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Defense Department Update
Feb. 10, 2006 - TRICARE – Sustaining the Benefit

Following are highlights of changes proposed in the fiscal year 2007 Defense budget to TRICARE.

  • The United States military is committed to providing the best possible care for those who have served our country.
    • TRICARE is the Department of Defense’s managed health care program for active duty military, active duty service families, retirees and their families, and other beneficiaries.

  • Adjustments to the TRICARE system are necessary to ensure military health benefits are maintained at a superior level for many years.
    • The Defense Department is proposing that working-age military retirees and their families pay higher premiums to help address rising health care costs.
      • Proposed adjustments will not affect active duty military or their families or military retirees age 65 or older or their families.
      • Proposed adjustments will not change the benefits military beneficiaries receive under the system.
    • Rebalancing the share of costs between individuals and the government and indexing the cost shares so they will be adjusted annually for inflation will help place TRICARE on a sound fiscal basis for the long term.

  • The way DoD’s current health care system is funded is not sustainable.
    • Mainly as a result of benefits added by Congress, DoD’s health care costs have almost doubled over the past five years.
      • Costs in fiscal year 2006 were $37 billion, up from $19 billion in 2001. By comparison, this year’s proposed shipbuilding budget is $11 billion.
      • Health care costs are conservatively projected to reach $64 billion in fiscal year 2015, an estimated 12 percent of the total DoD budget, compared with 8 percent now and 4.5 percent in 1990.
      • Today nearly 60 percent of the Defense health spending is for retirees. These costs are projected to keep rising.
  • As TRICARE has been enhanced, individual’s cost shares have essentially remained the same since 1995. As a result, DoD pays a continually increasing percentage of beneficiaries’ health costs.
    • In 1995, beneficiaries paid approximately 27 percent of their health care costs.
    • Today beneficiaries pay only 12 percent of their health care costs.
    • TRICARE annual premiums haven’t changed in 11 years.
      • By contrast, premiums for federal employees (in the Federal Employees Health Benefit Plan) rose 115 percent from 1995 to 2005.
  • The military is, in effect, increasingly subsidizing the health care costs of private corporations, organizations, and state and local governments.
    • Because TRICARE coverage is so comprehensive, many private employers are dropping employer coverage for military retirees and directing them to rely on TRICARE instead.
    • Some state governments have passed rules that encourage employees who are military retirees to use TRICARE and not their state health care systems.

  • In addition to benefit enhancements, increased use by more beneficiaries, and no cost share increases, DoD has experienced the same double-digit health care inflation as all health plans in the nation.
    • The military health system will employ other strategies to make operations more efficient and save money, such as promoting generic drug use in pharmacies, the use of the mail-order pharmacy, better hospital use, and joint procurement with the Veterans Affairs Department.
    • These and other management initiatives are being implemented to reduce delivery costs and enhance performance within the system, but these actions alone will not contain the escalating costs.

  • The proposed plan would ask retirees to pay somewhat more in premiums and for certain co-payments.
    • The current TRICARE Prime annual enrollment fee for retirees is $230 for individuals and $460 for families for both enlisted and commissioned retirees.
      • The proposed changes would increase TRICARE Prime enrollment fees for junior enlisted retirees at pay grades E-6 and below to $325 per individual and $650 for families by October 2008.
      • Enlisted retirees at pay grades E-7 and above would pay $475 for individuals and $950 for families by October 2008.
      • Retired officers of all ranks would pay $700 per individual and $1,400 per family.
      • In fiscal year 2009 and beyond, the share of health care costs paid by military retirees would be indexed to the Federal Employees Health Benefits Program that covers federal workers and retirees.
      • Funds collected from increased fees will go to offset health care costs.
    • DoD provides the best health care program. We are proud of our improvements to the system. Our promise is to sustain the benefit. These relatively modest changes in beneficiary cost shares will make TRICARE available for future generations.

Links: Secretary Rumsfeld’s remarks on the budget as submitted to the Senate Armed Services Committee on Feb. 7, 2006; letter to TRICARE beneficiaries from Army Brig. Gen. Elder Granger on the proposed changes (link to tri-fold sustaining the benefit brochure and proposed cost summary table); American Forces Press Service story; American Forces Press Service story.

Last Updated:
12/11/2006, Eastern Daylight Time
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