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Can Chuck Hagel Cure the Military's Health Care Problem?

There's been a lot of talk about the looming clash between the two largest elements of federal spending: the military and entitlements for older Americans, Medicare in particular. In his latest column, David Brooks argued that President Obama had picked Chuck Hagel to be his defense secretary to oversee a coming showdown: "So far, defense budgets have not been squeezed by the Medicare vise. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both." At a Brookings Institution discussion that I attended Monday on the defense budget, former Pentagon honcho Paul Wolfowitz cast the country's ability to defend itself as being threatened by the burgeoning cost of entitlements: 

I kind of love it the way everyone says yes, there’ve got to be cuts in government spending and defense has to take its share...I never heard anyone say that if defense is going to take its share, entitlements are going to take its share…..So far from being on an even playing field I would submit that defense is always the first target. It’s so much easier to say we’re spending too much on defense than to say we’re spending too much on Social Security.

Leave aside for now why the chief architect of the Iraq War is still weighing in on defense policy at jam-packed Brookings events ("Americans have notoriously short memories except when it comes to their Civil War," he quipped, in what may or may not have been a brazen self-reference.) As Brooks and Wolfowitz and many others have shown, it's easy to frame our messy fiscal conundrum in these simple terms of guns vs. butter, or rather, guns vs grandma's buttery-yellow, super-pricey heart medication. But there's an important detail that gets lost in this apposition: namely, that the most immediate threat to the military budget from rising health care costs is arguably the ballooning cost of the military's own health care programs. The cost of paying for the health care of nearly 10 million home-base military, their families, retirees and dependent survivors has nearly tripled over the past decade, from $19 billion to $53 billion, making it a major factor in the overall surge in the Pentagon's base budget to $525 billion. The Congressional Budget Office projects that these health care costs, which now eat up 9 percent of the Pentagon's budget, could be gobbling up 14 percent of it in 2030, equivalent to what the Pentagon now spends on all research and development.

And no, those figures do not include the cost of treating troops in theater overseas, nor do they include the care that the Veterans Administration provides to wounded vets. So what's going on? Well, part of it is the same upward trend in costs we've seen across most of the health care delivery system (although less so, notably, at the government-run V.A.) But there are factors unique to the military that have exacerbated the surge. Quite simply, the benefits provided by Tricare, as the military's health care coverage plan is called, are exceedingly generous by today's standards and, more importantly, the military picks up nearly the entire tab. Until a recent $5-per-month bump, premiums (or "enrollment fees," in Tricare parlance) had not increased since Tricare was created in the mid-1990s -- retirees pay a $260 annual fee for coverage, or $520 for themselves and their families. By contrast, federal civil service employees now pay more than $4,000 for their share of family coverage.

Not surprisingly, as employers continue to increase employees' share of premiums, it's become a no-brainer for many military retirees now in the private sector to decline their company plan and simply stay with Tricare. (Some employers sweeten the pot further by rewarding employees for staying on Tricare, though this is technically against the rules.) There was even a certain congressman who chose to do that rather than pay for the excellent but more expensive coverage available to members of the House (cough, retired Admiral Joe Sestak, D-Pa., cough). Only a quarter of working-age military retirees now enroll in employer coverage, down from half a decade ago.

Further fueling the surge in costs was a 2001 expansion of benefits for military retirees over 65: whereas they used to simply go on Medicare like other Americans, and purchase their own Medigap plans for supplementary benefits if they so chose, in 2001 Tricare began providing supplementary benefits free of charge. Not only do these benefits come at a cost, they likely encourage use of medical care by military retirees who are no longer having to reckon with even the minimal co-pays that come with Medicare.

The Pentagon, to its credit, recognizes that it has a real problem on its hands. At that same Brookings event, the Department of Defense's comptroller, Robert Hale, lamented the pressure that rising health care costs are putting on the rest of the military budget, and lamented the difficulty in getting action on this front in Congress. For that is where the real obstacle now lies. Members of both parties are loath to be seen as jacking up out-of-pocket costs for current and former members of the military after a decade of wars whose burdens have been shouldered by a sliver of the American population. It's been easy for groups like the Retired Military Officers Association to exploit that reluctance and make the case against touching Tricare premiums. "What happened was that for the first five years of Tricare, the Clinton administration should’ve raised [the premiums] but didn’t," says Lawrence Korb, a former naval officer and assistant secretary of defense in the Reagan administration, now at the Center for American Progress. "And then after 2001 and the wars and everything, there were guilty feelings over so few of our men and women fighting for us and everyone kept conflating [Tricare costs] with these brave men and women fighting."

But a closer look suggests that the moral calculus is not so simple. The primary beneficiaries of the current policy are healthy retired officers: Veterans wounded in battle are in the care of the VA, and many enlisted men are not even covered by Tricare in their post-military years because they leave short of the 20-year tenure required for retirement benefits. The person benefiting most from Tricare's current terms is more likely to be a retired lieutenant colonel pulling down a big paycheck at Lockheed or SAIC than a former sergeant struggling to make a living on his return home from Iraq. And it's not just that -- the rising cost of Tricare is putting budget pressure on the Pentagon's ability to provide care for those who we'd all agree are neediest of all: wounded veterans and service members in theater. There's only so much money to go around, and the more that is spent on retiree care through Tricare, the more the government needs to scrimp in other areas, whether overseas operations or weapons systems or V.A. care.

"We’re all in this together," one former Defense official in favor of reforming Tricare told me. "There’s no free lunch -- someone’s paying for this bill, and that someone is the taxpayer." He added, "I would remind the larger beneficiary population that in some sense the most crucial part of this system is the people serving the country’s uniform today, and when they come home we want to make sure the very best care is available for them. If those who have already departed the service take too large a share of the total ... what will get shortchanged in that situation is the [care] for those that are serving today. Is that what you really want? Shouldn’t you be willing to say that's who we should put first?"

He noted that this argument has been made on the Hill, but it "did not gain traction. People nod their heads and understand but were unwilling to act." The two most recent Pentagon chiefs, Bob Gates and Leon Panetta, proposed increases in Tricare premiums, but made little headway in Congress, which agreed to only the minimal premium bump. I got a forceful articulation of the case against a substantial increase in premiums from Steve Strobridge, chief lobbyist for the Military Officers Association of America, who argued that the way to constrain costs was to make Tricare more efficient -- there are different contractors overseeing benefits within each service branch -- and to bring our troops home: health care costs have gone up stateside partly because so many military doctors have been called overseas, leaving more Tricare beneficiaries seeing pricier civilian docs. As for raising the premiums for retirees, that's a betrayal of a promise, said Strobridge. "Are you saying that military people didn't earn their health care benefits as generations of officers before them did?" he said. "If you endure the sacrifices inherent in 20, 30 years of services, you've earned this retirement pay and health care. Now, after people have completed their service, to say, 'you didn't earn your retirement,' that's nuts.

It's a tough line to overcome. Korb, though, sees reason for optimism in the person of Hagel, the former Nebraska senator Obama has nominated to run the Pentagon, over widespread opposition. Not only is Hagel seemingly more determined than his predecessors to get the military budget under control, as a former enlisted man who was wounded in Vietnam, he's in a good position to make the case for spending health care dollars on those who need them most. "If Hagel gets confirmed, we have a much better chance" of reforming Tricare, says Korb.

But it's going to be a brawl, one where it's going to be particularly important to sort rhetoric and plays on conscience from context and hard facts.

*I had not been able to reach anyone from MOAA before this piece was posted early Wednesday evening, but heard from Strobridge later in the evening and added his thoughts then.

Follow me on Twitter @AlecMacGillis