TRICARE fee structure needs overhaul, says Defense official

The Pentagon's top policy official on Thursday called for changes in the military's health benefits system for retirees, saying the current structure has become unsustainable in today's economic environment.

"If there was an infinite pot of money, that would be fine; the problem is, there isn't an infinite pot of money, and so those dollars are dollars we can't invest in the equipment that our military needs today and the capabilities they need to adapt to the future," said Michèle Flournoy, Defense undersecretary for policy, during remarks at a leadership breakfast sponsored by Government Executive in Washington.

Many military retirees who now work in the private sector are forgoing the health benefits offered by their companies and opting instead for the TRICARE system, in part because employers are offering incentives for them to do so in an effort to keep down their own health care costs. "We have the military carrying people who have a private sector alternative to heath care because we've got the incentive structure wrong," Flournoy said.

A former Defense Department official during the Clinton administration, Flournoy tackled several topics during Thursday's discussion at the National Press Club, ranging from outsourcing to cybersecurity to military pay and benefits, including TRICARE, which she referred to as a "third rail" issue. Flournoy's remarks on TRICARE echoed recent comments from the military's top brass as well as those from Defense Secretary Robert Gates in a May 8 speech in Kansas. In that address, Gates outlined a multibillion-dollar cost savings plan for the department, which would include a reduction in administrative overhead, acquisition reform, greater energy efficiency, and an overhaul of TRICARE premiums and co-pays, especially for retirees.

"Leaving aside the sacred obligation we have to America's wounded warriors, health care costs are eating the Defense Department alive, rising from $19 billion a decade ago to roughly $50 billion -- roughly the entire foreign affairs and assistance budget of the State Department," Gates said. He noted that premiums for TRICARE have not risen since the program was founded more than a decade ago.

Also on Thursday, Flournoy did not rule out reducing the number of high-ranking officers in the military as a way to streamline the department, saying Gates "is going to want to understand the allocation of flag officers and why we have who we have, and are there positions that are truly necessary?" Flag officer positions are congressionally authorized, so the Pentagon would need the blessing of Congress to tweak the number of those slots.

Flournoy said there is no target head count with respect to the structure of the Pentagon's civilian, military or contractor workforce, but she also emphasized Gates' overall commitment to belt-tightening. "Secretary Gates is not shy about making hard decisions," she said. "He is not shy about holding leaders in the building accountable. I think all of his components, all of his direct reports, have been put on notice [that] we're going to start this review for efficiency with ourselves."