Wednesday, April 24, 2013

Rebalancing the Military Budget - The Long Tail of Personnel Costs

The VA tries to help returning vets
with "Welcome Home" parties.
Economists for Peace and Security has just published a newsletter with some timely information on the sequestration of discretionary funds. One such article is by Harvard JFK School Lecturer, Linda Bilmes, in the March 2013 newsletter. It has a wealth of information on the long spending tail of returning veterans, since an increasing number come home with disabilities.

If the sequestration program turns out some day to have had some value, it will be in forcing an overdue rebalancing of the military budget. Bilmes shows how the cost of the wars in Afghanistan and Iraq were grossly underestimated by the U.S. Government officials who initiated them, something I have written about before on Huffington Post.  

One reason costs are rising is that military benefits are a churning wake behind each age cohort, and they are rising fast because recent wars have fewer fatalities and many more injuries, both physical and mental. 
  • The peak year for World War I veterans' benefits was not until 1969. It's a long, long fuse. 
  • The peak year for World War II veterans' benefits was 1976. 
  • Vietnam? Too early to say - costs are still rising! 
  • The first Gulf War?  A short war, but we are spending $5 billion a year on benefits.
  • Iraq and Afghanistan? A long war - a huge budget impact, raising many huge questions.
America is going to have to pay these costs, and they will crowd out other military spending as the sequester program puts a lid on on overall spending. For budget experts, and for young men and women entering military duty, these trends should be worrisome.

For anyone who believes, as I do, that we should do everything possible to ensure that those who serve their country are properly prepared for the trauma of war, and are properly treated, one question is whether the underestimation of post-service spending is resulting in inadequate allowances for the cost of physical and mental injuries sustained by those who have served, and the impact of this on their famuily..  

Did you know that:
  • Someone serving 19.5 years in the military gets no pension (it has to be 20 years)? 
  • Only 17 percent of military personnel stay long enough to qualify for any retirement benefit?
  • Seven out of ten reservists do not have health insurance?
Start with the fact that military pay and health care are one-third of the DoD budget and are rising, and the need for budget rebalancing becomes obvious. Personnel costs have risen 90 percent since FY2001, when the United States invaded Afghanistan in search of bin Laden. Yet active duty troop numbers have risen less than 3 percent since before the invasion.

One place to look for savings is in the health care insurance programs. The Veterans Administration is a single-payer operation and ought to be less costly than an insurance-based system. Not in the article by Bilmes is a report that private insurance premiums exceeded $5,100/year as of May 2012.  Health care costs for a family of four covered by workplace health insurance exceeded $20,000 for the first time ever in 2012, rising to $20,728 - $1,335 more than in 2011. The premium component is for a preferred provider organization (PPO) plan, a common type of health insurance. In addition, those covered paid $3,470 in out-of-pocket costs, such as co-payments for doctor visits and prescription drugs. The rest of the cost of the health insurance is paid by employers. 

Private health insurance premiums have nearly doubled in the 2001-2011 decade. Military personnel are covered by Tricare health insurance. It includes both active-duty military and their families, and retirees -- 10 million people. During the decade, subsidized Tricare premiums have fallen by 21 percent. Naturally, more of the military are signing up for the subsidized Tricare system, jumping from 29 to 52 percent. By keeping premiums down, taxpayer costs are rising. 

A Tricare for Life program supplements Medicare and is expected to grow significantly in coming years.Also, Tricare is being expanded to reserve troops, only 70 per cent of whom have health insurance. Under ObamaCare, the percentage will rise to 89 percent.

The VA has expanded greatly over the past ten years. For example, claims for Post Traumatic Stress Disorder are easier to apply for. VA can't keep up with the volume of claims.

Support for vets in Congress is high. For example, long-term care for disabilities is being urged whether or not the retirement age is lowered below 20 years. During the Afghanistan and Iraq wars, 2.2 million troops have been deployed to the war zones. Of them, 1.6 million have been discharged and 700,000 have filed claims for disability. The approval rate (in whole or part) for the these claims so far is 97%. Another 1.5 million claims are expected this year. The VA budget has grown from $60 billion in 2004 to $125 billion in 2012; for FY 2014 the VA is asking for $140+ billion.

VA and Tricare are the fastest-growing components of the national security budget, analogous to the GM pensions and health-care costs that required a bailout of the company. However, the VA disability system has become a default pension system.

In 2004 and 2005, the Bush Administration raised military pay to improve recruiting. In the last 10 years, says the CBO, military pay has outpaced private-sector pay by 25%. Recruiting is no longer a problem.

We are going to have to rebalance our military spending in a way that does more for our military personnel while giving the taxpayer more transparency and a better idea of where the money is going.

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