Add Tricare pharmacy co-pays to the growing list of disputes holding up the 2016 defense authorization bill.

At the start of July, lawmakers in the House and Senate were hopeful that the annual policy bill could be finalized before the August congressional recess. But fights over a host of issues — defense acquisition reform, military retirement rules and housing stipends — have stalled progress on a compromise.

Now, those discussions will drag on until September. House members left town July 29 for their extended legislative break, jeopardizing Republican leaders' goal of finalizing the work before Oct. 1, the official start of the new fiscal year.

Sen. John McCain, R-Ariz., chairman of the Senate Armed Services Committee, had offered optimistic assessments of House-Senate conference committee work throughout most of July, but shifted that opinion to "serious concerns" just a day before the House session ended.

"I still hope we can get an agreement," McCain told reporters. "But we still have issues that still need to be ironed out. All these issues are connected to one another."

Now topping that list are the pharmacy co-payments.

Tricare beneficiaries saw those co-pays rise by $3 for most prescriptions earlier this year. The Senate's draft version of the defense bill would go further, supporting Pentagon proposals for more hikes on brand-name medications and certain drugs not listed in Tricare's formulary.

House lawmakers had opposed those moves, instead including in their draft of the bill only a pilot program to study ways to reduce government costs.

In a memo first obtained by Politico, Rep. Mac Thornberry, R-Texas, chairman of the House Armed Service Committee, offered a compromise of accepting 30 percent of the Senate's proposed pharmacy co-pay increases.

Thornberry said he does not believe the hikes are needed to balance military health care budget accounts, but is willing to move ahead with modest increases "only enough to prevent a point of order on the Senate floor" related to the military retirement system.

If any co-pay increase is approved, it would be the third such hike for military families and retirees in the last four years.

But the retirement reform plans represent a major transformation for military benefits and a point of pride for negotiators on both sides. Avoiding floor fights over budgetary issues related to that ambitious goal could sway many lawmakers to accept slightly higher medication costs.

Both the House and Senate retirement plans support creating a new system built around portable 401(k)-style investment accounts. Currently serving troops would be grandfathered under the old 20-year, all-or-nothing rules, but would be able to opt into the updated system, if they chose to, alongside new enlistees.

Under the revamped plan, troops would still see pension-style payouts for 20 years of service, but at a 20-percent reduction from the current benefit.

Supporters have said the changes would give some financial security to the 83 percent of troops who leave before finishing two decades of service. Lawmakers on both sides have touted the overhaul as a sign of progress.

But minor differences in the two chambers' plans have become another major sticking point for the conference committee.

The Senate wants a smaller federal match to the investment accounts, a slower start to the new system and lump-sum options for some payouts. House lawmakers are pushing for their version instead, offering more generous provisions to future generations of troops.

BAH changes

Meanwhile, House lawmakers are also upset over Senate negotiators' insistence on trimming housing allowances, another Pentagon budget-cutting proposal.

Under plans outlined by Defense Department leaders last year, growth in the Basic Allowance for Housing in coming years would be reduced to a level that eventually leaves troops with payouts covering only 95 percent of average off-base housing costs.

House lawmakers have said the rent payout cuts, the higher medicine fees and a series of other small cost increases will cause major financial problems for military families, many of whom already are facing difficulties from years of overseas deployments and higher operations tempos.

Pentagon and administration officials have said the belt-tightening moves are necessary to rein in military personnel spending and ensure that readiness, training and modernization accounts are kept solvent.

Congressional staffers will work behind the scenes over the August recess to seek common ground. The defense authorization bill typically doesn't pass before the fall, and lawmakers so far have expressed disappointment but not panic over the stalled progress in negotiations.

That said, lawmakers will return to Capitol Hill in September with a host of other priorities on their agenda, including oversight of the Iran nuclear deal and myriad annual appropriations bills, which could take away focus on finishing the defense policy bill.

And the congressional fight may be only the first hurdle on the authorization bill's path to becoming law. President Obama has threatened to veto the measure over a host of provisions, including the use of overseas contingency funds to skirt established budget caps and restrictions on detention facility operations at Naval Base Guantanamo Bay, Cuba.