Sick Call

n managing the largest unified health care system in the country-a $16 billion-a-year program to cover more than 8 million active-duty troops, military retirees and their families-the Defense Department must deal with all the complexities and challenges that face civilian managed care systems. Plus, it has an added complication uniquely its own.

"Blue Cross Blue Shield and Kaiser will not send docs into a war zone," says Dr. Sue Bailey, assistant secretary of Defense for health affairs. But the military must. The armed forces always stand ready to dispatch thousands of highly trained medical personnel overseas to treat wounded soldiers, while keeping enough medical staff at home to ensure that the remaining troops are fit to fight. In recent years, the increasing number of overseas peacekeeping missions and the rising threat of biological or chemical attacks has redoubled demands on military medical personnel.

Meanwhile, those medics must also tend to their peacetime duties, which have increased over the years due to demographic shifts, the move to the all-volunteer force, and the end of the Cold War. Since World War II, military doctors have taken on more responsibility for caring for military family members and retirees who served 20 or more years in uniform. After the war, with most uniformed troops young and healthy, military doctors needed more and sicker patients on whom to hone their skills; at the same time, spouses, children and retirees needed medical care. So opening the vast DoD infrastructure of base hospitals to more patients was logical and easy. But times changed. The end of the draft in 1973 made the military force far more career-oriented, which meant a greater number of older, married members with children. Then came the end of the Cold War in 1989. The country no longer needed a huge military force, and nearly a million troops were mustered out, many as retirees. Dozens of base hospitals closed. (Since 1989 the Pentagon's active-duty force has been cut by nearly 40 percent.) The result: Today retirees and dependents outnumber active-duty troops 4-to-1.

Those millions of military family members and retirees are not shy about complaining when their medical care, as well as their access to it, is found wanting. Indeed, problems with military medicine are often cited by troops as a key reason for leaving the force: In Pentagon parlance, it is one of the key "quality of life" factors affecting morale. So program managers are under pressure from all sides: They are trying to control medical costs and shrink infrastructure at precisely the same time that demands from retirees and family members are rising, and the need to keep uniformed troops happy is acute.

To care for dependents and retirees affordably when its own hospital system is shrinking, the Pentagon has increasingly farmed them out to private civilian medical contractors and to Medicare. The troubled transition to a military managed care system, called Tricare, has left some military personnel fighting off collection agencies after the insurance plan failed to pay their families' medical bills. Many military retirees 65 and older have been left out of the system altogether, covered only by Medicare.

Discontent has swelled, particularly among politically well-organized retirees, who have demanded reform of the system. After last year's big boost in military pay and pensions, expectations grew that 2000 would be the year national leaders cured all of the ills of military health care. Senior leaders in the Clinton administration and in both parties on Capitol Hill have pledged reform: Defense Secretary William Cohen, Senate Armed Services Committee Chairman John Warner, R-Va., and House Armed Services' top Democrat Ike Skelton, D-Mo., all have introduced proposals. But their therapies are hardly drastic.

When the Defense Department released its proposed fiscal 2001 budget on Feb. 7, it became clear that an ambitious program outlined earlier by Army Gen. Henry H. Shelton, chairman of the Joint Chiefs of Staff, had been whittled down considerably. The revised plan promises an extra $348 million to cover the rapidly rising costs of current programs (not enough, even according to the Pentagon) and $80 million to improve care for the families of active-duty troops. But there's nothing for retirees.

Building on the Pentagon's plans, Warner and Skelton do address beneficiaries over age 65, but mainly by extending and expanding current demonstration projects. More radical and expensive bills, which would enroll military retirees in the civil service's Federal Employees Health Benefits Program, have gained hundreds of co-sponsors but little legislative ground. So whereas last year activists rode a political steamroller to victory on compensation, this year they are grumbling over Cohen's and Congress' caution. Why such a difference? The irresistible political force for change is much the same: Everyone wants to help the troops and their families. But the object being pushed this year may be nearly immovable. While low pay and pensions were simple problems with a simple solution-raise them-fixing health care is far more complex and costly.

For starters, health-care costs are hard to predict. "Every year, [the Pentagon asks] for inadequate amounts [for health care], for as long as I've been on the committee," says long-serving House Appropriations Committee powerhouse Rep. John P. Murtha, D-Pa. Those shortfalls require regular year-end requests by the military for supplemental funds, something that does not sit well with lawmakers. Another problem is the intramural budget game in the Pentagon, where health care accounts compete directly with high-tech weapons and ongoing military operations-and usually lose.

A Tale of Two Missions

The military's understandable emphasis on fighting wars, not on providing employee benefits, has shaped the entire history of the military medical system.

Like the 50-year-old "temporary" quarters that still house some military offices, the Defense Department's health care program reflects not rational design, but a legacy of improvisation dating back to World War II. "In 1942, they were just providing whatever was left over in health care to the families [and retirees]," says Bailey. The vast, bloody battlefields of World War II, Korea and Vietnam, and the ever-looming threat of World War III, required a massive military and a correspondingly immense medical system. Few of the young, single draftees stayed in long enough to have children while in uniform, and still fewer put in the 20 years needed to earn retirement benefits. So the big base hospitals could easily slip in what few children and elderly patients there were for free care.

Such care was not a legal entitlement, however. When Congress codified the practice on June 7, 1956, it specifically said care would be provided to retirees only if space was available. But in practice it always was. Commanders, recruiters and even official pamphlets printed as late as 1993 all told military careerists that they would have lifetime medical care. "It was something that every officer, every enlisted man I knew counted on," says retired Army Lt. Col. Thomas J. Compton, who lost all access to his local base hospital upon turning 65. "It was quite a shock to find out that that really wasn't the way it was."

The problem was demographics. By the 1960s, when the many career soldiers who had enlisted during World War II reached their 20-year retirement, the military system had begun to show the strain. So when Congress created Medicare in 1966, it also established the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), essentially an insurance program to cover supplemental care from civilian doctors for military dependents and for retirees until Medicare kicked in at age 65. But the ranks of the retired kept growing, joined after the end of the draft in 1973 by the children of long-serving volunteers. CHAMPUS began to break down.

It was a "non-system," a "free-for-all," says Maj. Gen. Harold L. Timboe, a 32-year Army veteran who now commands Walter Reed Army Medical Center in Washington. The Army, Air Force and Navy maintained three often-redundant medical systems (Marines fall under the Navy's care); and, says Timboe, "there was no system of coordination between us and the civilian sector." In fact, Timboe says, when he commanded a base hospital in the 1980s, "our doctors were threatened with legal action" for referring patients to one civilian specialist over another, a technical violation of federal fair-and-open-competition rules.

Controlling costs became impossible: CHAMPUS spending, in constant dollars, tripled from 1984 to 1994. So, like civilian employers, the Defense Department began to experiment with managed care. The Pentagon quietly refined its plan before, during and after the Clinton administration's 1993 health care debacle, and in 1995 Tricare was born. The new joint Army-Air Force-Navy system offered a choice between a fee-for-service plan much like the old CHAMPUS, a preferred-provider-organization-style plan in which patients were directed to physicians in a network, and, the centerpiece, a health maintenance organization called Tricare Prime. The Pentagon hoped that most military families would join Tricare Prime.

The push toward the HMO coincided with the downsizing of the military. As base hospitals were stripped of inpatient beds, specialists and emergency rooms, not only retirees but also active personnel and their families had to turn to Tricare civilian managed-care contractors-a tough concept to sell to folks who thought the military had promised them something else, says Edwin Dorn, who was Defense undersecretary for personnel and readiness during the transition. A second difficulty was that in many areas of the country in which the Pentagon set up its HMOs and PPOs, it was the first time such managed care systems had ever been created.

On the West Coast, managed care was relatively well-established. But many civilian doctors were unfamiliar with, and even hostile to, HMOs in the central regions of the country, particularly in rural areas-precisely the places in which most military personnel are based. Even today, "in places like Mississippi, there is no other managed-care product," says Ellen Waddle, government affairs director of Tricare contractor Humana Military Healthcare Services.

To ease the transition to managed care, the Pentagon rolled out Tricare region by region. It started with the Pacific Northwest in 1995, then headed south and east. Tricare only came to Washington, D.C., in June 1998. Though the system now covers the nation, it is hardly national: Five different contractors operate in a dozen administrative regions under subtly, but significantly, different contracts. The result, acknowledges one Defense official, is a "patchwork." And with the frequent reassignments that are characteristic of life in uniform, military families must move in and out of different Tricare regions as often as every two years, learning a new set of rules and procedures each time. But as irritated as the families often are by the situation, at least they have coverage. Tricare's most glaring and politically explosive flaw is its failure to cover retirees over age 65.

Locked Out

The anger over health care is greatest among older military retirees. While many have private health insurance from a second civilian career, and a few are severely enough disabled or impoverished to qualify for care at Veterans Affairs Department hospitals, most once depended on the Defense Department to get their care. But military hospitals, whose first responsibility is to active-duty troops, by law may only take retirees when extra beds are available. While the capacious Cold War hospitals had space to spare, today's downsized system often does not. Retirees frozen out of military facilities can seek civilian treatment through Tricare-until they become eligible for Medicare, at which point the 1966 statute that created military health insurance simply drops them. So except for the comparatively few who live near the small number of bases that still can cram them in, military retirees lose their employer-provided health-care benefit the moment they turn 65. Most retirees see this as a broken promise.

"There are tremendously strong emotions [and] a lot of pain out there," says Sen. Max Cleland of Georgia, top Democrat on the Senate Armed Services Personnel Subcommittee and a disabled Vietnam veteran himself. Such sentiments attract congressional attention.

The rapidly rising cost of prescription drugs-which are not covered by Medicare-is the No. 1 concern among military retirees, as it is for the civilian elderly. A test of expanding the Pentagon's pharmacy benefit to over-65 retirees showed so much promise that both Sen. Warner's and Rep. Skelton's bills would make it a permanent nationwide program. But the activists, and other members of Congress, want a far more comprehensive solution: allowing retired troops access to the Federal Employees Health Benefits Program. Under FEHBP, enrollees can choose from a variety of different private-sector insurance plans, depending on where they live, and the government picks up, on average, 70 percent of their premiums. "Any clerk who works in the Pentagon for as long as I did has [FEHBP]," says retired Army Col. George Bartel.

Such grassroots sentiments have propelled FEHBP bills onto the congressional agenda. The latest to sweep the House, HR 3753, would allow all military retirees to enroll in FEHBP (in a separate risk pool from civil servants). While a majority of House members have signed on, HR 3573's sweeping scope and high cost-an estimated $4 billion to $5 billion a year-have caused even experienced retiree lobbyists to downplay its chances, much to the dismay of grassroots activists.

The retirees' ideal is the good old Cold War days of free lifetime care at military hospitals, with no need to pay even subsidized FEHBP premiums for civilian care. Indeed, FEHBP does not seem cheap to older enlisted troops who retired on a sergeant's humble pension and who are also the very retirees least likely to have private insurance from a second career. Says Larry D. Rhea, deputy legislative director of the Non-Commissioned Officers Association, "There's a difference between an E-7's [a senior sergeant's] retired pay and an O-6's [a colonel's] that an awful lot of people don't want to take into consideration."

To evaluate the level of interest in FEHBP, Congress authorized a demonstration project in 1998 to allow military retirees over 65 to enroll in the program at six selected sites around the country. Enrollment was capped at 66,000 people, but only a few thousand signed up, forcing an extension of the enrollment period. Skeptics say the slow start has already proven that FEHBP is not what retirees really want.

"That's bullshit," says Rep. James P. Moran, D-Va., an author of the original FEHBP demonstration project bill. "This was my bill, and God, they eviscerated the thing." Moran and pro-FEHBP activists blame the low enrollment not on FEHBP itself, but on the Pentagon's implementation, particularly on unclear provisions about whether enrollees could get their old coverage back if the test ended.

Critics also say the Pentagon's publicity campaign for the demonstration project was lackluster. Indeed, the informational mailers sent out for the FEHBP test look thin and colorless beside the hefty, inviting packet promoting a parallel demonstration project for over-65 retirees, Tricare Senior Prime, which has 30,000 enrollees. Senior Prime costs retirees less than FEHBP and gets them back into their beloved military hospitals-but the other open secret of its success is that DoD officials have always favored Senior Prime over FEHBP. The first reason is financial. Under FEHBP, the Defense Department must pay when over-65 retirees are treated in civilian facilities. Under Tricare Senior Prime, the Pentagon gets reimbursed from Medicare to treat the over-65s in military facilities-although the current agreement has kept such payments to negligible levels so far. Even so, FEHBP is a definite loss, and Tricare Senior Prime a potential gain, for Pentagon coffers.

But the institutional imperative behind Tricare Senior Prime is as important to the Pentagon as the finances. While FEHBP pulls retirees out of the military system, Senior Prime pushes them back in-and although the military cannot treat all of the over-65s, it does want to care for those it can: Its doctors and nurses need the practice. "If we didn't see over-65s here, we'd have to shut down the general surgery training program," says Lt. Col. Craig Shriver, chief of the surgical residency program at Walter Reed Army Medical Center. "They're the ones who get sick."

Still, the Pentagon's Bailey concedes that FEHBP "could . . . possibly fill in some of the blanks" in retiree care without hurting readiness for war, while retirees have no objection to Tricare Senior Prime being one option among many. Sen. John McCain, R-Ariz., included both options, along with Tricare reforms for active-duty troops, in a bill (S 2013) introduced earlier this year during his presidential campaign.

Locked In

While older retirees feel locked out of the military's medical system, those under age 65-active-duty troops, younger retirees and their families-sometimes feel locked in. The basic problem is the same as in private-sector managed care: access, or rather the lack of it. "Trying to manage the cost of care, you tend to put [in] a fair number of bureaucratic hassle factors," says Walter Reed commander Timboe. "You see the backlash now."

Military personnel face some unique "hassle factors." Consider a standard civilian HMO requirement: pre-authorizations for specialty care. In Tricare, "some regions do them; some regions don't; some regions do them for certain procedures but not for others," says Sydney Hickey, a longtime advocate for military families. "When you move, how are you supposed to know?"

No population moves more often than the active-duty military. While their Tricare coverage no longer lapses en route-initially the system required them to disenroll on departure from their old region, and then re-enroll on arrival in the new-they still must learn a new region's rules every few years, or more often, if, for instance, they have a child away at college.

Military families also complain about being bogged down frequently in Tricare administrative trivia, particularly in communications between the military system and private providers. While about three-quarters of all care is still provided in military hospitals and clinics, the remainder is provided by civilians. Since the civilians provide a disproportionate share of specialty care, the more serious a family's medical problems, the more maddening the bureaucracy.

"You've got a chest cold or something, that's not a problem," says Maj. Matthew Sambora of Hanscom Air Force Base, Mass. "[But] when you go through the referral process, the amount of bureaucracy that is required for you to get to the care you need is really just unbelievable. I've got a binder full of documentation going back and forth . . . resolving a billing dispute between the hospital and Tricare."

Felix Alvarado, an under-65 retired Air Force chief master sergeant in Texas, had to fight off collection agencies "three or four times" after Tricare inadvertently dropped him from the rolls. He bought private-sector coverage "the first chance I got."

Such reimbursement battles do not endear Tricare to civilian doctors either, who complain they don't get paid on time. At one point, recalls Pat Evans of the Taylor-Jones-Haskell County Medical Society in Texas, "we had physicians who had not been paid in six months or longer." Some providers have stopped taking Tricare patients altogether. Even in the Pacific Northwest, the longest-running and arguably best-managed region, more than 20,000 patients had to find new coverage after the Group Health Cooperative there pulled out of the Tricare network last year, citing burdensome regulations and low reimbursement rates.

Just as local doctors complain they are not being paid properly by the regional contractors, the contractors complain that they are not being paid by the Pentagon. "The mechanism for paying contractors was designed many years ago," says Jim Woys, senior vice president of Foundation Health Federal Services, the largest of the regional Tricare contractors. "[It] doesn't fit today's environment."

The Pentagon is moving toward a new "Tricare 3.0" contract, underpinned by better databases, that it hopes will prevent reimbursement problems and improve service in the future. But Tricare 3.0's emphasis on giving contractors more flexibility to implement "best business practices" as they see fit will only exacerbate Tricare's inconsistencies from region to region, argue activists-and even some contractors.

And while Tricare 3.0 remains in contention, the contractors still claim hundreds of millions of dollars in overruns from past years. For now, these claims remain in negotiation-and off budget. The Pentagon may have to request even more money from Congress to pay them. "We may well have to send up a budget amendment," Pentagon Comptroller William J. Lynn told reporters the same day the original budget was released. Even optimistic DoD officials talk in terms of at least a $216 million shortfall in health funding next year. That will require a congressional bailout before addressing any of the system's structural problems that affect the lives of active-duty families and retirees.

Health care reform is hard enough in the civilian sector. Imagine managing an HMO that has go to war.

Sydney J. Freedberg Jr. is a reporter at National Journal.