Updated: DoD to quadruple TRICARE fees for higher-earning retirees

Monday - 2/13/2012, 2:27pm EST

Jared Serbu, DoD reporter, Federal News Radio

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This story was updated Feb. 14, 2012, at 3:25 a.m.

Military pay would increase by 1.7 percent in 2013, but many beneficiaries of the military's TRICARE health insurance system would begin to see higher out-of-pocket costs beginning next year under the budget proposal the Pentagon sent to Congress Monday.

The Defense Department proposal would again raise fees for working-age retirees, impose fees for the first time on Medicare-eligible TRICARE beneficiaries and raise prescription co-pays at retail pharmacies in an effort to push TRICARE users to use DoD's less-expensive mail order prescription service. Military healthcare facilities would continue to fill prescriptions at no cost.

The package was part of an overall Defense Department proposal that would cut its spending by 2.5 percent compared with the Obama administration's 2012 budget request. Overall military funding including war spending would decline by $32 billion compared with this year's spending plan, reflecting the exit from Iraq and the drawdown from Afghanistan.

The higher health premiums would all be phased in over a period of four years and would not affect active duty servicemembers or their families, the Pentagon said. The increases would affect other TRICARE beneficiaries, such as military retirees, members of the National Guard and Reserve, Medal of Honor recipients and survivors of servicemembers, although survivors of military members who died while on active duty would be exempt from the fees.

DoD would raise enrollment fees for its managed care plan, TRICARE Prime, and TRICARE-for-Life, which serves Medicare-eligible beneficiaries based on a beneficiary's amount of retired pay. The "fee-for service" plans, TRICARE Standard and TRICARE Extra, would see enrollment fees for the first time. Deductibles under those plans would go up as well.

For TRICARE Prime, fees would increase from $520 per year for family coverage to $850 in 2016 in the lowest pay tier, which includes retirees who earn less than $22,589 per year in retired pay. The fees would be much steeper for those with larger pensions. In the highest tier, made up of retirees who earn more than $45,179, the annual fee would rise to $1,950.

The Pentagon has argued for the past several years that the TRICARE fee structure might have made sense when it was enacted in the 1990s. But since then, DoD has been subject to the same rising health costs that impact the rest of the nation: The military's health care tab in 2001 was $19 billion. For fiscal 2013, it will ask Congress for $49 billion, even after the $2 billion in savings it believes it will see from the TRICARE changes.

"We still think that the benefit is generous, as it should be," said Robert Hale, DoD's comptroller and chief financial officer during a briefing Monday at the Pentagon. "But we also feel we need to move in this direction."

Future increases tied to national spending

After 2016, health care increases would be tied directly to the actual increases in national health care spending, and in that respect, the DoD proposal differs significantly from current law. In this year's Defense authorization bill, Congress let DoD increase fees on working age retirees for the first time since it created TRICARE in the mid-1990s. And while future increases are allowed, they are tied to retiree's annual cost of living adjustments rather than actual health care inflation.

As for military pensions, there are no proposed changes in the Pentagon's 2013 budget. DoD asks Congress to establish a Military Retirement Modernization Commission to study the issue. Its members, appointed by the President, would recommend changes to the current 20-year military retirement system. The President would review their proposals and decide whether to forward them to Congress, which would then have to take and up-or-down vote on the package.

For DoD civilians, the budget reflects the 0.5 percent pay increase the President has proposed for federal workers, but it envisions a 1 percent decline in the overall Pentagon civilian workforce, from 764,323 to 756,356.

"Actions may include offering early out incentives and temporary suspension of recruitment actions to allow Components and Defense Agencies to more fully assess the impact of mission set changes and the introduction of process efficiencies on their workforce composition," Pentagon officials wrote in the budget request. "DoD will continue to ensure that inherently governmental functions are performed by career federal employees."

The budget proposes further growth in the acquisition workforce, however. It requests $274 million for the Defense Acquisition Workforce Development Fund, which DoD officials said had yielded 6,400 new acquisition jobs since 2008. And the department's capacity to train its workforce on acquisition topics increased by 120,000 seats.