Order Code RL33537
CRS Report for Congress
Received through the CRS Web
Military Medical Care:
Questions and Answers
July 12, 2006
Richard A. Best, Jr.
Specialist in National Defense
Foreign Affairs, Defense, and Trade
Congressional Research Service ˜ The Library of Congress

Military Medical Care: Questions and Answers
Summary
The primary mission of the military health system, which encompasses 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, where space is available, health care services in Department of Defense
(DOD) medical facilities to dependents of active duty service members and to retirees
and their dependents.
The Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS) was established in 1966 legislation as 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. CHAMPUS reimburses beneficiaries for portions of the costs of health care
received from civilian providers.
As a follow-on to CHAMPUS, DOD established Tricare to coordinate the
efforts of the services’ medical facilities. Tricare also provides beneficiaries with the
opportunity to receive their care through a DOD-managed health maintenance
organization, a preferred provider organization, or to continue to use regular
CHAMPUS (now known as Tricare Standard).
The military health system currently includes some 75 hospitals and 461 clinics
serving an eligible population of 8.9 million. It operates worldwide and employs
some 39,000 civilians and 92,000 active duty 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 $37 billion in FY2006 (the latter figure includes
an accrual fund for future retirees).
CHAMPUS was originally intended to provide retirees with health care benefits
from the time of their retirement, usually in their mid-40s, to the time they become
eligible for Medicare at age 65. In response to concerns about growing medical costs
for retirees over age 65, the FY2001 Defense Authorization Act established a
program, known as Tricare for Life, to serve as a second payer to Medicare for
retirees and their spouses and survivors beginning in FY2002. Congress also
extended a pharmacy benefit to Medicare-eligible beneficiaries.
Some retirees groups advocate opening the Federal Employees Health Benefits
Program (FEHBP) to military retirees, but an FEHBP demonstration project did not
prove very popular among beneficiaries.
This report, which replaces Issue Brief IB93103 of the same name, 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 RL32924, Defense:
FY2006 Authorization and Appropriations
, by Stephen Daggett.

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

Military Medical Care:
Questions and Answers
Most Recent Developments
As part of the budget submission for FY2007, the Administration proposed
significant increases in Tricare enrollment fees and co-payments for military retirees
and their dependents under the age of 65. Widespread opposition resulted in
provisions to kill the proposed fee hikes in the FY2007 defense authorization bill,
H.R. 5122, passed by the House on May 11th, and in S. 2766, reported by the Senate
Armed Services Committee on May 9th. Both bills also include provisions that
eliminate co-pays for most pharmaceuticals that are obtained from the Tricare Mail
Order Pharmacy.
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 the Department of Defense (DOD) thus indirectly subsidizing the
health care costs of other employers at the expense of other defense requirements.
Both H.R. 5122 and S. 2766 include provisions that address this practice. In
addition, both bills call for studies by the Government Accountability Office (GAO)
of the costs of Defense health care and cost-savings proposals.
Background and Analysis
Although the Military Health System 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, 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 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

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(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 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 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.tricare.osd.mil/].
Questions and Answers
1. What Is the Purpose of DOD’s Military Health System?
DOD provides medical care to active duty military personnel, eligible military
retirees, and eligible dependents of both groups. The primary mission of the military
health 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 health 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 System?
Under the Secretary of Defense, DOD’s medical effort 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 military 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

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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 military 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.
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, 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

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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 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 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. 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

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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 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.1 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.
1 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.

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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 2024.2 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 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
2 Congressional Budget Office, Long-Term Implications of Current Defense Plans and
Alternatives: Summary Update for Fiscal Year 2006
, Oct. 2005.

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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.3
3 See CRS Report RL32975, Veterans’ Medical Care: FY2006 Appropriations, by Sidath
Viranga Panangala.

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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.”4
4 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, Apr. 27, 28, May 10, 11, and 13, 1993, p. 505.

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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.”5
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.)6
! 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
5 For additional background, see CRS Report 98-1006, Military Health Care: The Issue of
“Promised” Benefits
, by David F. Burrelli.
6 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 Dec. 31, 2001.

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demonstration was established by Section 721 of the FY1999
Defense Authorization Act (P.L. 105-261); 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

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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 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 2004.7
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.8 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
7 See CRS Report RS21731, Medicare: Part B Premium Penalty, by Jennifer O’Sullivan.
8 See CRS Report RL31231, Health Insurance for Federal Employees and Retirees, by
Carolyn L. Merck.

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for FEHBP coverage even after the initial open season was extended and additional
brochures mailed out.9
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.
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, co-payments, 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.10
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.
9 See U.S., General Accountability Office, Report GAO-03-547, Military Retiree Health
Benefits: Enrollment Low in Federal Employee Health Plans under DOD Demonstration
,
June 2003.
10 See CRS Report RS22402, Increases in Tricare Fees: Background and Options for
Congress
, Richard A. Best, Jr.

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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 2005.11 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.12
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.13
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
11 See CRS Report RL32216, Military Base Closures: Implementing the 2005 Round, by
David E. Lockwood.
12 See CRS Report 95-435, Military Retiree Health Care: Base Closures and Realignments,
by David F. Burrelli and Elizabeth A. Dunstan.
13 For further information, see the DOD BRAC website, [http://www.defenselink.mil/brac/].

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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 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. Both House and Senate versions of FY2007 defense authorization
legislation would remove the co-pays for most pharmaceuticals obtained through the
Tricare Mail Order Pharmacy.
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

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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.) The legislation required DOD prepare regulations
to ensure availability of the expanded benefit by October 1, 2006. However, the
House-passed FY2007 Defense Authorization bill, H.R. 5122, would repeal the
three-tiered cost share Tricare program for reserves established in the FY2006
legislation and replace it with a single program that would permit non-active duty
reservists to obtain Tricare coverage by paying a premium of 28% of the total costs
of their coverage.