On Military Health Care

Dec. 1, 2008

A long and frequently tense national debate over the cost of military health care once again is gathering force, threatening to become a divisive issue for President Obama in his first months in office.

On one side of this argument are active duty service members, retirees, their family members, and their political advocates. They are warning the Department of Defense not to backslide on its long-standing promise to provide high-quality, affordable health care to the troops and to military retirees for life.

On the other side are Pentagon bean counters. They bemoan rapidly rising health care costs, calling them an “existential threat” to DOD, a “death spiral,” and a “national concern” against which Washington is “struggling.”

Caught in the middle is the nation’s uniformed military leadership. Because of the vagaries of the military budget, health care costs—even for retirees 65 and older—are funded through the Pentagon’s operations and maintenance account.

Demographic shifts, benefits expansion, and general health care inflation have caused health costs to explode in recent years. In 2000, defense officials spent roughly $17.4 billion (measured in today’s dollars) on the health program. Cost increases at the time were considered unacceptable, so the Pentagon scrapped its long-standing CHAMPUS system in favor of Tricare, which was supposed to dampen the cost escalation.

But Congress began raising benefits, and expenses quickly rose to $39.4 billion in 2007 and $42.5 billion in 2008. That represented a 144 percent increase just since 2000.

Defense care is a legally protected entitlement, but the rest of DOD’s O&M budget is considered discretionary. The more that health care costs rise, the bigger the squeeze put on the rest of the defense budget—assuming Congress doesn’t provide additional funds to cover the rising health care expenses.

Over the years, Congress has proved eager to order new benefits, but unwilling to provide the money to actually pay for them, and it has regarded Tricare cost increases as political poison.

This sets up a no-win situation for the military establishment. Legally and morally, they must provide high-quality care to troops, retirees, and family members, though they must also look for ways to cover rising expenses. With static budgets, uniformed officials must either cut core defense programs or fight to shift more cost to the beneficiaries.

Why? Americans are living longer. Millions of veterans from the large Cold War standing military will be on the rolls for decades to come. The number of retirees using Tricare has risen, and the cost to care for each of them continues to rise.

Base closures in the 1990s meant numerous DOD hospitals and clinics closed or became busier. Thousands of retirees and family members no longer had access to “space available” care, and were forced into more expensive private sector health care. DOD picks up the tab for them as well, through Tricare Standard or Tricare Extra.

Initially, Tricare was available only to retirees under age 65. Those 65 and older were expected to use Medicare. However, armed forces recruiters had for decades promised recruits that, in return for a full military career, the government would provide health care for life. This promise became an integral part of expected military benefits, but it was often broken.

To fix this problem, Congress in 2000 enacted Tricare For Life, which applies to retirees 65 and older. The Pentagon is currently looking at a long-term Tricare For Life bill of $488 billion.

In fact, Tricare fees and cost shares were never pegged to inflation, and have not changed since the mid-1990s. Over this period, out-of-pocket expenses at private insurers such as Kaiser Permanente and Blue Cross have nearly doubled. The freeze on Tricare fees had the unintended consequence of encouraging ever-larger numbers of military retirees to opt out of private insurance and shift over to the less-expensive Tricare system.

Today, about 75 percent of health care expenses go to retirees, with only 25 percent to active military members. Officials say that, next year, retirees could account for 80 percent of defense health care costs.

DOD’s decade-long budget expansion is probably over, meaning the health care bill will soon come due. If military budgets level off in the coming years, as expected, health care costs will consume an ever-larger share of the defense budget, posing an enormous threat to the military’s operating budget.

Military health care costs represented only 4.5 percent of the overall Pentagon budget in 1990, according to a high-level task force that reviewed the problem last year. At the current growth rates, defense health may consume 12 percent of the Pentagon budget in 2015.

The task force recommended new Tricare user fees, pegged to inflation, but the proposals were immediately shot down by Congress.

The Defense Department must maintain a quality health care program for its troops, retirees, and their families, but it should not be forced to shunt money from its primary missions to do so. This is not an either-or proposition.

One solution is to enact permanently higher defense budgets. The Obama Administration has the option of actually asking for an appropriate amount of money to pay for both health care and DOD operating expenses.

Another option is to pull defense health spending out of DOD’s operating budget altogether. That, at least, would end the unhealthy competition for dollars that exists between proper military health care and defense of the nation.