Politico Pro Defense has a story today (subscription required) on an issue holding up negotiations on this year’s National Defense Authorization Act (NDAA). According to the report, the military’s health insurance system, known as TRICARE, has a $2 billion shortfall. The problem has led to an impasse, as the chairmen of the House and Senate armed services committees disagree on how best to address the problem. Of course, neither chairman is proposing the obvious solution, the one the congressionally appointed military compensation commission proposed earlier this year: eliminating TRICARE entirely.

According to Politico’s Austin Wright, earlier this month the Defense Health Agency wrote Sen. John McCain and Rep. Mac Thornberry, chairmen of the committees, explaining that rising medical costs have created the TRICARE shortfall. Wright’s report cites two “major factors” at the heart of the issue:

First, there was an unexpected spike over the past few years in prescriptions for expensive compound drugs designed to meet the specific needs of patients, due in part to a surge in potentially fraudulent sales of drugs with “dubious clinical benefit,” as CBS News documented in May. This problem is now largely under control after the Defense Health Agency rolled out more stringent requirements for compound drugs.


The second factor is much harder to fix: The Pentagon’s health care bills just keep going up, as the Congressional Budget Office has noted, because of increased usage rates, decisions in Congress to expand Tricare benefits and the medical costs associated with the wars in Iraq and Afghanistan.

The solution being discussed in the NDAA conference calls for increasing TRICARE pharmacy co-pays. McCain backs this idea. Thornberry is resisting, citing recent increases in co-pays and Pentagon requests for steady increases over the coming years.

The solution to this problem seems obvious. The Military Compensation and Retirement Modernization Commission recommended in its January report that Congress eliminate TRICARE. While the system’s co-pays are generally lower than those in the civilian health insurance market, it has a weak provider network that is exceedingly unpopular with service members. The commission recommended a voucher system akin to the military’s Basic Allowance for Housing, which would let military personnel purchase health insurance on the private market using Department of Defense funds.

The commission’s proposed changes, however, have been a nonstarter on Capitol Hill. McCain rejected the idea almost as soon as it was announced. But given that both the senior senator from Arizona and Thornberry have shown a great deal of concern about military acquisition programs, both must acknowledge that something has to be done about the military’s health care system. As Stephen Daggett of the Congressional Research Service argued in 2009 before the House Armed Services Committee, heath care costs are a major factor in the steady growth in the Pentagon’s operations and maintenance (O&M) account. In its planning, the Department of Defense tends to assume O&M costs will eventually level out. When they do not, money is taken from procurement programs to make up for mandatory O&M bills such as health care. Shortfalls like the one the Defense Health Agency just acknowledged are only likely to continue, and with increasing co-pays being so controversial, the money for mandatory health care programs is likely going to continue to be moved from discretionary acquisition programs.

Of course, TRICARE is only one problem. As the Congressional Budget Office noted last year, TRICARE for Life—the health care system for military retirees—was a leading contributor to 34 percent growth in O&M spending between 2000 and 2014. Unfortunately, the compensation commission did not see fit to recommend changes in the retiree health care system. But the voucher system for active-duty personnel would be a step forward. It is too late to include such a measure in this year’s NDAA, but McCain and Thornberry should prepare to include it in next year’s legislation rather than haggle over co-pay increases.