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As defense budgets grew over the past decade, Congress shrugged off complaints of runaway military health costs and blocked every proposal from the Bush administration to raise TRICARE fees sharply on retirees.

Defense budgets have stopped rising, however, and Defense officials today are sounding more confident that Congress will follow last October’s $5-a-month bump in TRICARE Prime enrollment fees for working-age retirees with more substantial fee increases for retirees of all ages.

Defense Secretary Leon Panetta and Arm Gen. Martin Dempsey, chairman of the Joint Chiefs, outlined plans Jan. 26 to lower defense budgets over the next 10 years by $487 billion in compliance with the Budget Control Act passed last spring to dampen growth in federal debt.

Though Panetta and Dempsey withheld full details on proposals to curb personnel costs, until President Obama presents his 2013 budget request to Congress Feb. 13, they said the personnel saving initiatives would include:

-New enrollment fees, co-pays and deductibles on retirees under 65, phasing them in over five years and using a “tiered approach” so that senior-grade retirees pay higher fees than lower ranking retirees.

-A new annual enrollment fee for the TRICARE for Life insurance supplement to Medicare, used by retirees 65 and older. This fee also would be tiered so retirees drawing smaller retirement checks pay less.

These changes, Defense leaders said, still would leave military retiree health care fees significantly below “comparable civilian equivalents.”

-TRICARE pharmacy co-payments would be increased again in ways to discourage use of the more convenient but more costly retail outlets and encourage greater use of base pharmacies and the home delivery program.

-Persons medically-retired by their service, and surviving spouses of members who died on active duty, would be exempt from the higher fees.

On active duty pay raises, Panetta said starting in 2015 they would be capped in some unspecified way though no member would see a drop in pay.

The budget also will ask Congress to establish a “BRAC-like” commission to recommend cost-saving reforms to military retirement. Any retirement changes, however, would impact only future recruits, not the current force or retirees. BRAC refers to Base Realignment and Closure commissions. They were given broad authority to recommend base closings, which Congress could accept or reject but not modify. The retirement commission would have similar powers regarding compensation changes.

Coincidently, Panetta said the budget will seek two more rounds of base closings to help to trim infrastructure costs.

Defense background papers explained that personnel costs make up a third of defense spending today but the planned cuts to personnel accounts would represent only one ninth of total funding to be stripped from future budgets, a concession to the importance of keeping a quality force.

“This budget recognizes that [people], far more than any weapon system, far more than any technology, are the great strength of the United States military,” Panetta said. “For that reason, we focus first on every other area of the defense enterprise for savings, in order to minimize any impact on the quality of the troops and their families.”

Five days later, when the Military Healthcare System held its annual conference at National Harbor, Md., across the Potomac River from Washington D.C., the keynote speaker for 3000 attendees was Jonathan Woodson, assistant secretary of defense for health affairs.

He spoke about new “fiscal realities” impacting the health system but avoided mention of the planned fee increases. Woodson predicted, however, that smaller defense budgets “will shine an even brighter light on military health costs, which could exceed 10 percent of the Department of Defense budget if reforms are not made.”

He noted too that, “for years, experts and non-experts have been saying that the growth of healthcare costs is unsustainable. Everyone nods their head and says ‘Yes, we need to control healthcare costs.’ And somehow, despite all this head nodding in solemn agreement that costs cannot keep rising, the costs nonetheless have continued to go up.”

Explosive growth in military health costs from 2000 to 2005 eased, Woodson said, so that the pace now matches inflation for civilian health care at about five percent a year. “But that is dangerously higher than the overall inflation rate,” he added. When defense budgets were growing, “this was a cause for concern but it still seemed manageable. Not anymore. In order to meet the overall military readiness imperatives, and our moral obligation to the American taxpayer, we must slow down our growth rate.”

Woodson pointed not to TRICARE fees increases but to “a new commitment to collaboration between the services…to reduce redundancy and waste.” He listed four major initiatives to lower costs and improve population health including: a new patient safety campaign; renewed efforts to reduce smoking by service members and obesity among families including retirees; expansion of the Patient-Centered Medical Home concept to enhance delivery of preventive services and lower costly emergency room visits by patients who only need primary care; an effort to encourage greater innovation throughout the military health system.

On TRICARE fees, associations representing beneficiaries, particularly retirees, are preparing for a fight on Capitol Hill while waiting for fuller details on the TRICARE proposals. Opponents are sure to argue that TRICARE for Life beneficiaries were promised free lifetime health care, even though the courts ruled such promises, by recruiters and career counselors, are nonbinding because they were not backed by written law.

They will argue too that deeply discounted lifetime health care is a benefit earned by all retirees through unique hardships of military careers.

The daunting challenge for sympathetic lawmakers will be finding budget dollars to shield retirees from higher TRICARE fees as overall defense spending falls.

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