Center for American Progress

Fixing the Force: The Outdated Military Compensation System

Fixing the Force: The Outdated Military Compensation System

Designed in the post-World War II era with a hodgepodge of additions, the military pay, health care, and retirement systems remain largely the same as they were in 1947.

A sculpture portrays a wounded soldier being helped on the grounds of a Veterans Affairs hospital, June 9, 2014. (AP/Jim Mone)
A sculpture portrays a wounded soldier being helped on the grounds of a Veterans Affairs hospital, June 9, 2014. (AP/Jim Mone)

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The current military personnel system is outdated and too rigid to accommodate the flexible future force that the U.S. armed forces and national security will require. Designed in the post-World War II era with a hodgepodge of additions, the military pay, health care, and retirement systems remain largely the same as they were in 1947.


Basic pay is a central element of the military compensation system, as well as the easiest element to understand, but it comprises only about half of total annual compensation for most service members.

In addition to basic pay, service members can receive Hostile Fire/Imminent Danger Pay, as well as a variety of other special and incentive payments. For example, service members receive incentive pay for being a pilot or serving at sea. Service members also receive a Basic Allowance for Subsistence to subsidize their food costs. Those who live off-base get a Basic Allowance for Housing, which covers 100 percent of their housing costs, adjusted for the local cost of living.

The pay scale starts low, but service members’ pay quickly increases as they gain more experience and are promoted out of the most junior ranks. For both enlisted service members and officers, regular military pay is about twice as much as that of civilians with comparable education and experience. However, officers are paid much more—up to twice as much as enlisted service members with similar years of service. While this pay difference made sense for a military with career officers and drafted enlisted soldiers, it does not reflect the reality of the skilled enlisted soldiers who make up today’s all-volunteer force.

Health care

The U.S. Department of Defense, or DOD, provides health care coverage through TRICARE plans to all active-duty service members and their dependents with no premiums and minimal copays. This is a significant benefit: Employer-provided health care coverage in the private sector costs an average of $16,834 annually in premiums alone. But DOD’s annual reports on TRICARE and the military health system point to a number of serious issues.

TRICARE Prime, DOD’s health maintenance organization, or HMO, plan, compares poorly with civilian plans in access to care and in cost per beneficiary. Because reimbursements are low—10 percent to 15 percent lower than Medicare—many medical providers do not accept TRICARE patients. And because the costs to individuals using TRICARE are just a fraction of the costs under private insurance plans, beneficiaries enrolled in TRICARE Prime utilize health care services about twice as much as beneficiaries in civilian HMO plans, which drives up DOD’s costs. In 2012, TRICARE cost about $54 billion—approximately 7 percent of the defense budget. However, active-duty service members and their dependents account for just 37 percent of TRICARE beneficiaries. The majority are military retirees and their families.

Service members, families, and retirees receive about half of their care through military medical facilities. Despite similar standards of care, military facilities score lower than private-sector medical providers in surveys that rate patient experience and care, and a number of reports have highlighted systemic problems across facilities, including serious medical errors. Active-duty service members, who must receive care in military medical facilities, reported the lowest satisfaction with their health care—20 points below the civilian benchmark. It is time to take a close look at the TRICARE system and figure out how to provide American service members and their families with world-class health insurance at a reasonable cost and following the highest standards of care.


The military retirement system is inflexible, unequal, and expensive. Under the current plan, active-duty service members who serve for at least 20 years receive a substantial pension immediately, while service members who serve for less than 20 years receive no retirement benefits at all.

This all-or-nothing “cliff-vesting” means that 83 percent of service members receive no retirement benefits at all. One-third of enlisted personnel leave the military after their first four-year tour. Those who serve in youth and vigor occupations, such as the infantry and other combat arms roles, rarely reach retirement and receive no retirement benefits for their years of service to their country. Just 9 percent of enlisted service members in the Army and 6 percent of enlisted Marines will serve 20 years and retire. Nearly half of all officers serve a full 20 years and receive retirement pay, while just 17 percent of enlisted soldiers do.

The 20-year milestone and immediate receipt of retirement pay is a powerful incentive for separation from the service, even though personnel in many specialties—such as cyber, logistics, and intelligence—could continue to make valuable contributions for many additional years. This reality has a perverse effect on retaining the right mix of skills and capabilities in the armed forces. Nearly half of all service members who reach 20 years separate in that year. With an average retirement age of 41.4 years for enlisted service members and 45.2 years for officers, most retired service members pursue a second career after leaving the military in addition to receiving retired pay.

Meanwhile, reservists receive retirement benefits when they reach 20 years of service with sufficient service points but must wait until age 60 to receive retirement pay. This divergence between reserve- and active-component retirement is increasingly outdated, especially considering the central role that the reserve forces have played over the past 15 years.

The costs of the military retirement system must also be addressed. Payments for future retirement benefits cost 43 percent of the total amount that DOD pays in basic pay, even though only 17 percent of service members will reach retirement. Counting current and future retirees, the military retirement system costs more than $100 billion annually.


After years of punting the issue, Congress has adopted several reform recommendations in the House Armed Services Committee’s version of this year’s defense authorization bill, including a major change to the retirement system that would require DOD to contribute to a 401(k)-style plan for every service member. This is a great start, but much more remains to be done. The military pay, health care, and retirement systems need to be updated to meet the needs of the current force, while making sure that they will support the flexible future force that U.S. national security will require. The real question is whether Congress will maintain the political will to act.

Katherine Blakeley is a Policy Analyst with the National Security and International Policy team at the Center for American Progress.

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Katherine Blakeley

Policy Analyst