Committee for a Responsible Federal Budget

CBO's "Approaches to Reducing Federal Spending on Military Health Care"

Military personnel costs continue to increase as a share of the defense budget. One of the fastest growing components is military health care, where spending has outpaced even overall health care spending growth, according to the CBO. With base defense spending being reduced in recent years and through 2021, as a result of the Budget Control Act and sequestration, controlling health care spending will be important, or it will crowd out other defense priorities. Not surprisingly, the same dynamic that threatens to crowd out important investments in the federal budget also threatens our defense capabilities. CBO's newest report lays out options to reduce military health care spending and help control this trend.

CBO notes that the share of military spending devoted to health care has grown from 6 percent in 1990 to 10 percent today. During that time, both TRICARE and TRICARE for Life were established, and troops have been deployed overseas in Iraq and Afghanistan. However, CBO finds that the bulk of the health cost increase can be attributed to the growing use of TRICARE (fueled by its relatively low cost-sharing), with the wars being a smaller factor. The report goes into great detail, breaking down the sources of spending increases within military health programs.

CBO evaluated three different ways to control health care costs — better managing chronic diseases, making health care administration more efficient, and increasing TRICARE cost-sharing — and determined that TRICARE reforms would be the only options that would produce significant savings. CBO discusses general ways to proceed with the first two approaches, but presents specific options for TRICARE.

The first TRICARE option is to increase enrollment fees, deductibles, and co-pays (which have increased little since TRICARE was created) for working-age retirees, which would reduce deficits on net by $18 billion through 2023, assuming that lawmakers reduced spending caps accordingly. The second option would be to prohibit working-age retirees from enrolling in TRICARE Prime, the managed care plan in the program that currently offers comprehensive coverage with low enrollment fees and cost-sharing. This option would save $60 billion on net, with $85 billion of savings in TRICARE being offset by spending increases and revenue losses elsewhere. The third option would restrict TRICARE for Life (TFL), the relatively new free supplemental coverage provided to TRICARE beneficiaries when they become eligible for Medicare, from covering the first $550 of patient cost-sharing and prevent the plans from covering more than 50 percent of the next $4,950, saving $31 billion through 2023. The current structure of TFL has been shown to increase beneficiaries' use of Medicare services and blunts incentives to choose more efficient means of care.

These options are not the only ones available to policymakers, and CBO has presented other ways to reform military compensation in its Budget Options report, but they are all worth a long look as we work to both control our country's debt and prevent military health care spending from crowding out our defense capabilities.