Defense Health Program

Between fiscal years 1994 and 1998, Congress appropriated $48.9 billion for Defense Health Program (DHP) operations and maintenance expenses, and about $4.8 billion was obligated differently from Department of Defense (DOD) budget allocations. DOD's strategy was to fully fund purchased care activities within available funding levels, leaving less to budget for direct care and other DHP activities, but it is difficult to reliably estimate annual demand and costs for each component. In 1994-96, purchased care obligations were $1.9 billion less than allocated because of faulty physician payment rate and actuarial assumptions; in 1994-98, direct care obligations were $1 billion more than allocated because DOD underestimated direct care requirements. Sizable funding changes like these generally occur without congressional awareness because the movement of DHP funds from one subactivity to another does not require prior congressional notification or approval. DOD officials expect future DHP allocations to track more closely with budget requests and allocations, while acknowledging that some movement of funds is inevitable given the lack of a universally enrolled beneficiary population for direct and purchased care. Repeated failure of DHP to adhere to its own budget requests or reported budget allocations could cause Congress to question their validity. DOD would not be burdened by notifying or reporting to Congress quarterly budget execution reports similar to those required of the TRICARE Management Activity to improve internal budget oversight and budget decisionmaking. Such reporting could help Congress determine whether additional program controls, such as a universal requirement that all beneficiaries enroll in direct care or purchased care, are needed.

GAO noted that: (1) between fiscal years 1994 and 1998, Congress appropriated $48.9 billion for DHP operations and maintenance (O&M) expenses; (2) during that period, DHP obligations at the subactivity level, particularly for direct and purchased care, differed in significant ways from DOD's budget allocations; (3) in total, about $4.8 billion was obligated differently--as either increases to or decreases from the budget allocations DOD had developed for the 7 DHP subactivities; (4) these funding changes occurred because of internal DOD policy choices and other major program changes; (5) according to DOD, its strategy was to fully fund purchased care activities within available funding levels; (6) this strategy left less to budget for direct care and other DHP subactivities; (7) TRICARE Management Activity officials also told GAO that because the DHP has both direct and purchased care components, whereby many beneficiaries can access either system to obtain health care, it is difficult to reliably estimate annual demand and costs for each component; (8) between 1994 and 1996, purchased care obligations were $1.9 billion less than allocated because of faulty physician payment rate and actuarial assumptions; (9) between 1994 and 1998, direct patient care obligations amounted to $1 billion more than DOD had allocated--during a period of base closures and military treatment facility downsizing--largely because DOD understated estimated direct care requirements; (10) also, between 1996 and 1998, DOD overestimated TRICARE managed care support (MCS) contract costs, believing that contract award prices would be higher and implementation would begin sooner than what occurred; (11) thus, most of the unobligated MCS contract funds were used to defray higher than anticipated Civilian Health and Medical Program of the Uniformed Services obligations; (12) the movement of DHP funds from one subactivity to another does not require prior congressional notification or approval; (13) as a result, these sizable funding changes have generally occurred without congressional awareness; (14) now that the MCS contracts are implemented nationwide, DOD officials expect future DHP obligations to track more closely with budget allocations; and (15) current law and regulations will continue to allow DOD the latitude to move funds between subactivities with little or not congressional oversight.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone: