Paying More for TRICARE

If you participate in the military's TRICARE health program, expect higher fees and co-pays in the very near future.

As USA Today reported on Friday, the defense department's health care costs are rising twice as fast as the national average, forcing the Pentagon to contemplate higher out-of-pocket fees for military retirees and some active-duty families. If approved, the fee increase would be the first in 15 years.

Pentagon spending on health care has increased from $19 billion in 2001 to a projected $50.7 billion in 2011, a 167% increase.

The rapid rise has been driven by a surge in mental health and physical problems for troops who have deployed to war multiple times and by a flood of career military retirees fleeing less-generous civilian health programs, Hunter said.

[snip]

As a share of overall defense spending, health care costs have risen from 6% to 9% and will keep growing, said Navy Lt. Cmdr. Kathleen Kesler, a Pentagon spokeswoman.

That upward trend is "beginning to eat us alive," Defense Secretary Robert Gates told Congress in February.

To some degree, the surge in military health care spending is unsurprising. Years of fighting in Iraq and Afghanistan have resulted in thousands of serious wounds, pushing more troops into the ranks of the medically retired. The long-term costs of caring for those individuals will be significantly higher than medical expenses for other retirees.

Additionally, the Pentagon is paying more for mental health services, back and joint-related injuries--other by-products of the long war against terror. Pharmaceutical costs are also on the rise; civilian pharmacies fill more than 200,000 prescriptions a day for TRICARE beneficiaries.

All told, the number of TRICARE recipients has reached 9.6 million, including military personnel, dependents and retirees. More than 370,000 have entered the program since 2008. That total will continue to rise as service members who enlisted during the Reagan defense build-up (from the 1980s) leave active duty.

Still, the current TRICARE debate misses a couple of key points. First, it's worth remembering the circumstances that led to the current system. As Air Force magazine reported back in 2001, TRICARE was (largely) the result of the Clinton Administration under-funding the military health-care system, to the tune of roughly $500 million a year. Services once provided on-base for military personnel, dependents and retirees were referred to off-base physicians and treatment facilities--at a much higher cost.

Then-Air Force Surgeon General Lieutenant General Paul Carlton offered this example:

If a base hospital can do 10 appendectomies but gets budgeted to perform only nine, the 10th patient still gets care. But rather than use military care, the patient is referred to the civilian network. DOD still pays for the operation, eventually, when contracts are adjusted. If it had been done on the base, the cost would have been $300 (the cost of a surgical pack). On the outside, the same procedure will cost DOD $6,000 in payments to the Tricare contractor.

That charge is reasonable, Carlton said, but it shows the folly of shorting military hospitals in hopes of saving money.

"For want of $300, I'm spending $6,000," said Carlton. "There's no guilty party here. This is just an historical account of what has happened. That's the [death] spiral I speak of."

Almost a decade later, the death spiral has become a reality. And, as DoD confronts its own health care crisis, it's worth remembering that TRICARE was sold (back in the mid-90s) as something of a panacea, offering managed care at affordable prices.

Now, payments to various TRICARE contractors (who run the program) consume an ever-increasing share of the defense budget, and actual costs are running way beyond original projections. Sound familiar? The explosion in military health care expenditures is identical to what's happened in Medicare and Medicaid and we'll see the same trend--on a vast scale-- under Obamacare.

As for current TRICARE beneficiaries, they can expect higher co-pays and other out-of-pocket expenses. The USA Today article depicts the military health system as exceptionally generous, noting that retirees have an annual deductible of only $230 a year per person ($460 a year for couples), with "small" payments for various services. In reality, that co-pay is typically 20%, under TRICARE "Standard," the most popular insurance option. But when Republicans like Lindsey Graham suggest its time to raise fees, higher co-pays are all-but-inevitable.

Which brings us to another issue--the matter of affordability. While the media likes to focus on the comfortable pensions of senior officers. For example, disgraced former astronaut Lisa Nowak is expected to leave the Navy this year, after 29 years of service (including her days as a student at the Naval Academy). Assuming she isn't reduced in grade for her misconduct at NASA, Captain Nowak will receive a monthly pension of $6,628 before taxes and other deductions. Certainly, some one with that sort of income can afford higher TRICARE co-pays.

But Lisa Nowak (or a retired flag officer) isn't your typical military retiree. For example, the "average" Air Force member who retires after 20+ years of service is a Technical Sergeant (E-6). An individual in that pay grade (with 22 years of active duty service) receives a monthly pension of $1,770, before taxes and deductions. Retires in that category will be hit hardest by any increase in deductibles and co-pays.
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ADDENDUM: We also believe the TRICARE system will face more "radical" fixes in the future. To eliminate the "retiree" problem, DoD could simply push those beneficiaries into the emerging Obamacare system. While the Pentagon claims their system is excluded from the recently-passed health care bill, others aren't so sure. At least two members of Congress have introduced legislation to exempt TRICARE from Obamacare, but that's hardly reassuring. Not too many years ago, Congress promised armed forces members health care "for life," at military treatment facilities. We know how that one worked out.

A better solution? Fully funding military health care? As General Carlton suggested back in 2000, many of the services currently being out-sourced could be provided more cheaply on base. But that would mandate more staff, re-opening treatment facilities that were closed (or down-sized) and less money for TRICARE contractors. Needless to say, few in the Pentagon--or Congress--are willing to go "back to the future" in fixing military health care and its spiraling costs.