Keeping Ballooning Tricare Costs Down Will Require More Robust Proposals

Recent Administration Plans Don’t Go Far Enough

President Barack Obama’s September 19 plan to reduce the cost of some medical benefits enjoyed by military retirees and their dependents is a modest step in the right direction in programs that former Secretary of Defense Robert Gates said are simply unsustainable. But the president does not go far enough to deal with the exploding costs of health care for these people.

The administration is correct to propose an annual fee of $200 a year for the Tricare for Life Program—a program for military retirees over 65 who are eligible for Medicare—beginning in 2013. But a fee of less than $20 a month is far too low, and even if the fees increase gradually over the next decade they will save less than $700 million a year in a program that already costs approximately $11 billion, is projected to grow to at least $15 billion by 2015, and accounts for almost 50 percent of the increase in military health care costs since fiscal year 2000.

Similarly, the administration is correct to attempt to raise the co-payments that military dependents and retirees pay for brand and retail prescription drugs to make these costs closer to federal employee benefits. But this step will save only $2.1 billion a year.

These two proposals are a drop in the bucket. If they’re enacted by Congress, they will save less than $3 billion a year in the military health system, which already costs $52.5 billion, or about 10 percent of the base defense budget, and has more than doubled over the last decade.

To keep Tricare costs at their present level, the administration needs to take additional steps so that the Pentagon will save at least $15 billion a year.

As pointed out in a recent CAP report, “Restoring Tricare: Ensuring the Long-Term Viability of the Military Health Care System,” there are three other steps that can save about $15 billion a year in health care costs for military retirees without breaking faith with those who have served and sacrificed. Moreover, all of these have been suggested by the Pentagon’s own task forces.

Phase in fees for military retirees. Congress and the Defense Department should gradually increase Tricare enrollment fees paid by working-age retirees to at least $550 for individuals and $1,100 for families per year. Savings: $5 billion per year.

Increase cost-sharing to encourage responsible use. Tricare for Life should not cover the first $500 of an enrollee’s out-of-pocket expenses, and it should be limited to 50 percent of the next $5,000 in Medicare cost-sharing, as recommended by the president’s fiscal commission (the Bowles-Simpson Commission). Savings: $4 billion a year.

Limit double coverage and peg Tricare premiums to Medicare Part B costs. Tricare coverage should be limited to working-age military retirees below certain income limits or those who don’t otherwise have access to insurance through a spouse or civilian employer. Additionally, Tricare premium levels should be pegged to Medicare Part B premiums to ensure that Tricare fees continue to be adjusted in the future. Savings: $6 billion a year.

The total savings for these will be $15 billion a year, which is enough to keep military health care costs at their present level of $52.5 billion.

Despite the fact that the changes proposed by Obama are comparatively small, they’ve already provoked a visceral outcry from veterans’ groups who accuse the administration of breaking faith with those who have fought for the country, especially over the last decade.

But as the Congress considers these proposals and ours, it ought to keep three things in mind.

First, the vast majority of the nation’s 4.6 million retirees left the service before 2001.

Second, when all of the current retirees joined the military, neither Tricare nor Tricare for Life existed. Congress created Tricare in 1995 to replace CHAMPUS, an older system of military health care that offered fewer coverage options to service members and their families. Originally, under both Tricare and CHAMPUS, retirees over 65 did not receive military health care—they went onto Medicare like other seniors. In 2001, Congress created Tricare for Life, which now provides high-quality health care to military retirees of all ages.

And third, less than 10 percent of the enlisted people who served in Afghanistan and Iraq will retire, so they will not be affected by the changes.

Lawrence J. Korb is a Senior Fellow at American Progress.

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