The Pentagon’s Achilles’ heel

The Pentagon currently spends more than $50 billion — about 10% of its base budget — on healthcare, an almost 300% increase over the last decade. These costs are projected to jump to $65 billion by fiscal year 2015. To put this in perspective, the department will spend more on healthcare this fiscal year than on the war in Iraq and will probably spend more on healthcare in 2015 than on the conflict in Afghanistan.

It is not surprising that Pentagon leaders have complained that healthcare costs are “eating the Defense Department alive.” Leaders from both parties agree. But Congress has been loath to take action for fear of appearing to break faith with the nation’s troops.

What do the Pentagon’s healthcare billions buy? A plan called Tricare that covers both serving troops, their dependents and the 5 million Americans who qualify as military retirees — those who have spent at least 20 years in the services — and their dependents. (The Pentagon doesn’t foot the bill for the Department of Veterans Affairs, which provides healthcare to those wounded in the service of their country. The VA is separately funded.)

Under Tricare, active-duty troops receive free care, and their families receive coverage at little or no cost. That’s justified, in part because most of those troops will serve only one or two tours of duty, so the benefits are short term. But retiree plans are a different story. Many retirees are as young as 38 when they leave the service; the Defense Department estimates that retiree coverage has accounted for about 60% of its increased healthcare costs since 2000.

The problem is that the government has not maintained a balance between fees and benefits. Despite skyrocketing healthcare costs, working-age retirees (those under age 65) pay just $230 a year for an individual and $460 a year for a family under Tricare’s popular Prime plan. For those over 65, the Tricare supplemental plan for Medicare is free and, unsurprisingly, overused. On top of this, retirees can also receive free healthcare at military facilities on a space-available basis.

As it turns out, most working-age military retirees decline to enroll in the healthcare plans offered by their employers and instead take advantage of the rock-bottom Tricare premiums. This includes people making six-figure civilian salaries in the private sector while drawing military pensions in excess of $50,000 a year.

Why isn’t something done to change all this? Because military retirees have a strong lobby that has convinced Congress, which must vote to alter the program, that it cannot afford to withdraw “support” from the troops, not least because it will make it difficult to recruit qualified people.

The Pentagon’s own studies have laid out the answers to holding down the growth in healthcare costs for military retirees, as has President Obama’s deficit commission. They propose restoring the cost-sharing balance between taxpayers and retired, working-age beneficiaries that Congress established in 1995 when it created Tricare. Had these rates been adjusted as intended, the enrollment fees would now exceed $1,000 a year for individuals and $2,000 a year for families. A civilian plan with comparable benefits would cost a family upwards of $5,000 a year.

Eliminating the military healthcare plan for working-age retirees above a set income level with access to a civilian plan would also help control costs.

Finally, creating incentives to reduce the overuse of care by retirees over 65 would also help address cost growth. Charging a modest annual fee and not covering the first $500 of out-of-pocket expenses would significantly reduce the overuse of the Medicare supplemental coverage.

Taking these steps can keep healthcare costs at the current level of $50 billion a year, adjusted for inflation, without unfairly affecting military personnel and their families.

Those currently serving, and wounded or low-income veterans, would continue to be covered. Low-income or unemployed working-age retirees should also remain eligible for the inexpensive plans.

Nor do these proposals break faith with retirees. Congress established the principle of cost-sharing when it created Tricare, and the courts have ruled that military retirees are not entitled to free healthcare at civilian facilities.

And these reforms will not affect the quality of the people joining the services, because most don’t join with the idea of serving the 20 years necessary to qualify for retirement benefits.

The gusher of military spending, which saw the Pentagon budget double in the last decade, is being turned off. Taking steps to control healthcare costs now will allow the Pentagon to spend more of its budget in the future where it must: on military readiness.

Lawrence Korb, a former assistant secretary of Defense in the Reagan administration, is a senior fellow at the Center for American Progress. Laura Conley and Alex Rothman, research assistants at the center, contributed to this article.