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Military Update

Commissaries safe; 1 percent pay cap, higher RX co-pays likely

The entrance to the commissary at Ramstein Air Base, Germany.

In shaping a 2015 defense authorization bill, Congress has decided to protect the prized commissary benefit from the most worrisome budget threat to base grocery stores in decades.

But military personnel are not likely to escape other key compensation curbs to include a second consecutive annual pay-raise cap in January of one percent versus 1.8 percent needed to match private sector wage growth.

Also, a million recipients of Basic Allowance for Housing are likely to see BAH increases dampened for the next three years until rates, on average, cover 95 percent of local rental costs versus 100 percent today.

Finally, beneficiaries with prescription drug needs likely will face sharply higher out-of-pockets costs if they rely on retail pharmacies, or if they choose to use brand name medicines over less costly generic drugs.

The pay raise cap, BAH raise slowdown and higher drug co-pays are all found in the Senate Armed Service Committee’s version of the defense policy bill (S 2289) but not in the House-passed bill (HR 4435).

The Republican-led House Armed Services Committee continued its recent yearly pattern of leaving no fingerprints on any rollback in compensation growth sought by the Obama administration and military leaders to accommodate lowered defense spending targets.

But the political rhetoric of protecting troops and families from budget cuts eventually has to give way to budget realities created by the bipartisan 2011 Budget Control Act, as amended last January, with its sequestration tool to force automatic cuts if Congress doesn’t comply.

The Senate committee’s embrace of plans to raise member out-of-pocket costs are likely to become law because the House, in rejecting any compensation curbs, failed to identify alternative cuts to avoid creating a $2 billion hole in the defense budget. That means House-Senate conferees, in ironing out differences in separate versions of the bill, almost certainly will have to accept the Senate panel’s menu for slowing compensation growth.

Both the House and the Senate committee agreed to reject administration plans to consolidate Tricare options and to raise Tricare fees to include Medicare-eligible beneficiaries under Tricare for Life. But pharmacy co-pay increases, to be phased in over 10 years, would mean higher out-of-pocket costs mostly for older retirees, spouses and survivors.

The Senate Armed Services Committee, chaired by Sen. Carl Levin, D-Mich., who is retiring, reshaped the administration’s compensation package with an eye to soften the impact on enlisted members and their families, sources explained. It did so by rejecting a three-year plan to slash the $1.4 billion annual subsidy for the Defense Commissary Agency.

A second theme was to avoid significant structural changes to compensation, including Tricare reforms, until after the blue ribbon Military Compensation and Retirement Modernization Commission releases its report with final recommendations next February.

Here’s a rundown of compensation changes in the Senate committee bill, which House-Senate conferees will find difficult to derail in negotiating a final defense authorization bill this summer:

  • Raise cap: The Senate bill projects saving $534 million in 2015 by capping the January military pay raise at one percent. Freezing the pay of generals and admirals at current levels would save another $1 million.
  • Dampening BAH: No individual would see stateside housing allowances fall but annual increases would be smaller for three years until BAH, on average, covers 95 percent of average rental costs instead of 100 percent. Also, BAH rates no longer would be set to cover renter’s insurance. In 2015, this would save taxpayers $391 million in housing allowances.
  • RX co-pays: The Senate bill accepts a plan to “fully incentivize” use of mail order and generic drugs. The current $17 co-pay to get a 30-day supply of a brand name drug on the military formulary at a retail outlet would jump to $26 in January. Co-pays at retail would increase by another $2 annually over the next seven years to hit $40 by 2022, and $45 by 2024.

Beneficiaries now have a co-pay of $44 to get non-formulary drugs at retail outlets. Under the Senate plan, non-formulary drugs could only be obtained by mail order. The co-pay for a three-month supply of pills by mail would be raised from $43 to $51 in January and increase annually thereafter to reach $66 by 2017 and $90 by 2024.

Co-pays for a brand name drug on formulary, when filled by mail order, would double from $13 to $26 next January and increase by $2 to $4 annually to reach $34 by 2019 and $45 by 2024.

Beneficiaries could continue to have prescriptions filled for free at base pharmacies. Generic drugs would continue to be provided at no charge by mail order until only 2019 when a co-pay would be set at $9 for a 90-day supply. The current $5 co-pay for generic drugs at retail would be increased by $1 a year starting in 2015 and reach $14 in 2024.

In its 2013 defense bill, Congress ordered Tricare to begin a pilot program that requires older beneficiaries to obtain all maintenance drugs for conditions like high blood pressure through home delivery for at least a year. The plan took effect this spring. The Senate bill would replace the pilot with a requirement that all retirees and family members, regardless of age, use mail order or base pharmacies for maintenance meds.

Defense officials estimate that the higher drug co-pays, ignored by the House but moving toward enactment, will save $829 million in 2015 alone.

  • Commissaries: Only the House bill would lower the commissary subsidy, by $100 million, in fiscal 2015. But the cut is to encourage efficiencies and doesn’t allow stores to set higher prices for patrons.
  • COLA minus one: Under current law, members who enter service for the first time on or after Jan. 1 this year, and serve until retirement, would see retiree cost-of-living adjustments capped one percentage point before inflation. The Senate bill would push the effective date of the COLA-minus-one formula out two years to impact new entrants starting in 2016, giving the compensation commission time to reject or bless the change.

Send comments to Military Update, P.O. Box 231111, Centreville, VA, 20120, email milupdate@aol.com or twitter: Tom Philpott @Military_Update
 

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