Overview of Military Health in the United States

By Geof Hileman

In the Public Interest, October 2024

After Medicare and Medicaid, can you name the two next largest publicly financed healthcare systems in the United States? Hopefully you can, because you read the title of this article, but if not—the answers are the Military Health System (MHS) and the Veterans Health Administration (VHA). The MHS and VHA, while interconnected and sometimes conflated, are two distinct and unique health care systems, comprising a combined total of nearly $200 billion in annual federal funding. This article provides an overview of the design and purpose of these two important benefit programs.

The MHS provides medical and dental care to active-duty personnel, their families, Reservists, and retirees. Care is provided both through a network of civilian providers and an extensive system of military hospitals and clinics (referred to as direct care). In essence, the MHS encompasses both a worldwide system of health care providers, as well as mechanisms for financing private sector care for nearly 10 million beneficiaries.

The MHS has a unique challenge in that it strives to provide efficient and high-quality care, but it must also remain staffed and trained to support the military in times of conflict, which requires rapid scalability, global coverage, and skill currency in highly specialized areas of medicine. As of 2023, the direct care system included 45 hospitals, 566 outpatient clinics and employed over 125,000 personnel.

Most families of active-duty personnel and retirees (and their eligible families) enroll in one of two options, TRICARE Prime and TRICARE Select. TRICARE Prime, which is available in areas near past or present military bases, is a gatekeeper style HMO benefit with very low cost-sharing. Each enrolled beneficiary is assigned to a primary care manager (PCM), which may either be a civilian provider or a provider at a military treatment facility (MTF). As with most HMO plans, emergency care can be obtained without penalty at any hospital.

Cost-sharing under TRICARE Prime is quite low compared to commercial offerings. For active-duty family members, cost-sharing only applies to pharmacy encounters. For retirees and their families, there are copayments of $25 for non-preventive primary care, $37 for specialist or urgent care, $75 for emergency department visits, and $188 per admission for inpatient stays. All care obtained within the direct care system (i.e., at military hospitals) does not incur any cost-sharing. Active-duty families do not pay a premium (or an enrollment fee, in MHS terminology), while most retirees pay an annual enrollment fee of $726 for family coverage.

TRICARE Select provides a second option for MHS beneficiaries, which is a PPO-style plan without gatekeeper and referral requirements. TRICARE Select is available nationwide, not just in certain areas like Prime, and offers increased provider choice in exchange for slightly high levels of cost-sharing. Unlike Prime, TRICARE Select does include cost-sharing for active-duty family member, although the levels are still much lower than commercial plans.

TRICARE health plans are administered by two regional managed care support contractors, who are responsible for maintaining networks of civilian providers, enrollment processing, customer service, and claims processing. These organizations are not at risk for health care costs and are paid through negotiated administrative charges.

For most services, TRICARE reimburses providers using Medicare’s methods and rates. In many cases, the managed care support contractors negotiate discounts below Medicare’s reimbursement rates. The use of Medicare rates and further discounts are central to the MHS’s cost containment strategies.

Additional programs provide health care for select subgroups of military personnel and their families. Because the Affordable Care Act’s mandate to cover dependents until age 26 did not apply to the MHS, TRICARE Young Adult (TYA) was established to provide coverage for dependents who have aged out of normal TRICARE eligibility. While TYA is fully premium supported, it provides needed coverage for over 40,000 young adults. TRICARE Reserve Select is a partially subsidized program that provides coverage to non-activated Reservists and their families.

Since 2001, TRICARE for Life (TFL) has provided an extraordinary benefit for Medicare-eligible MHS beneficiaries that enroll in Medicare Part B. TFL provides the equivalent of Medicare supplement coverage by covering all Medicare cost-sharing with no additional enrollment fees or premiums required. This benefit is available for retirees and any of their eligible dependents. Prescription drugs are covered for this population through the regular TRICARE benefit. Unlike most TRICARE benefits, which are covered on a pay-as-you-go basis, TFL benefits are prefunded through a trust fund that is overseen by an independent board of actuaries.

The health system administered by the Veterans Health Administration (VHA) has some similarities to the MHS but has a fundamentally different mission. The VHA provides health care, both directly though its own facilities and clinics, and indirectly through civilian providers, to veterans, including those who did not retire from the armed forces. VHA has a particular emphasis on health care needs specific to veterans, such as support for mental health and PTSD. VHA also provides non-health care services such as support for caregivers, vocational training, and housing support for veterans in need of these services.

Within the VHA, veterans are assigned a priority group from one to eight that reflects overall need and takes into account a combination of factors, including degree of disability, current income, ability to work, and military service history. The veteran’s priority group is used to determine which services are available (including some non-medical benefits) and the level of out-of-pocket costs associated with health care services. Cost-sharing is very low and non-existent for some priority groups.

Historically, the majority of the VHA’s care has been provided through its extensive system of health care facilities, which currently includes 170 VA medical centers, nearly 1,200 outpatient clinics, and 134 VA nursing home facilities around the country. Over the past decade, several significant legislative changes have greatly improved access to civilian care for VHA beneficiaries whose needs were not being effectively met directly by the VA’s facilities. The Veterans Access, Choice, and Accountability Act of 2014 (Choice Act) allowed veterans to utilize civilian health care based on their distance from VA facilities or if wait times at VA facilities exceeded 30 days. This access was expanded by the VA MISSION Act of 2018, which provided for a more robust civilian network and permitted veterans to seek urgent care without prior authorization.

The health care services provided by the Military Health System (MHS) and the Veterans Health Administration (VHA) are crucial pillars of the United States health care system. With an annual investment exceeding $150 billion, these systems not only care for millions of current and former active-duty service members and their families, but they also create a unique opportunity for long-term health interventions. By fostering ongoing relationships with patients, the MHS and VHA can implement and evaluate health initiatives over extended periods, yielding insights and outcomes that are often unattainable in traditional commercial health care systems. As we look to the future, the lessons learned from these programs can inform improvements in health care delivery, ensuring that all individuals who rely on these systems receive the comprehensive care they need.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.


Geof Hileman, FSA, is vice president for Kennell and Associates. Geof can be contacted at ghileman@kennellinc.com.