The Military Drawdown and Benefits Cuts

“Here we go again”: welcome to the largest military drawdown since the end of the Cold War and DESERT STORM. The military shrank over 25% during that one, and systems tech has improved a lot since then. Remote sensors and unmanned aircraft weapons can’t replace all of the boots on the ground, but they can sure make a dent in the billet structure.

Fellow blogger Chazz Pratt has pointed out that drawdowns go even further back than my woolly-mammoth memory. Back in 1922, the Army cut between 10,000 – 15,000 soldiers in a process called “The Skeletonization”For all the practice that we’ve had at drawdowns and benefits reviews, you would think that we’d be better at implementing them.

Despite my cynicism & skepticism, this time it may really be different. One clear impression of the 1990s drawdown was that we had the computer power to identify the issues, and enough computing potential to think we could do something about them. The reality was that the services couldn’t handle the unintended consequences of their actions. Incentives turned out to be too broad, and the military bureaucracy was totally unprepared for the hot Internet economy that drew a lot of people out of the service.  However, since then, the tools have improved by at least two generations of tech.

But this time the Army is leading the new approach. Instead of halting recruiting, the Army is gradually cutting 50,000 soldiers over the next five years through separations and retirements.  Army personnel staff are also planning to reinstate drawdown incentives that were last used in the 1990s.

The Air Force is already refusing to continue O-4 officers on active duty because they’ve failed selection to a higher rank.  In the past, many of these officers would have been allowed to stay until they reached retirement eligibility. The Navy is contemplating a similar approach with early retirements and involuntary separations.

All services will be using the “force shaping” tools that Congress has already authorized in the past: selective early retirement boards, involuntary separations, voluntary separation incentives, waivers of time in commission or time in rank, and even refusing to re-enlist some servicemembers.

However, this drawdown isn’t about making Congressional end-strength numbers or spending the Cold War’s “peace dividend”. It goes beyond canceling a troubled weapons program or trying to reorganize the manpower diagrams. This time the drawdown is cutting billions from defense spending over the next decade, and a significant share of those cuts could come from benefits.

The first benefit cut came on Tricare fees. After 15 years without fee increases,  the question was no longer “if” fees would rise but only “when”. This week the higher Tricare fees will start to phase in for new retirees and expand to all retirees by Oct 2012. Some Tricare copayments for medications will also rise this week to encourage beneficiaries to start using the mail-order pharmacy program.

The “good” news (in addition to making Tricare more attractive to doctors) is that veteran’s organizations prevailed upon Congress to propose limiting future Tricare fee hikes to the same percentage as the military retiree COLA.

The next potential cut came from the Defense Business Board’s draft proposal to overhaul military retirement.  This study was scheduled to be completed in August but has still not been released– perhaps due to the vigorous backlash from veteran’s organizations and servicemembers.  Secretary of Defense Gates recently retired, and the study may be on hold until the new SECDEF has completed his review. The White House was quick to mediate the controversy by reassuring veterans that the budget would not be balanced at their expense.

However, the Administration itself launched the next cut on veteran’s benefits in a recent speech. The 80-page “Plan for Economic Growth and Deficit Reduction” proposes annual fees for Tricare For Life, beginning with $200 in 2013. Another proposal would provide an incentive for using less expensive pharmacy options by eliminating co-pays for generic mail-order drugs while, at the same time, shifting retail co-pays from dollars to a percentage. In other words, co-pays for expensive medications will rise because they’re linked to a percentage of the medication’s cost instead of set at a flat fee.

Here’s the text of the latest proposal to reform military retirement:

To consider reforms the Administration plans to set up a commission to develop recommendations for reforming the current military retirement system. The commission will review the impacts of reform proposals on military readiness, recruiting, retention, costs, and the quality of the force. The Administration plans to propose that the Commission’s recommendations be handled in a manner similar to the 2005 Base Realignment and Closure Commission’s recommendations. Under this approach, DOD would make a proposal to the commission, which can alter the proposal as it deems appropriate. The commission proposals then go to the President, who may not alter the proposals but can decide whether to forward them to the Congress. The Congress must approve or disapprove without any modifications. The Administration believes that any major military retirement reforms should include grandfathering provisions that ensure that the country does not break faith with military personnel now serving, including those serving in Afghanistan and Iraq.

The last major military retirement reform, the 1986 “REDUX”, cut too deep and had to be changed after retention plummeted. Today the military has much more computer power and many more tools to track retention, and the service’s personnel bureaus will be able to more accurately assess the impact of changes before they’re implemented. There will be many months of debate (and more alarming headlines), but veteran’s advocacy groups will have a strong voice in shaping the plan. I think the current High-Three defined-benefits system is “good enough”, but I can understand an attempt to substitute a portion of the defined benefits with higher TSP contributions. If I was on active duty today, though, I’d resign before putting up with a service commitment longer than 20 years or a higher age to start the pension.

It’s also encouraging to read that new Secretary of Defense Panetta is promising to make the drawdown strategic rather than unilateral.  This might imply that the military will shed some deployment commitments and hand off other missions to allies. I suspect that the world will learn how to get along without our personal commitment to being there for every single crisis, whether that’s humanitarian aid or ordnance on target.

What should you do about these issues if you’re in the service? The same things you’d be doing anyway: taking care of your people and your mission. Make sure your troops (and their families) understand the changes in Tricare fees. Make sure you’re still training and preparing for promotion, and maximize your educational benefits. Proposed retirement changes and potential benefits cuts shouldn’t be the “tipping point” of a retention decision. If you’re thinking about leaving active duty at the end of a service obligation, it might even be worth waiting to see if there’s a retention bonus or a separation incentive.

What if you’re retired and facing higher Tricare fees? Hopefully, these initial fee increases won’t break anyone’s budget. Even if the fees are challenged in court, it would be years before a legal decision was rendered. Until then it makes financial sense to plan for Tricare fees to go up at the same rate as the pension COLA.

Whatever your military status, you can get involved in the discussion by volunteering with a veteran’s organization. Let your elected representatives know the impact of their vote on your retention decision, your veteran’s benefits, and your retirement plans. Hardly any of them are veterans these days, and most of them don’t understand the effects of their votes. It’s our job to educate them on the consequences of their actions, and then to offer a better plan.

However, you get involved, I’d suggest that you should recommend a solution instead of staunchly defending the status quo. The military is going to get smaller, and it’s better to figure out what missions to cut rather than to simply try to “do more with less”. The retirement system is going to change, whether you help or not. If a proposal is illegal or unconstitutional then provide the citation behind the issue as well as recommending a way to solve the problem.

I’ll go first. I’ll gladly pay higher Tricare fees, both now and for TFL, rather than have to depend on underpaid & disgruntled doctors. A reasonable compromise would be to limit future fee hikes to the same percentage as the military pension COLA. In return, I’d appreciate Triwest finally honoring my request to stop the automated phone calls and the snail-mail flyers. I don’t need them, and I don’t need Triwest spending my premiums on them either. Maybe future Tricare fees could be linked to lifestyle issues like smoking and body fat, or financial incentives could be offered for meeting fitness goals.

If I was in the submarine force today, I’d suggest that we drastically cut the current mission cycle. The Cold War is over, guys, and the national command authorities don’t need 100% on-station attack submarine sensor coverage of everything happening in the world. In addition, I suspect that nuclear deterrence could still be maintained with an even smaller ballistic missile submarine force. In exchange, I’d ask the administration and the State Department to work on another round of nuclear missile cuts so that we only have to keep enough warheads on hand to destroy the world once or twice over, not several times.

Any other suggestions? If you want to see your comments here then please keep ’em practical and professional.  Remember that first-time comments go into a moderation queue before appearing on the site.

Thanks once again to fellow bloggers Chazz, Terry, and Kate for their references, and a special thanks to “M Paquette” for finding the “President’s Plan” document link!

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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