Defense has a health care spending problem

at 03:09 PM ET, 01/06/2012


(Center for Strategic and Budgetary Assessments)
On Thursday, the White House previewed its plans to shrink defense spending, announcing its intention to reduce the size of the army and scale back counterinsurgency operations. “Our military will be leaner,” Obama told officials on a visit to the Pentagon Thursday.

It’s not just American combat efforts that will likely have to slim down. Health care has, in recent years, become a major cost for the military with few popular ways for the Pentagon to rein in its medical spending.

About 9.6 million Americans are eligible for military health care right now. That includes active duty soldiers, military retirees (those who served 20 or more years) and their dependents. It is, importantly, a separate health care plan from veterans’ health care, which covers those who served less than 20 years in the military, and commands a budget of more than $50 billion annually.

Putting veterans’ care aside, the military’s health care costs have grown annually by 6.3 percent for the past decade, rising to $52.2 billion in the department’s most recent budget proposal. Health care spending now accounts for about half the military spending on personnel costs, and 9.5 percent of the defense budget. The military now spends just as much on salaries as it does providing health care benefits.

And that total is expected to grow. Todd Harrison, a policy analyst at the Center for Strategic and Budgetary Assessments, recently crunched the numbers on what would happen if personnel costs kept growing at the same rate they have for the past decade, and the overall defense budget only kept pace with inflation. Under that scenario, the entire defense budget would be consumed by paying benefits, both for health care and other services, in 2039. “We’ll have well-paid, happy and healthy retirees, but we’ll also have no money for equipment, training or regular operations,” Harrison says. “Obviously, we can’t let that happen.”

Like other federal departments, Defense has struggled with health care costs that are growing a lot faster than the rest of the economy. But it also faces a few unique challenges that make bringing down its health care an even bigger lift.

Part of it has to do with an increase in the military workforce, which has expanded in the course of the Iraq War. Within that larger population, more military families are opting to stay in Tricare, the Defense-run health plan, rather than go into private coverage. This has been happening for about a decade now, and increases the number of military retirees and dependents that the Department of Defense covers:


( Data from the Department of Defense )

One reason that more military members are choosing Tricare is that fewer employers are offering health benefits, and those who are have raised premiums. By contrast, Tricare had a fixed, monthly premium of $38 since 1995. It rose for the first time, in over a decade, by $5 in the fall.

“It’s becoming more and more attractive to them as the cost of private health insurance grows,” says Harrison. “The average private sector family health care plan has about $4,500 in premiums per year. We’re incentivizing military families, who have other options, to stay in the defense health care system.”

 
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