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.

“These improvements mitigate ongoing challenges: 17 percent of the workforce is eligible for full retirement today; 19 percent are eligible within five years; workforce gains decreased 32 percent from FY 2010 to FY 2011; and losses spiked up 32 percent from FY 2010 to FY 2011,” officials wrote. “In addition to completing and maintaining improved capacity, DoD will continue efforts to strengthen the quality, readiness and performance results of the acquisition workforce.”

The budget also reflects previously-announced cutbacks to the number of soldiers, sailors, airmen and marines in uniform. Among the changes:

• Army Active, Reserve and Army National Guard end strength in FY 2013 is 1,115,300 — 0.9 percent less than FY 2012. In FY 2017 the end strength will be 1,048,200, a 6.8 percent reduction from FY 2012.
• Navy Active and Reserve end strength in FY 2013 is 385,200 — 1.7 percent less than FY 2012. In FY 2017, the end strength will be 376,600, a 3.9 percent reduction from FY 2012.
• Marine Corps Active and Reserve end strength in FY 2013 is 236,900 — 2.0 percent less than FY 2012. In FY 2017 the end strength will be 221,700, an 8.3 percent reduction from FY 2012.
• Air Force Active, Reserve and Air National Guard end strength in FY 2013 is 501,000 — 1.9 percent less than FY 2012. In FY 2017, the end strength will be 499,300, a 2.3 percent reduction from FY 2012.

Also, as expected, the Pentagon will ask Congress to authorize two further rounds of Base Realignment and Closure actions. Officials have said the military’s smaller size will require it to rationalize its base footprint around the world. Air Force officials in particular have noted that they already have more base structure than is justified by the service’s current size.

Other DoD savings will come in the form of previously announced cancellations or delays to weapons systems, such as a slowdown in the procurement of the F-35 Joint Strike Fighter that Pentagon officials said was designed to reduce the inherent costs associated with “concurrency:” essentially, buying large quantities of a new weapon system while simultaneously testing its performance and ordering fixes.

DoD officials also said they will find savings in a new round of what were called “efficiency initiatives” under former Defense Secretary Robert Gates. They are categorizing $60 billion of the new round of five-year cuts under the banner of smarter spending decisions, such as $5 billion in additional anticipated savings from the department’s Better Buying Power Initiative.

Other examples include:

• The Navy intends to save $2.2 billion by implementing strategic sourcing strategies for both commodities and services.
• The Army plans to save $5.3 billion through streamlining of “installation support functions and [reductions to] installation support.”
• The Air Force will reduce spending by $2.4 billion by putting off previously-planned military construction projects.
• Each of the three military services believe they will achieve more than $1 billion in savings by consolidating their information technology systems into a single enterprise. –
• DoD would save $10 billion by limiting its civilian pay raises to the previously announced government-wide 2013 increase of 0.5 percent.

The cuts in the DoD budget proposal reflect the budget accord President Obama and Congress reached last summer to reduce the deficit. For DoD, the cuts meant $487 billion in previously planned spending over the next 10 years.

Hale said in accordance with guidance from the White House, DoD had not planned for step two of the accord, which would require DoD to double its cuts in an across-the-board fashion under the “sequestration” process which would kick in if Congress cannot agree on an additional $1.2 trillion in deficit reduction.

“Sequestration is not a good policy,” he said. “It was intended as a prod to make deficit reductions in Congress. It didn’t work. But now what we need is for Congress as a whole to enact a balanced package of deficit reductions to replace sequester. We need them to do this in a sensible way, rather than this meat-axe approach.”

This story is part of Federal News Radio’s daily DoD Report. For more defense news, click here.

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