As former secretary of defense Robert Gates remarked during his last year in office, health-care costs are eating the Pentagon alive. Both military and political leaders in the administration and members of Congress know this. Policy makers also know what must be done to bring these costs under control. But because of misleading arguments put forward primarily by the military lobby and a lack of political will, necessary steps will not be taken this year.
For FY 2012, the military health-care budget will be about $53 billion and consume about 10 percent of the baseline or nonwar defense budget. Over the last decade, these costs have grown by nearly 300 percent from $19 billion in FY 2001. Without reform, the Pentagon’s health-care bill is estimated to rise by another 28 percent to $64 billion by 2015. Should these costs continue to grow, health-care expenses for retirees will consume an increasingly outsized percentage of the budget and begin to divert funds away from other critical Defense Department programs.
The vast majority of this cost growth can be attributed to providing care not to active duty service members but rather to military retirees and their families, who are allowed to remain enrolled in the Pentagon’s health-care plan for extremely low fees. Under the current system, retirees under age sixty-five pay just $460 per year for Tricare coverage for a family regardless of size (this fee was raised slightly to $520 per year, effective January 1, 2013). These figures have not been adjusted to reflect increases in medical inflation as was intended when the program was established. Retirees over age sixty-five can enroll for free in Tricare for Life, a Pentagon-run plan instituted in 2000 that augments their Medicare coverage. In 2007, a Pentagon commission reported that Tricare for Life accounted for 48 percent of the increase in military health-care expenditures from FY 2000 to FY 2005.
To address these problems, the Defense Department’s FY 2013 budget request proposed a number of reforms to the Tricare health-care system; taken collectively, they would begin to address the unsustainable growth of the Pentagon’s health-care costs. Specifically, the budget request proposes:
● Higher enrollment fees and deductibles for working-age retirees to account for increased health-care costs since the mid-1990s when Tricare was established. These fees would be phased in over five years and would raise the cost share of retirees from 11 to 14 percent.
● Pegging future enrollment fees to increases in medical inflation to ensure the long-term fiscal viability of the Tricare program.
● Implementing a small enrollment fee for Tricare for Life.
The Pentagon’s proposals would slow the projected growth of the military’s health-care costs, allowing savings of $12.9 billion between FY 2013 and FY 2017.
But truly restoring the Tricare program to stable financial footing will require more than the proposed fee increases. The Defense Department must also reduce the overutilization of services, along with limiting double coverage of working-age military retirees. These reforms, in addition to those in the Defense Department’s budget proposal, would enable savings of up to $15 billion per year, enough to hold Tricare costs steady in the near term. Moreover, these proposals would gradually rebalance the cost share between military retirees and taxpayers, incentivize the responsible use of services, and guarantee the fiscal future of the military health system.
Congress and the American public are understandably wary of asking veterans, service members and their families to shoulder increasing health-care costs when so many service members have been engaged in operations in Iraq and Afghanistan. Thus, both the Senate and the House Armed Services Committee turned down the Pentagon’s modest proposals, even though they would not affect active-duty service members, who would continue to receive health care at no cost.
Additionally, the proposed changes allow for exemptions, including survivors of service members who died on active duty. The changes would also not impact lower-income or seriously injured veterans, who receive health coverage through the Department of Veterans Affairs rather than through the Tricare program and whose medical-care budget for FY 2013 is also $53 billion.
Finally, the Pentagon’s proposals would not even fully restore the cost-sharing balance that existed when Tricare was established. In 1996, a working-age retiree’s family of three using civilian care contributed, on average, 27 percent of the total cost of its health care; today, that percentage has dropped to only 11 percent and would rise to just 14 percent under the Pentagon proposals. Unfortunately, most of these details were lost amidst the political posturing and deceptive rhetoric of the budget process.
Groups like the Military Officers Association of America and the Veterans of Foreign Wars are ignoring these facts. These groups accuse the Obama administration of trying to balance the budget on the backs of the men and women who have fought in Iraq and Afghanistan, knowing full well that less than 10 percent of the enlisted soldiers and Marines that bore the brunt of fighting those two wars will serve the twenty years necessary to retire (and thus become eligible for these programs). Similarly, they claim that raising Tricare fees is nothing more than a bait and switch, knowing full well that Tricare fees were always meant to be adjusted annually to reflect medical inflation. And charging a small enrollment fee for Tricare for Life is not reneging on a promise since the program did not exist until 2000.
Groups opposing military health-care reform may have been successful in the short term, but in the long run we will all lose if health-care costs continue to rise faster than the defense budget, crowding out funds for readiness and modernization. It is past time to put the military health-care system on a fiscally sustainable path.
Lawrence J. Korb is a senior fellow at the Center for American Progress and served as assistant secretary of defense for manpower, reserve affairs, installations and logistics during the Reagan administration. Alex Rothman and Max Hoffman are research assistants at the Center for American Progress. This piece draws from the center’s recent report on military compensation.