated cost structure. There are no premiums or
enrollment fees. At present, for outpatient care in civilian hospitals and clinics, there is a
yearly deductible of $150 for an individual and $300 for a family (with lower fees for the
most junior enlisted personnel). After the yearly deductible is met, dependents of active duty
personnel pay 20% of CHAMPUS-approved care; all others pay 25%. For inpatient care,
there is no deductible for CHAMPUS-approved care, but families of active duty service
members pay a small per diem. Other Tricare beneficiaries will pay the lesser of 25% of the
billed charges or a fixed daily amount ($535.) of care covered by Tricare. In addition, there
is a “cap” on annual care; active duty families are reimbursed for allowable expenses over
$1,000; other families are reimbursed for allowable expenses over $3,000. These figures are
generalized; there are a number of important exceptions that are explained in the Tricare
Handbook and in the underlying Federal Regulations (32 CFR 199). The Handbook urges
beneficiaries to check with their Health Benefits Advisors before seeking care.
Tricare Extra, the preferred provider option, has a cost structure similar to Tricare
Standard except that beneficiaries who use health care providers in the Extra network pay
5% less than they would if using non-network providers. Inpatient care costs $14.35 per day
for active duty dependents and $250 per day (or 25% of daily hospital costs, whichever is
less) for retirees and their dependents. Care may still be obtained from military facilities if
space is available.
As part of the FY2007 budget submission, the Administration has requested
congressional authority to increase enrollment fees and co-payments for retirees and their
dependents who are not eligible for Medicare and Tricare for Life. DOD, maintaining that
costs of defense health care have doubled over the past decade and can be expected to reach
$64 billion by FY2015, seeks to have non-Medicare eligible retirees pay a larger share of
their health care costs. It also proposes that rates be adjusted annually for inflation. The
Administration expresses particular concern that private employers and state and local
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governments have encouraged their Tricare-eligible employees to depend on DOD rather
than provide a benefit. In addition to higher enrollment fees for Tricare Prime and higher
deductibles for Tricare Standard, the plan includes small increases in co-payments for
prescriptions obtained in retail pharmacies and a few medications would not be covered; this
increase would also apply to beneficiaries who are eligible for Medicare.
4. In What Ways Has the MHSS Been Changing in Recent Years?
During the Cold War, the MHSS 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. The collapse of the Soviet Union and
the end of the Warsaw Pact led to a major reassessment of U.S. defense policy. In the future,
defense planners believe, the most likely conflicts will be of limited duration and involve
smaller numbers of troops. The overall size of the active duty force has been reduced by
one-third since the mid-1980s. Planners expect 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, requires a smaller medical establishment, fewer military
medical personnel, and the closure of a number of hospitals and clinics.
In the mid-1990s, the number of military medical personnel declined by 15%, and the
number of military hospitals was reduced by one-third. On the other hand, the number of
potential beneficiaries of military medical care who are over age 65 has grown in absolute
terms to 1.2 million, and now represents about one-half of the beneficiary population. This
number is expected to grow until 2009. Most retirees become eligible for Medicare when
they reach age 65 although some disabled retirees become eligible for Medicare earlier. In
1991 Congress acted (in P.L. 102-190) to reestablish CHAMPUS eligibility for persons
under age 65 who become eligible for Medicare, Part A because of disability. Such persons
are, however, required to enroll in Medicare Part B (and pay premiums) to be eligible for
Tricare.
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
where 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, hospitals, and other providers. Costs are
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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 (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 Burrelli). 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 Assistant Secretary
of Defense for Health Affairs, Dr. William Winkenwerder, testified in October 2005 that
spending has essentially doubled in the past four years and is expected to reach $37 billion
in FY2005, and if current trends continue, 75% to 80% of the spending will provide care to
individuals no longer on active duty or 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 (Congressional Budget Office, Long-Term Implications of Current Defense
Plans and Alternatives: Summary Update for Fiscal Year 2006
, October 2005). Media
reports indicate that, as part of an effort to deal with these trends, DOD will propose as part
of its FY2007 budget submission significantly higher enrollment fees for retirees not eligible
for Medicare, and higher co-payments for pharmaceuticals.
5. 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 are available. Also eligible to receive
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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.
6. 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 USC 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
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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. See CRS Report RL32975, Veterans’ Medical Care:
FY2006 Appropriations
, by Sidath Viranga Panangala.)
7. 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).
8. 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.”
(U.S. Congress, House of Representatives, Committee on Armed Services, Military Forces
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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.)
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.” For additional background, see CRS Report 98-1006,
Military Health Care: The Issue of “Promised” Benefits, by David F. Burrelli.
9. What Actions Are Being Taken to Improve Military Medical Care for
Retirees Aged 65 and Over? What is Tricare for Life?
As noted above, military medical care is theoretically available to all retirees on a space-
available basis. As a practical matter, however, the amount of space available to retirees over
age 65 who are eligible for Medicare has become increasingly limited. This results from
base closures, changing approaches to military medicine, and growth in the number of
retirees. Retirees and retiree organizations have complained of being frozen out of military
facilities, of being responsible for higher costs at a stage of life when more health care is
required, and, especially, of the burden of having to pay for expensive pharmaceuticals that
are taken on a regular basis.
As a result of legislation in the 105th and 106th Congresses, several demonstration
projects were established in specific localities to assess beneficiary acceptance and the fiscal
viability of different approaches. These included:
! Medicare subvention by which care would be provided by DOD to retirees
age 65 and over essentially on the same basis as is provided to retirees under
65 in Tricare Prime [enrollment fees of $230/460 (self/self+dependent) are
required annually]; the legislation provides that DOD would be reimbursed
for a portion of the costs of this care by Medicare. (The Medicare subvention
demonstration project was established by Section 4015 of the Budget
Reconciliation Act of 1998 (P.L. 105-33); it was a three-year project (termed
Tricare Senior Prime) at six sites that was phased in beginning in July
1998 and concluding in December 2001.) For background on the Medicare
subvention issue, see CRS Report 96-207, Military Medical Care and
Medicare Subvention Funding
, by David F. Burrelli and Tina Nunno. The
project ended on December 31, 2001.
! Access to the FEHBP plans used by civil service retirees with DOD paying
the same share of premiums that is paid by the government for civilian
enrollees (approximately 72%). An FEHBP demonstration was established
by Section 721 of the FY1999 Defense Authorization Act (P.L. 105-261);
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it was conducted at eight sites for three years, ending December 31, 2002.
It did not attract a large number of enrollees.
! Tricare as a supplement to Medicare. Established by Section 722 of the
FY1999 Defense Authorization Act (P.L. 105-261), this program was
scheduled to begin in 2000 and end in December 2002 but was overtaken by
the establishment of Tricare for Life.
! A DOD-sponsored pharmaceutical benefit. The FY2001 Defense
Authorization Act (P.L. 106-398) extended pharmacy benefits to all retirees
beginning in April 2001. Beneficiaries who became 65 before April 1,
2001, do not have to enroll in Medicare Part B to receive the DOD
pharmacy benefit; those who turned 65 on or after April 1, 2001, have to be
enrolled in Medicare Part B to use the pharmacy benefit.
In late 1999 and early 2000, a number of bills were introduced to provide more
extensive medical care options to beneficiaries aged 65 and over. Some of the bills would
have extended the durations of the demonstration projects or expanded them nationwide;
others would have had DOD pay 100% of FEHBP premiums for certain older retirees. All
such proposals would have entailed significant expenditures.
During consideration of the FY2001 Defense Authorization Bill (H.R. 4205) on May
18, 2000, the House adopted an amendment to extend Medicare subvention nationwide by
2006. During consideration of its version of the FY2001 Defense Authorization Bill (S.
2549), the Senate on June 7, 2000, adopted an amendment that extended eligibility for
participation in Tricare to beneficiaries over age 64, effective October 2001. Medicare
would serve as a first payer for services provided, with Tricare providing reimbursement for
some types of care that Medicare does not cover. Beneficiaries would be required to
participate in Medicare Part B. Another floor amendment that would have included retiree
access not only to Tricare but also to FEHBP (with the government paying all premiums for
those whose service began before June 1956) failed on a procedural vote that required
support by three-fifths of the senators. In late August 2000, the Clinton Administration
indicated opposition to these initiatives to extend Tricare to beneficiaries over age 64 because
of concerns with potential costs.
The Senate amendment was essentially adopted by the conference committee along with
provisions establishing a Medicare-eligible retiree health care fund that would accumulate
regular transfers of funds from DOD to pay for Tricare benefits to Medicare-eligible
beneficiaries. The conference version was adopted by large majorities in the House on
October 11 and in the Senate on October 12 and was signed into law on October 30, 2000,
becoming P.L. 106-398.
Beginning October 1, 2001, for beneficiaries over age 64 who are enrolled in Medicare
Part B, the Defense Department, through Tricare for Life (TFL) serves as a second payer
to Medicare, paying out-of-pocket costs for medical services covered under Medicare. The
beneficiaries are also eligible for medical benefits covered by Tricare but not by Medicare.
The requirement for enrollment in Medicare Part B, which currently costs 78.20 per
month, is a source of concern to some beneficiaries, especially those who did not enroll in
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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 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. (See CRS Report RS21731, Medicare: Part B Premium Penalty, by
Jennifer O’Sullivan.)
10. Should the Federal Employees Health Benefits Program (FEHBP) Be
Open to Military Retirees?
Some have long advocated making the health care plans for Federal civil servants and
civil service retirees also available to Medicare-eligible military retirees instead of or in
addition to Medicare subvention plans. The civil service system, known as the Federal
Employees Health Benefits Program (FEHBP), is widely considered to be successful. It
allows beneficiaries to choose among a number of health care plans. The government pays
some 72% of the premiums and beneficiaries are responsible for the rest. (See CRS Report
RL31231, Health Insurance for Federal Employees and Retirees, by Carolyn L. Merck.)
Opening FEHBP to Medicare-eligible military retirees would cause minor administrative
expenses, but subsidizing annual enrollment fees for retirees and their dependents over 65
could involve around $2 billion annually (if the government paid 72% of average premiums),
according to a Congressional Budget Office estimate. On the other hand, an FEHBP option
would allow retirees to choose the type of health care plan they prefer and it would not affect
the delivery of military medical care to the active duty population. In addition, FEHBP plans
would also ensure the availability of care in geographic areas that might not be reached by
Tricare options. Some potential beneficiaries, however, would not be willing to make the
substantial premiums that are required for participation in FEHBP.
Despite objections from the Defense Department, the FY1999 Defense Authorization
Act (P.L. 105-261) included a FEHBP demonstration project limited to 66,000 participants
in 6-10 geographic areas; enrollees had to pay the same level of premiums as paid by civil
servants. The project began in January 2000 and ran for three years ending on December 31,
2002. It was evaluated by the Defense Department and the GAO, and it was it was evident
that relatively few retirees opted for FEHBP coverage even after the initial open season was
extended and additional brochures mailed out. (See GAO Report GAO-03-547, Military
Retiree Health Benefits: Enrollment Low in Federal Employee Health Plans under DOD
Demonstration
, June 2003.)
Legislation introduced in subsequent Congresses would have extended FEHBP
eligibility to military retirees. Some bills included provisions by which DOD would pay the
entire costs of FEHBP for those retirees (and their families) who served prior to June 7, 1956
(since statutory medical benefits for retiree medical care came into force on that date). Such
a proposal has been estimated to cost over $4 billion annually.
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11. How Are User’s Fees and Fee Schedules for Medical Services
Assessed?
User’s fees for medical services represent a means of generating revenues from those
who use the services. In recent years user’s fees, also known as co-payments, have been
considered as a means of generating revenues in the military medical care system. Some
observers see increased user’s fees as a primary way to increase beneficiaries’
cost-consciousness, arguing that far more than premiums and deductibles, cost-sharing
discourages unnecessary medical services. The consideration of these fees has been subject
to strong opposition from military personnel, retirees, and others who have viewed free or
inexpensive health care as an important benefit of military service. To these individuals,
user’s fees represent an “erosion of earned benefits.” Specifically, these benefits are not
viewed by some beneficiaries as an insurance program paid for in a market context, but
rather as a benefit that is earned by the unique nature of demands inherent in performing
military service. The Defense Department’s FY2007 budget submission includes provisions
that would raise enrollment fees, copayments, and deductibles for retirees under age 65 and
makes small increases in deductibles for pharmaceuticals for all retirees. This proposal has
received opposition from retiree organizations. (See CRS Report RS22402, Increases in
Tricare Fees: Background and Options for Congress
, by Richard A. Best, Jr.)
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. DOD has authority to grant exceptions.
Statutes (10 USC 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
is underway in 2005; see CRS Report RL32216, Military Base Closures: Implementing the
2005 Round
, by David E. Lockwood. 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 of the MHSS. 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
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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. (See
CRS Report 95-435, Military Retiree Health Care: Base Closures and Realignments, by
David F. Burrelli and Elizabeth A. Dunstan.)
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 as listed on 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?
According to DOD officials, the pharmacy benefit is the one most in demand by
beneficiaries. GAO has estimated that it costs some $1.3 billion annually. Those with access
to military treatment facilities and those who are enrolled in Tricare Prime receive prescribed
pharmaceuticals free of charge. Users of Tricare Extra and Tricare Standard are reimbursed
for pharmaceuticals in accordance with the same schedule of deductibles and co-payments
required for other medical services. 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
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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.
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
ninety 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 2006, $81 for an individual; $253 for a member and family coverage).
The FY2006 Defense Authorization Act (P.L. 109-163) makes Tricare Standard
available to all members of the Reserve Component who continue to serve in the Selected
Reserves. In addition to those already eligible for Tricare Reserve Select, those who are
unemployed or have no access to employer-sponsored health care will pay fees that cover
50% of the costs of the program; other reservists will pay fees covering 85% of the costs.
(Those using Tricare Reserve Select pay fees that cover approximately 28% of the costs.)
DOD is to prepare regulations to ensure availability of the expanded benefit by October 1,
2006.
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