DoD Healthcare: $50B a Year, a Broken Reorganization, and a Readiness Mission in Conflict

What is the Defense Health Agency (DHA) and how is it different from the old system?

DHA was established in 2013 to consolidate the separately managed healthcare programs of each military service branch. Before DHA, each branch operated its own TRICARE contracts and many of its own MTFs, creating duplicative administrative structures. DHA was given authority to standardize TRICARE contracting, manage the formulary, and — after the FY2017 NDAA — manage the MTFs themselves. The key structural difference: MTF commanders now report to DHA regional directors rather than their service branch Surgeons General. The readiness mission is still funded through the branches, which is the central unresolved tension.

What is TRICARE Prime vs. TRICARE Select and who should use which?

TRICARE Prime is the managed care option — you enroll, are assigned a primary care manager (PCM), and get coordinated care with lower cost-sharing but less provider flexibility. Referrals are required for specialty care. Active duty service members and their families are generally enrolled in TRICARE Prime. TRICARE Select is the preferred provider organization (PPO) option — you can see any TRICARE-authorized provider without a referral, but pay higher cost-sharing. TRICARE Select works better in markets with good network adequacy; it is problematic in rural areas where in-network providers are scarce.

What is the TRICARE formulary and why does it sometimes conflict with VA coverage?

The TRICARE formulary is the list of covered prescription drugs and their cost-sharing tiers. TRICARE's formulary is managed separately from the VA formulary — the two systems use different drugs at different tiers, and a drug covered by the VA at low cost may not be covered by TRICARE at all (or may be on a non-preferred tier requiring significantly higher cost-sharing). For dual-eligible veterans who receive care from both systems, this creates gaps where their prescribed regimen costs differently or isn't covered depending on which system they're using. Formulary reconciliation has been a long-standing interoperability gap between DHA and VA.

How much does DoD actually save by having TRICARE vs. paying civilian market rates?

The framing is inverted — DoD spends more per beneficiary than most employers, not less. The relevant comparison is to what TRICARE costs beneficiaries versus what they'd pay in the civilian market. A retiree family paying $600/year for TRICARE Prime would pay $8,000–$15,000/year for comparable employer-sponsored coverage. DoD bears the cost difference — approximately $4,700/year per beneficiary, rising steeply for active duty. The CBO has consistently found that raising TRICARE cost-sharing to match federal civilian employee plans (FEHB) would save $6–12B/year without eliminating coverage.

What was GAO-21-368 and what did it actually find?

GAO-21-368 (titled "Defense Health Agency: Actions Needed to Address Gaps in Organizational Structure and Processes for Managing Military Hospitals and Clinics") examined the DHA MTF reorganization. Key findings: DHA lacked the organizational structure to effectively manage MTFs; data systems to track costs and performance across all MTFs were inadequate or absent; DHA had not established clear metrics to measure reorganization success; and promised cost savings could not be verified. The report was issued in 2021 — two years into the reorganization — and found that DHA was not well-positioned to manage the responsibilities it had been given.

Does DoD healthcare spending crowd out other parts of the defense budget?

Yes — and this is a documented concern in multiple CBO and CRS analyses. DoD healthcare spending has grown faster than the overall defense budget for most of the past 20 years. In FY2001, healthcare was approximately 6% of the DoD base budget; by FY2023, it was approximately 11%. Every dollar spent on TRICARE beneficiary care is a dollar not available for readiness, modernization, or personnel. The CBO has framed this as a structural budget pressure that will continue to grow as the retiree population ages and healthcare costs rise.