Making Sense of Military Healthcare Cuts
Senior Republican leaders from House Armed Services Committee Chairman Buck McKeon to Congressman Ron Paul have blasted the Obama administration’s proposed defense budget, announced in January, for its cuts to healthcare benefits for the U.S. armed forces. Congressman Joe Wilson declared that the proposals “break faith with the military, military families and veterans.” The story cycled through the conservative blogosphere, with much of the critique decrying the hypocrisy of expanding entitlements under Obamacare while curtailing existing plans for service-members. Setting aside the political calculus about the wisdom or folly of the cuts, there are a number of key facts to keep in mind.
The basic math won’t budge. According to a Defense Business Board report, the Department of Defense’s healthcare budget grew nearly 150 percent between the 2000 and 2008 fiscal years, from $17.4 billion to $42.5 billion. (These expenditures, according to the report, excluded the wars in Iraq and Afghanistan.) In the current fiscal year, DOD is spending $52.8 billion on its total medical budget, including construction, personnel, and actual healthcare coverage. This represents approximately 10 percent of the total proposed DOD budget. All the projections have this situation getting much worse as time goes on.
The Defense Health Program, at some $32.5 billion, comprises the vast majority of the unified medical budget. In-house and private sector health expenditures made up 80 percent of this figure, with the remainder earmarked for operations, management, and other support functions. A complex of health plans, known as TRICARE, provides a variety of coverage options to the nearly 10 million eligible beneficiaries: active-duty servicemen, veterans, and dependents. These options range from managed care to fee-for-service plans, as well as the TRICARE-for-Life Benefit Program for Medicare-enrolled seniors, through which the DOD forks over several billion dollars each year in so-called “Medigap” coverage. Most TRICARE beneficiaries are not active-duty personnel; in fact, roughly two-thirds are retirees (and dependents).
As with so many problems on our political horizon, the Defense Health Program is simply unsustainable.
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The Obama administration is proposing that beneficiaries share more of the financial burden of TRICARE. Critics pounced immediately, arguing that forcing our veterans to pay more for their healthcare is a violation of the sacred covenant between civil society and its protectors.
Most of our servicemen and veterans already pay something for their coverage, however. In fiscal year 2012, enrollment in TRICARE Prime cost $260 per month for individuals and $520 for families. TRICARE Standard has no enrollment fees in the current structure, but charges $150 for an individual’s annual deductible and $300 for a family. Pharmacy co-pays range from zero to $25, depending on how beneficiaries fill their prescriptions. The covenant, it would seem, has already been compromised.
The argument could still be made that the proposed increases in these fees are an insult to those who have served, especially during wartime. Increasing an individual’s annual enrollment fee in TRICARE Standard from zero today to $130 in Fiscal Year 2017 is certainly a great leap, relatively speaking, as would be nearly tripling the $9 co-pay on mail-order brand drugs to $26 next year. (After a few years of initial increases, these fees would be indexed to medical inflation.) Not all retirees will be treated equally in this new system, though, in which a three-tiered ranking charges more to higher-paid retirees.
Critics also draw the comparison to federal civilian employees, who are not included in these increases, which target uniformed servicemen. Inflation, DOD discretionary funding, the nation’s gross domestic product, and nationwide healthcare spending have all grown faster than TRICARE fees, however. TRICARE has not seen increases in fees since its creation in 1995, even as the civilian federal health insurance programs have increased their premiums by double-digit percentages over the years.
Finally, there remain two important caveats. “These changes will affect only retirees,” the DOD states in its budget request, in reference to the increasing fee and deductible structure. Our active-duty servicemen, whether in harm’s way or not, will not be affected. Second, the proposed changes will “[e]xclude survivors of military members who died on active duty and medically retired members from any fee increases.” Wartime widows and widowers and wounded warriors will not pay more, according to the request.
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In these polarizing times, ideological combatants on the right and the left alike can easily overlook the fact that the TRICARE proposals emerged from the Pentagon and top Republican defense gurus. They have, actually, been lurking just over the horizon for quite some time. In 2006, Marine General Peter Pace, then chairman of the Joint Chiefs of Staff, spoke about TRICARE increases: “If we do not get back to a more rational way of sharing the cost, we will kill this golden goose.” Donald Rumsfeld, then secretary of defense, agreed with him at the time.
Robert Gates, the Republican-appointed successor to Rumsfeld, made enacting “modest increases” to the TRICARE fee structure something of a personal crusade. He testified on the matter to the Senate in 2008 and argued on several occasions that DOD healthcare was “eating the Department alive,” asking troops in Alabama: “What medical plan in the nation has not had a single increase in the premium or co-pay in the last dozen years?” He warned the House Appropriations Committee in March 2011 that the DOD “runs the risk of the fate of other corporate and government bureaucracies that were ultimately crippled by personnel costs.” Gates gave the same counsel elsewhere before his retirement, as well.
As Leon Panetta entered and Gates exited, Donald Rumsfeld penned an op-ed in The Wall Street Journal entitled, “The Peril of Deep Defense Cuts.” He cautioned against hasty cuts and argued in favor of other savings, but saved a paragraph for the Defense Health Program. “The greatest economies can be found in areas that contain the greatest political peril: military healthcare and personnel.” Among his many suggestions, the former secretary of defense called for an increase in individual contributions by retirees.
This is not primarily an issue of partisan politics. It is principally a cold, hard, budgetary issue, and the proposed solutions to the healthcare problem emanated not from the White House but from the defense establishment itself.
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The math is clear and inescapable. If the healthcare portion of the defense budget is growing uncontrollably, then either the budget itself must be enlarged or healthcare costs must be controlled. Either you make the pie bigger or the slice smaller. Both options seem politically impossible in the current environment. Republicans may, indeed, have a good point about the messaging and timing of the cuts, there is some merit in their broader critique of the eagerness to cut from DOD but not from other areas.
But let there be no mistake. The status quo—doing nothing—means that a steady or declining overall budget will be forced to cover rapidly increasing healthcare costs, and a Department of Defense eaten alive by its own entitlements may be unable to perform its most vital function in the future.