US Military Benefits Costs Spiraling
One of the key sources of savings proposed for the new CVN-21 Class aircraft carriers is a trend toward more automation and fewer personnel. Now the GAO helps shed light on the larger phenomenon behind those moves. A recent GAO report that pegged the average for active duty enlisted personnel and officer compensation at $112,000 a year, 51% of which takes the form of health care and other benefits (NAVSEA’s figure was $90,000 FY 2004).
This amounts to about double the average for civilian pay, and also represents a much higher benefits ratio than civilian pay. Ironically, the GAO report also found that the US military’s efforts to educate its personnel about this important recruiting and retention lever did not get good marks, and that many military members were unaware of how competitive their compensation was.
GAO Comptroller David Walker’s key point at a recent GovExec.com breakfast was that the budgeting process needed to reflect the full financial impact of funding decisions. For example, health care costs since are not only spiraling in the present thanks to a benefits expansion in 2000 – they also represent a major future stinger. Specifically…
A GAO report noted that the federal government’s total cost of active duty compensation increased by 29% from 2000-2004, rising from $123 billion to $158 billion. The major driver of this change? Health care costs, which increased 69% over that period. Now, some of that may surely be war-related, but Walker also noted a health care benefit extension enacted in 2000 that applies to older uniformed retirees over 65 years of age and covers them and their dependents for life. It was estimated to cost $40.4 billion over its first 10 years. Its true financial statement liability over the longer term? $293 billion, according to materials Walker presented.
“Part of the problem is that when Congress considers legislation, and the administration proposes it, they only consider a one-year, five-year, or maybe 10-year time horizon,” Walker said. As a result, Health care costs in particular are “escalating so rapidly, it’s impacting on other crucial considerations” such as the size and shape of the force and the equipment and weapons systems available to military personnel.
Read the full GovExec.com article, and note also their July 21, 2005 article “Military compensation ballooning out of control, GAO says.” Meanwhile, for those who are interested, there’s full July 2005 GAO report (GAO 05-798): “Military Personnel: DoD Needs To Improve The Transparency And Reassess The Reasonableness, Appropriateness, Affordability, And Sustainability Of Its Military Compensation System” [PDF format]
We’re with Walker on this one. There’s nothing wrong with paying soldiers well in an all-volunteer force, especially when they are making huge sacrifices and doing a dangerous job in times of war. Good Tricare benefits et. al. are unquestionably positive. Not knowing what the costs really are, however, is a recipe for poor decision making and possibly long term disaster.
Demographics being what they are, the cost bite will get significantly worse down the road, and the combination of baby boomer demographics and timelines associated with the current force means the rising cost of military-related health care is likely to impact on future military recapitalization initiatives. Consider, for instance, items like replacing the carrier fleet that is so critical to America’s global response capabilities. The retirement schedule for Nimitz Class carriers means a major recapitalization crunch hits around 2030-2045…