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The Military Health System: Redefining the Role of Employers and Improving Cost-Share Parity Among Retirees

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Technical Report

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Air War College Air University Maxwell AFB United States

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The cost of military health care has almost tripled over the last decade from 19 billion in2001to 53.5 billion in 2012 and is approaching 10 of the defense budget. This unprecedented growth, and the huge cuts to the overall Department of Defense DoD budget, is driving strategic tradeoffs between competing defense priorities, including how much the DoD can afford to pay for health care. The DoD has repeatedly proposed higher enrollment fees in order to help offset health-care costs and modify beneficiary utilization behavior, but it has been unable to secure approval through Congress. Most experts agree fundamental reform to the Military Health System MHS is needed, but few offer concrete, politically viable options. This paper will analyze and evaluate the costs, benefits and policy implications associated with redefining the role of employers of working military retirees and improving cost share parity among retirees. Specifically, I recommend employers be required to pay TRICARE the insurance premium they would have otherwise had to pay to their insurance carrier if the retiree opts out of the employer plan. Just as important, I propose DoD leave the baseline TRICARE fees alone, but charge an additional fee to working-age retirees based on a percentage of wages above retirement pay. This will require changes to Section 707 of the 2007 NDAA as it relates to employers providing payments to retirees for opting out of employer-sponsored health insurance coverage. Implementing these proposed options could provide the MHS an additional 48 billion in revenue across the Future Years Defense Program FYDP, FY 2015-2019. In this period of fiscal austerity, I fear significant cuts to the MHS could have unintended, long-lasting, negative impacts to military readiness. The funding provided through my proposal has the potential to maintain the current benefit and provide additional time for deliberate strategic planning.

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