Military Pay, Benefits Debt Deal
Targets Written by
Tom Philpott Sunday, 18 November 2012 21:36
The
Congressional Budget Office has released a report on military
compensation
that puts
a red laser dot on near-term pay raises, beneficiary health care
fees
and
retirement of future forces as potential cost-saving targets Congress
might
want to
consider in any debt-reduction deal.
Thanks in
part to what CBO says were pay raises that exceeded
private-sector
wage
growth through much of the last decade, the report estimates that
military
cash
compensation increased by 52 percent from 2002 to 2010 while private
sector
wages
rose by only 24 percent.
In 2012,
a married E-4 (Army corporal) with four to six years of service
will
receive
"regular military compensation," or RMC, valued at $50,860. RMC is
the
"salary"
yardstick for the military. It combines basic pay (in this
case,
$27,200
for that E-4) with subsistence allowance ($4,180), average
Basic
Allowance
for Housing for the pay grade across U.S. housing areas ($14,820)
and
an
estimated value for the tax advantages on tax-free allowances ($4,660).
An
officer
example is given too. RMC for a married O-3 (Army captain) with
six
years of
service is $92,220 this year.
In
addition, CBO notes that some members receive enlistment or
re-enlistment
bonuses,
special or incentive pays for unique skills and pay for serving
in
dangerous
or difficult assignments, including combat areas, which can mean
tax
breaks on
part or all of their basic pay too.
CBO
discusses RMC after advising that $150 billion, or more than one quarter
of
the
Defense Department's "base" budget (which excludes the cost of
current
operations in Iraq and Afghanistan)
will be spent this year on military pay and
benefits
for current forces and retirees. It goes on to propose ways to
curtail
compensation
costs.
Rep.
Paul Ryan of Wisconsin, in his role as chairman of the House
Budget
Committee, requested the report. It
describes recent gains to service
compensation, projected growth, the
history of cost sharing under TRICARE and
even how
court rulings knocked down claims by older retirees that
recruiter
promises
had bound the military to provide free heath care for life.
One
approach to cut costs is to "restrict basic pay raises" as Defense
officials
proposed
last April, CBO says. Congress so far has rejected the idea. But
any
grand
bargain to address the debt crisis in coming months could include
many
unpleasant surprises for
beneficiaries of federal programs.
The
Department of Defense proposed a raise of 1.7 percent this January and
in
2014.
These were touted as big enough to keep pace with private-sector
wage
growth,
but CBO projects they will fall short. And even deeper pay caps
are
proposed
for the next three years. The administration's 2015 raise would be
only
0.5
percent, followed by 1 percent in 2016 and 1.5 percent in
2017.
Pay caps
could hurt recruiting and retention, CBO concedes, but that can
be
mitigated
with more and bigger enlistment and re-enlistment bonuses. Unlike
pay
hikes,
CBO says, bonuses "do not compound from year to year and they have
no
effect on
the value of future retirement annuities."
If
negotiators were to agree to pay cap plan, military pay would lose 9
percent
to
private-sector wage growth over the five-year period, the report says.
But
that is
only an option, not a recommendation, CBO adds.
Another
way to slow compensation growth, it says, is to raise TRICARE
enrollment
fees,
deductibles or co-payments, actions also proposed by the
administration
last
April. For working-age retirees, those under 65, fee hikes should be
phased
over five
years and use a "tiered approach" so that senior-grade retirees
would
pay
higher fees than lower-ranking retirees.
DoD also
seeks a new annual enrollment fee for the TRICARE for Life
insurance
supplement to Medicare, used by
retirees 65 and older. That also would be tiered
so
retirees drawing smaller retirements pay less. Congress so far has
rejected
that
proposal as well.
CBO says
higher enrollment fees not only would raise collections but
also
discourage retirees and families from
relying on military health care versus
civilian
employer health insurance. Higher deductibles and co-pays
would
restrain
use of medical services too and also lower TRICARE costs.
The
report estimates that out-of-pocket costs to military beneficiaries
today
are just
one-fifth of what civilian workers pay for health care. Unless fees
are
raised,
CBO projects that military health care costs will jump from $51
billion
in 2013
to $77 billion (in 2013 dollars) by 2017.
CBO
raises another option it floated last year: prohibiting working-age
military
retirees
and families from TRICARE Prime, the military's managed care
option.
Instead,
they would use only TRICARE Standard, the fee-for-service
insurance
option,
or TRICARE Extra, the preferred-provider option. Or presumably
they
would use
health insurance offered by current employers.
Sen.
John McCain of Arizona, ranking Republican on the Senate Armed
Services
Committee, embraced that idea last
year in a letter to the Joint Select
Committee on Debt
Reduction, a
concession to avoid across-the-board cuts to
defense
programs called for under the "sequestration" trigger of the 2011
Budget
Control
Act. Sequestration must be carried out starting by Jan. 2, 2013,
if
Congress
doesn't agree to a $1.2 trillion debt-cutting deal.
CBO says
restricting Prime access to retirees under 65 and their family
members
would
save as much as $10 billion a year. Congress so far has rejected it
too,
along
with calls to raise TRICARE fees or to change military retirement
for
future
recruits. The CBO report reviews options for changing retirement.
It
notes
that a less generous plan, if only for new entrants, still would save
on
the DoD
"accrual" costs, the funding required every year to cover obligations
to
future
generations of retirees.
Like most
Americans, military people are confused and frustrated by the
failure
of
Congress to reach a debt-reduction deal. The CBO report reminds the
military
community
that how the deal gets made could be as consequential to
their
families
as that fearsome drive off the "fiscal cliff."
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