There's a Storm Brewing in the Pentagon's Budget

The cost of health care is a problem for the Pentagon that Congress seems determined not to solve.

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Soldiers with the 101st Airborne Division at Fort Campbell, Ky., are silhouetted by the setting sun as they walk across the Campbell Army Airfield.

The House of Representatives debated and passed the 2014 defense spending bill this week. The White House has threatened to veto the bill for a variety of reasons, but one stands out: the unsustainable cost of military and retiree benefits.

The president's advisers are encouraging Congress to help them restrain internal cost growth on priorities like health care for troops. But Congress is moving in a different direction.

Reining in defense personnel benefits, pay and compensation is a small but important step to restoring fiscal health to the military's budget. While most are familiar with sequestration's cuts weighing on those in uniform, fewer – including those in Washington – are familiar with the budgetary storm brewing below the surface of the Pentagon topline. Internal cost growth on non-warfighting overhead like excess bases, the size and composition of the overall Pentagon workforce and excess or redundant headquarters and staff all threaten to crowd out other critical spending on military readiness, innovation and modernization.

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Defense spending priorities are at a crossroads. Personnel and related expenditures now consume more than half the Pentagon budget when accounting for those in uniform as well as Department of Defense civilians. If left unchecked, under current budget projections, these people-related costs will consume the entire defense budget by 2039, notes Todd Harrison at CSBA.

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The single largest driver of military personnel spending, in particular, is health care. In order to address ballooning costs, the Pentagon has requested several reforms to the TRICARE program in recent years. For next year, these include increasing TRCARE Prime and TRICARE Standard and Extra enrollment fees, along with adjusted pharmaceutical co-payments.

According to Secretary of Defense Chuck Hagel, these proposals – along with a plan to institute a more modest military pay raise of one percent – would save about $1.4 billion in fiscal year 2014 and almost $13 billion through 2018. 

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While these figures represent potential savings, they also represent increased costs if Congress fails to act. While Congress has enacted other, smaller changes in recent years – including increased fees in some cases – members have rejected the bulk of Pentagon-proposed health care reforms over the past decade. The outlook is so bleak for more action in this area that when the Congressional Budget Office projected future defense spending based on the 2013 budget request, it operated under the assumption that Congress would reject again Pentagon TRICARE reform proposals. 

While Pentagon leaders have taken belated steps to try and at least put a Band-Aid on some of this cost growth, much more will need to be done and more quickly than current plans allow.

Congress was a partner with President Obama in getting the military and Pentagon into the current sequestration mess. But now policymakers are making the budget squeeze worse by refusing to help tame internal defense costs or identify alternate solutions.

These reform proposals are not about partisan politics, but rather simple math. Arithmetic is quickly catching up with unsustainable government spending. Pushing off difficult but needed change will only raise the ante – and the bill -- later.

Mackenzie Eaglen is a resident fellow at the Marilyn Ware Center for Security Studies at the American Enterprise Institute.

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