The Issue

Administration and Defense leaders are seeking to impose large health care fee increases on military retirees and families on the basis that:

1. retiree health costs have increased substantially as their numbers have risen and as Congress has increased their health benefits in recent years,
2. rising costs impinge on funding for weapons and other military needs, and
3. military retiree fees should be more in line with corporate practices.

MOAA’s position

The large proposed fee increases are inappropriate and out of line with career servicemembers’ unique sacrifices. The richest nation on earth, which approves hundreds of billions of dollars in pork spending and in tax cuts, can afford to pay for both weapons and military health care.

• Military retirement and health benefits must be substantially better than civilian benefits to help offset the unique, adverse conditions of military service.
  
  Reducing those benefits jeopardizes long-term retention and readiness.
   
• The proposed fee increases are grossly disproportionate to military retirees’ compensation increases.
   
• For both equity and readiness reasons, the government should pursue other availabl options that can reduce military health costs without “taxing” military beneficiaries and undermining future retention.
   
• DoD has an obligation to address current TRICARE inefficiencies before increasing beneficiary costs.
   
• Career military personnel already pay larger premiums for their health care than civilians ever have or will — through decades of extraordinary personal and family sacrifices.
   
• The retiree share of the military population is larger than in the past because:
  
  (1) presidents and congresses of the past 60 years induced large forces to defend the nation during all those decades of hot and cold wars, and
  
  (2) the active duty force has been cut by nearly 40 percent from past levels.
   
• There are other options to achieve substantial savings that won’t penalize beneficiaries and undermine retention.

Background

DoD contends that military health care costs are increasing faster than the rest of the defense budget and that this impinges on funding for weapons and other programs. The Joint Chiefs of Staff have endorsed the cost-shifting proposal because their political leaders have forced the “health care versus weapons” choice upon them.

Defense budgeters assume the changes will save money by causing hundreds of thousands of current beneficiaries to exit TRICARE by 2011. This assumption accounts for a majority of the expected savings.

The administration attributes military health cost increases to:

• expanded health and pharmacy benefits Congress recently authorized for retired beneficiaries over age 65,
• increased use by previously non-reliant beneficiaries as civilian employer benefits have declined, and
• increases in general health care inflation.

Why increasing military beneficiary costs is inappropriate

The proposed increases are grossly out of line with benefit levels enacted by Congress, even allowing for interim inflation. (See charts below and top right.) Proposed increases would far outstrip annual retired pay increases and greatly erode retired compensation value. Congress knew enacting TRICARE For Life (TFL) would increase costs.

DoD’s proposal is inconsistent with past congressional action. For the past two years, Congress has refused to accept VA health fee increases for nondisabled veterans who had served as few as two years. Tripling or quadrupling fees for those who served 20 to 30 years in uniform would be even more inappropriate.

The nation has a far greater obligation to military retirees than corporations have to their employees. In demanding such extraordinary commitments from career servicemembers, the government assumes a reciprocal obligation to provide benefits commensurate with their extraordinary sacrifices. This is a practical and moral obligation. Mid-career military losses can’t be replaced like 10-year civilians can.

Eroding benefits for career service only undermines long-term retention and readiness. Reducing retirement benefits would be penny-wise and pound-foolish when recruiting is already a problem and an overstressed force faces retention risks. One reason Congress enacted TFL is that the Joint Chiefs of Staff at that time said inadequate retiree health care was affecting attitudes among active duty troops.

DoD-assumed savings are unlikely to materialize. Many defense analysts think it is unrealistic to assume that hundreds of thousands of beneficiaries will leave TRICARE if such fees are introduced, because civilian coverage usually entails even larger fees. This false assumption would yield a large budget shortfall, requiring supplemental funding, further benefit cutbacks, and even greater cost-shifting efforts in future years. Thus, the only result of this misguided cost-shifting proposal would be to punish and anger retirees (who have a large influence on recruiting), underfund military health benefits, and further threaten future retention and readiness.

The country can afford to pay for both weapons and military health care. Today’s wartime defense budget is 3.8 percent of America’s GDP, versus the 5.6-percent peacetime-year average since World War II, and the percentage will decline for years to come. (See chart.) A country that can afford billions in pork and in tax cuts doesn’t need to undermine defense capabilities by forcing a choice between weapons and retiree health care.

DoD-proposed TRICARE Prime Family Fee Growth vs. Retired Pay Growth (1995-2013)

DoD-proposed TRICARE Standard Family Fee Growth vs. Retired Pay Growth (1995-2013)

Factors Contributing to the Growth in DoD’s Medical Spending

Defense Spending as a Percentage of GDP(1948–2024)

TRICARE Needs Fixes, Not Higher Fees

Thousands of providers and beneficiaries continue to experience significant problems with TRICARE. Beneficiaries at many locations, particularly in areas lacking large military populations, report difficulty in finding providers willing to participate in the program. Doctors complain about the program’s low payments and administrative hassles. Withdrawal of providers from TRICARE networks at several locations has generated national publicity. Some specific problems requiring correction include:

• TRICARE is the lowest-paying insurance program in America (most plans pay 30 percent to 50 percent more);
   
• many providers refuse to accept new TRICARE Standard patients;
   
• current law will further depress TRICARE payment rates, which will only encourage more providers to drop TRICARE patients;
   
• TRICARE requires more and different paperwork than other programs, which deters doctors, especially those with few TRICARE patients;
   
• doctors drop TRICARE long before Medicare because Medicare has more patients and less hassle;
   
• TRICARE Standard imposes much higher retiree copayments for inpatient care than civilian plans ($535 a day or 25 percent of billed charges);
   
• TRICARE contractors, whose goal is to sign up providers for the HMO-style TRICARE Prime at discounted rates, have an economic disincentive to recruit TRICARE Standard providers;
   
• many beneficiaries complain that “discount” TRICARE attracts many foreign providers, posing communication and confidence problems;
   
• TRICARE provides little help to non-Prime beneficiaries who have trouble finding a TRICARE provider;
   
• there is no enforcement mechanism for statutory TRICARE billing limits, which means many beneficiaries pay large out-of-pocket fees; and
   
• claims for patients with other health insurance have higher rejection and late-payment rates, with providersinitiating collection action against beneficiaries.

DoD Can Reduce Costs Without Penalizing Beneficiaries

Rather than seeking to “tax” beneficiaries and making unrealistic budget assumptions, DoD should be seeking more effective and appropriate ways to make TRICARE more cost-efficient, including the list of possible alternatives below.

• Promote retention of other health insurance by making TRICARE a true second-payer to other insurance (far cheaper to pay another insurance’s copayment than have the beneficiary migrate to TRICARE).
   
• Reduce or eliminate all mail-order copayments to boost use of this lowest-cost venue.
   
• Negotiate with drug manufacturers for discounts at retail pharmacies (the most costly venue), which DoD thus far has failed to do.
   
• Change the electronic claims system to reject errors in real time to help providers submit “clean” claims, reducing delays and multiple submissions.
   
• Do more to educate beneficiaries and providers about the advantages of mail-order pharmacy.
   
• Change the law to limit incentives private firms can offer employees to shift to TRICARE, or require such matching payments to TRICARE.
   
• Eliminate DoD-unique administrative requirements that make DoD pay higher overhead fees.
   
• Reduce TRICARE Reserve Select costs by allowing servicemembers the option of a government subsidy (at costs capped below that of TRICARE) of civilian employer premiums during periods of mobilization.
   
• Promote programs to offer special care management services to beneficiaries with chronic or unusually expensive conditions.
   
• Change the law to mandate federal pricing for retail pharmacy network (rather than charging beneficiaries more if drug companies don’t provide federal prices voluntarily).
• Establish one central DoD facility to order and fill all prescriptions for exceptionally high-cost drugs (the Air Force model has been successful).
   
• Centralize the military treatment facility pharmacy budget/funding process, emphasizing accountability and cost-shifting.
   
• Increase efficiency via a single contract for all claims processing.
   
• Test voluntary participation in Medicare Advantage Regional PPO to foster chronic care improvement and disease management.
   
• Size military facilities (least costly care option) to reduce reliance on civilian providers.

The Readiness Bottom Line

Recruiting is already in serious trouble. Retention is at ever-growing risk as overstressed troops and families face multiple, extended deployments and weigh whether the rewards of a service career are worth such extreme sacrifices.

MOAA believes our already undersized military is likely to face widespread retention shortfalls in the months or years ahead, and Congress will have to take extraordinary measures to keep every possible member on active duty.

In that readiness environment, the last thing that’s needed is a $1,000-per-year military retirement benefits cut that can only exert a negative retention influence
on mid-career members facing yet another yearlong separation.

The Fix

For the immediate future, reject proposed increases in military health fees, recognizing their inconsistency with retention, readiness, and Congress’ rejection of VA health fee increases for nondisabled veterans.

For the long term, put restrictions in the law that now gives the secretary of Defense virtually unlimited authority to impose certain TRICARE fee increases.

For more information, please contact:
Cmdr. John Class, USN-Ret.
201 N. Washington St.
Alexandria, VA 22314-2539
(800) 234-6622, ext. 164
e-mail: johnc@moaa.org