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Group calls for changes to military benefits

A new report from the Center for American Progress is calling for reforms to today’s military pay, health and retirement benefits systems as part of an overall 10-year plan to generate $1 trillion in savings on defense spending.

A new report from the Center for American Progress is calling for reforms to today’s military pay, health and retirement benefits systems as part of an overall 10-year plan to generate $1 trillion in savings on defense spending.

The report outlines the changes as part of a “unified security budget” which includes and coordinates spending for defense, international affairs and homeland security.

The October report from the liberal Center for American Progress, titled “Rebalancing our National Security,” in part backs up an existing Defense Department plan to begin capping pay raises in 2015, and supports DOD proposals for controlling health care costs by increasing fees for some retirees, among other things.

The study’s recommendations include:

• Cutting the number of active duty personnel in Europe and Asia, for savings of $10 billion a year;
• Slowing military pay raises, beginning in fiscal 2015, to save $16.5 billion over five years;
• Implementing an existing Pentagon health care proposal and making other changes to military health care to save $15 billion per year; and
• Restructuring military retirement to save $13 billion per year in the near term.

Reducing personnel

In its fiscal 2013 budget request, the Obama administration announced plans to remove two brigades from Europe.

But the study recommends further reductions, and estimates that withdrawing 33,000 troops from Europe, including the two brigades, plus 17,000 troops from Asia, would save $10 billion in fiscal 2013.

Reining in pay

DOD plans to spend $107 billion on salaries and allowances in 2013. The report said these costs, which represent about 20 percent of DOD’s base budget, “have grown rapidly in the past 12 years, primarily due to a series of pay raises authorized by Congress over and above the Department of Defense’s budget requests.”

According to the report, active duty compensation (excluding health care benefits) has increased by 28 percent since 2000, from $64,606 per service member in 2000 to $80,292 in 2012.

The study said that while the growth was “partially attributable” to the costs of the wars in Iraq and Afghanistan, the increase was “primarily due to the repeated increases in basic pay that have been authorized by Congress.”

While DOD ties basic military pay to civilian salaries—as measured by the Employment Cost Index (ECI)—to make sure service members are paid in line with comparably educated civilian employees, the study noted that in 2004 Congress required military pay to increase by the ECI plus 0.5 percent through 2006. Thereafter, Congress continued to authorize more of these larger pay increases through 2011, “above and beyond the Pentagon’s request,” the report said.

According to the study, by 2006 the average service member earned $5,400 more in cash compensation than a comparably qualified civilian counterpart, and the average officer earned $6,000 more than a civilian with similar education and experience—and the disparity has continued to grow since.

The study recommends that DOD be permitted to pursue a plan outlined in DOD’s fiscal 2013 budget request that gradually would bring military pay back in line with the ECI—without cutting pay—by slowing pay increases.

Reforming health care

According to the report, the military health care budget grew by almost 300 percent between fiscal 2001 and fiscal 2012, with most of the growth coming “not from providing care for active-duty troops, but from caring for the nation’s military retirees and their dependents.”

CAP recommends allowing the Pentagon to pursue reforms to Tricare contained in DOD’s fiscal 2013 budget request. Among other things, those reforms would: raise enrollment fees and deductibles for working-age retirees “to reflect the large increases in health care costs since the mid-1990s"; tie enrollment fees to medical inflation; implement an enrollment fee for the plan that augments retirees’ Medicare coverage, Tricare for Life; and incentivize generic and mail-order purchases for prescription drugs.

But the report also recommends going further to reduce “over-utilization” of medical services and to limit double coverage of working-age military retirees.

To do this, the report advises adopting the recommendation of the president’s deficit commission to modify Tricare for Life so that it would not cover the first $500 of an enrollee’s out-of-pocket expenses, and cover only 50 percent of the next $5,000 in Medicare cost-sharing.

The study also urges allowing working-age military retirees above a certain income level to enroll in Tricare only if they don’t have access to other plans through their employer or spouse.

Updating retirement

The CAP study recommends allowing DOD to pursue a proposal in its fiscal 2013 budget request under which it would begin planning an overhaul of its retirement program. This would begin by obtaining congressional authorization to create a Military Retirement Modernization Commission.

One of the things that needs reforming, according to the study, is the system’s strict vesting system, which grants personnel with at least 20 years of service “a substantial pension for life,” while personnel who serve less than 20 years—a group that includes most veterans—receive no retirement benefits at all. The current system also allows military retirees to begin receiving pensions immediately upon retirement, even in their late 30s or early 40s, meaning some retirees may receive 40 years of benefits for 20 years of service.

According to the report, only 17 percent of service members remain long enough to qualify for military retirement, and “enlisted troops in ground-combat units in the Army and the Marines—the men and women who have borne the brunt of the fighting in Iraq and Afghanistan—are among the least likely to achieve any retirement benefits.”

To reform military retirement, the report urges the Defense Secretary Leon Panetta to work with Congress to replace the current retirement system with a 401(k)-style defined contribution plan, but still giving personnel with more than 10 years of service the option of staying in the old system.

To see the report, go to: http://www.americanprogress.org/wp-content/uploads/2012/10/UnifiedSecurityBudget.pdf.

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