U.S. budget watchdog eyes steps to control military health costs

[January 17, 2014]  By David Alexander

WASHINGTON (Reuters) — The most effective way to control the rising expense of the military healthcare system is to boost cost-sharing among retirees, the Congressional Budget Office said on Thursday, endorsing an unpopular step Congress has repeatedly rejected.

The non-partisan CBO said the Defense Department spent some $52 billion in 2012 for its TRICARE healthcare program, which covers about 1.8 million troops and their 2.6 million family members, plus 5.2 million military retirees and their families.

That's nearly 10 percent of the Pentagon's $530 billion budget base budget for 2012 and about $5,400 per person.

The budget office, in a 42-page report, said policymakers had considered several initiatives to control costs, including better management of chronic diseases, more effective administration of the healthcare system and increasing cost-sharing among military retirees.

"Only the last of those approaches has the potential to generate significant savings for DoD (Department of Defense)," the report said. "The other two could generate modest savings, but they would not address the primary drivers of healthcare costs."

The Pentagon has asked Congress to increase TRICARE fees for retirees in its budget submissions in recent years, but the move is politically unpopular and lawmakers have rejected nearly all of the proposed increases.

The CBO looked at three ways for increasing cost-sharing for retirees, many of whom leave the military after 20 years of service and begin receiving benefits while they are still in their working years between the ages of 40 and 65.

The options looked at increasing fees or limiting service to so-called working-age retirees, as well as modest fees for retirees over age 65.

The budget office estimated the federal government could reduce its deficit by $20 billion to $60 billion over the next decade by increasing cost-sharing among military retirees.

Military healthcare costs have become an increasing problem for the Pentagon over the past decade or so, outpacing the growth of the economy, per capita U.S. healthcare spending and the growth in funding for the defense budget.

"Between 2000 and 2012, funding for military healthcare increased by 130 percent, over and above the effects of overall inflation in the economy," the report said.

The report identified two main reasons for the rising costs: a decision by lawmakers to expand TRICARE benefits for military retirees and financial incentives that encourage working-age retirees to remain in the system because it is cheaper than alternatives they can get from their new employers.

The medical cost of the wars in Afghanistan and Iraq are sometimes cited as a possible cause of rising healthcare spending, but the CBO said the conflicts had a "small effect" compared to the other reasons.

(Reporting by David Alexander; editing by Cynthia Osterman)

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