DoD Under Secretary of Defense Robert Hale

Washington - The chairman of the Senate Armed Services Committee’s Personnel Subcommittee told DoD leaders that he had “strong reservations” about the Obama Administration’s proposed plan to raise TRICARE health-care fees for working-age retirees.

Calling it a “moral contract” with servicemembers, Sen. Jim Webb (D-VA), expressed doubt about the administration’s proposed enrollment fee increases at a hearing held by his subcommittee last month. Webb said he would “keep an open mind,” however, about initiatives to improve efficiency and effectiveness of the military health-care benefits.

“While we must achieve savings in our defense programs, we need to do this in a way that does not unfairly impact military benefits for a force that has served us so well,” he said.

The White House is proposing a set of initiatives in its FY 2012 DoD budget to better balance health-care costs and revenue. One of the more controversial proposals is an increase of $2.50 per month for enrollment in TRICARE Prime (or $5.00 a month per retiree family). If enacted, this would be the first increase in enrollment fees since the benefit was introduced in 1995.

The idea of raising TRICARE fees is not new and has been an issue that Congress has considered but ultimately rejected in previous years. Controversy over the proposed fee increases has already ensued this year, though some lawmakers have shown a willingness to embrace them.

The House Armed Services Subcommittee on Military Personnel, had proposed another one-year freeze on TRICARE fees, which would block the Pentagon’s effort to increase enrollment fees for working-age military retirees. That idea, however, was rejected by the full committee. It passed a bill that allows DoD to raise the TRICARE Prime enrollment fee. However, it limits the annual percentage increase in TRICARE fees to the amount of percentage growth in military retiree pay. That bill will need to be voted on by the full House.

U.S. Sen. Lindsey Graham (R-SC), the ranking Republican on the Senate Armed Services Personnel Subcommittee, suggested that the time has come for Congress to consider raising fees. “I understand what the administration is trying to do. We have to move this debate forward on sustainability,” he said at the hearing. “We haven’t had a premium increase since 1989. Some of the fees to be increased proposed by the administration, I think, [are] something we should all consider.”

Making the Case for Increase

In making the case for the fee hikes to the Senate subcommittee, DoD Under Secretary of Defense Robert Hale told the subcommittee that military health-care costs have nearly tripled in a little more than a decade from $19 billion in 2001 to the present budget request of more than $52 billion. The proposed increase to TRICARE fees for working-age retirees would offset an estimated $434 million in the FY 2012-2016 period and $1.5 billion through FY 2021, he explained.

“If we aren’t allowed to do this, then we will have to look for other changes,” said Hale. “We are not going to see increases in the defense budget. We will have to look for other changes in the support and training we provide to our military.”

“From a political point of view, it is very hard to ask men and women in uniform to sacrifice more than they have done,” Graham said, regarding the fee increases. “The way you treat your retirees depends on how well you can recruit and retain. Having said that, there has got to be some way forward.”

Hale insisted a fee increase is necessary but agreed that the way to move forward is with a gradual increase in fees, which he said is what the DoD is seeking.

“I think we all respect the service that men and women do. They expect a very generous plan, and I think they have the right to expect that, and we are providing that … [but] if we don’t do something, Secretary Gates said at some point, it will fall on its own weight.”

Another element of the administration’s proposal is changing co-pays for medications to provide incentives for beneficiaries who choose generic drugs and delivery of prescriptions by mail. Under the proposal, co-pays would be eliminated for generic drugs ordered through the mail-order pharmacy. For prescriptions filled at retail pharmacies, co-pays would be increased by $2 to $3 per prescription. These reforms are estimated to save the agency more than $2.5 billion between FY 2012 and 2016.

Also raised at the hearing is DoD’s proposal to require military retirees enrolled in the US Family Health Plan (USFHP) to enroll in Medicare when they become eligible. Currently, while Medicare-eligible retirees must enroll in Medicare Part B to receive their military health benefits, those retirees enrolled in the USFHP are exempt from enrolling in Medicare.

USFHP, sponsored by the DoD, is made available by nonprofit health-care providers in six service areas across the country and offers the TRICARE Prime benefit to uniformed services beneficiaries residing in those service areas. It is open to any beneficiary who relies on the Military Health System (MHS) for health care and who is eligible in the Defense Eligibility and Reporting System (DEERS).

Hale said that what DoD was proposing was to provide “equitable treatment” for all Medicare-eligible retirees by requiring the retirees enrolled in the USFHP to also enroll in Medicare, as other military retirees do. The plan would entail grandfathering all of those who are already in USFHP, but would require future USFHP enrollees to transition to Medicare and TRICARE for Life once they become Medicare-eligible.

“They are the only retirees using the military health benefits who do not have to enroll in Medicare when they become age-eligible,” said Hale.

Furthermore, Hale said DoD wants a legislative change that would allow it to reimburse the six organizations that make up the USFHP in the same manner as it does for all other Medicare-eligible retirees. Under current law, the six USFHPs receive claims payments far greater than Medicare rates.

Not all subcommittee members were on board with the proposal. Sen. Scott Brown, R-Mass, pointed out that USFHP was highly rated among beneficiaries and said he was concerned that future retirees would have to go into a plan “that is not as high rated,” if the DoD proposal is enacted.

Contractor Staff Reductions

DoD’s Health Affairs is also reducing headquarter staff by more than 700 contractor positions as part of the administration’s plan. Officials said that TRICARE contractor overhead would be reduced by more than $183 million in FY 2012 alone.

“Our actions will be carefully considered, and will not detract from any activities that directly support patient care, although some management programs will either be eliminated or significantly reduced,” Assistant Secretary of Defense for Health Affairs Jonathan Woodson, MD, told the subcommittee in written testimony about the contractor reductions.

Webb said he has heard “widely varying numbers” on how many contractors are being paid each year by DoD and wanted to know how much of the total DoD budget goes to contractors. He suggested this was a “good place to look” to trim DoD’s budget.

“This is a really relevant question in terms of whether or not we get DoD’s budget in control,” said Webb. “It is one that people are having a hard time getting an answer for.”

Hale said there is no full count yet of how many contractors are being paid by DoD in total but there are 300,000 contractors funded by the Operation and Maintenance account alone that operate in various DoD functions.

Hale said that there will be cuts in particular categories of DoD contractors. “I think you will see some, I hope, surgical reductions in contractors. That said, we couldn’t fight without them. We are, as you suggested, very dependent on contractors for support in war-time theater and in many places, so we need them to be part of our team, we just have to make use of them economically.”

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