U.S. Military Health Care Reform

On December 19, the Center on 21st Century Security and Intelligence (21CSI) at the Brookings Institution held a wide-ranging event on military health care reform. The conversation included a diverse group of speakers from the Department of Defense (DoD) to the think tank and management consultancy worlds to the Congressional Budget Office.

Michael O’Hanlon of 21CSI hosted the event and was pleased to welcome Assistant Secretary of Defense for Health Affairs Jonathan Woodson as keynote speaker. Woodson described the value of the DoD health care system—which cares for nearly 10 million beneficiaries, costs more than $50 billion a year and has treated more than 50,000 war wounded in the conflicts of the 21st century to date. It employs roughly 140,000 full-time personnel at more than 50 hospitals and some 600 medical or dental clinics. It also involves a network of private providers who treat DoD patients as well; that network includes some 400,000 providers in round numbers.

Among Woodson’s most important points were that the value of military medicine has to be determined across the broad missions that the military health system is responsible for— readiness, health and hospital care, public health, research and development and education and training; and that global security and global health crises have increased the demand for DoD’s health expertise even as combat operations are diminishing. Woodson pointed out that the DoD has made important strides in military health care in recent years, including in technologies such as advanced prosthetics, in battlefield survival rates for casualties and also in responsibly holding down cost growth through reforms in areas such as pharmaceutical prescriptions, payment reform and the stand-up of a Defense Health Agency to better integrate care across the military departments. He also spoke of progress in linking the DoD health care system to the Veterans Affairs (VA) system (a separate organization with a separate and even larger health care budget), while acknowledging that a great deal of integration and further improvement remains. He also noted, in response to a question, that it is important to facilitate the access to health care services for activated reservists, and DoD is working hard to make the associated procedures simpler for reservists and families.

After his remarks, a panel made up of former DoD Comptroller Robert Hale, Carla Tighe-Murray of the Congressional Budget Office, Alice Rivlin of the Engelberg Center on Health Care Reform at Brookings, Henry Aaron of the Economic Studies Program at Brookings and Jack Mayer, Executive Vice President at Booz-Allen-Hamilton, convened to continue and broaden the discussion, with O’Hanlon moderating. Among the key points raised were the following:

  • Secretary Hale noted the success DoD has had in recent years in reducing provider costs and having beneficiaries share a modestly greater fraction of the military cost burden. Further efforts are underway, motivated in part by the assessment of the Joint Chiefs of Staff that in a budget-constrained environment, resources for training and equipment could be compromised if compensation costs were allowed to grow excessively. Hale made this argument while defending the premise that military compensation should be adequate to meet recruiting and retention needs, that those personnel less able to afford any premium increases should be assisted, and that in general the goal of compensation reform should be to limit future cost growth rather than to make significant cuts. Secretary Hale also advocated closing or streamlining some military treatment facilities that have inadequate caseloads to justify their expense. He suggested a new way of budgeting – return of health care funds to the military services along with centralized execution financed with a working capital fund – that might increase the incentives for the military services to streamline facilities.
  • Tighe-Murray explained that much of the growth in military health care costs in recent times has been due, not to the wars in Iraq and Afghanistan, but to expanded benefits, as well as a failure of DoD premiums and co-payments to keep up with the general growth in health care costs in the United States. This set of factors has translated into more enrollees, more use of services and higher costs per doctor or hospital visit than would have otherwise been the case. While Secretary Hale had talked about options for DoD health care reform that would save the Pentagon, and taxpayer, perhaps a couple billion dollars a year, Tighe-Murray outlined options that might ultimately save nearly $10 billion annually.
  • Rivlin and Aaron placed DoD health care in broader context. They recognized that the Department of Defense must provide certain kinds of capabilities, including for battlefield expeditionary medical care, that the private sector does not need to offer in similar ways. But nonetheless, they talked of the pros and cons of more fundamental possible DoD health care reform. For example, in less densely populated parts of the country or for population groups such as retirees that had other options, it might seek to encourage migration of more individuals from the military health care system to the private sector and the civilian system. This option may take on new feasibility in light of the Affordable Care Act. Rivlin and Aaron were careful to emphasize, however, that the DoD could still subsidize the health care costs of its personnel, and perhaps particularly its lower-salaried personnel, under such an approach. Acknowledging the complexities of the issue, however, Aaron also pointed out that it was not clear that the DoD (or the VA system) were necessarily any less efficient as health-care providers than the private sector, at least in some areas of the country.
  • Jack Mayer underscored the need to think comprehensively about military health care as one element of compensation policy. With an all-volunteer force, the goal of compensation policy is to be fair to the men and women of the U.S. military, to be sure, but also to attract and retain a sufficiently large and high-quality pool of talent. In this regard, the country needs to be careful about providing benefits that may have limited relevance to the recruiting and retention mission and cost the country a good deal as well. Generous health care for able-bodied military retirees and their families may be a case in point—though Mayer also underscored the need for a consensual approach that recognized the interests and equities of many stakeholders. As such, his proposals for reforms focused more on rethinking benefits for future recruits than on changing existing “contracts” with current beneficiaries.

A number of the very useful and often spirited questions and comments during the discussion period came from military personnel, their families and some of their various organizations represented at the event. For those wishing more information, CSPAN covered the discussion and will feature it on the website, and Brookings will post a transcript as well.