[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

                                     
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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

                              ----------                              
                                                                   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.]


      
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                           February 11, 2015

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           February 11, 2015

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              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.]
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             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.]
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              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.]


      
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           February 11, 2015

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                    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.
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                  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.

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