MILITARY PEOPLE have traditionally been given free or low-cost medical care, for themselves and their dependents, on active duty and into retirement. The care was once confined to military facilities. In the 1950s the government began, and in the '60s it expanded, a supplemental program under which dependents and retirees could go to civilian doctors and facilities. The insurance program, under which the government pays most though not all of the bill, is called CHAMPUS -- Civilian Health and Medical Program of the Uniformed Services.

CHAMPUS is like every other health program: it has turned out to be a lot more costly than its founders anticipated. Some call it a runaway budget item. Partly it has been driven by the general rate of medical inflation, partly by demographics. The number of military retirees has risen sharply -- from only 180,000 in the mid-1950s to 1.6 million today -- and is expected to continue rising in the future. The retirees have dependents -- 3 million at last count. The dependent population of those on active duty has also risen, particularly with the shift to the all-volunteer services. There has also been some cutting back on the care afforded through military hospitals. For all these reasons, the cost of CHAMPUS has tripled in the last eight years, to more than $2 billion.

Without retreating overmuch from the tradition of subsidized care, Congress and the Defense Department have been seeking to control this cost. Last year it was decided that payments to hospitals under CHAMPUS would be made the same way that Medicare payments have been made since 1983 -- according to a federal price list. Now the department has also turned to a private intermediary to help manage the program. A California firm has been hired under a fixed-cost-but-with-a-lot-of-asterisks contract to run the program in that state and Hawaii for $3 billion over five years. The company proposes to offer participants various inducements to sign up with health maintenance and other organizations that agree to offer full care at reduced costs. The same thing is being done by other large employers that provide health insurance to their workers and retirees in the private sector.

The department had originally wanted to put the entire CHAMPUS program under private contract. It was persuaded to experiment a piece at a time. That's a wise approach. For one thing, there is the ghost problem. A lot of people -- no one knows quite how many -- who are eligible for CHAMPUS don't avail themselves of the program now. They have access to other insurance and prefer it. If CHAMPUS is made more attractive, some of these people could come back in, and costs would go up instead of down.

But the department and Congress are doing the right thing in trying to alter the incentives in this program, in introducing some baffles to deflect the cost. The natural law in these matters is that whatever the government will pay, it will be billed for. It has to say it will pay less.