Friday, June 3, 2011

Defense Budget Issues and Military Personnel

There are few things that have drawn bipartisan political agreement in recent years. One of these is the desire to compensate our armed forces for the suffering they have endured in serving multiple tours of duty in combat zones over the past ten years. An article in The Economist points out that this largesse may have exceeded sustainable bounds and will likely have to be scaled back.

The historical justification for generous military benefits was to encourage people to sign up for what was at best a difficult and unpleasant job, and at worst, life threatening. The current situation is such that the services are having no trouble meeting their recruitment or retention goals. In fact, the article suggests that the poor economy is encouraging military personnel to stay longer than anticipated or desired. Too many re-ups drive up military costs and can alter the intended balance of functionality in the personnel. The Economist suggests that the armed services are beginning to consider ways to encourage people to leave.

Changes are on the way.

“This month Robert Gates, Barack Obama’s outgoing defence secretary, launched a review of Pentagon spending. He warned in a speech on May 24th that pay, pensions and health care would all need to be restructured, or they would crowd out the purchase of vital new weapons.”

The Congressional Budget Office has provided data on military compensation that indicates that gains in military benefits have outstripped those available to civilian federal employees with similar educational backgrounds. When non-wage benefits are included the military do significantly better than comparable civilians.

Benefits have been greatly expanded over the years.

“Basic pay is required by law to grow in line with civilian pay. But Congress has consistently added 0.5% to the annual pay rise. Military officers now earn much more than federal civilian employees with the same level of education. And military benefits add up to around 100% of pay, compared with 55% for federal civilian workers. Since 1999 service members have seen their typical out-of-pocket costs for housing eliminated, seen their pensions enriched several times (including a 25% increase) and gained the right to transfer their subsidised college tuition to a child or to their spouse.”

And as with society in general, the real culprit is healthcare costs.

“But the real budget-buster is health care, which, Mr Gates says, is “eating the Defence Department alive.” Since 2000 its annual health-care bill has shot from $17 billion to $49 billion, and the Congressional Budget Office reckons it will reach $65 billion, or 11% of the defence budget, by 2015.”

Benefits under the Tricare Plan are inexpensive or free.

“As well as suffering the usual pressures of medical cost inflation, military benefits have become steadily more generous. A retired soldier pays only $460 a year for family coverage (serving members pay nothing), a sum unchanged since the plan, known as Tricare, began in 1995. Private and federal civilian workers pay $4,000-$5,000. Tricare’s cost has also been inflated by absorbing, since 2001, any medical expenses not covered by Medicare for over-65-year-olds.”

George Bush tried three times—unsuccessfully—to have the premiums for Tricare coverage increased. The article suggests that the time may have finally come when such a move is politically feasible.

“....this year, the Republican-controlled House of Representatives is on the verge of granting Mr Obama’s request for a (much more modest) 13% increase. The premium would then grow, though only with inflation rather than the higher health-care inflation rate Mr Obama had asked for.”

This move would have a modest effect on the budget, saving about $7 billion over five years. It represents merely the lowest hanging fruit in what will certainly be a contentious attempt to reign in costs.

“....any proposals that might curb benefits usually run into a powerful and organised lobby for active and retired servicemen. Its umbrella group, the Military Coalition, lists 33 organisations with 5.5m members.”

Stay tuned—it will be interesting.

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