Raising the Rates

Military health care fees, especially for working-age retirees, have become a perennial issue for Congress.  In the past two weeks, both the House Armed Services Committee and Senate Armed Services’ Personnel subcommittee have held hearings on the subject.  This occupies Congress, though, because retiree health care costs the Pentagon so much.  The Department aims to shift that weight in 2013.

It was just last year that then-Secretary Bob Gates described medical costs as “eating the U.S. military alive.” The numbers bear this out; between FY01 and the FY13 request, spending on the Military Health System increased more than 250% but fees set in 1995 remained constant until a small rise last October. In order to regain control over these costs, BFAD’S own Gordon Adams and Matthew Leatherman recommended in their Foreign Affairs plan that:

The enrollment fees and copays [just for military retirees still of working age] should be increased to 27 percent of costs [from the current level of 11 percent], as was intended when the program was created.

The FY13 request does almost that, calling for increases in working age military retirees’ enrollment fees and co-pays “in order to bring the beneficiary cost share closer to the original levels mandated by Congress when the program was established.”  Specifically, the Pentagon hopes to create three tiers of fees based on retirement pay. All three experience rate increases, with larger adjustments the higher up the pay scale one goes.  Beyond FY16, fee increases will be indexed to increases in medical inflation as outlined in the National Health Expenditures (NHE).

None of these tiers, if implemented, fully catch up to the typical fee changes since 1995, as represented by the most popular plan for federal civil servants (see graph).  Still the pinch on retirees’ wallets would be tangible.  The NHE cost index has increased by an average of 6.4% annually over the last 25 years while the cost-of-living allowance increases for retirees averaged 2.8% annually. 

It may be to preclude this circumstance – fees outpacing pensions – that the FY2012 defense authorization pegged fee growth to the retirement adjustment.  Enacting the FY13 proposal would require overriding last year’s decision, as well as changing the politics of military benefits that led to it.  That’s hard stuff – but adjusting a sixteen year status quo was never going to be easy.