The Ripon Forum

Volume 48, No. 2

Spring 2014 Issue

Hollow Arguments on Military Entitlements

By on July 17, 2014 with 0 Comments

Will they lead to a hollow force?


Alan_SimpsonWhen Erskine Bowles and I speak to audiences around the country regarding the debt, we tell them that honestly dealing with our debt will require taking on the four mastodons of the budget – Medicare, Medicaid, Social Security solvency, and defense spending.

Zealous defenders of the defense budget will try to tell you that subjecting the defense budget to the same scrutiny and budget discipline as other parts of the budget will result in a hollow military. But the only thing that is hollow is their argument. The reality is that preserving a strong defense and protecting our national security requires us to take a hard look at the defense budget and make tough choices to control spending so that we have the resources to make necessary investments to preserve a powerful defense.

The United States spends more on defense than the next 10 countriescombined and nearly six times as much as China, which is second in defense spending. Surely we can reduce that spending and still have the strongest military force in the world.

Preserving a strong defense and protecting our national security requires us to take a hard look at the defense budget and make tough choices to control spending.

A part of the defense budget we really need to dig into to find savings is benefits for military retirees. In Fiscal Year 2013, the federal government spent more for military retirement and health care benefits ($143 billion) than it did for procurement ($110 billion). Current and former leaders of the Department of Defense, including the current and former Secretary of Defense and the Joint Chiefs of Staff, have warned that growing costs of health and pension benefits for retirees must be addressed before they overwhelm the rest of the budget. Secretary of Defense Chuck Hagel put it this way: “Without serious attempts to achieve significant savings in this area….we risk becoming an unbalanced force, one that is well-compensated but poorly trained and equipped, with limited readiness and capability.”

Currently, members of the military become eligible for retirement benefits after 20 years of service. Because of the 20 year vesting period for military retirement benefits, four out of five veterans do not receive such benefits. But those who serve 20 years receive a very generous benefit equal to half of their highest three years pay with full cost of living adjustments every year. Many start receiving retirement benefits as early as their late 30s, and on average they begin collecting by age 42. A military retiree is likely to spend more time collecting retirement than serving in the military; an officer who serves for 20 years beginning at age 22 and living to the average male life expectancy of 79 will have collected nearly 40 years of retirement benefits for 20 years of service.

Most Americans – and veterans like me – would agree we should provide generous benefits for those who serve. Yet this level of benefits is unsustainable.

In addition to these pension benefits, the Department of Defense provides hugely subsidized health insurance (TRICARE) for 3.5 million working age retirees. The most popular plan, TRICARE Prime, provides comprehensive health insurance for an annual fee of $274 (for single coverage) or $548 (for family coverage). This health benefit for working age retirees also provides an indirect subsidy for defense contractors and other employers who are able to hire well-trained military retirees without having to pay for their health care coverage. An additional 1.6 million military retirees receive TRICARE For Life, which provides free Medigap coverage for all Medicare copayments and deductibles.

Military retirees also benefit from shopping at military commissaries. Taxpayers subsidize these military commissaries that offer savings of 30 percent compared to private markets. That subsidy might be justified to help enlisted men get by on a private’s pay, yet roughly half of the customers are military retirees who could afford to pay full price at the local grocery stores with their military pension.

Most Americans – and veterans like me – would agree we should provide generous benefits for those who serve. Yet this level of benefits is unsustainable.

Sure, we must honor the sacrifices of our troops and compensate them accordingly, but we can make targeted changes to control growth of personnel costs with little harmful impact.

House Budget Committee Chairman Paul Ryan made a courageous effort to take a small step in slowing the growth of defense entitlements by including a provision to reduce cost of living adjustments (COLA) for working age retirees by one percent, with a full “catch up” when they reach age 62. This would result in a reduction of about 4 percent in the average lifetime benefits of $2.4 million for enlisted personnel, and would only come when most retirees are working and earning supplemental income. According to a study by the Rand Corporation, 90% of non disabled military retirees under age 60 are employed, many for military contractors or as civilians in the Department of Defense, with median household income above $100,000 for retired officers and $50,000 to $75,000 for retired enlisted personnel. But the vast military retiree lobby in Washington stirred up such a firestorm over that reduction that Members of Congress tripped over each other rushing to repeal it.

The Pentagon has proposed responsible increases in health care fees paid by working age military retirees. Additional savings could be achieved through reforms to reduce overutilization of services – especially by dependents – and limit double coverage among working age retirees. None of these proposals would affect active duty service members or low-income or disabled veterans, all of whom would still receive free health care. Such changes continue to be rejected out of hand by Congress.

In the Pentagon budget sent to Congress this year, recommendations were made for modest reforms of the fast-growing military compensation budget, including reducing the subsidies to base commissaries. But Congress is poised to again cower to political pressure by rejecting the Pentagon’s recommendations while also supporting a pay raise to service-members beyond even what the Pentagon proposed! Absurd!

Congress should now use the pressure that sequestration has placed on the defense budget as impetus to conduct a thorough review of defense spending and enact reforms to control its senseless growth. Unfortunately, Congress is continuing to duck the tough choices needed to address this growth while sacrificing investments in readiness and equipment. This approach may limit short-term political pain, but it will lead to massive security problems in the future.

Congress will have another chance to address the growth of retirement benefits when a commission charged with making recommendations to reform military compensation – and produce savings – issues its report next spring. If that commission does its job and lays out serious reforms to bring the costs under control, you can make a sure bet it will be met with much wailing and gnashing of teeth.

But sooner or later, Congress will need to have the guts and backbone to stand up to the military retiree lobby and enact reforms to ensure we have the resources necessary to maintain a strong future defense. Hollow arguments will lead to a hollow force.   RF

Alan Simpson served in the U.S. Senate (R-WY) from January 1979 to 1997, where, among other roles, he served as the Assistant Republican Leader from 1984-1994. In 2010, he was appointed by the President to serve as Co-Chairman of the National Commission on Fiscal Responsibility and Reform.

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