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Military Update: TRICARE Fees, Retiree COLA
Key Senators Back TRICARE Fees; Retiree COLAs Return
Sens. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee, and John McCain (Ariz.), its ranking Republican, endorse President Obama’s call to establish next year a $200 enrollment fee on TRICARE for Life (TFL), the prized supplement to Medicare for 2.1 million elderly military retirees, their spouses and survivors.
These influential senators made their views known on TRICARE changes and other defense budget issues in separate letters to the Joint Select Committee on Deficit Reduction. The so-called “super committee” of 12 lawmakers faces a Nov. 23 deadline to recommend to the full Congress a plan to trim the nation’s massive debt by $1.5 trillion over a decade.
The first-ever TLF fee would climb to $295 in 2013 and, under the president’s plan, would be raised annually thereafter to keep pace with health care inflation. Levin, however, wrote that annual adjustments should match the percentage increase in enrollment fees to TRICARE Prime, the managed care option. And both the House and Senate versions of the 2012 defense bill would raise Prime fees in the future, for working-age retirees only, by the percentage increase given retirees as cost-of-living adjustments.
Levin and McCain also back, with caveats, Obama’s other cost-saving initiative for TRICARE -- charging sharply higher co-payments on drug prescriptions filled through the TRICARE network of retail pharmacies.
Obama wants co-pays at retail to be brought nearer to the $45 per brand drugs paid by federal civilian employees. But TRICARE co-pays should be tied to a percentage of the government’s cost per drug and thus raised automatically with drug prices. Initially generic drugs at retail would be set at 10 percent of the department's cost. After 2013 this would climb to 20 percent. Co-pays for brand names would start at 15 percent of cost and be raised to 30 percent over time.
But Levin wrote that setting drug co-pays based on cost isn’t feasible because the true cost of drugs dispense at retail outlets is obscured by manufacturer discounts. Levin promised to work with Defense officials on an alternative plan that would achieve the same level of savings, estimated at $20 billion over the next decade.
McCain noted the co-pay plan would “lead to significant increases in out-of-pocket costs for most DoD beneficiaries” to encourage greater use of TRICARE’s more efficient mail-order pharmacy option. He urged the joint committee not to embrace the co-pay plan without first consulting with Defense officials. Because, McCain explained, DoD officials might already plan to use dollars raised through higher pharmacy fees to help cover $450 billion in defense budget cuts Obama agreed to earlier this year.
“Coordination with DoD will be necessary to avoid double counting of savings from pharmacy fee changes” in any second round of cuts required under the Budget Control Act, which created the super committee, he wrote.
McCain’s only suggestion to soften the blow for TRICARE users is to have DoD and the Department of Veterans Affairs “use their market force buying power to negotiate lower pharmaceutical costs, and that any savings generated by that action be passed on to the men and women who use these services. We cannot allow these fees to be raised without this action.”
Levin recommended that the joint committee support the new TFL enrollment fee. McCain called it a “reasonable step” considering the hefty rise in national health care costs since Congress established TFL in 2001.
It “would still keep the cost of TRICARE for Life well below costs of comparable ‘Medigap’ policies paid by non-DoD healthcare beneficiaries and would reduce entitlement spending significantly,” McCain wrote. He noted the fee would hit “a group on mostly fixed incomes who are vulnerable to unanticipated changes in expenses.” Still, he wrote, it should be considered.
The House Armed Services Committee also commented on Obama’s TRICARE initiatives. Committee Republicans, led by Rep. Howard P. “Buck” McKeon, the chairmen, urged caution on any changes to military benefits in light of career demands that “are radically different from any private sector or government civilian endeavor. The retirement and health care systems that support the military community should reflect that reality.”
Though they did not directly oppose the TRICARE initiatives, House Republicans said the TLF fee plus higher drug co-pays at retail “would constitute a substantial double hit on the TRICARE for Life population.” And a third hit will occur as Medicare Part B fees rise, as expected, in 2012.
So McKeon and colleagues urged the debt reduction committee to “avoid to the greatest possible extent” changes to retirement and health care that would “impose more sacrifice on the military population than is being asked of any other American.”
The White House debt reduction plan described military retirement as “out of line with most other government or private retirement plans.” But it also said changes should not apply to the current force. Obama wants a powerful commission, similar to base closing commissions, to study the matter and offer a reform plan for future generations. Congress would have to approve or reject but could not be alter it. Levin wrote that such a study should include all features of military compensation including allowances.
Defense Secretary Leon Panetta and Army Gen. Martin E. Dempsey, the new chairman of the joint chiefs, told the House Armed Services Committee last week that the current force must be protected.
“I've made very clear that we can't break faith with those in the service,” said Panetta. “We made a promise to people who are on duty that we're going to provide a certain level of retirement. We're not going to back away from that.”
COLA RETURNS -- Military and federal civilian retirees, survivor benefit annuitants, disabled veterans and Social Security recipients will see a 3.6 percent cost-of-living adjustment in January, their first since 2009.
The new COLA reflects the rise in consumer prices from the third quarter of 2008, when prices peaked just as the financial crisis hit, to the third quarter of 2011, as measured by the government's Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).