Fact vs. Fiction on Military Personnel Costs (Part 1). The next several weeks’ legislative updates will preview, in installments, a November Military Officer magazine article in which MOAA’s Government Relations staff examines Defense leaders’ assertions that your pay and benefits will break the Pentagon bank. This week’s installment features some stats you haven’t heard them talk about.
White House Orders Mental Health Upgrades. The President will sign an executive order today aimed at expanding suicide prevention and mental health services for troops, vets, and families.
What Do You Know? How much do you know about TRICARE For Life (TFL)? Take our short quiz below!
Fact vs. Fiction on Military Personnel Costs (Part1)
For years, Defense leaders told Congress personnel costs are rising out of control and, if left unchecked, will consume the majority of future defense budgets.
In May 2010, Defense Secretary Robert Gates famously asserted, “Health care costs are eating the Defense Department alive.”
Earlier that year, Under Secretary of Defense for Personnel Clifford Stanley testified that rising personnel costs could "dramatically affect the readiness of the department" by leaving less money to fund operations.
This year, Under Secretary of Defense (Comptroller) Robert Hale said, “The cost of pay and benefits has risen more than 87 percent since 2001, 30 percent more than inflation.”
Accordingly, the Pentagon’s FY2013 budget proposed substantial force cuts, curtailing future military pay raises, creating a new commission to propose compensation and retirement cuts, and raising retiree health care fees by $1,000 to $2,000 a year or more.
Media outlets repeated the alarmist assertions, as study groups and think tanks jumped to propose further cutbacks.
In July 2011, the Defense Business Board (DBB) Task Group on Modernizing the Military Retirement System called the current military retirement system “unfair, unaffordable, and inflexible.”
In May 2012, the Center for American Progress published “Reforming Military Compensation –Addressing Runaway Personnel Costs Is a National Imperative,” and in July, the Center for Strategic and Budgetary Assessments (CSBA) “Rebalancing Military Compensation” report pronounced, “The all-volunteer force, in its current form, is unsustainable.”
Critics have made the same “sky is falling” claims since the all-volunteer force (AVF) began 40 years ago.
But the AVF has proved the cornerstone of national defense through decades of peace and war, despite pundits’ and bean-counters’ continual “gloom and doom” predictions.
Curiously, those “down” periods where retention and readiness faltered occurred only after the budget-cutters had their way. And the problems were corrected only when the cutbacks were reversed.
So how do we separate fact from fiction in this new round of studies and recommended cutbacks?
Let’s take a closer look at the critics’ allegations.
“Personnel Costs Will Consume the Entire Defense Budget”
Statements that rising personnel costs are “unaffordable”…“out of control”…”unsustainable”… and “will impact readiness” are geared to make headlines, alarm the reader, and (not infrequently) generate support for pursuing additional studies.
“If personnel costs continue growing at that rate and the overall defense budget remains flat with inflation,” CSBA authors hyperbolized, “military personnel costs will consume the entire defense budget by 2039.”
Elsewhere, they acknowledged that will never happen. But the quote was seized and repeated by reporters, pundits, bureaucrats and other “analysts.” E.g., James Kitfield did so in the July 2012 National Journal.
Is there any chance personnel costs will consume the entire defense budget by 2039? Of course not.
Before examining the personnel share, let’s first consider that the defense budget has consumed a progressively smaller share of federal outlays over the last 50 years (see chart).
In 1962, defense consumed nearly 47 percent of the federal outlays. Today, it’s at its smallest share in 50 years – and will drop further – below 12.5 percent – by 2017.
Some argue that’s all the more reason to worry about the rising cost of military people programs.
But let’s look at that data over time. This chart shows the share of the defense budget spent on military compensation and health care since 1980.
DoD says military personnel and health costs comprise one-third of the FY2013 defense budget.
What they don’t tell you – and MOAA’s chart does – is this is the same share it’s been very consistently for 30 years.
Some might ask whether it’s good or bad if personnel costs comprise one-third of a big organization’s annual budget. There’s no civilian counterpart, but let’s consider organizations with big air fleets.
For the United Parcel Service, for example, personnel costs make up 61 percent of the budget. For FedEx, it’s 43 percent. For Southwest Airlines – generally recognized as among the most cost-efficient air carriers – personnel costs comprise 31 percent of operating revenue (which includes profit, so the percentage of expenditures is higher).
Check next week’s legislative update for Part 2 of “Fact vs. Fiction on Military Personnel Costs.”
White House Orders Mental Health Upgrades
In response to alarming suicide trends and continuing difficulties among troops, veterans, and families in accessing mental health services, the White House announced the President will sign an executive order today aimed at addressing those problems.
The order directs the VA to:
• Increase the capacity of its crisis hotline by 50% before the end of 2012
• Ensure any veteran identifying himself/herself as being in crisis connect with a mental health professional or trained mental health worker within 24 hours or less
• Establish at least 15 pilot programs in locations where mental health access has been a problem, contracting with community facilities to reduce VA waiting lists
• Develop a plan to address mental health shortfalls in rural areas through such means as sharing mental health providers at locations where there’s not enough demand to support a full-time provider
• Hire 800 peer-to-peer support counselors
• Hire 1,600 new mental health professionals before next June.
On a broader scale, the executive order establishes an inter-agency task force to develop additional strategies to improve mental health and substance abuse treatment services for DoD and VA beneficiaries.
What Do You Know?
How much do you know about TRICARE For Life (TFL)? Take our short quiz below! Answers are from the FY2011 end-of-year report prepared by the DoD Actuary.
1. Most of the money paid out for TRICARE for Life patients goes for what kind of expenses?
A. Hospital stays
B. Doctor visits
. Almost 53% of TFL spending goes towards pharmacy costs.
2. For FY2010 what was the net change in the balance of the TFL Trust fund?
A. -$6.8 billion
B. +$18.1 billion
C. No significant change
. $26.4 billion in contributions and interest were made compared to 8.3 billion in outlays for health expenses.
3. What government agency deposits money into the TFL trust fund?
A. Defense Department
D. Both A and C
E. All of the above
. The Defense Department deposits an amount every year that’s intended to cover the future TFL expense for people currently on active duty, once today’s force (and their family members and survivors) become Medicare-eligible years downstream. The Treasury deposits an amount to cover current and future projected expenses of members and families and survivors not on active duty. In essence, Treasury deposits annual installment payments on the equivalent of a 50-year “mortgage” representing the expected lifetime cost of delivering TFL care for existing retirees and families, and DoD makes annual installment payments on the equivalent of a 30-year expected-future-TFL-expense “mortgage” for currently serving members. The size of the deposits take into account expected death rates, expected separation and retirement rates, expected long-term interest rates on the trust fund, expected future health-cost changes, etc.