Content Manager posted on September 20, 2011 15:52
CQ TODAY ONLINE NEWS – DEFENSE
Sept. 19, 2011 – 4:29 p.m.
By John M. Donnelly, CQ Staff
President Obama’s latest plan for deficit reduction includes cutbacks in spending on federal pensions, health care benefits and other expenses that could have a big impact on civilian and military personnel at the Pentagon.
The proposals include increased fees and premiums for military health care enrollees, limits on federal reimbursements for contractor salaries, and the creation of special commissions on changing military pensions and federal workforce rules.
Attempts to increase individual retirees’ share of the Pentagon’s health care costs have been quashed by congressional opposition in recent years. But this year lawmakers have signaled that they are prepared to accept modest increases in certain fees. And the fiscal crisis may increase the odds that the larger changes Obama has in mind may be seriously considered.
“In addition to the $1 trillion in spending that we’ve already cut from the budget, our plan makes additional spending cuts that need to happen if we’re to solve this problem,” Obama said at the White House on Monday, in a reference to the national debt.
The president only briefly hinted at some of the changes he has in mind. The White House Office of Management and Budget, in a document called “Living Within our Means and Investing in our Future,” provided further details.
First, the president would like to establish a new commission to handle the politically charged and fiscally significant issue of pensions for military retirees.
“The non-disability program provides generous benefits to the relatively few members who stay for at least 20 years and no benefits for the roughly 80 percent of service members who stay less than 20 years,” the White House document said.
Likewise, the Defense Business Board, a Pentagon advisory panel, recommended in July that the Pentagon move toward 401(k)-style retirement plans. It said military retirement costs are set to grow from $50 billion in 2010 to $108 billion in 2035.
“The costs of military retirement will seriously undermine future military war-fighting capabilities,” the panel warned.
Any changes should affect only new military personnel, not those currently serving, the White House said. That decreases the proposals’ political volatility — but also their contribution to deficit reduction in the near term.
The issue is politically contentious enough that the White House recommended handing it to a special panel whose rules would mirror those of the 2005 Base Realignment and Closure Commission.
The Pentagon would send the panel a set of recommendations, which the group would revise and send on to the White House. The president would then have the choice to deliver it as-is to Congress or let it drop. Congress would have to approve the package in its entirety for it to become law.
Boosting Contributions
The administration also proposes to make civilian federal employees at the Pentagon and other agencies contribute a greater share to their retirement accounts, to more closely approximate typical private programs. The White House would increase individual contributions to retirement plans by 0.4 percent a year over three years, beginning in 2013, but the employee’s total pension would remain unchanged, it said.
This and other “modest” changes to federal civilian pension plans would save $21 billion over 10 years, the White House said.
Broader changes are called for in workplace rules at the Defense Department and other federal agencies, administration officials say. They cite surveys of federal workers showing that their “current work environment fails to effectively deal with poor performers and does not reward innovation.”
To address this, the White House urged Congress to set up another special panel, to be called the Commission on Federal Public Service Reform.
For the military health care system, Obama’s proposal also calls for other changes.
The plan would impose a first-of-its-kind enrollment fee for the Tricare for Life program, which pays most of military retirees’ expenses that are not covered by Medicare. In the private sector, retirees pay an average of $2,100 a year for such a policy, the document said. The administration is proposing to start charging a $200 premium in fiscal 2013, and the price would increase over time. The new fees would bring in $6.7 billion over the next decade, the White House document said.
Other changes would increase the amount individuals pay for certain drugs under the regular Tricare health care system. Military retirees pay considerably less than other federal retirees for the same brand-name drugs — on average $9 instead of $45 for their civilian counterparts under comparable plans, the White House said.
Drug Coverage
The new proposal includes small price changes in health care coverage of drugs in fiscal 2012, the White House said, and then moves toward parity with the costs borne by the federal government’s civilian employees and most workers in the private sector. The increases would come on top of proposed increases in pharmacy co-payments already proposed in the fiscal 2012 budget.
To add incentives for buying less-expensive drugs, the White House would eliminate co-payments for mail-order generic pharmaceuticals and would make retail co-payments a percentage of the cost rather than a fixed dollar figure.
The drug proposal would not apply to active-duty troops but only to their family members and to retirees, the administration said.
The savings from the drug changes would total $20.6 billion, mostly in the category of mandatory spending, rather than discretionary.
The Obama administration also would like to increase in fiscal 2012 regular Tricare annual fees by $30 for individual military retirees who are still working and $60 for families of such retirees. Both the House and Senate defense authorization bills (HR 1540, S 1253) would limit future increases to the rate of inflation.
The White House would also limit the amount of money spent to compensate contractors for their executives’ salaries under the deals that reimburse contractors for their expenses.
Under the current statutory formula, the amount of salaries that can be reimbursed has grown from $250,000 in 1995 to a projected $750,000 in 2011. The new plan would cap them at $200,000.
The Pentagon accounts for more government contracts each year than any other agency, and the reimbursement contracts are frequently used on high-tech development work in the military.