[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 114-7]
FINAL RECOMMENDATIONS FROM THE
MILITARY COMPENSATION AND RETIRE-
MENT MODERNIZATION COMMISSION
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON MILITARY PERSONNEL
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 11, 2015
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
_____________
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94-094 WASHINGTON : 2015
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SUBCOMMITTEE ON MILITARY PERSONNEL
JOSEPH J. HECK, Nevada, Chairman
WALTER B. JONES, North Carolina SUSAN A. DAVIS, California
JOHN KLINE, Minnesota ROBERT A. BRADY, Pennsylvania
MIKE COFFMAN, Colorado NIKI TSONGAS, Massachusetts
THOMAS MacARTHUR, New Jersey, Vice JACKIE SPEIER, California
Chair TIMOTHY J. WALZ, Minnesota
ELISE M. STEFANIK, New York BETO O'ROURKE, Texas
PAUL COOK, California
STEPHEN KNIGHT, California
Dave Giachetti, Professional Staff Member
Craig Greene, Professional Staff Member
Colin Bosse, Clerk
C O N T E N T S
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Page
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Davis, Hon. Susan A., a Representative from California, Ranking
Member, Subcommittee on Military Personnel..................... 2
Heck, Hon. Joseph J., a Representative from Nevada, Chairman,
Subcommittee on Military Personnel............................. 1
WITNESSES
Maldon, Hon. Alphonso, Jr., Chairman, Military Compensation and
Retirement Modernization Commission; accompanied by
Commissioners Hon. Stephen E. Buyer, Michael R. Higgins, GEN
Peter W. Chiarelli, USA (Ret.), ADM Edmund P. Giambastiani,
Jr., USN (Ret.), and Hon. Christopher P. Carney................ 3
APPENDIX
Prepared Statements:
Heck, Hon. Joseph J.......................................... 35
Maldon, Hon. Alphonso, Jr., joint with Hon. Larry L.
Pressler, Hon. Stephen E. Buyer, Hon. Dov S. Zakheim, Mr.
Michael R. Higgins, Gen. Peter W. Chiarelli, Adm. Edmund P.
Giambastiani, Jr., Hon. J. Robert Kerrey, and Hon.
Christopher P. Carney...................................... 36
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Dr. Heck..................................................... 51
Mr. Knight................................................... 51
Mr. Walz..................................................... 51
Questions Submitted by Members Post Hearing:
Mr. Jones.................................................... 59
Mr. Kline.................................................... 55
Mr. MacArthur................................................ 58
FINAL RECOMMENDATIONS FROM THE MILITARY COMPENSATION AND RETIREMENT
MODERNIZATION COMMISSION
----------
House of Representatives,
Committee on Armed Services,
Subcommittee on Military Personnel,
Washington, DC, Wednesday, February 11, 2015.
The subcommittee met, pursuant to call, at 12:58 p.m., in
room 2212, Rayburn House Office Building, Hon. Joseph J. Heck
(chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. JOSEPH J. HECK, A REPRESENTATIVE FROM
NEVADA, CHAIRMAN, SUBCOMMITTEE ON MILITARY PERSONNEL
Dr. Heck. Go ahead and call the Military Personnel
Subcommittee of the House Armed Services Committee meeting to
order. I want to welcome everyone to the first hearing of the
Military Personnel Subcommittee on the 15 recommendations to
modernize the military compensation and retirement system
suggested by the Military Compensation and Retirement
Modernization Commission.
We appreciate the Commission's diligent and comprehensive
review of the military pay and benefits system, and believe
their thoughtful recommendations deserve our attention and
careful study. We want to ensure everyone that the Military
Personnel Subcommittee will take every opportunity to
thoroughly review and discuss them in the coming months.
We are fully committed to improving the welfare and quality
of life for both current members of our armed services and our
veterans, while ensuring we keep our Nation safe and secure.
Our purpose today following last week's full committee hearing
is to begin the subcommittee's effort to understand the
assumption, rationale, and details behind the Commission's
recommendations.
A key consideration for our work is to continue viability
of the All-Volunteer Force, which has been well sustained by
our current compensation system since its inception. Most
importantly, we must not break faith with our service members
and undermine our efforts to recruit and retain the best and
brightest in our Armed Forces.
Before I introduce our panel, let me offer Congresswoman
Davis an opportunity to make her opening remarks.
[The prepared statement of Dr. Heck can be found in the
Appendix on page 35.]
STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE FROM
CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON MILITARY PERSONNEL
Mrs. Davis. Thank you, Mr. Chairman.
I also want to welcome back the commissioners. You have all
been very, very busy and we appreciate the dedication of your
time and effort.
I believe this hearing at the subcommittee level provides
our committee members the opportunity to have a better dialogue
with all of you, with the commissioners, to better understand
the assumptions and the details behind the recommendations.
As we continue this dialogue over the next several months,
we will have a hard look at 15 recommendations. And we are
interested in being sure that any action that the Congress
takes will preserve the All-Volunteer Force as an underlying
principle. And we know you understand that as well.
Some of the recommendations may take longer to fully
understand before we can act. And we know it would have been
very difficult actually to have sustained our All-Volunteer
Force over the past 13 years of war without the current
compensation system that we have today.
But we are entering a new reality. Fiscal pressures with
the new generation of citizens entering the military, and it is
time to look at this and to look at it responsibly.
The commissioners and their staffs have certainly, as I
said, put in serious effort into this. And we, Mr. Chairman, as
I know you believe, must do the same. Thank you.
Dr. Heck. Thank you, Mrs. Davis.
Before I introduce the panel let me just lay down some
groundwork because we heard that votes will be somewhere
between 1:50 and 2:05. We know that you have a hard stop at
2:45 to get across campus. So I would ask to please keep
opening statements short.
To those of us at the panel, keep questions short and
succinct, and give enough time for the commissioner to answer
it. And we will try to muscle through as fast as we can. But we
don't want to shortchange anybody's opportunity to give their
opinions.
In addition, today we are kind of now at I think
recommendation 14\1/2\. So recommendation 15 of the Commission
on a military dependent education category for disaggregating
data we just added as an amendment to the Elementary and
Secondary Education Act reauthorization, which is going on
right now in the Education and Workforce Committee. So,
recommendation 15 is already on its way to being adopted.
We are again joined by an outstanding panel of
commissioners. Again please try to keep your statements to 5
minutes or less. Your written comments will be made part of the
record.
I want to welcome the Honorable Alphonso Maldon, Chairman
of the Commission; the Honorable Stephen Buyer; the Honorable
Christopher Carney; Mr. Michael Higgins, who we all know well;
General Peter Chiarelli; and Admiral Giambastiani.
Chairman.
STATEMENT OF HON. ALPHONSO MALDON, JR., CHAIRMAN, MILITARY
COMPENSATION AND RETIREMENT MODERNIZATION COMMISSION;
ACCOMPANIED BY COMMISSIONERS HON. STEPHEN E. BUYER, MICHAEL R.
HIGGINS, GEN PETER W. CHIARELLI, USA (RET.), ADM EDMUND P.
GIAMBASTIANI, JR., USN (RET.), AND HON. CHRISTOPHER P. CARNEY
Mr. Maldon. Thank you, Chairman Heck, Ranking Member Davis,
distinguished members of the subcommittee. My fellow
commissioners and I are honored to be here with you today. We
thank you for the opportunity to testify.
As a Commission we stand unanimous, Mr. Chairman, in our
belief that our recommendations strengthen the foundation of
the All-Volunteer Force. It secures our national security and
honors those who serve and the families who support them now
and into the future.
Our recommendations maintain or increase the overall value
of the compensation and benefits for service members and their
families, and provide needed flexibility for service personnel
managers to design and manage a balanced force.
Our blended retirement plans expands benefits from 17
percent to 75 percent of service members, while maintaining the
service's current force profiles. It provides flexibility for
service members and its services while protecting and improving
the assets of service members who retire at 20 years of
service.
These findings are based on reasonable and conservative
estimates, including TSP [Thrift Savings Plan] investment
returns of 7.3 percent, and retired pay costs of living
adjustments of 2.3 percent.
To maintain current force profiles, TSP contributions were
not recommended beyond 20 years of service. However, the
consideration of matching contribution that continues beyond 20
years of service may be an area the committee wishes to
explore.
Our recommendations promote essential high-level focus on
readiness through a new Joint Readiness Command that can serve
as a strong advocate for readiness funding and maintenance
skill standards.
They expand choice, access, quality and value of health
care by offering family members, Reserve Component members, and
retirees a broad choice of insurance plans that are more
flexible and efficient than the current TRICARE system. They
maintain savings on groceries and other essential goods while
improving the cost-effectiveness of DOD's [Department of
Defense] commissary and exchanges.
Our recommendations also save more than $12 billion
annually after full implementation without cutting the overall
benefit of service members. Our recommendations align
compensation to the preferences of service members, which were
partially measured through the more than 155,000 survey
responses we received.
Our survey methodology, which was new to the military
community, captured preferences for the alternative benefit
level. Its analytical tools then enabled for the first time
direct comparison between the value of that service member's
place on varying compensation and benefits packages.
The survey validates the many comments we received from
service members and their families at the 55 installations that
we visited. Our recommendations incorporate substantial
consideration of potential second- and third-order effect,
which are reflected in our implementation timelines.
Advancing these implementation timelines due to budget
constraints may lead to an unanticipated cost, implementation
challenges, or even failed modernization efforts. An example
may be accelerating the multiyear backend operational
efficiency of our commissary and exchange recommendations.
In closing, my fellow commissioners and I again thank you
for the opportunity to testify before you today. And we stand
ready for your questions, Mr. Chairman.
[The joint prepared statement of the commissioners can be
found in the Appendix on page 36.]
Dr. Heck. Thank you, Mr. Chairman. So no other opening
statements?
Mr. Maldon. That is it.
Dr. Heck. Great.
Mr. Maldon. Thank you.
Dr. Heck. We will now begin with a 5-minute round of
questions for the members of the panel.
Again I want to thank all the commissioners for being here.
And certainly I have got a lot of questions that probably go
far--too far into the weeds at this level that we will probably
address in later hearings or roundtable briefings with some of
the Commission staff members. A couple of quick ones.
You know when we talk about some of the rationales and
assumptions used to come up with some of the recommendations, I
was intrigued by one of the health care recommendations,
specifically when it went to the dependent health care and
enrolling them in some type of FEHBP [Federal Employee Health
Benefit Plan]-like program and not under TRICARE.
From the report, and I will quote--``There are limited
provider networks. Another important part of good access to
care is having ample health care providers available to provide
treatment. TRICARE networks of civilian health care providers,
however, are limited because TRICARE reimburses providers for
health care procedures at a rate equal to or lower than
Medicare reimbursement rate. By reimbursing doctors at rates
equal to or less than Medicare levels, which are less than
market rates, TRICARE has been unable to attract enough quality
doctors. In contrast, commercial insurance carriers in the
civilian sector offer fair market value for physician
services.''
As a health care provider for over 30 years I question that
assumption because most even private health insurers right now
base all their reimbursements on Medicare rates. And so there
is really not I think a big difference between what you are
calling fair market rate and what most private health care
insurers are providing as reimbursements to their network.
So can you walk me through that, how you came up with that
statement?
Mr. Maldon. Yes, Mr. Chairman. I am going to ask
Commissioner Buyer to speak directly to that question.
Mr. Buyer. What we did is we took the time to actually get
into this question.
So with regards to the contractors themselves, Congress
basically said we are doing this to put pressure on DOD, say
you know what, we need to rein in this program. We want it to
be Medicare rates.
What did the contractors do? They took it even further. We
had to negotiate with providers for rates below Medicare.
What impact did that have upon the system? It began to
limit the network with regard to providers who participate
under TRICARE.
So if you can pick--we chose three different areas:
Fayetteville, North Carolina; Phoenix, Arizona; and San Diego.
We chose different specialties. We had to examine those
carefully.
So take the North Carolina one. With regard to OB/GYN
[obstetrics/gynecology] we said okay, of the network, if you
look at the Blue Cross Blue Shield plan----
Dr. Heck. I have just been informed that you need to be on
a microphone somewhere so it gets recorded.
Mr. Buyer. If you look at Fort Bragg, Fayetteville, North
Carolina, for OB/GYN, and we said okay, what does a robust
network look like? So what does Blue Cross Blue Shield provide?
How many OB/GYNs signed into Blue Cross as an acceptable
provider under their standards, right? One hundred fourteen at
Fort Bragg.
GEHA, the Government Employees Health Association a very--I
would call it a similar plan to what TRICARE offers. How many
signed into a GEHA plan? Forty-three providers. How many signed
into TRICARE? Oh excuse me, I am sorry, 87. How many signed
into the TRICARE program? Thirty-six, 36.
Now you can go down all the different specialties here----
Dr. Heck. No, I agree with you that there are fewer
providers in TRICARE than in the private plans. But how do you
draw----
Mr. Buyer. No, not in the private plans. This is in
TRICARE.
Dr. Heck. No, no. That is what I am saying. In the TRICARE
versus private plan.
Mr. Buyer. Versus the private plans. You have got 114 OB/
GYNs----
Dr. Heck. But how do you make that connection that the
reason for the lower number in TRICARE is due to reimbursement
rates? That is my question.
Mr. Buyer. Go talk to them. We have done our sensing
sessions. We went around the country. We spoke to the family
members. We spoke to the service members. And it is a
reimbursement issue that these providers are not signing onto
TRICARE. And it is a very--it is a severe issue.
You asked us to look at this program. And what my
commissioners and I we agree this is--TRICARE is a broken
program. You are going to receive a lot of pressure from those
across the river and institutions and the contractors to
convince you otherwise.
That everything is okay with the TRICARE program. All we
need to do is make little tweaks here and there and everything
is just fine. Do not get sucked into the status quo. That is my
best counsel to you.
Dr. Heck. I appreciate that. Thank you. My time is expired.
Mrs. Davis.
Mrs. Davis. Thank you, Mr. Chairman. And I want to follow
up with this because I think the health care piece is really
such a critical one.
So you mentioned the fees that physicians would receive.
What other systemic issues did you see in TRICARE that could
not be fixed easily, or----
Mr. Buyer. Well, one of the systemic issues is one that you
have to deal with every time.
So what does the building do? Basically you have a
structure of TRICARE that has a limited provider network. It is
very cumbersome with regard to its scheduling. And that is the
access getting into the system. Not only to primary care, but
then also then to specialty care.
You went through all the debacle with the VA [Department of
Veterans Affairs], right. And what upset a lot of people, yes,
that there were delays in getting those appointments. The
greatest insult was the integrity issue, right, at the VA.
We have that very same issue in DOD with regard to access
to care and the delays of getting my primary care appointment
and to specialty care appointments.
Mrs. Davis. Yes, and----
Mr. Buyer. I would say that is----
General Chiarelli. I would add contracting. I would add
contracting to that.
The whole contracting issue on these TRICARE contracts are
5 years in duration. And then you add another 3 while you go
through the protest period. So we end up 8 years behind. They
are very hard to modify.
So when new medical breakthroughs take place they are not
just automatically integrated into TRICARE. You got to wait
until the next contracting cycle to get them in. So you are
receiving medical care that is 8 years in arrears.
We sent people to the National Intrepid Center of
Excellence for traumatic brain injury and post-traumatic
stress. They got a care plan put together and then they go to
their post camp station. Some of it has to be done on the
TRICARE network, and TRICARE refuses to pay for it.
Admiral Giambastiani. I would also say----
Mrs. Davis. One more?
Admiral Giambastiani. I would also add that what is
important about these contracts I have said to you and the full
committee that I personally believe and I think our Commission
believes that TRICARE is in a death spiral.
Another way of describing how each cycle of contracts when
we are looking for money, we restrict some of the procedures a
little bit, eliminate a procedure. We reduce the number of
zones. We try to make all of these marginal changes to try to
capture every dollar. We go below Medicare rates, which is part
of what Commissioner Buyer was just showing you.
And the bottom line is that service continues to get less
and less. It drives down that access and choice and the
providers who are present. And this is why I call it a death
spiral. It has continued since inception to move in this
direction.
Mr. Buyer. Ma'am, one of the biggies is utilization,
utilization management. So when you say where does a big chunk
of savings come from? It is going to be in improved utilization
of program management. And so our modeling estimates about $5.2
billion in savings because the TRICARE model does not have this
right now.
Mrs. Davis. As you move in talking about the military
Federal employee benefit plan, would the MTFs [military
treatment facilities] not be utilized? And is that not a
problem as well?
General Chiarelli. It is absolutely critical that they be
utilized. It absolutely----
Mrs. Davis. But what if they go outside the system?
Wouldn't they go outside the system?
General Chiarelli. That would be available in all our plans
to be used by dependents. So dependents will have the
opportunity either to go on the market to a private provider or
to use the MTF.
The MTF--this is going to strengthen the MTF. And I would
just remind the committee, the number one requirement that we
have a separate health care system is combat medical readiness,
the ability to pick up doctors and move into a field of battle.
Everything we do with this system has got to be built
around ensuring, as I mentioned before, that the individual
that is wounded on the first day of battle gets the same kind
of care that the person on the first day of the 13th year of
battle. And what we have to do is improve the kind of
procedures and cases that are seen in the MTFs. And we think
this will do that.
Admiral Giambastiani. The intent is to incentivize in the
plan, because the MTF will be one of the providers, is to
incentivize the use of the MTF to draw the patients there.
Mrs. Davis. In your discussions though did you talk about
what if that is not the case? What if they do go outside the
system? Wouldn't that be more expensive? And they didn't
utilize the MTF.
General Chiarelli. No. They would be billed in the same
manner. The MTFs will bill for--as part of the insurance
market. As part of the insurance plan they will bill.
So I think in some instances they will go outside. But that
is one of the reasons why we think the Readiness Command is
absolutely essential is that Readiness Command has to be there
to oversee this whole process and ensure that we are making the
right investments in personnel and in our MTFs to make them
viable providers as part of that insurance plan.
Mr. Maldon. Ranking Member Davis, currently under the
current system of TRICARE people go outside--they go outside
now to get that care when they can't get it within the MTFs.
Mr. Carney. And Congresswoman, this is kind of about
readiness also. And not just readiness for the Active Force,
but also the Reserve Force.
As a reservist who did not have good access to a TRICARE
plan--it wasn't called TRICARE for us. It was called ``try to
find care.'' And that affects readiness. If you are not
medically ready, definitely ready, you are not going to be
ready to fight the Nation's wars. So this access is also about
readiness.
Mrs. Davis. Thank you.
Dr. Heck. Thank you.
Mr. MacArthur.
Mr. MacArthur. Thank you, Chairman.
I had, if I remember right, had read that the total savings
from your TRICARE recommendations were about $6 billion. And I
just want to understand what of that is the result of
structural changes and what of that is the result of increased
cost sharing with our military personnel?
Mr. Maldon. Yes. Congressman, for improved utilization and
program management, just in that area alone there is $5.2
billion. There is an increase to the cost to beneficiaries.
There is an increase there of $2.0 billion. There is a movement
as we shift to accrual funding, that is a $4 billion savings.
Now, that gave us of course a total of about $11.2 billion.
But, what we have proposed is to turn around and invest in
benefits to improve the quality of the program, which will be
TRICARE Choice. And also to make sure that there are some other
insurance reforms that would take place.
So we have allowed for that. So there is about--there is
roughly $2.7 billion that is spent for the insurance reform.
There is another $4 billion that we are spending here for
making sure that we can put money back into the system to make
it better with regard to choice, access, and improve the
overall value of that program by expanding the network.
So totally yes, we are talking about somewhere between--
about $6.7 billion.
Mr. MacArthur. You lost me a little bit I am afraid.
The first $4 billion--you mentioned $5.2 billion in
utilization changes. So that is savings. Two billion in
increased cost to personnel, I guess in the form of either
rising premiums or co-pays or however that is fleshed out.
And then you mentioned a $4 billion that got you up to that
initial $11 billion. What was that $4 billion?
Mr. Maldon. That is the accrual. That is the shift into
accrual, accrual funding. When I talk about the cost to
beneficiaries, that is that cost share increase there to the
retirees that are non-Medicare eligible.
Mr. MacArthur. Help me understand the accrual funding. I am
not sure what you mean.
Mr. Maldon. I am going to ask Commissioner Higgins to talk
specifically to that in that area, please.
Mr. Higgins. Thank you, Mr. Chairman.
The accrual funding deals with trust funds. And we have a
trust fund in retirement. And Department of Defense pays into
that trust fund every year the cost of future retirements for
people in the force.
We would propose that for health care that the non-Medicare
eligible retiree be included in a trust fund. So we would begin
at that point to pay for the non-Medicare eligible retiree
health care out into the future.
And the DOD Actuary worked very, very closely with us on
this. And the conclusion was that that normal cost percentage
is what it is called, that contribution from discretionary
dollars into the trust fund would be $4 billion savings that we
would accrue to the Department of Defense in budget.
Mr. MacArthur. Savings against what other option? Savings
against funding it in the future without accrual?
Mr. Higgins. Savings against current funding levels that
are being expended directly to health care.
Mr. MacArthur. I may want to visit with you later on that.
I think I am beginning to understand what you are talking
about. I am not sure I understand exactly where the savings are
coming from there, but I get the concept.
Mr. Higgins. One of the future force that you are paying
for at that moment is going to be a smaller force. And I think
that is one ingredient that causes those normal cost percentage
payments to be lower, to give you an idea of what you just
mentioned.
Mr. MacArthur. So if--and this is just a conclusion--if we
rejected the--and I am not saying we should, but if we said
there is enough change here, let's not also make our military
personnel bear some cost, and we didn't shift $2 billion, we
would still save $11 billion on this conversion to private
health care networks as opposed to TRICARE. Is that a correct
conclusion?
Mr. Higgins. There would be an element of the savings that
would not appear at that point.
You would have savings that would be reaped by the
Department of Defense because of increased premiums paid by the
non-Medicare eligible retirees. Those savings, about 18 percent
of the total savings would no longer be available.
Mr. MacArthur. I thank you. I yield back.
Dr. Heck. Mr. Walz.
Mr. Walz. Thank you, Mr. Chairman.
Again, thank you, commissioners, for your hard work. And
just like you, our major concern here is whatever we do must
not negatively impact national security. We must maintain the
integrity and the readiness of the All-Volunteer Force. And we
must keep faith with those warriors who are there.
I understand, and the argument to be made is, is that you
will negatively impact national security if you don't address
these things. Because yesterday many of us were up with General
Dempsey who made the case that it is impacting our ability to
do that.
And he made a pledge to us. He said the savings we get out
of paying compensation will be put back into readiness. And he
is making a very solid argument on that.
I said the thing I keep--and again it is for us more than
you, encourage you on this is what I heard him say is that as a
senior enlisted guy I am going to go out and say okay, you are
going to pay some co-pays on this. There are going to be some
changes to health care. We are going to 1 percent instead of
1.5 percent on this. But you are going to get an extra rotation
at NTC [National Training Center]. So it is all good.
That is a very difficult sell to them. Maybe not to the
senior folks about what is going to be there, but that is what
we are up against. And actually, not facetiously, that
readiness piece is absolutely critical.
And as a troop I understand when readiness suffers the
Nation's security suffers as well as the wellbeing of your
troops. They don't want to sit around. And they certainly don't
want to be asked to go to war without having everything they
get.
So I get it on this. I would say this issue and the TRICARE
one, there are some difficult challenges here. And one is,
again, to remove it from it, there is a 900-pound gorilla in
here of a large number of these people who are suspicious of
moving off a program that they know. Again, the devil you know
is better than the one you don't know, especially when they
have been told that private market includes the ACA [Affordable
Care Act], which they are told might not work or whatever it
might be.
So it is very difficult. I can tell you this. On my last
appointment I had TRICARE Prime Remote that works beautifully.
It is also very expensive. Am I correct, Mr. Buyer, in how that
works?
So we can't provide that for everyone. But what we are up
against is, is my wife until this day claims the military's
health care when you were deployed was the best insurance we
ever had. It was all taken care of. TriWest handled it all and
all was good to go.
So I come back to you and ask. And last week the question I
had was--I am not sure which of you said this, but it struck
me, said that you need to take this package and not start
ripping it apart because you will have second- and third-degree
effects.
It may be true, but that makes it virtually impossible to
get it through here. And that is what I am struggling with.
Because you are saying--because what I would say is I think
the housing allowance on the GI Bill is a lightning rod that is
going to come back to haunt us in that it makes us appear like
we are breaking faith and then it makes this whole case harder.
Because I understand. And I am--in full disclosure I am a
life member of many of these VSOs [veteran service
organizations]. My question to you is we can't break it apart.
How much inclusion from the MSOs [military service
organizations] and VSOs happen in what you did? Or did you try
and isolate yourself from the case of undue influence?
Mr. Maldon. Congressman Walz, let me go back and first
address one of the comments that you made if I might. We are
not cutting benefits to the members of the force. That is not
happening in our recommendations, number one.
Number two, there aren't any tradeoffs to this. The
benefits--when we talked about the cost savings to the
beneficiaries has nothing to do with our service members that
are currently serving.
This has to do with those retirees that are non-Medicare
eligible retirees that age--that is between the time that they
retire up to 20 years or whatever that period of time is that
they retire the service until the time that they get to the
point that they can start receiving Social Security and so
forth.
So it is during those working years. That is that 1 percent
increase per year starting from the 5 percent that it is today
under the current system. And it goes on a slow ramp of 1
percent per year over the next 15 years until it gets to the 20
percent point.
So that is that cost savings there. It is not for the--not
bothering anything with the benefits of the service members
that are currently serving.
Mr. Walz. Chairman, is it concerning--and again, I
appreciate that clarification. And I think I need to be very
careful in choosing my words.
But you got a gray area retiree who is listening to this as
a member of those. And I mischaracterized, if you will, because
I have a predisposition to think that, maybe, in full
disclosure.
So what I am asking all of you to do is how do we get out
there and talk to them about what their input could be.
And I go back to this. I am concerned about this. You
either take this package or you mess it up. That is troubling
for me that I think it makes it much harder for us to do.
Mr. Maldon. I am going to ask--let me ask Commissioner
Chiarelli to respond first.
General Chiarelli. I made that comment. And I think it is
just absolutely essential. And without getting into the
specifics, before you start taking it apart you work with us so
that we can in less than the 3 seconds I have to answer your
question lay out for you how these recommendations support each
other.
Readiness Command is absolutely essential to what we are
doing in medicine. And we feel that Readiness Command is
absolutely essential because every single one of our
recommendations in one way or another touches readiness.
Mr. Walz. So I need to see it as a whole, not three silos.
General Chiarelli. Or at least come to us and our staff and
questions for the record that we can explain to you in greater
detail how these recommendations work together.
Mr. Walz. Thanks.
[The information referred to can be found in the Appendix
on page 51.]
Dr. Heck. Thanks, Sergeant Major [Walz]. Mr. Cook.
Mr. Cook. Thank you, Mr. Chairman.
I have been listening to this. And I got to be honest with
you, I am a little bit confused. And Sergeant Major, you made
some great points.
Twenty, thirty years ago I think I used to understand this.
And now I feel like I am in the middle of a calculus problem.
You know I am retired, General. I used to--when I was
younger the big thing for recruitment, and a lot of us have
recruited here, was the fact that the government would take
care of you if you served 20 years or even longer.
And things have changed. Now my primary health care is
Medicare. My secondary is TRICARE. And when I hear all these
conversations it is like--and I try to listen to some of the
veterans that I have there.
They are--it is tough enough dealing with the veterans
issues that come down and dealing with the VA. And we are
making some of these issues very, very complex.
At least I am not as smart as you guys. I am just a dumb
Marine up here that is trying to get through. And my primary
concern is to take care of the troops, the ones that have gone
through this.
God, can't we make it any simpler or what have you? It just
seems that we have thrown out the KISS [keep it simple, stupid]
principle.
And for these veterans, for people that are on Active Duty
TRICARE and the changes to it. Every time we change it--and I
was there some of the meetings with TriWest and how we are
going to do it.
I appreciate that you are trying to do something. But we
have got to have a standardized message and make it as simple
as possible. I don't understand the tables and so many doctors
doing this and that.
All I know is that many years ago I thought we were going
to have medical care to take care of those people who stayed in
long enough to retire. And that situation to me is constantly
changing because of budgetary pressures. And I get it.
But if we can simplify it because the people that are
watching when I go and try to explain this to them, I can
explain you know tanks and airplanes and everything else. What
you deal it is as I said, this is another calculus problem, or
a calculus course, which I didn't do first well the first time
when I was--as an undergraduate.
So I don't know if I have a question. I just am--I did--I
was concerned about where those individuals that are on
Medicare and TRICARE. It seems like no one even wants to even
address TRICARE when they hear I have Medicare. And they don't
default to that because it is too complicated. Is that a
correct statement or not in terms of the medical world out
there right now that I deal with?
Admiral Giambastiani. If I could----
Mr. Maldon. Yes. Go ahead, Commissioner Giambastiani.
Admiral Giambastiani. Yes. Let me try to take this. First
of all, if you look at this panel, I am guesstimating that we
have something like 140 years of military experience up here.
Mr. Cook. Somebody older than me then, right?
Admiral Giambastiani. Yes. There are many of us who have
some age.
We are all geezers. And let me just say that we have spent
a lot of time trying to make sure we are taking care of the
troops because of the pain that we have gone through in seeing
how these systems either work, don't work, or continually get
degraded, which is why we came to where we are.
So let me just quickly encapsulate one. If you are retired
and you are a Medicare-Social Security eligible person, I am,
you are. Pete isn't there yet or you are close?
General Chiarelli. One month.
Admiral Giambastiani. One month. Okay. If you are in that
case you will continue to serve with TRICARE for Life and
Medicare. None of that changes from today for a retiree who
gets to that.
The area that the chairman already talked about, the
working age retiree, you retire, you are not Medicare or Social
Security eligible as yet. You are going to have a co-pay that
goes up. And you are going to go into a series of health care
plans that are a separate risk pool just for military.
This is not the Federal program that we are just jumping
into. This is separate for our folks to protect them. But the
big thing is the military treatment facilities are in that
program.
Then for Active Duty we still use the military treatment
facilities and all of the military medical care for the Active
Duty personnel. No differences.
What is different now is that we have TRICARE Choice for
dependents, folks who can't get to a military treatment
facility, for example, like a recruiter, people out in the
hinterland, who are out doing the work for our military today.
They are in that same type of program, if you will, that our
retirees are in, except that we give them a basic allowance for
health care to defer the costs of the premiums and the co-pays
and the rest of it.
That is as simple as I can make this system for you. It is
a change. But we think it will significantly improve access,
choice, and frankly the quality of the system.
Dr. Heck. Thank you.
Ms. Tsongas.
Ms. Tsongas. Thank you, Mr. Chairman.
And thank you all for being here. I very much appreciated
your presence before the full Armed Services Committee.
I thought it was one of the better if not best hearings we
have ever had. And I think your conversation today is very
reflective of just the ways in which you have really worked
very hard around some very complex issues. And the deep
understanding you bring to it.
Both the politics have changed, which are always so
difficult, especially as we deal with our military who so ably
and nobly served our country, and for whom we all feel a deep
obligation to do the right thing. And I know your task was not
a simple one.
I would like, as I turn away from the changes to health
care and focus on one of your recommendations that I think
actually highlights a real plus. And that was your efforts and
your recommendations about reforming the military pension
system.
So as you stated in your report, more than four out of five
service members currently leave the military before reaching 20
years of service, and thus they leave the force without any
retirement pay.
I think this is particularly true and egregious of our
Nation's ground combat troops who have been repeatedly deployed
over the past decade. And today fewer than 15 percent of U.S.
soldiers and Marines will serve a full 20 years, meaning that
most will separate from the military without any retirement
savings.
So I would like just to give you the opportunity to sort of
highlight the changes you are recommending that can make a real
difference so that those who do so ably serve but don't commit
or serve for 20 years, when they walk away they walk away with
something that makes a real difference as they move into
civilian life.
And also if you could just talk about the tradeoffs you
were thinking through. I mean I think this is a real plus that
needs to be highlighted, especially for those who might think
they are losing in other areas. And how the balance was struck.
Were you thinking that way?
And I don't know who wants to take the lead.
Mr. Maldon. Congresswoman, first thank you very much for
the question. When we deliberated on our recommendations here,
one of the things that we really wanted to do, and we were
unanimous in this, is that we wanted to make sure that we could
actually expand that number of service members that were
actually going to receive a retirement benefit when they leave
the service.
We were concerned about the number of people that come into
the military and will make two to three deployments or just
stay in for a good period of time and then wind up leaving the
service and then not have anything at all.
We believe that the recommendation we have made here to
expand that percentage from 17 percent of the people that are
currently leaving to 75 percent of the service members that
would be leaving, we believe that is going to really help with
retention and the recruiting, especially with recruiting.
Because when these service members leave with something
they get a new start in transitioning into civilian life again.
But they also become goodwill ambassadors for the service
because they are going to be able to talk about the great
experiences that they had and how the services really took care
of them.
When we talk about really taking care of the service
members, this is part of it. And I am going to ask Commissioner
Higgins to fill in some here with regard to the rest of your
question.
Mr. Higgins. Thank you, Mr. Chairman.
Regarding the issue of tradeoffs, what I would emphasize is
that we believe our analysis. And we had what we think is very
credible analysis by RAND Corporation.
And the tradeoff was simply designing a system that
delivered the force profiles because that is what the Chiefs,
the Joint Chiefs, insisted that we do. That was our target
objective.
But modernization was what we found we really wanted to
also achieve after we went out and talked to the force. They
want choice. They want flexibility in their system. That is a
new generation speaking to us. And we wanted to deliver on that
requirement.
But we wanted to hit those force profiles. And that is
how--that was the tradeoff. That is what led us to the Thrift
Savings Plan, which is a little richer benefit than you will
find in the government civilian FERS [Federal Employees
Retirement System] system; it is--if they get 1 percent
mandatory. And then if they contribute 5 percent, that is a
total of 6 percent, which in the FERS system would be only
limited to 5 percent over the long run.
But there is that Thrift Savings Plan. And that is how we
deliver a benefit to those individuals that were not going to
receive anything under current 20-year cliff vesting.
Ms. Tsongas. So you are both creating a new opportunity
that does require people sort of opting in. And I appreciate
the financial literacy component that comes with it.
Mr. Higgins. Right.
Ms. Tsongas. To give those some training to think this
through.
Mr. Higgins. Exactly.
Ms. Tsongas. While you are also trying to figure out how to
meet the needs of the force. But is a plus. Thank you.
Mr. Higgins. Yes.
Dr. Heck. Thank you.
Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman.
It is my understanding that the new retirement system is
all defined contribution. Am I correct in that? The proposal?
Mr. Maldon. Yes, it is. Yes, it is, Congressman.
Mr. Coffman. Was there a consideration for a bifurcated
system that would be part defined benefit with a vesting period
and then maybe going later on and then the other part of
defined contribution?
Mr. Maldon. Congressman, I am sorry. I heard the last part
of your question a while ago. Maybe I didn't hear the whole
thing. We have a blended retirement plan.
Mr. Coffman. Okay.
Mr. Maldon. Okay.
Mr. Coffman. Can you briefly explain that again?
Mr. Maldon. Yes. The blended retirement plan is that we
actually preserved 80 percent of the defined benefit plan. And
so the defined contribution piece of that is the TSP. That is
the Thrift Savings Plan piece of that where we--it is a
government-sponsored program where the government will put in
the 1 percent for every service member entering the service.
And then at the third year, the first day of the third
year, then there is an opportunity for a 3 percent matching by
the government, if in fact the service member is putting in
that 3 percent, there is a 3 percent matching that comes with
it that could actually even go up to 5 percent, depending on
whether or not the service members want to put in that amount
of money.
Mr. Coffman. Then when is the vesting for the defined
benefit part?
Mr. Maldon. It vests the first day of the third year.
Mr. Coffman. Okay. And then when do they draw this? So
right now under the current system you serve 20 years. And the
day that you leave you start drawing.
And it is a factor--so if somebody serves 20 years they get
50 percent of their base pay the day after they leave the
military. What is it again under your system, proposed system?
Mr. Maldon. Commissioner Higgins.
Mr. Higgins. Sir, the vesting at 2 years is actually the
defined contribution, okay. The defined benefit remains a 20-
year vesting requirement. They have to serve 20 years to get to
the defined benefit, which is slightly reduced.
We retain 80 percent of the cliff vesting. But we do reduce
that multiplier to 2 percent, which yields a 40 percent of base
pay at 20 years of service. And it is immediately drawn.
Mr. Coffman. Was there any discussion about a bifurcated
system whereby one could serve less than 20 years, vest into
the defined benefit component, and then maybe not draw until as
a reservist.
With Reserve retirement, I draw at age 60; maybe then not
draw until later on that defined benefit portion? Was there a
consideration for that?
Mr. Higgins. It was certainly an area we discussed. Now,
our recommendation----
Mr. Coffman. Sure.
Mr. Higgins [continuing]. Does include a flexibility where
the Secretary of Defense could come in and offer a solution
like the one you are talking about, and maybe see a change to
the system for a select group of an individual MOS, military
occupation, specialty or skill or segment of the population.
So there is some flexibility in our system, which is
important because that is derived by the services. I am not
sure I answered your specific----
Mr. Coffman. No, you did.
Now on the TSP part----
Mr. Higgins. Right.
Mr. Coffman [continuing]. Defined contribution component--
--
Mr. Higgins. Right.
Mr. Coffman. Is that a mandatory--so if I opt into this
system----
Mr. Higgins. Yes.
Mr. Coffman [continuing]. Which then is an 80-20 split to
the old system----
Mr. Higgins. The defined benefit is.
Mr. Coffman. So now it is 80 percent of----
Mr. Higgins. It is 20 percent less, you could say.
Mr. Coffman [continuing]. 20 percent--right. Then is that a
mandatory--if, in other words, if somebody opts in, is that a
mandatory participation in the TSP? Or can they simply--well, I
see that--I don't know why somebody would do it if it wasn't I
suppose.
Mr. Higgins. The Thrift Savings Plan----
Mr. Coffman. It would be----
Mr. Higgins [continuing]. For new entrants----
Mr. Coffman. Yes.
Mr. Higgins [continuing]. Would be an automatic enrollment
at a 3 percent contribution.
Mr. Coffman. And from the--okay. What is it, is it a 3
percent match as well?
Mr. Higgins. No, not initially. The 3 percent--any matching
government contributions don't start until the first day of the
third year. So immediately after they serve 3 years----
Mr. Coffman. So it is all based on the individual service
member initially for the first 3 years.
Mr. Higgins. Right. They are enrolled automatically. They
can pull out and it is not an arduous process to pull out. But
our analysis would indicate that a very high percentage, 97
percent, would not bother to remove themselves from the
program. So we are really encouraging thoughtfulness about
saving and finances.
Mr. Coffman. Thank you, Mr. Chairman. And they would choose
certain investment----
Mr. Higgins. The Thrift Savings Plan is the same Thrift
Savings Plan available to you. All those choices are there.
Mr. Coffman. Okay.
Thank you, Mr. Chairman. I yield back.
Dr. Heck. Thank you.
Ms. Speier.
Ms. Speier. Mr. Chairman, thank you.
And again to each of you, I think you have heard it over
and over again, but your contributions have been profound. And
I would agree with my colleague Ms. Tsongas that it is probably
the best hearing that we have ever had. We just now have got to
inject a little guts into all of us to do the right thing.
Let me start off by addressing--as we heard earlier this
morning about how we save money within Defense, the biggest way
to save money, the most effective way is through military
personnel. And they have suggested about $6 billion would be
saved through health care and about $2 billion through
retirement; I believe is what they said.
And as I look at the health care component here, if in fact
what we are saying is that it is going to go up 1 percent per
year. Is that--am I understanding that correct, 1 percent per
year? And right now it is about $535 a year. Is that right?
Mr. Buyer. I don't know the exact number, but that is
pretty close.
Mr. Maldon. Yes.
Mr. Buyer. It was----
Ms. Speier. Pretty close.
Mr. Buyer [continuing]. 1994 when it started. It was a 27
percent premium. It has eroded to 5 percent.
Ms. Speier. So it is costing about--let's just say round
numbers, $500 a year. A 1 percent increase is $5.00.
I mean I think we have to pitch this for what it is. You
are going to have better health care. You are going to have a
bigger network. And it is going to cost you one Starbucks latte
a year. Are you in?
Mr. Buyer. Bingo. Thank you. Conclude the hearing.
Mr. Maldon. I totally agree with you.
Ms. Speier. So we have got an education job to do. And I
think we have got to man up to what we have to do. Because this
is critical to the readiness of our troops, to the ability of
our Department of Defense to be properly funded, and to the
American taxpayers who don't want to spend any more money on
anything.
So I just wanted to clear that particular point up. On the
TSP, the Active Forces now would be able to sign up right away.
Correct?
Mr. Higgins. They can sign up today. And they do. The
participation rate in the Thrift Savings Plan among Active Duty
people is roughly 42 percent. What they would not and do not
get today----
Ms. Speier. Is the match.
Mr. Higgins [continuing]. Is the match.
Ms. Speier. So would they immediately get the match if they
are Active Duty today? Or would they have to wait the----
Mr. Higgins. The match would not start until they completed
their 2 years of service. The first day of the third year is
when the match----
Ms. Speier. But you said they are already serving.
Mr. Higgins. They are already serving. They are
automatically enrolled and a 3 percent deduction from their pay
and a 1 percent mandatory government contribution.
Admiral Giambastiani. If they opt in.
Mr. Higgins. This is--I am sorry. Are you talking about
currently serving people?
Ms. Speier. Right.
Mr. Higgins. If they opt in?
Ms. Speier. Right.
Mr. Higgins. The answer would be yes, then. I was referring
to new entry----
Ms. Speier. No, I understand you were. But I was trying to
address the fact that if we have Active military now----
Mr. Higgins. Yes.
Ms. Speier [continuing]. They are contributing. They would
start getting the match. Correct?
Mr. Higgins. That is correct.
Ms. Speier. And they wouldn't have to wait 2 years because
they are already Active military.
Mr. Higgins. Assuming they have been in 2 years, right.
Ms. Speier. Right.
General Chiarelli. But they would have to opt in.
Ms. Speier. But they would have to opt in.
Mr. Higgins. Right.
General Chiarelli. They can stay under the current program
if they so desire.
Ms. Speier. Now, in terms of the contractual relationship
that exists in the defined benefit plan, for those persons
right now who are in military service working toward their 20
years, have not yet reached their 20 years, do we have a
contract with them to allow them to stay in the old system?
Mr. Higgins. Yes.
Ms. Speier. So this is only going to be for persons who are
new----
Mr. Higgins. New accessions.
Ms. Speier [continuing]. Enlisted----
Mr. Higgins. Correct.
Ms. Speier. Coming in after the law passes?
Mr. Higgins. Correct. Or those that opt in that are
currently serving.
General Chiarelli. And quite frankly we expect that number
to be fairly high, particularly if you haven't served for that
long.
Mr. Higgins. Right.
Ms. Speier. Right. So for anyone who is presently serving
in the military, their pension isn't going to change.
Mr. Maldon. Correct.
Mr. Higgins. Unless they want it to.
Ms. Speier. Unless they want it to.
Mr. Higgins. Right.
Mr. Maldon. Correct.
Ms. Speier. But anyone today, regardless of whether you
served 1 year or 10 years or the 20, nothing is going to
change.
Mr. Maldon. Correct.
Mr. Higgins. That is correct.
Ms. Speier. All right. It is really important for us to get
that. So for all the people we are talking to that are in
service right now, nothing changes unless they want to
participate in this new TSP that is going to have a much more
healthy match by the Federal Government.
Mr. Maldon. Right.
Mr. Higgins. And other elements of our proposal, which is
continuation pay would be paid. The option to go over the lump
sum on retirement.
Ms. Speier. I am sorry. My time is expired. But thank you
very much.
Dr. Heck. Mr. O'Rourke.
Mr. O'Rourke. Thank you, Mr. Chair.
I would like to continue this line of questioning, the
comments made by Ms. Speier about the political guts necessary
to pass and implement the work that you have brought before us.
Talk a little bit about the survey and the surveying that
you did. And I know that you published the questionnaire and
the results online. I thank you for your transparency.
Talk about how those survey results factored into your
recommendations, and whether or not there has been any survey
since the whole of this has been presented. And if so, what the
feedback is on that. I think that might inform some of the work
that we have to do in order to ultimately pass something like
this.
Mr. Maldon. Thank you, Congressman, for your question. We
actually surveyed 1.3 million retirees. We actually surveyed
over 550,000 Active Duty/Reserve Component members. And the
survey--and we not only surveyed them, I have got to tell you
that in addition to the surveys that we conducted and the
responses that we got back, we actually also collected all
kinds of comments from service members that came back to us,
both retirees as well as Active Component members, saying here
is what we prefer as a value.
This is what we value and in terms of our benefits here is
what we--and part of what the reason we got to the
recommendation that we got to on retirement is because they
came back and said we want something different than a one-size-
fits-all under the retirement plan that we currently have.
We want to be able to participate in that decision. We want
to be able to tell you how to design--how we like to see our
retirement plan designed, and how we would like to receive the
benefits of that plan, the compensation plan.
So what we have put together here came from both the
surveys, the results of the surveys as well as the different
hearings, the town hall meetings, and the other comments that
we received by way of our Web site as well as comments coming
into the office. A combination thereof.
Mr. O'Rourke. Individual alternatives were surveyed. Was
the final product surveyed? Or did you all solicit feedback
from military service organizations, VSOs and----
Mr. Maldon. Absolutely.
Mr. O'Rourke. The answer is yes. Okay.
But those--the results weren't--it informed and was a
factor in the decisions that you made, the recommendations that
you made. But if something scored very well and was very
popular but you thought did not make sense, you did not make
that recommendation. Is that----
Mr. Maldon. That is correct. Yes.
Mr. O'Rourke. And if I could from Mr. Buyer would love to,
following that and some of the questions that were just
answered, you were in our shoes. How do you move forward to
produce the necessary political will in and out of this
institution?
I am again thinking about veteran's service organizations,
military retiree organizations, the people who come to my town
halls every month. And you know it may just be 1 percent, but
they look at that cumulative total over the next bunch of years
and it adds up. And they have legitimate concerns about that.
How would you present this in a situation like that?
Mr. Buyer. I think in the exercise of your intellect be
methodical would be my best counsel to you. Methodical to you
in that you have given us an assignment. You put together this
Commission. We have worked very, very hard with a very talented
staff. We dove into the issues that you get to work with, but
we went deep.
You don't get the luxury of that time to go deep as we have
done, and to listen to so many across the force, and then to
survey it, be responsive to so many different concerns at so
many different levels. And to go into the third and fourth
degrees of consequences.
You only dream as a member to do that kind of thing, but
you never have the time to do it. The luxury was you gave us
that assignment. So we have applied our intellect to do that,
and our scholarship is in our report.
Now, you also must filter. You have to filter the
difference between the constructive critic and the critic. You
also have to recognize that there is a bureaucracy out there
that I call the mud or the muck. And they are defended by
gargoyles. And those gargoyles that defend the muck will try to
suck you in and hold you in place.
And being the agent of change is never fun. And that is
what this committee gets to do. You get to be the agent of
change because the force is ready and the time is now.
So be constructive. Listen to the constructive critic. The
noise will always be there. They have to respond to membership.
They have a different constituency than what you have.
Mr. O'Rourke. Thank you. Thanks again for your work.
Dr. Heck. Mr. Knight.
Mr. Knight. Thank you, Mr. Chairman. I would like to thank
the committee for their work too. I have just a couple
questions. And I think we are hitting down on it, that of the
survey.
The survey was presented to service members today. And they
were asked if there was another situation would you like it
better. And you probably gave them some parameters. And then
you went back and gave them another survey after the parameters
were set. Is that correct, of the new program?
Because I am looking at this survey right here that says 80
percent of Active service members would prefer the current or
proposed compensation system. And it says 80 percent would
prefer the preferred proposed system. That is a tongue twister
in itself.
Was the survey before this presented the same way and said
that if we gave you this option to have this type of a system,
as opposed to your current system? So it was apples to apples.
That is what I guess I am asking.
Mr. Maldon. Yes. I think the answer to that question is
yes. I mean what we really asked our service members to do in
that 155,000 responses that we got back from the survey, we
basically were asking them to actually stack and rack the
benefits in priority terms for them in terms of what they
preferred here with regard to that benefit.
And so you give us your answer as to what is valuable to
you as a benefit. Then we asked them to continue to compare one
against the other.
So they were--you know they were basically asked--we used
the survey as an analytical tool to really kind of really get
them to really not only tell us what they value, but then to
give it to us in terms of priority one against the other, one
benefit against the other.
Mr. Knight. So as I am going down my line of thinking here,
I think it is fair if you offer somebody something and you say
these are the parameters of what you are getting--your system
is going to be, your retirement system or whatever it is, then
I think it is fair.
If you offer a choice to the people who are currently
serving or currently employed as it were in the private world,
you have the option. You can jump onto this new program or you
can stay on the program.
I think for us that have to sell this, that is a big
selling point. We are giving you a choice. And you can stay
under the current program.
So my last question is about retirees. So, say there is a
retiree, they retired in 2008 or 2010 or whatever it is. How
does this affect them? Do they automatically change over?
Because there can't be a changeover. There was no buy-in.
There was no--they just stay in the old system. Correct?
Mr. Maldon. That is correct.
Mr. Knight. So I am trying to figure out how I don't sell
this. You have the option. If you don't want it, don't take it.
If you do want it, it is probably a better system for you,
especially for someone like me or enlisted out of high school
and didn't serve 20 years. It would probably be a better
program for me. Or for somebody who served 35 years it probably
still is a better program for you.
So I don't know. How am I not going to be able to sell
this?
Mr. Maldon. You know, Congressman, if I were in your
position, I would be asking that same question. I don't know
how I would, knowing what I know, from what we have done over
the last 18 months to 2 years. I would have a very difficult
time trying to figure out how not to get this done, to justify
why we couldn't sell it.
Mr. Knight. Mr. Chair, we all have gargoyles in our
district. And they all protect the muck. So, that is what makes
it hard.
Admiral Giambastiani. If I could add, I think the noise and
misinformation, the gargoyles, whatever you would like to call
it, that is what will muck this system up.
Frankly, everything we know based on surveys and response
we get when you ask people about these systems, they would
prefer to go with this newer system. There is no doubt. I think
it is going to be noise and misinformation, frankly that will
cause it not to be accepted.
Mr. Knight. Thank you.
Thank you, Mr. Chair. I yield back.
Dr. Heck. Great. So since the bell hasn't rung, we will
continue with some additional questions if members have some.
Mr. Jones had to leave. He has three questions that he
would like answered. I am going to submit those to you for the
record and then if you can get him responses I would appreciate
it.
A couple of kind of just quick bullet questions that I have
to make sure I understand some things.
So, service members auto-enroll, but may opt out. But then
he is reenrolled the following January. Does that happen in
perpetuity? So if he opts out the second January the next
January he has reenrolled again?
Mr. Maldon. Yes.
Mr. Higgins. Yes.
Dr. Heck. And the thought behind reenrolling a person who
has made clear he doesn't want to participate let's say for
two, three, or four Januaries in a row?
Mr. Higgins. Well, we hope that after the third financial
awareness session that we also call for that new wisdom will
appear in that individual's mind and they will understand the
importance of participation and change their course. I mean, we
believe that the financial planning education is very critical
here.
Mr. Carney. Mr. Chairman, if I might----
Dr. Heck. Sure.
Mr. Carney. I am the father of a lance corporal who is now
making a few bucks. And his question to me was dad, what do you
know about Ford F-250s? I said I know you can't afford them.
But these kids are out there making these kinds of
decisions all the time. And you know how paternalistic do we
want to be is kind of the question. And it is not really a
paternalism question.
It is a readiness question. Because a lot of these kids get
in financial difficulty and they lose clearances if they have
them. Or they deploy and they know they have financial trouble
at home and that is on their mind when they are forward. And
that is the kind of stuff we are trying to get away from here.
Dr. Heck. Right. Thank you.
General Chiarelli. They are going to look at that. They are
going to be talking to their buddy. And their buddy is decided
to stay in. And it is going to show on his or her LES, Leave
and Earnings Statement, an amount of money that has
accumulated.
And before too long they are going to be talking about you
really get 6 percent match? You know, and this is an
opportunity. And we just want to give them the opportunity to
re-evaluate their decision not to play as often as we possibly
can.
Mr. Carney. So one of the things we recommend is altering
the LES to reflect what they are getting and what the projected
is. Sort of like when you get your Social Security thing every
year, if you stayed until 70, that kind of thing. So it gives
them some more financial awareness. And also we want to include
the families in the financial literacy as well.
Dr. Heck. Great.
I just want to be clear also on the match. So there is 1
percent automatic from the day the person signs the paper, and
the auto-enrollment at a 3 percent deduction, which they can
increase, decrease or opt out of. But the government match does
not begin until the first day of the third year of service.
Mr. Higgins. Correct.
Dr. Heck. Okay. Because that is what I read on page 37.
And then on page 38 there is a bullet that says service
members should be vested in their TSP after two complete years
of service. The standard 1 percent contribution and matching
contributions provided by the uniformed services. But up until
that date there has not been any matching contributions.
Mr. Higgins. That is correct.
Dr. Heck. Okay. Just wondering because there was kind of--
it made me wonder.
Okay. I will leave it there and yield to Mrs. Davis.
Mrs. Davis. Thank you, Mr. Chairman.
Can you help me understand a little bit more about the
continuation pay? Because the plan has--the continuation pay
bonus has a 12-year mark. Correct? And service members can be
encouraged to stay until 20, but it only requires 4 additional
years.
But you are assuming, I think, that the continuation pay
would be invested into the service member's respective
retirement plan. Is that true? And what if that assumption
doesn't bear out?
Mr. Maldon. Commissioner Higgins.
Mrs. Davis. And I guess the bottom line too, Mr. Higgins,
is so what is the comparison on the monthly current system and
proposed system at that point in time, so after the 12-year
mark?
Mr. Higgins. Certainly we would hope that after receiving
continuation pay they would invest that amount of money. In
some cases it is not an insignificant amount of money. I mean
it does vary by service. And----
Mrs. Davis. And we are roughly talking about?
Mr. Higgins. Amounts? Officer could go to $120,000.
Enlisted member could be in the neighborhood of $20,000 if I am
not mistaken. Depending on assumptions of what grade that it is
offered.
And that will vary by service because there are different
multipliers used in terms of the number of months of pay would
be included. And that varies by service because the analysts
looked at that fine tuning.
We would hope they are invested, yes. And to some degree
they are going to be able to put it in the Thrift Savings Plan
because many of these individuals are going to have room left
in the contribution rate that the government allows in the
Thrift Savings Plans so they can take some part of that
continuation pay and put it in Thrift Savings.
Maybe not this year, but maybe next year as well and the
year after that. So I mean that is our hope.
Mrs. Davis. Is the whole program impacted if they do not do
that? I mean does it rest on that assumption?
Mr. Higgins. It does not. I think in the long run, you
know, there--if, let's say for argument's sake, there is no
investment of continuation pay, then obviously it will lay
stream assets available to that information is, that service
member is reduced.
We still believe that our benefits, again widely variable
based on assumptions, we still believe that our program will
produce better lay stream assets, or certainly as good as they
have today.
General Chiarelli. I think it is fair to say, though, that
we did not assume they would invest it in TSP when calculating
our charts. Our charts are based on the fact that they would
get an amount of money based on the service's needs both in
rank and military occupation specialty. It would vary.
And that money, at least in the charts that we have showed
you, for what this is worth at 20 years, are under the
assumption they do not invest it. If they invest it in the TSP,
it would only go up, I believe, how we calculate it.
Mr. Buyer. Mrs. Davis? For me as we were putting this
together, early on when we talked about doing a match on a TSP
we heard from the Chiefs. And the Navy and the Air Force were
very anxious.
They were very nervous because they didn't want to create
an off-ramp whereby the amount of money invested in the
particular MOS's, whether it is a nuclear to pilots to
technicians. You know if you do this they will--we have
invested so much they will just off-ramp and go into the
private sector.
And so this feature, this is an attractive retention
feature that also we talk about what are some of the principles
of your thinking and the methodology. It is flexibility and
choice.
And this is a tremendous value. And it really--when
somebody hits that 12-year mark they got some really
fascinating decisions they get to make that they don't get to
make today.
Admiral Giambastiani. I think if I could add also on this
continuation pay. What is important is that we are trying to
give the services and the Department of Defense--what we have
recommended to Congress is to give them an opportunity, as you
have heard from Mr. Higgins, to adjust the multiple.
But as a minimum it has got to be 2\1/2\ months of basic
pay. It can go up or down depending on that grade military
occupational specialty and the rest.
Number two, they could move it from 12 years to 13 years is
what we are also suggesting. But our modeling shows that at the
12-year point right now that is the best thing.
Number three, just to make sure we are all clear, they can
take this as a lump sum immediately and do whatever they want
with it. Which is--and the modeling shows that this will help.
That is why we call it continuation pay.
Mr. Buyer. Powerful retention incentive.
Admiral Giambastiani. Yes. It is very powerful. And it
keeps the force profile where the services want to have it
today.
Mr. Carney. But it is also critical that they have the
robust financial education so they make the decisions with it.
And that is a big chunk of one of our recommendations,
certainly. And it is a big part of all of this. It ties
together.
Mr. Maldon. Ranking Member Davis, I would also just like to
add that without that investment of the continuation pay their
net earnings, lifetime savings with our modeling is still to
their advantage, net-net. There is a net positive in their
lifetime earnings in the recommendation without that
continuation pay.
Mrs. Davis. Thank you.
Dr. Heck. Mr. Knight, further questions?
Mr. Knight. Thanks, Mr. Chair. Just a quick question.
What would the 20 percent say? What were their reasons for
not liking the proposed program? Did they give any?
Mr. Maldon. Commissioner Higgins, you want to take a shot
at that first?
Mr. Buyer. We do the same things you guys do.
Mr. Higgins. We are known as a paternalistic military
force. We have very great interest in protecting the interest
of our young service members. And I think it would be fair to
say that we saw some of those feelings come forward in the
survey.
And these are generally from people, more experienced
people. People who had been in the force a lot longer. People
that may not share some of the desire for choice of flexibility
that is part of the mantra of a new generation that we want to
recruit and retain. There was some of that clearly.
But it would be also fair to say, I think, that what people
saw in the survey was very close to our final recommendation
because we had pretty good ideas about the solutions that we
felt were viable and had importance.
And the survey reflected that. And that is why you saw us
speaking with such confidence that we could offer them the
option to see, be visible and to make judgments on.
Admiral Giambastiani. I think part of the answer that
Commissioner Higgins has given to you is from our verbal
engagement with individuals, base visits, town halls, those
types of things. As opposed to specifically in the survey.
In other words, you didn't prefer--you prefer the current
retirement system why? I don't believe we asked that specific
question on why do you prefer this over that. We just asked if
you were--afforded these systems what would you opt for?
Mr. Knight. Yes. I would just expect--you know in a prior
life I was a financial adviser. And the more you talk to people
and the more kind of information you gave them, not advice, the
clearer they were. And the better choices they made.
And I just wonder if it got further down the survey and you
said well what about this and you gave them a little bit more
information.
You know when you are 19 and you are getting in the
military you don't think that you are ever going to be 60. Or
if you are joining as a career, you just want to serve and you
just want to be in the military and be part of the mission.
So I don't know that that is the thinking process from
everyone. And so I think the more it goes down I think more if
this is adopted it will start to become part of the culture.
And nobody will know any different.
Admiral Giambastiani. I think that is why this financial
training that we are absolutely adamant on is such an important
component of this.
You have heard us say it many times. You understand this
from your experience. But when you are dealing with these young
people you just have to keep working on it. And you got to do
it in a smart and coherent fashion for them.
Mr. Maldon. Congressman, I want to provide you with a
little more--we will do this for the record, if I might provide
you with a little bit more information around your question on
that 20 percent.
I would just add though, very quickly, a lot of it really
depends on where you are at that point in time in your military
career. And people that have been a long--been in it for a
while, they are closer to the retirement point that took the
survey, they are more likely to want to answer that question to
say they like the current system better because that is the one
that they are in and that is the one they are familiar with.
But we will provide you with more information for the
record.
[The information referred to can be found in the Appendix
on page 51.]
Mr. Knight. I think part of it is familiarity, I do. Look,
if 80 percent of the people like what I am doing, I am a happy
guy, so.
I yield back.
Dr. Heck. Thanks.
Mr. Walz.
Mr. Walz. In my district that is 51 percent or--that is the
way it works.
Again I want to just clarify the point. I think the
thoughtfulness you put into that, I am going to echo that
again. I don't think it can be said enough. Because this is a
tough lift. And the folks sitting right there know that and I
understand. You know it as well as anybody.
I am appreciative of how you did it. I think this
discussion on paternalistic is certainly true. It goes there.
The one thing I would say is you took averages and things
like that. I caution us all to think about, this is all great
unless you are retiring in January of 2009. It would have been
some significant things that impacted you because of economic
conditions in this country with the Thrift Savings Plan and the
way it worked.
Now I know many people are saying, well that is the nature
of things. Markets go up and down and whatever. I would make
the argument that our commitment to these folks is different
than just market winners and losers. These are folks that put
their lives on the line. And so that defined benefit plan is
certainly there.
I would ask for all my colleagues to keep in mind because
we are going to get asked many questions. The question I would
ask is Congress has both a defined benefit plan and the Thrift
Savings Plan. You are asking us to choose between one or the
other. Just a thought.
Those are things we are going to have to--and this getting
there and how do we do all this is going to matter. Well, we
will have the debate on this. It will matter on how our force
looks at this.
Because my biggest concern on this is, again, how do we
ensure--and you have thought about this deeply. First and
foremost, how do we make sure that All-Volunteer Force is still
there? How do we retain them?
And I want to be on the record. I think you brought up many
intriguing things that are well thought out in going through.
But I think if we ever divorce legislation and thoughtfulness
from the politics and the will of those served we make a
mistake. Because great ideas have died because of not ability
to do that. So, just as a thought.
Mr. Buyer. Sergeant Major, in our examination where we felt
that systems were running well we left it alone.
So you asked us is it possible to modernize the system. If
so, where? Is it possible to be effective and find
efficiencies? If so, where?
At the same time to be very responsive to a demographic for
which you are recruiting from. And where are they today
compared to when you took your oath as a young man?
They are in a different place today. And the way their
peers and their contemporaries as they mature through life and
how they are being rewarded differently than in the military. I
mean it is different.
So how do we prepare for that force to recruit and for you
to be able to retain into the future? And that is part of our
package too.
Mr. Walz. Well, it is a thoughtfulness. And I have to tell
you I am grateful for my colleagues here who are taking this in
the right spirit and thinking this thing through.
This is important work. It is going to matter. No less than
the Chairman of the Joint Chiefs that it is absolutely critical
to this nation's national security to get this right on all
fronts. And I think you see we are taking that seriously.
Again, I can't thank you enough, and really look forward.
We just kicked off is where it is. It is a long game. We got to
figure it out. We got to get to the end. Thank you.
Dr. Heck. Ms. Speier.
Ms. Speier. To follow up on my colleague, Mr. Walz's
comments, under your plan, if I understand it correctly, you
are still going to have for new enlisted today--I mean after
the law would be passed, they would still have a defined
benefit plan. It would just be 80 percent instead of 100
percent. Correct?
Mr. Maldon. That is correct.
Ms. Speier [continuing]. 20 percent----
Mr. Maldon. Yes.
Ms. Speier [continuing]. At 20 years.
But you also have the benefit of a TSP that has got a
Federal match that you didn't have before. And we should--I
don't know if you have used this.
But this is a, I think, very artfully done chart that if
hasn't been up should be up because it shows how in all
likelihood the benefit could be actually greater than the
current plan.
I have just two quick questions. And maybe I am somewhat
impacted by having just seen the American Sniper. For those men
and women who go into battle and do the unthinkable on our
behalf, for short periods of time and then leave the military
there really is nothing for them.
And I think when the American public thinks about our
military and making sure that we give them what they deserve,
they want to make sure the folks on the front lines were
getting some form of support.
And the truth is, if you only serve 3, 4, 6 years, if you
only do three, four, five tours of duty, by God, I mean to
think that we have put them in that kind of position and then
leave the military, there is really nothing for you.
Admiral Giambastiani. Well, I wouldn't----
Ms. Speier. Besides the VA.
Admiral Giambastiani. Yes.
Ms. Speier. But I mean in terms of compensation. And I
don't know if you have thought about that at all. That wasn't
part of your charge, but----
Admiral Giambastiani. No, it is part of our charge.
Mr. Buyer. We are in a place that is no different than
where Congress was after World War II. And they stepped forward
with the GI Bill.
Where we are today is not only do we do the GI Bill that is
already there, but we also are doing more with regard to the
war after next. And that is what this modernization of our
package is. So what your comments are, you are in the exact
same position I believe as Congress was in 1948 and 1952.
Mr. Maldon. Congresswoman, I would like to add, I am
looking at this chart here though. And I think I would be
remiss if I didn't mention we are redoing this chart because we
are taking a look at the lifetime earnings.
And we are going to--and I think the result is going to be
the same. But we will be redoing that chart. And we will make
sure that you get the update to that as we do it.
Ms. Speier. Okay.
Mr. Maldon. Because we just re-look at assumptions and
those kind of things that I think would be very important to
make sure that that date is included.
Ms. Speier. So with my last 2 minutes, are there any areas
that we haven't covered today that we should hone in on in
terms of your entire proposal?
We tend to look at certain areas and we beat them to death.
But we may not be looking at other areas that are also critical
or important. So if there is anything else that we haven't
really spent any time on and you would like to address, I would
be happy to hear it.
Mr. Maldon. I will turn to my fellow commissioners and see
if you have any comments to make. Go ahead. Commissioner
Chiarelli wants to.
General Chiarelli. I would really like to state the
importance of the Readiness Command, not only from a medical
standpoint but also from the standpoint of every single one of
our recommendations touches readiness in some way.
The only way that I would disagree with Commissioner Buyer
is it is a lot like World War II. But in my own service there
were 8.5 million men and women who fought that battle for just
over 4 years.
We have done it with less than 1 percent of the population
and every one of them has been a volunteer. So you know if we
want to maintain this force and do these kinds of things, we
need to ensure that we are watching the readiness issues.
Admiral Giambastiani. I would like to echo that and just
suggest one thing. In individual discussions with a number of
members there are concerns about this creating another four-
star command.
I would like to remind you of something just for a moment
because everybody is worried about grade creep. And yes, you
have two retired four-stars sitting here.
But what is important to remember about this is this was
the toughest recommendation we came to as a Commission. We
debated this ad infinitum, frankly, for about a year on how to
best help solve the combat medical readiness issue and to keep
oversight.
It is not just a four-star command, but it is also on the
Joint Staff the creation of a doctor who is not submerged
underneath some other division head, who is in fact reporting
directly to the Chairman of the Joint Chiefs on medical. So it
is a combination.
I just want to remind you of one thing to think about.
Today the United States Government has about 2.1 million civil
servants. We have 8,000 SES's. That ratio comes out to be about
38 Senior Executive Service civilians for every 10,000 Federal
employees.
In the United States military we have about 1.36 million
Active Duty. We have 994 flag and general officers. That ratio
is a tad under 7. So you have got 38 Senior Executive Service
for every 10,000 Federal employees. And we have just under 7
for every 10,000.
My comment to you is if you are really worried about grade
creep, I am not suggesting going after the civilian corps. I am
just telling you, give me a break here. I think we are making a
mistake.
Dr. Heck. Mrs. Davis.
Mrs. Davis. I might just add because we had actually a
meeting yesterday around some of the stand-ups of multiple
commands at times that perhaps were not appropriate.
So I think that is partly where some of those questions are
coming from as well. And just being able to really explain why
it is and justify, which I think members are going to be
looking for.
General Chiarelli. It is $50 billion. It is a big hunk of
money. And when you look at the VA portion, although you know
that is a separate bucket, you are talking over $100 million in
health care. So it really does need someone to ensure that it
is being done as efficiently and effectively as possible.
I would also add that the formulary issue is--you asked me
another issue and I am going to keep pounding on it every time
I come up here. This formulary issue is absolutely essential.
And I will tell you that piece of paper that came out on
the 20th from the Veterans Administration has not fixed that
issue. It has not fixed it. And we really, really need to
rationalize those two formularies.
Dr. Heck. Now let me--I am going to follow up on that same
line. So obviously so now we have DHA [Defense Health Agency],
which has kind of assumed the role also of TMA [TRICARE
Management Activity]. How do you see--what happens to the
Defense Health Agency if we stand up a Joint Readiness Command
and we do away with TRICARE?
Admiral Giambastiani. We are not doing away with TRICARE in
its entirety. Remember, you are going to still have TRICARE for
Life. And so you are going to need a much smaller
administrative staff.
So that frankly very large TRICARE and Defense Health
Agency, that is part of where the savings come from because
there are significant reductions there. That is what happens to
them.
We can give you more detail for the record on this.
[The information referred to can be found in the Appendix
on page 51.]
Dr. Heck. Probably explains why Secretary Woodson is on my
calendar next week.
Mr. Buyer. I want to go really--I want to go--yes. He is
going to have less of a kingdom and he will be defending the
muck.
Let me go real personal to you. So when you are in theater
as a combat surgeon the picture that someone took, that
radiograph, that picture that was taken.
Do you realize that when that patient was then on the air
ambulance to Landstuhl, when he got off the bus, when he was
carried off the bus at Landstuhl his medical record is on his
chest, along with his x-ray.
And you say, Steve, why is that? In the era of the
electronic health record? It is because there is no trust. You
see that x-ray that was taken, the kind that supports hospital
in Iraq for you is a different system than--that is located at
the MTFs.
Because the Defense Health Agency, they are funded
differently. They buy things differently. The acquisition is
different. So when it comes to the combatant side of health
care, it is owned by the services.
So this recommendation that General Chiarelli and Admiral
Giambastiani have created this Readiness Command in the J10, it
is to ensure that it becomes seamless and integrated. We have
to stop this.
We also need acquisition reform. But that was outside our
purview.
I will yield back, but you see what I mean? Come on, doc,
we got to do better.
Dr. Heck. Well, votes are going to be at 2:30. I will ask
if anybody has got any last alibis. Okay.
You know we have touched on a lot of important issues. But
we haven't yet delved into a lot of issues. Like until we start
talking about SBP [Survivor Benefit Plan] and DIC [Dependency
and Indemnity Compensation] offset, talk about a third rail. Or
if we start talking about some of the other issues that you
have addressed.
I want to assure all the subcommittee members that we will
continue to address every one of these issues in detail before
we come to the point of trying to make a recommendation on the
recommendations.
Again, I want to thank all the commissioners for your
thoughtful work, for coming before us again. I appreciate the
insights you have provided. Look forward to working with you as
we slog through and defend the muck from the gargoyles.
Mr. Maldon. Thank you, Mr. Chairman.
Dr. Heck. There being no further business, the hearing is
adjourned.
[Whereupon, at 2:28 p.m., the subcommittee was adjourned.]
=======================================================================
A P P E N D I X
February 11, 2015
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
February 11, 2015
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
February 11, 2015
=======================================================================
RESPONSE TO QUESTIONS SUBMITTED BY MR. WALZ
Mr. Maldon. The Commission's mandate was to conduct a review of all
compensation systems and recommend a holistic set of compensation
reforms. As such, the Commission's recommendations are designed to work
together, and with other existing compensation programs, to maintain
recruiting, retention, and the quality of life of Service members and
their families.
The Commission's retirement and GI Bill recommendations, for
example, are aligned to provide strong midcareer retention incentives.
The GI Bill recommendation would allow Post 9-11 GI Bill benefits to be
transferred to dependents after 10 years of service (YOS), with a
commitment of 2 additional YOS. Then at 12 YOS, the Commission's
retirement recommendation includes continuation pay that would include
a commitment of 4 additional YOS. Thereafter, the defined benefit
annuity would provide incentive for people to remain in service until
20 YOS, much as it does today.
Another example of how the recommendations are integrated is
evident in the Commission's health care recommendations. The
recommendation for a Joint Readiness Command would provide DOD with
strong tools with which to attract new workload into Military Treatment
Facilities, thereby strengthening the readiness of the medical force.
The Commission's TRICARE Choice recommendation, in which Reserve
Component members, retirees, and family members would choose from a
menu of commercial health insurance plans, supports the Commission's
readiness recommendations by ensuring that Military Treatment
Facilities have the proper business practices (e.g., billing system,
access priority lists, etc.) to support the new readiness workload.
The Commission's financial literacy recommendation provides
critical support to ensure the success of the other recommendations as
well. The retirement recommendation provides incentives for Service
members to save and invest early in life, and the financial literacy
recommendation would provide knowledge to support investing prudently.
Similarly, financial literacy training would ensure that Service
members make informed decisions in choosing the right health care
options for their families within TRICARE Choice. [See page 11.]
______
RESPONSE TO QUESTIONS SUBMITTED BY MR. KNIGHT
Mr. Maldon. The Commission's survey did not ask why Service members
prefer certain benefits to others. There is, however, some evidence
that those who prefer the current benefits package are more senior in
rank. For example, senior officers (O4-O6) and senior enlisted (E5-E7)
prefer the current retirement plan by a margin of approximately 60:40.
In contrast, junior enlisted (E1-E4) expressed preference for the
recommended blended retirement plan by a ratio of 60:40. [See page
26.]
______
RESPONSE TO QUESTIONS SUBMITTED BY DR. HECK
Mr. Maldon. TRICARE would not be discontinued in its entirety. For
example, active-duty Service members would continue to receive care
through the Military Health System, TRICARE for Life would continue to
serve Medicare-eligible retirees, and the pharmacy benefit would remain
in place. If the Joint Readiness Command were created and TRICARE
Choice implemented, the role and responsibilities of the Defense Health
Agency (DHA) would change. DHA responsibilities would include the
following:
Administer the remaining elements of the TRICARE program
and contract with third-party administrators to coordinate care and
claims processing associated with active-duty Service members, TRICARE
for Life, and the pharmacy program.
Provide recommendations and data to the Office of
Personnel Management (OPM) to assist in the coordination of a health
insurance program that meets the unique needs of DOD beneficiaries and
military medical readiness.
Provide information, education, and benefits counseling
to TRICARE Choice users.
Manage the emergency fund to assist with catastrophic and
chronic conditions experienced by active-duty families.
Administer the 10 current and any future MHS-wide shared
services (the current shared services include Information Technology,
Contracting, Facility Planning, Medical Logistics, Pharmacy, Public
Health, TRICARE Health Benefit, Budgeting & Resource Management,
Education & Training, and Research & Development).
Some of the functions DHA performs today would be redistributed.
Under TRICARE Choice, OPM would be responsible for actions such as
negotiating and awarding contracts with health insurance carriers,
dispersing payments to insurance carriers, and auditing insurance
carriers' operations. The insurance carriers participating in TRICARE
Choice would be responsible for actions such as coordination of
benefits to plan enrollees; payment and adjudication of claims; and
publication and distribution of health insurance plan brochures,
identification cards, and other related documents to plan enrollees.
The Joint Readiness Command would need to revisit DHA's current role as
a Combat Support Agency, as well as that of the Readiness Division
under DHA's Healthcare Operations Directorate. [See page 29.]
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
February 11, 2015
=======================================================================
QUESTIONS SUBMITTED BY MR. KLINE
Mr. Kline. The Commission recommends placing the services in charge
of budgeting for service members' needs for Basic Allowance for Health
Care and retirement (continuation pay). What is your assessment of the
ability of each service to take on this task? How would this added
requirement on the services take them away from other duties? Did you
speak to the services on this issue during your review?
Mr. Maldon. The Commission recommended the Basic Allowance for
Health Care (BAHC) be calculated based on a formula established in law.
This statutory formula would be based on the median health plan Active
Component families select in a geographic location in the prior year
plus the average amount of out-of-pocket costs (copayments,
coinsurance, and deductibles) in that location in the prior year. The
Defense Finance and Accounting Services would be responsible for
dispersing BAHC, not the individual military Services. The military
Services would include in their annual Military Personnel budget an
amount necessary to cover the costs of beneficiary health care,
including the BAHC. The Office of the Secretary of Defense would
provide to the Services most of the information necessary to determine
the Services' budget requirements for beneficiary care. During the
development of the recommendations the Commission staff met regularly
with representatives of the Surgeons Generals' staffs to discuss
possible financial requirements of the recommendation. The Commission
does not expect that budgeting for the health benefit provided to
beneficiaries would be beyond the Services' capability or would impede
their other duties.
The Commission recommended basic continuation pay be determined by
each member's current pay at 12 years of service. Any special
continuation pay used to retain Service members in key specialty areas
would be handled similarly to current retention bonuses. Commission and
staff held discussions with personnel experts in all of the Services as
well as the respective Assistant Secretaries for Manpower and Reserve
Affairs for the Army, Navy, and Air Force, and the Assistant Deputy
Commandant for Manpower and Reserve Affairs for the Marine Corps,
before it made its recommendations. Under the current system, the
Services have the analytical and staff capability to determine bonuses
and special pays required to attain desired officer and enlisted
retention levels by skill. These bonuses and special pays are
constantly being adjusted to adapt to changing requirements and
retention conditions. The Commission recommendations would require some
further adjustments to these bonuses and special pays, but not beyond
the capabilities that currently exist.
Mr. Kline. How do your recommendations ensure family members and
retirees are not hesitant to seek medical care for the fear they might
spend their entire Basic Allowance for Health Care before the end of
each month?
Mr. Maldon. The Commission's recommendation balances two factors:
the need to provide high-quality health benefits, particularly for
active-duty family members (ADFMs), and the desire to incentivize more
appropriate and efficient health care utilization. The Commission's
recommendation also included several features to help protect ADFMs
from higher costs and subsequent risk, including BAHC, a fund for those
with catastrophic and chronic health care needs, and financial literacy
training regarding health care. BAHC would provide incentive for
appropriate utilization of health care, while ensuring ADFM's health
care expenses remain generally cost neutral. BAHC would be calculated
based on a formula established in law. This statutory formula would be
based on the median health plan active-duty families select in a
geographic location in the prior year plus the average amount of out-
of-pocket costs (copayments, coinsurance, and deductibles) for ADFMs in
that location in the prior year. Basic Allowance for Health Care (BAHC)
would be provided only to active-duty Service member with dependents;
BAHC is not provided to retirees or their dependents.
The Defense Finance and Accounting Services (DFAS) would transfer
the premium portion of BAHC to the Office of Personnel Management for
purchasing the insurance plans that Service members select. This
procedure would ensure that ADFMs purchase a health insurance plan
despite possible competing priorities within their household budgets.
DFAS would deposit directly into the Service members' pay only the
portion of BAHC dedicated to cover out-of-pocket expenses (e.g.
copayments).
The Commission has also recommended an assistance program to
provide emergency funding to ADFM who struggle with catastrophic or
chronic health care needs. This catastrophic and chronic health care
assistance fund would mitigate the risk of high-cost health care events
for ADFMs. Active-duty families would apply for funding from this DOD
program to cover out-of-pocket expenses that substantially exceed the
portion of their BAHC allotted for out-of-pocket expenses but are less
than their health plan's catastrophic cap. After ADFMs reach their
plan's catastrophic cap, they are no longer required to pay out-of-
pocket costs. The Commission recommends that an annual total of $50
million should be budgeted for this catastrophic and chronic condition
assistance fund.
Additionally, the Commission has recommended providing Service
members extensive financial literacy training related to health care.
By helping Service members understand their families' coverage options
and how to manage their families' health care expenses, they should be
well prepared to be proactive in the use of health care resources, know
when it is appropriate to seek care, and feel confident they would have
the resources needed to fund their families' care. For example, within
the range of health plans offered, Service members would have the
opportunity to choose the plan that best fits their individual family's
situation. A member with several young children might choose a plan
that has a higher premium, but features low deductibles, copayments,
and coinsurance, anticipating that the family may have frequent
preventative services would better manage the care ADFMs receive, lower
utilization when appropriate, and limit unnecessary out-of-pocket costs
by preemptively addressing health care needs and reducing avoidable
emergency room and urgent care visits.
Mr. Kline. Your proposal requires retirees to eventually pay out-
of-pocket for 20% of all health care costs. Why do you recommend that
retirees pay 20% of health care costs?
Mr. Maldon. Currently retirees pay cost shares for their health
care. Their cost contributions would gradually increase over many years
but, as recognition of their military service, remain significantly
lower than the average Federal civilian premium employee cost share
(28%) and lower than the total cost share when TRICARE was established
(27%).
Mr. Kline. How do we ensure the Basic Allowance for Health Care
benefit covers health care costs for the Select Reserve and National
Guard under the current TRICARE Reserve Select system, so service
members come to drill medically ready, and we avoid the problems of the
past where the military bore the cost of getting them medically ready?
Mr. Maldon. Reserve Component (RC) members would receive Basic
Allowance for Health Care (BAHC) for their families only when they are
called to active-duty for a period of more than 30 days. RC members
would be permitted to use BAHC to either buy a TRICARE Choice plan or
apply it to their civilian health plan, maximizing continuity of care.
Members of the Selected Reserve are currently eligible for TRICARE
Reserve Select at a 28 percent premium cost share. TRICARE Choice
reduces their premium cost share to 25 percent. Under TRICARE Choice,
all RC members would have access to health plans with partial dental
coverage, which would aid those RC members who do not choose to
purchase dental coverage under the TRICARE Dental Program. Additionally
under TRICARE Choice, RC members would have access to vision coverage
not available currently under TRICARE. Healthy dental and vision status
are both concerns for medical readiness of the Total Force.
Mr. Kline. How would the TRICARE changes affect the most critically
injured and wounded who medically retire under the current TRICARE
Prime structure, which offers a benefit that covers most of their care?
Would a service member's Basic Allowance for Health Care shift costs to
them or would they still continue to receive a benefit to cover all of
their care?
Mr. Maldon. Basic Allowance for Health Care (BAHC) would not pay
for health care of active-duty Service members themselves, but rather
for their family members. Retirees would not receive BAHC. Service
members who medically retire and are placed on either the temporary
disabled retirement list or the permanent disability retirement list
receive care as a retiree from the Veterans' Administration health care
system and would continue to do so after implementation of the
Commission's health care recommendation. In addition to receiving
health care from the VA, medically retired Service members who are not
Medicare eligible would have the option to purchase a TRICARE Choice
policy. Upon becoming eligible for Medicare, they would have access to
TRICARE for Life.
Mr. Kline. What is the rationale behind the $50M catastrophic event
emergency fund? What are the qualifying criteria? How does your
recommendation address the fund becoming insolvent?
Mr. Maldon. The rationale behind the catastrophic and chronic
health care assistance fund is to provide protection against the risk
of very high out-of-pocket costs for active-duty family members (ADFMs)
that are less than the catastrophic cap of the selected TRICARE Choice
plan.
To be eligible for assistance under this program, an active-duty
Service member must have a dependent with a catastrophic or chronic
health care need and must incur medical expenses in connection with the
condition that exceed the portion of BAHC allotted for out-of-pocket
expenses. The Secretary of Defense would establish policy on how
families would apply for this assistance, how the Department would
determine the amount of assistance to be provided to each family, and
the method by which the Department would distribute such assistance.
The Commission recommended an annual total of $50 million be
budgeted for the fund by estimating the cost of covering all ADFM
households that have costs near the catastrophic caps of the plans in
TRICARE Choice. DOD would have the ability to budget additional funds
if $50M is found to be insufficient for covering out-of-pocket costs
for catastrophic and chronic conditions, as it does today for TRICARE
costs.
Mr. Kline. Because service members after 10 years of service are
well positioned to leave military service and take their TSP account to
a civilian 401(k) plan, how do you anticipate that changes in the
current retirement system would affect retention goals for senior staff
noncommissioned officers and field grade officers?
Mr. Maldon. The Commission's recommendations are expected to
maintain retention across the force profile, including for senior staff
and noncommissioned officers and field grade officers. These findings
are based in part on RANDS Corporation's Dynamic Retention Model
analysis, which indicates reducing the pension multiplier from 2.5
percent to 2.0 percent, while adding TSP, with matching funds, and
continuation pay, would not create an incentive to leave (see page 29
of the Commission's Final Report). The recommendations also work
collectively to provide midcareer retention incentives that would help
meet retention goals as follows:
Providing Post-9/11 GI Bill transferability at 10 years
of service (YOS), with 2 additional years of service, would enable the
Services to increase retention to the critical 12-year point in a
military career.
Awarding continuation pay at 12 years of service (YOS),
with an additional commitment of 4 YOS, would bring Service members to
the 16-year point, at which the draw of the defined benefit (DB)
encourages retention.
Maintaining the majority of the DB retirement plan, would
encourage Service members to stay 20 years or more.
Flexibility in special and incentive pays, including
continuation pay, would provide additional opportunities for retention
incentives in cases where those listed above are not sufficient to
retain key personnel.
Mr. Kline. What is the rationale behind the amount of continuation
pay? Is continuation pay enough of an incentive to meet retention needs
for a high quality force? How does continuation pay interact with other
special pay and bonuses to keep high demand specialties in the service?
Mr. Maldon. Continuation pay shown in Table 2 on page 30 of the
Commission's Final Report was calculated by RAND's Dynamic Retention
Model as the amount necessary to optimally maintain the current force
profiles by service and component. Because this amount of continuation
pay maintains the force profiles, it is expected to be sufficient to
meet retention needs for a high-quality force. The recommendation also
provides flexibility, so the Services can adapt to changing conditions
and requirements. The addition of continuation pay would not affect
other special pay and bonuses other than to add another retention tool
for Services to use.
Mr. Kline. When formulating your recommendations, did you take into
account how perceived inequality among service members in their
benefits would affect the morale of the All-Volunteer Force? How can
you assure future service members that their retirement benefit will be
worth as much to them as it is to service members today?
Mr. Maldon. The current retirement system creates inequality by
precluding a majority of Service members from receiving any Government-
sponsored retirement funds. Under the proposed blended retirement
system, a greater number of Service members would receive Government-
sponsored retirement assets. The Commission found that the value of the
retirement system to Service members would likely be increased, rather
than reduced, with the proposed blended retirement plan. These changes
are anticipated to have a positive effect on morale. Based on RAND's
Dynamic Retention Model projections, the proposed retirement plan would
allow the Services to maintain nearly identical steady-state force
profiles, providing another indication that morale and perceived value
of the retirement system will remain strong.
For example, an E7 is projected to have Government-sponsored
lifetime earnings that are $440,452 greater under the blended
retirement system than under the current retirement system. This
assumes the Service member contributes 3 percent of his or her basic
pay to TSP, Government TSP contributions are 4 percent of basic pay (1%
plus matching), and that TSP investments grow at 7.3 percent annually.
Moreover, these are conservative estimates, since the 75 percent of
participants in the Federal Employees Retirement System (FERS)
contribute 5 percent of their base pay to maximize matching
contributions and both historical and projected investment returns of
state pension systems exceed 7.3 percent. If Service members contribute
more to TSP or investment returns are higher, their lifetime earnings
will increase by more than this baseline projection.
Mr. Kline. Reservists may have trouble finding health care options
in rural areas. How does your proposal ensure protection for rural
areas or areas with lesser choices of plans? Is there a fallback option
for these members if choices aren't available or affordable?
Mr. Maldon. Network inadequacy in rural areas exists today under
the current TRICARE program. When Reserve Component (RC) members
activate, their family members are eligible for health care coverage
under TRICARE. If the family transitions to TRICARE, it risks the loss
of continuity of care if the family's existing healthcare providers do
not accept TRICARE. The limitations of the TRICARE networks are
detailed in the Commission's Final Report. It can be particularly
difficult to find providers in TRICARE networks in rural areas and
areas where there is a minimal Military Health Service presence.
It is anticipated that in TRICARE Choice RC members would have the
opportunity to choose from an array of local and national commercial
health insurance plans. Rather than relying on TRICARE's provider
networks, which are limited in areas away from troop concentrations, RC
members would have access to commercial insurance carriers' networks,
which are specifically designed for the local area in which RC members
live. Activated RC members would receive a Basic Allowance for Health
Care (BAHC), which they could use to pay for a TRICARE Choice plan for
their families or could use to pay for their civilian insurance, thus
alleviating the need to change plans and providers when an RC member is
activated.
______
QUESTIONS SUBMITTED BY MR. MacARTHUR
Mr. MacArthur. In relationship to the TRICARE Program, your Final
Report stated that ``according to beneficiaries, timely and convenient
access to care is a critical element of high quality properly
functioning health care benefit, yet many TRICARE users expressed
frustration with this element.'' Concurrently, TRICARE beneficiary
access to prescription drugs through local pharmacies has been steadily
decreasing over the last few years, and starting in October of this
year TRICARE beneficiaries will only be able to get certain medications
through the mail or from a military treatment facility. Moreover, many
beneficiaries prefer to use their local pharmacy and need the face-to-
face encounter with a pharmacist, or may not live close to a military
treatment facility. With all of this in mind, do you believe the
Department should instead be looking at ways to maintain beneficiary
access to their local pharmacy, so that beneficiaries can access the
health care system that best meets their needs?
Mr. Maldon. The Commission recommended DOD's pharmacy benefit
remain in place but proposed some important adjustments. DOD would
manage the pharmacy program and continue to use the DOD formulary and
Federal Supply Schedule pricing. In keeping with the Commission's
objectives to increase choice, access, and flexibility in health care,
beneficiaries using TRICARE Choice, as well as Medicare-eligible
retirees using TRICARE for Life, would obtain medications from retail,
mail-order, and MTF settings. DOD would retain the authority to
contract with a third-party administrator to perform functions such as
managing the retail pharmacy network, distributing mail-order
medications, and processing claims. The Commission recommends that such
contracts require a pharmacy benefits manager to integrate
pharmaceutical treatment with health care and to implement robust
medication therapy management (MTM), including the integration of MTM
activities at retail pharmacies.
Mr. MacArthur. In relation to the TRICARE Program, your Final
Report recommends that the Department should implement a robust
medication therapy management (MTM) program. Pharmacist-provided MTM
has been shown to improve patient health, while at the same time
reducing costs, so increasing access to these services makes sentence.
Retail community pharmacies have been at the forefront of providing MTM
services. With this in mind, don't you agree that the Department should
work to implement a robust MTM program that utilizes retail pharmacies?
Mr. Maldon. The Commission recommended all eligible beneficiaries,
including Medicare-eligible retirees using TRICARE for Life, obtain
medications from retail, mail-order, and MTF settings. DOD should
retain the authority to contract with a third-party administrator to
perform functions such as managing the retail pharmacy network,
distributing mail-order medications, and processing claims. These
contracts would require the pharmacy benefits manager to integrate
pharmaceutical treatment with health care and to implement robust
medication therapy management (MTM), including the integration and MTM
activities at retail pharmacies.
______
QUESTIONS SUBMITTED BY MR. JONES
Mr. Jones. In the retirement example that is used to illustrate the
current versus the proposed retirement system, it is of a E-7 who
retired at age 38. And if he/she lived until 85 his retirement under
the current system is approximately 202K. My staff looked this up using
a DOD retirement calculator and came up with a very different number.
Our number was about $2.1M and that was if the service member lived
until age 78. Can you please explain the large discrepancy? Also, can
you explain the personal discount rate?
Mr. Maldon. The retirement example in the report is based on the
present value of the retired pay, which accounts for the time value of
money (i.e., that a dollar received in the future is worth less than a
dollar received today). The DOD calculator estimates the cumulative
retirement pay flow (of the current Defined Benefit Plan) from year of
retirement out to 40 years from retirement and includes a cost of
living adjustment (COLA). It does not calculate the personal discount
rate.
The time value of money recognizes that money in hand today is more
valuable than money in the future because money can be invested and
earn positive returns. Personal discount rates expand this general
concept to include people's risk tolerances and patience for spending.
People who are risk averse or impatient for spending have higher
personal discount rates, implying they strongly prefer money today
relative to money in the future. The present value example in the
Commission's final report reduces the value of future defined benefit
payments by the personal discount rates calculated from RAND's dynamic
retention model
Conducting the same analysis of lifetime retirement earnings
without discounting shows using conservative estimates, the proposed
retirement system generates higher lifetime earnings than the current
retirement system:
E-7 with 20 YOS O-5 with 20 YOS
Government-Sponsored Lifetime Earnings
Current Defined Benefit $2,056,239 $3,391,483
Blended Plan
Proposed Defined Benefit $1,644,992 $2,713,186
Continuation Pay (Statutory Basic) $7,321 $14,008
Continuation Pay (Discretionary Force Management) $2,548 $64,435
TSP Withdrawals (Age 60-85) $276,329 $478,808
TSP Balance (Age 85) $565,502 $663,414
Total Blended Plan $2,496,691 $3,933,851
Government-Sponsored Lifetime Earnings Gain (Loss) $440,452 $542,368
Mr. Jones. Can you explain what the TRICARE Prime premium will be
for working age retirees once fully implemented as compared to today's
TRICARE Prime enrollment fee?
Mr. Maldon. There would not be a single TRICARE Choice premium cost
for non-Medicare-eligible retirees under the Commission's
recommendation. Retirees would be able to choose diverse plans with
different prices, for example less expensive plans with more limited
networks and more expensive plans with larger networks and more
services. The Commission expects even the less expensive plans would
have better networks and access than the current TRICARE program
provides. In addition, the plans would offer a range of options that
meet different needs for different stages and situations in life--
allowing beneficiaries to select the plan best suited to their specific
needs.
In the first year of TRICARE Choice, when the premium cost share is
set at 5 percent, the range of premiums available to working age
retirees would be similar to the premium for TRICARE Prime today, and
total costs of health care to retirees, including premiums, copayments,
and coinsurance, would be similar to what they are today. Fifteen years
after implementation, when the premium cost share for working age
retirees reaches its maximum of 20 percent, the premiums would be
higher than TRICARE Prime is today, and the total costs of health care
to retirees would be higher. As recognition of the retiree's military
service, however, all of the plans in TRICARE Choice would be offered
at a lower premium cost share than the average Federal civilian
employee and lower than the cost share when TRICARE was established.
The Commission's best estimate of the average cost to a non-
Medicare-eligible retiree under TRICARE today is about $2,000. This
amount includes the premium for TRICARE Prime, the average cost of
extra programs like TRICARE Young Adult and TRICARE Retiree Dental
Program, and out-of-pocket costs for copayments and deductibles. Under
TRICARE Choice, when the premium cost share has risen to 20 percent,
the total average costs would be $3,600 per year.
Mr. Jones. Has the Commission done a side-by-side comparison of a
variety of plans available on the FEHBP and that of the existing
TRICARE programs and estimated premiums and copays for working-age
retirees?
Mr. Maldon. The Commission recommendation does not place
beneficiaries in the Federal Employees Health Benefits Program (FEHBP).
The Commission explored this option and did not recommend it because it
was not the best way to meet the needs of military beneficiaries and
provide them the most cost-effective health benefit. Military
beneficiaries would need to have access to military hospitals, and
FEHBP plans do not provide this. The costs of plans would be different,
because military beneficiaries are substantially younger than federal
civilians and the plans would not cover the Service member, so the
plans would have to provide coverage for fewer adults than FEHBP family
plans. Also, the Commission recommended DOD work with the Office of
Personnel Management and be more involved in designing and managing the
new program than other Federal departments and agencies are in FEHBP.
The Commission analyzed projected plan premiums in TRICARE Choice
and how they would compare to FEHBP plan premiums today. The
differences in demographics (e.g. age) of military beneficiaries
compared to federal civilians would likely result in an approximately
15 percent reduction in premiums for TRICARE Choice from what is seen
in FEHBP today. Retaining the TRICARE pharmacy benefit in its current
form would likely drive another approximately 15 percent reduction in
premiums. Overall, it is realistic to expect plan premiums in TRICARE
Choice to be on average 25-30 percent lower than FEHBP premiums.
Mr. Jones. In relationship to the TRICARE Program, your Final
Report stated that ``according to beneficiaries, timely and convenient
access to care is a critical element of high quality properly
functioning health care benefit, yet many TRICARE users expressed
frustration with this element.'' Concurrently, TRICARE beneficiary
access to prescription drugs through local pharmacies has been steadily
decreasing over the last few years, and starting in October of this
year TRICARE beneficiaries will only be able to get certain medications
through the mail or from a military treatment facility. Moreover, many
beneficiaries prefer to use their local pharmacy and need the face-to-
face encounter with a pharmacist, or may not live close to a military
treatment facility. With all of this in mind, do you believe the
Department should instead be looking at ways to maintain beneficiary
access to their local pharmacy, so that beneficiaries can access the
health care system that best meets their needs?
Mr. Maldon. The Commission recommended DOD's pharmacy benefit
remain in place but proposed some important adjustments. DOD would
manage the pharmacy program and continue to use the DOD formulary and
Federal Supply Schedule pricing. In keeping with the Commission's
objectives to increase choice, access, and flexibility in health care,
beneficiaries using TRICARE Choice, as well as Medicare-eligible
retirees using TRICARE for Life, would obtain medications from retail,
mail-order, and MTF settings. DOD would retain the authority to
contract with a third-party administrator to perform functions such as
managing the retail pharmacy network, distributing mail-order
medications, and processing claims. The Commission recommends that such
contracts require a pharmacy benefits manager to integrate
pharmaceutical treatment with health care and to implement robust
medication therapy management (MTM), including the integration of MTM
activities at retail pharmacies.
Mr. Jones. In relation to the TRICARE Program, your Final Report
recommends that the Department should implement a robust medication
therapy management (MTM) program. Pharmacist-provided MTM has been
shown to improve patient health, while at the same time reducing costs,
so increasing access to these services makes sentence. Retail community
pharmacies have been at the forefront of providing MTM services. With
this in mind, don't you agree that the Department should work to
implement a robust MTM program that utilizes retail pharmacies?
Mr. Maldon. The Commission recommended all eligible beneficiaries,
including Medicare-eligible retirees using TRICARE for Life, obtain
medications from retail, mail-order, and MTF settings. DOD should
retain the authority to contract with a third-party administrator to
perform functions such as managing the retail pharmacy network,
distributing mail-order medications, and processing claims. These
contracts would require the pharmacy benefits manager to integrate
pharmaceutical treatment with health care and to implement robust
medication therapy management (MTM), including the integration and MTM
activities at retail pharmacies.
Mr. Jones. Your retirement proposal would provide a 401(k)-like,
TSP benefit similar to Federal employees. Doesn't a 401(k) benefit act
to an create incentive to leave, rather than stay in service?
Mr. Maldon. The Commission's recommendations are expected to
maintain retention across the force profile, including for senior staff
and noncommissioned officers and field grade officers. These findings
are based in part on RANDS Corporation's Dynamic Retention Model
analysis, which indicates reducing the pension multiplier from 2.5
percent to 2.0 percent, while adding TSP, with matching funds, and
continuation pay, would not create an incentive to leave (see page 29
of the Commission's Final Report). The recommendations also work
collectively to provide midcareer retention incentives that would help
meet retention goals as follows:
Providing Post-9/11 GI Bill transferability at 10 years
of service (YOS), with 2 additional years of service, would enable the
Services to increase retention to the critical 12-year point in a
military career.
Awarding continuation pay at 12 years of service (YOS),
with an additional commitment of 4 YOS, would bring Service members to
the 16-year point, at which the draw of the defined benefit (DB)
encourages retention.
Maintaining the majority of the DB retirement plan, would
encourage Service members to stay 20 years or more.
Flexibility in special and incentive pays, including
continuation pay, would provide additional opportunities for retention
incentives in cases where those listed above are not sufficient to
retain key personnel.
Mr. Jones. Can you explain the personal discount rate for the
retirement pension?
Mr. Maldon. The time value of money recognizes that money in hand
today is more valuable than money in the future because money can be
invested and earn positive returns. In other words, a dollar received
in the future is worth less than a dollar received today. Personal
discount rates expand this general concept to include people's risk
tolerances and patience for spending. People who are risk averse or
impatient for spending have higher personal discount rates, implying
they strongly prefer money today relative to money in the future. The
present value example in the Commission's final report reduces the
value of future defined benefit payments by the personal discount rates
calculated from RAND's dynamic retention model.
[all]