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TRICARE and the Defense Budget

In the era of sequestration and debt-ceiling debates, changes to the military's heathcare program seem inevitable.

These days, any discussion of an executive branch agency’s budget request must begin with a caveat: While the Budget Control Act (BCA) of 2011 is still the law of the land, the federal government continues to compose budgets as if it were not.

For example, the complicated provisions of the BCA cap the fiscal year 2014 Department of Defense (DoD) base budget (defense spending other than war-related expenses) at $475 billion, and mandate an automatic cut, or sequester, of any amount in excess of that cap.

Despite the currently impossible number on the Pentagon’s topline, it’s a mistake to disregard the 2014 budget proposal as meaningless. The Pentagon’s annual budget request is more than a set of numbers; it’s a document of the military’s vision for the future. That vision, set forth in this and previous budget proposals, embraces economy in order to maintain and support a smaller active force.

So when the Pentagon, on April 10, finally released a 2014 budget request with a base budget topline of $526.6 billion – more than $50 billion more than allowed by law – it might have been perplexing to Americans who haven’t watched this drama unfold annually over the past few years. These onlookers can be forgiven, also, for wondering why many legislators seem willing, even eager, to vote for budgets that exceed the caps they set themselves, only to plead helplessness when sequestration does the dirty work of cutting budgets for them.

Despite the currently impossible number on the Pentagon’s topline, it’s a mistake to disregard the 2014 budget proposal as meaningless. The Pentagon’s annual budget request is more than a set of numbers; it’s a document of the military’s vision for the future. That vision, set forth in this and previous budget proposals, embraces economy in order to maintain and support a smaller active force.

TRICARE Services Center

Jessica Etienne, a beneficiary services branch healthcare assistant who works in the Carl R. Darnall Army Medical Center TRICARE Services Center, talks to a patient about her special medical needs and services that are available to her, Jan. 7, 2013. While members of Congress are hesitant to make changes to service members’ – and their dependents’ – benefits, the rising costs of healthcare may not leave them much choice. U.S. Army photo by Kim Zamarripa

The 2014 budget proposal includes a common cost-saving strategy: reducing personnel costs – which have increased at a greater rate than other parts of the military budget – by asking retirees to assume a greater share of program expenses. The 2014 proposal aims to trim about $900 million from one of the most expensive items in the military personnel budget: the Military Health System (MHS), whose civilian care component provides benefits to active-duty members, retirees, dependent survivors, some reservists, and their families through the TRICARE program. The proposed changes include:

  • An increase in the enrollment fee for TRICARE Prime, the DoD’s HMO-style plan, for working-age (under 65) retirees, with rates of fee increases based on a percentage of the beneficiary’s gross military retirement pay.
  • Higher co-payments for non-mental health office visits for TRICARE Prime retirees and their families, from $12 to $16.
  • An enrollment fee for the TRICARE Standard and TRICARE Extra plans for working age (under 65) retirees. There is currently no enrollment fee; the proposal calls for a fee in 2014 that will increase annually until 2018.
  • An increase in deductibles under TRICARE Standard and TRICARE Extra, phased in over five years and tied to increases in retirees’ cost-of-living adjustment (COLA).
  • An enrollment fee for TRICARE for Life, the benefit program for military retirees age 65 and older. There is currently no enrollment fee; the proposed fee, a set percentage of gross retired pay, will be phased in over five years.
  • Increased pharmacy co-pays for all retirees in all three classes of pharmaceuticals: generic, brand, and non-formulary, with the exception of mail-ordered generics, which are free until 2018, when a $9 co-pay will be instituted.
  • Essentially, increasing the annual $3,000 catastrophic cap – the maximum out-of-pocket amount paid by a beneficiary each year – in two ways: excluding enrollment fees from counting toward the cap, and raising the cap annually by the retiree COLA.

Survivors of service members who have died while on active duty, and medical retirees and their families, are to be exempt from these increases.

The protracted economic difficulties sparked by the 2008 financial crisis seem to have ushered in a new era in budgeting, and in budgeting politics in particular.

In the DoD FY 2014 budget request overview provided by the DoD comptroller, the Pentagon explains why it finds these changes both necessary and fair:

 … in 1996 when TRICARE was fully implemented, a working age retiree’s family of three who used civilian care contributed on average roughly 27 percent of the total cost of its health care. Today that percentage has dropped to less than 11 percent. While healthcare costs have doubled or tripled over this time frame, a family’s out of pocket expenses, including enrollment fees, deductibles and cost shares, have only grown by 30 percent-40 percent.

Until as recently as 2011 – when Congress approved the first fee increase in the program’s history, a $30 fee hike for working-age TRICARE Prime retirees – changes to TRICARE benefits were a non-starter in Congress; many legislators either objected to fee increases or found it politically risky to reduce benefits to service members and/or veterans.

The protracted economic difficulties sparked by the 2008 financial crisis seem to have ushered in a new era in budgeting, and in budgeting politics in particular. The TRICARE Prime enrollment fee increase has remained – in part because the budget debates for FY 2012 and 2013 have been too acrimonious for Congress to do much else – and Congress, to incentivize the use of generic drugs and the most efficient means of refilling prescriptions, has also implemented some of the Pentagon’s proposed increases to pharmacy co-payments.

Congress has not been receptive, overall, to TRICARE cost-sharing proposals. Both the House and Senate versions of the 2014 defense authorization bill and the House appropriations bill each soundly rejected every one of the Pentagon’s proposed changes to TRICARE fees and pharmacy co-pays.

The continuing stalemate between the Pentagon and Congress over the size and extent of military retiree benefits raises two questions: First, is TRICARE cost-sharing the right solution for the military’s rising healthcare costs? And second, if it is, why can’t the Pentagon convince Congress to enact any substantial changes in the program?

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Craig Collins is a veteran freelance writer and a regular Faircount Media Group contributor who...