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The Military Health System is the health care system of the United States military. The Military Health System is comprised of a "direct care" network of hospitals and clinics, known as Military Treatment Facilities, and a "purchased care" health plan, known as TRICARE. As of Fiscal Year 2008, the Military Health System covered over 9 million beneficiaries and had an annual budget of over $39 billion.

Direct care
Direct care in the Military Health System is care furnished directly through the military's large network of Military Treatment Facilities (MTFs). In FY 2007, the Department of Defense operated a direct care network of 65 hospitals, 412 medical clinics and 414 dental clinics throughout the world.

Historically, most care has been provided through the direct care network. Various studies have shown that the cost of care provided through the direct care network is significantly less than the cost of purchased care. Several factors, however, have led to a large increase in the use of purchased care over direct care in the last several years.

Purchased care
Purchased care is care obtained through private sector health care providers. The majority of purchased care spending in the Military Health System is within the TRICARE program.

History
Prior to the Civil War, medical care in the military was provided largely as a function of the regimental surgeon and surgeon's mates. While further attempts were made to establish a centralized medical system, care provision was largely local and limited. The availability of effective treatment for disease and injury was, by modern standards, primitive. Significant changes began to occur near the time of the Civil War, when improvements in medical science, communications and transportation made centralized casualty collection and treatment more practical.

In World War I the U.S. Army Medical Department expanded and developed greater organization and structure. Care began on the battlefield and was then transferred to successively greater levels of medical capability. Considerable medical service capability was located in the combat theater. This capability was to ensure the availability of needed care, and to help maintain combat unit strength by returning soldiers to duty if their condition could be effectively treated in theater. Expansion continued during World War II under the necessity to meet changing needs of the war, but without the benefit of an organizational or expansion plan.

After World War II, the Executive Branch of the U.S. Government underwent significant reorganization. The separate Department of War and Department of the Navy were re-aligned under a single Department of Defense. The reorganization created conflict as the Army had evolved its own medical system, as had the Navy. Furthermore, the Air Force, originally part of the Army, was created as a separate military service with its own separate Medical Service. Intermittent efforts to consolidate function and eliminate overlap and redundancy have taken place, but have historically met strong resistance.

Expansion of benefits for dependents and retirees
Historically, the primary mission of the medical departments of the Army and Navy was to provide medical care to Active Duty personnel. The Army Appropriations Act of 1885 included language that "the medical officers of the Army and contract surgeons shall whenever practicable attend the families of the officers and soldiers free of charge." When military personnel retired from active service, it was understood that they were subject to recall in time of national need; therefore, medical care was made available to them as well. Family members of Active Duty personnel and retirees and their dependents received medical care from military medical facilities on a space-available basis.

After World War II, and especially after the Korean War, a larger standing armed force for the Cold War resulted in larger dependent and retiree communities. Their medical care in military medical facilities was limited and space-available care became increasingly unavailable. A 1956 Department of Defense estimate was that 40 percent of active duty dependents did not have access to federal facilities due to distance, incomplete medical coverage at the federal facility, or due to the saturation of services at military treatment facilities. Many retirees had to seek medical care in the civilian economy at their own expense.

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)
To address the adverse effects on morale of the rationing of medical care in military medical facilities for Active Duty dependents and retirees (and their dependents), Congress acted to provide alternative sources of medical care to those communities, if their needs could not be met in the space-available military medical facilities. In 1956 Congress passed the Dependents Medical Care Act, allowing military retirees and their dependents to receive care in military medical facilities based on the "availability of space and facilities and the capabilities of the medical and dental staff." It also gave the Secretary of Defense the authority to contract with civilian medical care sources for the care of spouses and children of Active Duty members of the Uniformed Services, but not for retirees and their dependents. The Military Medical Benefits Amendments of 1966 extended these benefits to retired military members and their dependents. This benefits program became known as the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS.

Initially, CHAMPUS was modeled after the Blue Cross-Blue Shield High Option Plan of the Federal Employees Health Benefits Program (FEHBP). The program provided for partial government payment for new and expanded inpatient and outpatient care at civilian sources for designated beneficiaries. The CHAMPUS benefits were limited when compared to those authorized in military medical facilities, and they did not extend to those over 65 years of age. Additionally, CHAMPUS-eligible individuals did not have to pay a premium but had no plan choice. CHAMPUS beneficiaries were generally required to obtain non-emergency inpatient care from nearby MTFs, if such care was available there. Thus, CHAMPUS was not directly comparable to the various plans available to participants in FEHBP.

Because of escalating costs, claims paperwork demands, and general beneficiary dissatisfaction, DOD initiated in the late 1980s, with congressional authority, a series of demonstration projects designed to more effectively contain costs and improve services to beneficiaries. One of these, known as the CHAMPUS Reform Initiative (CRI), was designed by DOD in conjunction with a consulting company. Under CRI, a contractor provided both health care and administrative-related services, including claims processing.

The CRI project was one of the first to introduce managed care features to the CHAMPUS program. Beneficiaries under CRI were offered three choices — a health maintenance organization-like option called CHAMPUS Prime that required enrollment and offered enhanced benefits and low-cost shares; a preferred provider organization-like option called CHAMPUS Extra that required use of network providers in exchange for lower cost shares; and the standard CHAMPUS option that continued the freedom of choice in selecting providers and higher cost shares and deductibles.

Although DOD’s initial intent under CRI was to award three competitively bid contracts covering six states, only one bid, made by Foundation Health Corporation covering California and Hawaii, was received. Foundation delivered services under this contract between August 1988 and January 1994.

TRICARE
In late 1993, in response to requirements in the DOD Appropriation Act for Fiscal Year 1994, the DoD announced plans for implementing a nationwide managed care program for the MHS, known as TRICARE, that would be completely implemented by May 1997. Under the initial design of the TRICARE program, the United States was divided into 12 health care regions. An administrative organization, the lead agent, was designated for each region and coordinated the health care needs of all military treatment facilities in the region.

Seven managed care support contracts were awarded between September 1994 and September 1997 to cover these 12 regions. The contracts were awarded to Sierra Military Healthcare Services (Region 1), Anthem Alliance (later purchased by Humana Military Healthcare Services) (Regions 2/5), Humana Military Healthcare Services (Regions 3/4), Foundation Health Federal Services (later known as Health Net Federal Services) (Region 6, Regions 9/10/12 and Region 11), and TriWest Healthcare Alliance (Regions 7/8). The contracts were initially awarded for a base period and five option years and were subsequently extended, in some cases multiple times.

In August 2003 the DoD realigned the previous 12 regions into three new regions - North, South and West - and awarded new TRICARE contracts for administration of the three new regions.

The new contracts

While the health care benefit was changing, so was the composition of beneficiaries. Between 1988 and 2003, the number of eligible non-Active Duty beneficiaries for each Active Duty service member increased from 3.1 to 4.7. As the eligible retiree population was increasing, the opportunity for receiving inhouse care was rapidly declining. Between 1990 and 2001, base realignments and closures and MTF consolidation resulted in a 74 percent drop in the number of beds, a 76 percent decrease in bed days, and a 36 percent reduction in outpatient visits. This "…amounted to a de facto decline in the level of benefits provided to Medicare-eligible retirees. They had difficulty obtaining care at military medical treatment facilities on a space-available basis."

STOP
Effective October 1, 2001, TRICARE for Life (TFL) began providing lifelong comprehensive health care benefits to certain Medicare-eligible beneficiaries age 65 and older or disabled.

In October 2004, the Transition Assistance Management Program (TAMP) was extended to provide TRICARE for 180 days following active duty. In April 2005, the TRICARE Reserve Select (TRS) program was launched to provide a premium-based TRICARE health plan offered for purchase to Reserve Component members who qualify. In 2006, additional TRICARE benefits were extended to dependents whose sponsor died on active duty.

Objectives

To maintain a physically and mentally fit, combat and operationally ready military force.

To ensure the timely availability of trained manpower and other health resources required to provide support to approved combat, mobilization and contingency plans of the military forces.

To provide a program of health services to all eligible beneficiaries as currently authorized by law and practice.

To maintain a professionally viable and effective military health care system that is an incentive for the recruitment and retention of high-quality health professionals in an all-volunteer military force.

To maintain a system of health services that functions as effectively and efficiently as possible.