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Retirement Cuts Offset Health Care Spending Increases in Defense Bill

Extension of TRICARE Prime would increase costs, while eliminating back pay to some retirees would reduce them.

Increased spending on health care for some former members of the military in fiscal 2014 under the Defense authorization bill would be offset by an alteration to retirement benefit calculations, according to the Congressional Budget Office.

The National Defense Authorization Act -- approved by the House Armed Services Committee and awaiting a full vote on the floor -- calls for the Pentagon to give certain TRICARE beneficiaries the option of continued coverage through Prime, the cheaper alternative to TRICARE Standard.

The Pentagon has issued a policy change that would automatically switch 170,000 retirees and their dependents who live 100 miles outside a military treatment facility from Prime to Standard. A provision included in the fiscal 2014 authorization bill, however, would give the retirees a one-time option to retain Prime coverage.

A majority of the affected beneficiaries are former Navy, Air Force and Marine Corps personnel, and thus the associated costs with offering Prime coverage -- $735 million over five years -- are covered under the standard process of appropriating funds.

A small portion of the affected 170,000 beneficiaries -- about 2.5 percent -- are retirees or dependents from the Coast Guard, National Oceanic and Atmospheric Administration or the Uniformed Corps of the Public Health Service. The costs associated with offering Prime to these individuals -- about $33 million over 10  years, or a 25 percent increase over the costs of TRICARE Standard -- are covered under mandatory spending. Per a law known as Pay As You Go, all mandatory spending increases must be offset by cuts elsewhere in the bill.

To cover these TRICARE costs -- as well as other mandatory spending increases in the Defense authorization bill -- the House committee has proposed to alter the formula used to calculate the initial retirement benefit for some retirees.

In 1975, Congress passed a law known as the Tower Amendment, which attempted to fix a loophole that resulted in some retirees receiving a smaller annuity than they would have if they had retired earlier. The Pentagon did not apply the law to certain personnel who retired after the year 2000, when a new retirement calculation was introduced. Recently, however, the Defense Department decided it should have applied it to the new retirees, and stated its intention to issue back pay to the 370,000 affected individuals.

The Defense authorization bill would reverse this Pentagon decision, preventing most of the back payments. The shift would save the Pentagon $212 million over 10 years, according to CBO.

The bill, therefore, has little overall impact on mandatory spending, saving $2 million over 10 years. In total, the bill authorizes appropriations of $632 billion for fiscal 2014, CBO estimated. 

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