Report: Boosting Military Retiree Health Costs Would Save Billions


Raising TRICARE costs for retirees is the most effective way to curb rapidly increasing military health care expenses at the Defense Department, according to a new analysis from the Congressional Budget Office.

Funding for military health care jumped by 130 percent between 2000 and 2012, thanks primarily to legislative efforts to expand coverage to cover all out-of-pocket costs for Medicare-eligible retirees and a dramatic increase in the number of active and former military personnel who enroll in the coverage. Of the 10 million individuals eligible to receive health care coverage through TRICARE, 8 million -- a majority of whom were retirees and their families -- elected to do so in 2012. Defense now pays $52 billion annually -- about 10 percent of its base budget -- toward health care.

CBO looked at eliminating the TRICARE Prime option for working-age retirees as the department’s most cost-effective option. Prime, the most expensive coverage option for the Pentagon, is the most popular enrollment plan, with 5.2 million participants. The approach examined by CBO would allow retirees younger than 62 years old to participate in TRICARE Standard or Extra coverage after paying an annual enrollment fee.

That plan would reduce TRICARE outlays by $85 billion over the next 10 years, though total savings to the federal government would be closer to $60 billion due to deferred costs to the Veterans Health Administration and the Federal Employees Health Benefits Program, as well as reduced tax revenues.

Defense could find savings less dramatically by allowing retirees to keep their existing coverage options, but making them pay more for it, according to CBO. By increasing enrollment fees, copayments and deductibles for working-age retirees using TRICARE, Defense could save $24 billion over 10 years, though the net savings to the federal government would be $18 billion.

A third option would require a fixed cost that Medicare-eligible retirees would have to pay out of pocket, after which point Medicare and TRICARE would combine to cover 100 percent of costs. CBO used an initial out-of-pocket annual cap of $3,025 in its analysis, which would reduce the federal deficit by $31 billion over the next 10 years.

While CBO study did not factor in any changes in coverage to active-duty military personnel and their families -- all of whom receive Prime enrollment with no annual fee -- adjusting benefits to military retirees has proven politically difficult in recent weeks. The December bipartisan budget agreement found $6 billion in savings from reducing working-age military retirees’ pensions, which prompted an uproar from lawmakers in both parties. The omnibus spending agreement that Congress passed this week repealed some of those cuts, and legislators have vowed to roll back the rest of them.

“Some military retirees argue that they initially joined the military and remained for their entire careers with the understanding that they would receive medical care for free or at a very low cost after retiring,” CBO said in its report. “Significantly limiting TRICARE coverage for military retirees and their dependents would impose a financial cost on many of those beneficiaries and could adversely affect military retention.”

CBO also noted, however, only a “small fraction” of military personnel serve long enough -- 20 years -- to become eligible for TRICARE as retirees. The analysis also examined cost-saving measures such as better management of chronic diseases and more effective administration, but CBO concluded it offered only a fraction of the savings that increasing TRICARE costs would yield.

As required by the 2013 National Defense Authorization Act, the Pentagon currently is reviewing military pay and benefits -- including health care programs -- with its Military Compensation and Retirement Modernization Commission, which is scheduled to issue a report in early 2015. Defense Secretary Chuck Hagel has said the status quo cannot continue.

“We will work with Congress to bring the rate of growth of our compensation and benefits programs in line with budget limitations and fiscal realities,” Hagel said in December, in response to the budget deal.

President Obama also proposed TRICARE fee hikes targeting military retirees in his fiscal 2014 budget.  

(Image via FotograFFF/

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.


When you download a report, your information may be shared with the underwriters of that document.