Editor's Note: Lawrence J. Korb is a Senior Fellow at the Center for American Progress and was Assistant Secretary of Defense from 1981 to 1985.
By Lawrence J. Korb - Special to CNN
As the President and Congress decide how to implement the reductions in projected levels of defense spending necessitated by the Budget Control Act and possibly sequestration, the pay and benefits of military personnel and military retirees – which now total about $250 billion a year – can and should be on the table. These benefits must be cut because if we do not, there will not be enough money for modernization and readiness.
Opponents will argue that if we make any reductions in his area we will be breaking faith with those who have served and are serving. But close analysis reveals that these claims cannot be substantiated. This can be demonstrated by examining the three components of personnel costs, namely, pay and benefits for active duty people; military retirement pay; and health care for military retirees.
Compensation for an individual in the military, is supposed to reflect the average salaries of civilian workers with comparable educational backgrounds. The standard for this is called the ECI or Employment Cost Index. Total military personnel costs are now about $150 billion.
In the early years of the All Volunteer Force (AVF), when the military was adjusting to the end of the draft and doing away with the hidden tax of conscription, compensation fell behind the ECI. However, according to the Pentagon’s own analysis, it has more than caught up.
Every four years, the Department of Defense convenes a Quadrennial Review of Military Compensation (QRMC) which is charged with ensuring that the pay of military people is comparable to the salaries of civilian workers with comparable educational backgrounds.
The 10th QRMC, which completed its work in 2008, found that in 2006 the average enlisted member earned $5,400 more than his or her civilian counterpart, but $10,600 more when selected benefits like free health care, retirement, and tax advantages are included in the comparison. If anything, the gap has grown wider in the past five years. The QRMC recommended that Congress and the Administration use pay and benefits in determining annual pay raises.
Not only have these bodies not done this, but they have continually increased the raise stipulated by the ECI by just using base pay. As a result the average military member earns about $15,000 more than his or her civilian counterpart. Implementing the QRMC proposal would reduce annual personnel costs by about $6 billion a year.
The situation for retired pay and benefits, which now total $47 billion, is similarly skewed. Up until 1986, individuals who served for 20 years were able to retire and receive 50 percent of their base pay indexed for inflation for the rest of their lives. For those joining on or after August 1, 1986, the benefit was reduced to 40 percent.
But in 2000, for no strategic reason, the military leaders persuaded the Congress to repeal the law and return to 50 percent. Not only did this change raise retirement costs by 25 percent, it gave more people the incentive to leave at 20 years. About 76 percent of the men and women who complete 20 years now choose to retire.
Reducing the benefit back to 40 percent for those who joined after August 1986 would save another $5 billion a year. In addition, we need to completely overhaul the retirement system for new recruits. As the Defense Business Board has noted, the current system is not only too expensive and counterproductive but unfair. Right now if an individual does not serve 20 years, he or she gets nothing. The Department of Defense should implement a 401K plan that does not begin paying benefits until the person reaches 60. This would save at least $10 billion a year.
In 2012, the Pentagon will spend about $53 billion for the Tricare military medical insurance program – primarily for retirees and their dependents – a 300 percent increase in the past decade. If nothing is done, the costs will rise to about $65 billion by 2015.
Health care costs began exploding because of two decisions that our military leaders pressured their civilian masters to make during President Bill Clinton's administration.
In 1995, they pushed the administration and Congress to create a health insurance program called Tricare. At that time, the enrollment fee for a retiree and his family was set at $460 a year and $230 a year for an individual retiree. Although these enrollment fees were supposed to rise annually to reflect the nationwide increase in health-care costs, the military leaders resisted efforts to do so, and when their civilian leaders attempted to raise the fees, they did not speak out in support of the increases.
As a result, the fees will remain at $460 and $230 a year through the end of FY 2012. (In fiscal 2013, they will go up $5 a month). Had the fees been adjusted to reflect nationwide increases over the past 15 years, they would be at least $2,000 a year.
The failure to raise the fee has had two huge impacts on the Pentagon's budget. First, its share of the medical costs for retirees has increased exponentially. Second, fewer and fewer working-age retirees took the health-care plans at their place of employment, further increasing the cost to the Pentagon.
The military leaders then convinced their civilian masters to allow retirees and their dependents to remain on Tricare even when they reached 65 and became eligible for Medicare. Until this program, Tricare for Life, was enacted in 2001, military retirees relied exclusively on Medicare after age 65.
Tricare for Life, which pays most expenses not covered by Medicare, has no enrollment fee or co-pays and has accounted for half of health-care cost increases since in its enactment.
Gradually increasing Tricare enrollment fees for military retirees, limiting double coverage for working age retirees, and charging an enrollment fee, deductibles, and co-pay for Tricare for Life will reduce costs by about $15 billion a year.
While bringing personnel costs under control is necessary to bring the defense budget under control, it should be noted that these changes would not impact any wounded veterans. Their care and compensation is provided by the Department of Veterans Affairs, which has a separate budget.
The views expressed in this article are solely those of Lawrence J. Korb.