How Rolls Royce Health Plan Drives Pentagon Spending
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The Fiscal Times
March 7, 2013

Many critics of the Pentagon’s massive overspending during the last decade point to out-of-control costs related to the Iraq and Afghanistan wars and overspending on ineffective weapons programs. But in the coming decade, as DOD looks to cut $600 billion from its budget, the largest area of expenditure is not expected to be on the battlefield – but in the doctor’s office.

Costs for the Pentagon’s health care program, known as TRICARE, have been quietly but dramatically rising for the last decade. In just one decade, from 2001 to 2012, DOD health care spending rose from $17 billion to $52.2 billion. Health care spending now accounts for 10 percent of the Pentagon’s non-war budget. According to the Center for American Progress, a liberal-leaning think tank, these costs are expected to continue to rise to $63.9 billion by 2015.

The only way to cover this is to increase the cost of health care to military families. The Pentagon has raised TRICARE costs slightly in recent years. But increases on a par with those in the private sector would be so dramatic that they would be politically toxic, which would add to the number of military families using TRICARE.

In the meantime, the Pentagon has encouraged Congress to retool wage scales as a way to cut costs, but lawmakers have steadfastly refused.

“We have a lot of military families that are unsure of what’s going to happen,” said Joyce Raezer, executive director of the National Military Family Association. There are “threats to so many benefits that are all coming at once, some planned and some being worked in,” she said.

PUBLIC VS. PRIVATE COSTS
According to the Center for American Progress report, TRICARE costs had not been raised since 1996. In 2012, the Pentagon began to charge more in an attempt to meet the structural health care costs built into the budget. It raised baseline annual rates for retired families from $600 to $820. DOD will also for the first time start charging retirees an enrollment fee, which varies based on income level. For active duty soldiers and their families, annual rates increased from a baseline of $230 to 269.38 for individuals, and from $460 to $538.64 for families.   

But these increases still leave costs well below those in the private sector, where the cost of health insurance for the general public rose by 98 percent from 1996 to 2005. From 2001 to 2011, the cost of health insurance rose 131 percent, with a higher percentage of the cost shifted to workers

The Kaiser Family Foundation estimates that on average individuals pay $215 per month, or $2,580 per year.  Kaiser also found that employers are paying more for plans: The cost of a health plan for a family of four rose to from $15,073 in 2011 to $15,745 in. The cost of individual plans rose 3 percent in 2012 to $5,615.

As the figures above show, Pentagon health care plans are still ridiculously cheap compared to the open market. They’re so inexpensive, in fact, that the Pentagon expects health care costs to continue to rise as Obamacare is implemented.

RELATED: Obamacare May Bring Heavier Workloads and More Mistakes  

But even as more people sign up for TRICARE, there’s growing recognition that the retirement benefits of the program need to be extended to more service members. Currently, only military retirees who served more than 20 years – the traditional retirement cutoff – are eligible for full health coverage. This excludes many Iraq and Afghanistan war veterans who are in need of long-term mental and physical care but who chose not to serve the full two decades.

“If you serve 19 years and six months, you don’t get the benefit. This is an unreasonably generous pension benefit for 10 to 15 percent of the military, a relatively small percent,” said Linda Bilmes, a professor at the Harvard Kennedy School of Government.

REFORMS NEEDED
According to Todd Harrison, senior fellow for defense budget studies at the Center for Budget and Strategic Assessments, there are personnel cost savings available in the Pentagon’s budget. However, Congress refuses to reverse increases in military pay, which have outpaced the private sector by 25 percent since 2005. 

“There are opportunities  [to improve] the value of the total compensation system for service members while also reducing the total cost,” said Harrison. “For example, you can start charging an annual premium for TRICARE for Life – which only applies to military retirees age 65 and over – while also increasing basic pay slightly. It saves money overall and provides benefits that are more highly valued by service members.”

Jason Peuquet, research director at the Center for a Responsible Federal Budget at the New America Foundation, said changes to military pay and benefit structure can only be done as part of a wider reform effort.

“This is something that politicians are willing to consider in the context of a big reduction deal,” he said. “This is going to be politically difficult, and it’s going to impact people’s lives. If you’re not putting everything on the table, it will be hard for everyone to realize we’re all in this together.”

An editor-at-large for The Fiscal Times, David Francis has reported from all over the world on issues that range from defense to border security to transatlantic relations.