Part 2 of 3 DoD Plan for Covering Military Retiree Health Care Challenged by GAO Report

Part 1 introduces the DoD’s plan to increase fees on retirees, but this is nothing new. In 2007 DoD attempted to force fee increases on retirees by creating a deficit in the DoD budget for TRICARE payments. The following Parts 2 & 3 are my commentary on DoD’s plan to “Sustain the Budget.”

My commentary on the 2007 H.R. 579 “Military Retirees Health Care Protection Act” and DoD.

Rapidly rising health care costs are forcing changes to health care plans throughout the nation. Even the Pentagon budget is not immune. Military retiree health care is once again at risk as the Pentagon forages for sparse money to buy future weapons systems. The Bush Administration proposed a $22.5 billion Pentagon budget for Fiscal Year (FY) 2008. Although a large budget, this budget does not adequately fund retiree health care. In response to the rising health care costs, the Pentagon zeroed in on military retiree health care benefits as the target to aid their budget needs. The FY 2008, Department of Defense (DoD), “budget counts on a $1.9 billion savings by raising TRICARE fees for military retirees next year.” For the Pentagon to achieve the Administration’s desired cost control measures, 500,000 military retirees must leave TRICARE. Both the Senate and House reacted loudly. First, Congress directed the Government Accounting Office (GAO) to analyze the DoD budget plan pertaining to military retirees. Secondly, Congress proposed bills in both the House and Senate aimed to protect military retirees from DoD budgeters. However, to date the House and Senate have failed to pass the legislation affording retirees’ protection.

1. Administration’s Budget Shortage First, the Pentagon’s health care expenses are real and require payment. The escalation in health care expenses are verified by the GAO that reports “the fact that [DoD] health care spending more than doubled from 2000 to 2005 and continues to escalate….” As a result of this increase by 2015 DoD estimates health care costs will consume 12% of its budget compared to 7.5% in 2005. Of particular concern is the rising expense to pay for military retiree health care. “According to calculations by DoD officials, retirees and dependents under age 65 paid for approximately 27 percent of their overall health care costs in 1996 and about 12 percent of these costs in 2005.” In an attempt to slow rising health care expenses, DoD included the proposal “known as Sustain the Budget” in the DoD FY 2008 budget.

The Bush Administration budget submission incorporates Sustain the Budget and states that the “Administration is committed to ensuring that service members and their families have access to high quality medical care throughout the world. To support these efforts, the Budget provides $22.5 billion in the Defense Health Program (including $1.9 billion in anticipated beneficiary cost sharing).” Sustain the Budget proposes reducing the rising DoD health care costs by not funding a portion of the retirees’ health care. Stated differently Sustain the Budget proposes reducing the rising DoD health care costs by reducing the funding for retirees’ health care and raising premiums on retirees to pay for the shortfall. The DoD’s assumption is that retirees will either leave TRICARE or pay more for enrollment fees and co-payments to remain in TRICARE.

2. Number of Veterans to be “Avoided.”
The premise of Sustain the Budget in the President’s 2008 budget is that the proposed deficit of $1.9 billion “aligns military health care premiums and co-payments for retirees under 65 years of age with general health care plans.” This realignment counts on the $1.9 billion deficit being made up for by charging military retirees higher enrollment fees with an expectation of driving up to half-a-million former troops from the TRICARE rolls. Fewer retirees in the TRICARE system equates to reduced health care expenditures for DoD. Secondly, higher fees to retirees also reduce DoD expenditures. Two examples of the fee shifting to retirees can be seen in increased enrollment fees and higher co-payments. Enrollment fees for Officers and their families would rise from $460 to $1,400 while retired junior enlisted family fees would rise from $460 to $650. DoD would also raise co-payments for prescription drugs.

In response to Sustain the Budget, the House reacted in January 2007 through Congressmen Edwards (D., TX) and Jones (R., NC), who sponsored H.R. 579, “Military Retirees Health Care Protection Act” as the legislation to protect retiree’s health care from the DoD.

After introducing H.R. 579, Congress directed the Government Accounting Office to evaluate and report on the Administration’s proposed budget and its effect on military health care. The GAO published their report in May 2007. The GAO report cites the DoD’s plan to save $9.8 billion over five years depended “largely on the assumption that the increased fees and deductibles will result in approximately 500,000 retirees and dependents under age 65 either leaving or choosing not to enroll in TRICARE – collectively referred to as avoided users….” However, the GAO report disagrees with the DoD assumptions and estimates the number of “avoided” retirees to be more likely 100,000 retirees. This 400,000 person difference is due to the other 400,000 retirees being unable to get civilian health insurance and likely remaining or trying to remain on TRICARE rolls. Therefore, the GAO states the DoD anticipated $1.9 billion savings in FY 2008 is unlikely, which in-turn affects the $9.8 billion five-year savings.

The House, through the Military Retirees Health Care Protection Act, proposes a prohibition on increases in charges under contract, increases in cost-sharing pharmacy benefits and patient care, and increases in TRICARE premiums. Specifically, the bill calls for a prohibition after April 1, 2006 for such increases in co-payments, deductibles, or premiums. Similar bills have been filed in the Senate including, S 1547, the National Defense Authorization Act for Fiscal Year 2008 and S.C.R. 21, the Fiscal Year 2008 Budget Resolution.

Passage of H.R. 579, would remove the DoD’s option to increase the retirees’ health care funding. The needs of the DoD and retirees are diametrically opposed. The DoD is required to pay the retiree’s health care from its fiscal year budget. Not insignificantly, the retiree’s need for health care does not end when a person leaves the military. This difference is illustrated through H.R. 579’s proposed findings that note:

(12) The significant majority of the savings the Department of Defense associates with the proposed fee increases is expected to come from deterring a large portion of TRICARE beneficiaries from using their earned military health benefits.

Avoiding 500,000 retirees is required for the DoD to pay for the $1.9 billion deficit included in their FY 2008 budget. The GAO reports this reduction of 500,000 retirees is unlikely and thus the DoD budget submission contains a shortage that must be paid for through some other cuts in the budget or an increase of funding from Congress.

3. Older Veterans may find health care coverage in the private market hard to obtain.
The GAO supports their lower number of retirees leaving TRICARE and disputes the optimistic assessment of the DoD in achieving the removal of 500,000 retirees from TRICARE based on the age and health of retirees. Specifically, the GAO found that “[m]any beneficiaries in this group [military retirees], [are] particularly older and sicker individuals, are unlikely to have lower-priced health insurance options available to them and would therefore be likely to continue to use TRICARE.” The DoD’s Sustain the Budget is premised on retirees leaving TRICARE, an assumption the GAO disputes. Simply, if retirees do not leave TRICARE, DoD will have a multi-billion dollar deficit within the five-year budget.

The current budget dilemma has DoD leadership searching for creative means to find funds to buy new weapon systems and to pay for the Global War on Terror (GWOT). With the DoD budget too small to cover all the requirements, the retiree health care budget is an increasingly attractive source of unprotected funds, ripe for the picking. Sadly, this nation is fighting a global war with a peacetime defense budget. The military retiree’s escalating health care is the line-item the Pentagon seeks to control as a means of paying for current active duty budget shortfall.

1. Thomas Philpott, A Look at Air Force Drawdown,, Nov. 9, 2007, available at,15240,155811,00.html? (Reporting Lt. Gen. Roger A. Brady, Air Force deputy chief of staff for personnel whose presentation stated the USAF is reducing its personnel with the idea “to free up budget dollars through manpower cuts and organizational streamlining in order to afford replacement of a dangerously aged fleet of aircraft for the next conflict.” The General continues, “We had a woefully inadequate investment program in new weapons systems. We had growing personnel costs…and requirements that exceeded our resources.”).

2. Office of Management and Budget Department of Defense, Budget of the United States Government, Fiscal Year 2008 available at (last accessed September 29, 2006).

3. Id.

4. Susan Basu, FY’ 08 TRICARE Fee Proposals Come Under Fire Again From Military Groups and Congress (March 2007), available at (last accessed September 8, 2006).

5. Government Accounting Office (GAO), Report to Congress Military Health Care: TRICARE Cost-Sharing Proposals would help Offset Increasing Health Care Spending but Projected Savings are likely Overestimated (May 2007).

6. H.R. 579, 110 Cong. (2007) available at, (last accessed September 8, 2006).

7. GAO, supra note 5.

8. Id.

9. Id.

10. Id.

11. OMB, supra note 2.

12. OMB, supra note 2.

13. Id.

14. H.R. 579, supra note 6.

15. GAO, supra note 5.

16. Id.

17. Id.

18. H.R. 579, supra note 6.

19. Id.

20. H.R. 579, supra note 5.

21. GAO, supra note 4.

22. Philpott, supra note 1.

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