Academic journal article AEI Paper & Studies

Preserving the Military Health Care Benefit: Needed Steps for Reform

Academic journal article AEI Paper & Studies

Preserving the Military Health Care Benefit: Needed Steps for Reform

Article excerpt

Foreword

As Washington struggles to deal with the national debt and the size and reach of the federal government, the defense budget has become an increasingly attractive target for savings. The Obama administration has already enacted or proposed cuts of close to $1 trillion over the next decade. These have dramatically reduced the US Department of Defense's (DoD's) capacity to modernize aging military inventories.

Such investment is critical to protecting American national interests. Yet, the current fiscal environment affords little hope for a larger defense budget, and political gridlock could put in place even more reductions. Although it remains unclear whether Congress will be able to reach a compromise to avert the remainder of sequestration's almost $500 billion in defense cuts, all indications are that even if Congress were to reach something short of a "grand bargain," defense would be expected to contribute a large share of the savings--perhaps in amounts almost totaling the original sequestration package.

Despite the threat of almost $1.5 trillion in cuts to the US military, top-line reductions are only one component of the multitude of challenges facing the Pentagon. The rising cost of personnel within the Department of Defense is squeezing the budget from within as military health care costs, the largest personnel cost driver, grow exponentially. Although the cost of military pay, allowances, and health care has risen 90 percent since fiscal year (FY) 2001, the active-duty personnel count has risen by less than 3 percent. (1)

These pay and benefits increases were created with the best of intentions in the midst of two brutal wars, but they have reached the point where they are simply unsustainable. This spending is set to rise further, threatening to crowd out crucial modernization spending and leave the United States behind the cutting edge. In the words of former defense secretary Robert Gates, "Health-care costs are eating the Defense Department alive." (2)

In FY 2013, DoD requested a total of $48.7 billion for military health care--approaching 10 percent of its base budget. Increasingly, this money is going to individuals no longer in the military, while active-duty service members are seeing a decreasing share of DoD health benefits. According to TRICARE's 2012 annual report to Congress, active-duty members make up only 15 percent of all military health care beneficiaries, while retirees of all ages and their family members make up 53 percent. (3) In less than a decade, defense health care spending increased by over $25 billion, from $17.4 billion in FY 2000 to $42.5 billion in FY 2008, a 144 percent increase. (4) At this rate, health care spending is growing faster than the Defense Department's discretionary spending.

Given demographic trends and spiraling health care costs across the wider US economy, this trend will only grow more pronounced in future years. The Congressional Budget Office (CBO) projects that military health care costs will increase to $65 billion by 2017 and $95 billion by 2030--nearly a 100 percent increase from today. (5)

Demographic trends and rising private-sector health care costs are only part of the explanation for unsustainable military health care practices. For one, as CBO notes, the "growth rates of per-person costs in the military health system over the past six years have been significantly higher than the corresponding national averages." (6) Much of this cost growth was due to generous TRICARE benefits and relatively low cost sharing. This led many enrollees in TRICARE Prime, for instance, to consume health care at a much higher rate than civilians enrolled in traditional plans. A related issue is how the military health system provides private-sector care for its beneficiaries, especially retirees. From FY 2001 to FY 2006, costs for purchased care increased by 19.6 percent per year, while direct care costs grew by only 6. …

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