Confronting medical costs that have doubled in four years, military officials and congressional leaders said yesterday that the Pentagon needs to rethink the generous coverage it provides or risk making sacrifices in other areas of the Defense Department budget.
A rich benefits package, coupled with expanded retiree coverage, have thrust the Pentagon into the same financial predicament that is threatening the profitability of such major companies as General Motors Corp., administration officials told the Senate Armed Services subcommittee on personnel.
The cost of covering 9 million active-duty members, retired personnel and their families rose from $18 billion in 2001 to $36 billion this year, said William Winkenwerder Jr., assistant secretary of defense for health affairs. By 2010, that figure will likely reach $50 billion, he said, with 70 percent devoted to retiree coverage.
"Looking to the medium to longer term, quite candidly, we are concerned," Winkenwerder and David S.C. Chu, undersecretary of defense for personnel and readiness, said in written testimony. The total defense budget is about $419 billion.
One of the main culprits is Tricare for Life, the program enacted in 2001 that guarantees comprehensive coverage for retirees. It was created in response to a public outcry from veterans as they moved from military coverage into the less-generous Medicare program at age 65. This year, the retiree program will cost $11 billion, Winkenwerder said, although a portion is being invested in a long-term trust fund.
"We're going to have to look to redesign that promise in the future" or the budget challenge "will continually get out of hand," said Sen. Lindsey O. Graham (R-S.C.), chairman of the subcommittee.
The military's health care crunch is both common and unique. Like private employers, the Pentagon is grappling with an aging population, skyrocketing prescription bills and a technological explosion that has produced a buffet of pricey new tests and treatments. But unlike the corporate world, Tricare and Tricare for Life have been adding benefits even as they steadfastly refused to increase beneficiary fees.
"The military is now venturing into joining the problems the rest of our health care system is experiencing," said David Blumenthal, director of the Institute for Health Policy at Massachusetts General Hospital in Boston. "You're in for a long struggle."
Sen. Tom Coburn (R-Okla.), rattling off the enormous sums spent on medical care in the United States, said the problem is not the military but the entire health system.
"It's broken for our military; it's broken for everyone else," he said.
The armed services are "increasingly out of step with private-employer plans," Winkenwerder said. Over the past decade, military personnel, retirees and their families have experienced virtually no increase in co-payments, while federal civilian workers have seen out-of-pocket costs increase between 57 percent and 87 percent, he told the panel.
At a time when the average American worker pays $2,600 a year in health insurance premiums, most people enrolled in Tricare pay less than $500, said S.D. Hosek, co-director of the Center for Military Health Policy Research at the nonprofit Rand Corp. And while most medications cost less than $10 under Tricare, private plans charge $10 to $40.
"Tricare today is a more attractive option than employer health plans," so even military retirees who could purchase coverage through another job or a spouse are increasingly opting to stay in the military's plan, she said. On the other hand, the military has kept administrative costs well below 10 percent at a time when private insurers spend between 12 percent and 14 percent.
"Co-payments are not an instant solution," Blumenthal cautioned. Although the Medicare health program for seniors has raised its fees, its total budget has soared largely because so many elderly people suffer from multiple chronic conditions, such as heart disease, arthritis and diabetes, he said.
Blumenthal noted that Medicare patients with five chronic conditions cost 15 times as much as other Medicare recipients.