Expect pay raise caps, higher TRICARE expenses
For a fourth straight year, military personnel could see their basic pay increase next January fall short of average wage growth in the private sector.
The Senate Armed Services Committee last week offered a first peek at its fiscal 2017 compensation reform package. It's also expected to support higher TRICARE fees and co-pays, the bulk of them targeted at retirees under 65 and their families.
Senators endorsed a military pay raise for Jan. 1, 2017, of 1.6 percent rather than the 2.1 percent needed to match private-sector wage growth as measured by the government's Employment Cost Index (ECI).
The Senate committee is signaling once again it is ready to take a harder stand on containing compensation costs than are House colleagues who last month marked up their own version of the fiscal 2017 defense authorization bill and voted for a pay raise to match ECI. The House panel also wants only modest TRICARE fee increases and would apply most of them only to persons who join the military after 2017. Not so the Senate committee. Its members don't stand for re-election every two years.
"We've done some tough things, some long overdue things and some very necessary things for those who serve in the military," said Sen. Lindsey Graham,R-S .C., chairman of the Armed Services Personnel Subcommittee. "This is the most comprehensive look at military health care I've ever been involved in."
People will want to push back, Graham said, "but the goal (is) to bring about efficiency, lower costs (and) improve quality. If we don't do anything, in about 20 years 18 percent of the Department of Defense budget is going to be military health care related. That's an unsustainable path."
Graham said the proposed health care reforms not only will make the system more sustainable for taxpayers but they also will expand patient services and access.
Graham and Sen. Kirsten Gillibrand, D-N.Y., noted one other key health care provision: a $40 million initiative to reinstate the higher applied behavior analysis (ABA) therapy rates that TRICARE replaced April 1 under its demonstration for expanded treatment of military children with autism. Families with special needs children, Graham said, will be the "biggest winners" from the committee's health reform initiatives.
A House-Senate conference committee this summer will negotiate away any differences between the two versions of the authorization bill. In the recent past, House negotiators have acquiesced to senators on the pay cap issue. Last January, the basic pay hike was capped at 1.3 percent, a full percentage point below a raise to pace the ECI. In both 2014 and 2015, military pay hikes were capped at 1 percent when 1.8 percent was needed to match wage hikes nationwide.
Every pay cap saves the Department of Defense a lot of money. Next January's pay cap would free up $300 million through the last nine months of fiscal 2017. Smaller basic pay raises also hold down future retirement costs and all other military pays linked to basic pay levels. The Congressional Budget Offices estimates that capping basic pay increases by just a half percentage point for a full decade would save almost $25 billion. The Defense Department's current plan is to cap pay increases through fiscal 2020.
From 2001 through 2010, as hundreds of thousands of U.S. troops went to war, Congress acknowledged a military pay gap and began setting pay raises a half percentage point above ECI. But by 2011, with the nation worried about runaway debt, Congress passed the Budget Control Act, which ordered defense spending tightened by roughly $500 billion over the next decade. For the next three years, Congress set military pay raises, as standing federal law requires, to match changes in the ECI.
Since 2014, however, the Obama administration has proposed and Congress has allowed military raises to fall below wage growth nationally. Congress also embraced the administration's call to dampen Basic Allowance for Housing (BAH) growth by a full percentage point per year until BAH rates cover only 95 percent, rather 100 percent, of average rental costs off base.
The cumulative effect is taking a toll on purchasing power of military personnel and families, said Steve Strobridge of the Military Officers Association of America. Some lawmakers, he said, look at the caps' impact on individuals in a single year and conclude it "doesn't seem to mean much. But if you look at how much that person is losing each year versus what they would have had, had there not been a pay raise cap or allowance cap, you can see the numbers start compounding pretty quickly."
Assuming another half percent pay cap next January, a married E-5 who had 10 years' service when assigned to Washington, D.C., in 2014 will feel a cumulative loss of income of $4,756 through 2017, the result of four consecutive basic pay caps and three years of BAH caps, Strobridge said.
A married junior officer (O-3) who had 10 years in when assigned to the District of Columbia area in 2014 would see a cumulative loss in pay and allowances over that same four-year period of $7,869, he said.
Even that impact is understated, Strobridge said, if those careerists go on to retire, given how pay caps hold down the value of future retired pay.
"That O-3 is going to give up $1100 a year in retired pay for the rest of his life if he retires at 20 years," he said.
So far, however, the Senate committee embraces the administration's argument that growth in military pay, allowances and health care costs need to be curbed and those dollars used instead for more critical readiness needs including training, equipment, fuel and spare parts.
During the subcommittee mark Tuesday, Graham and Gillibrand choose to describe in detail provisions in the bill to modernize the Uniform Code of Military Justice. The more impactful provisions, on pay and benefits, were left for the full committee to describe in a forthcoming press release.