    [Senate Hearing 114-28]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 114-28

                        TESTIMONY OF THE MILITARY COMPENSATION A
                        AND RETIREMENT MODERNIZATION COMMISSION

    =======================================================================

                                    HEARINGS

                                  BEFORE THE

                          COMMITTEE ON ARMED SERVICES

                              UNITED STATES SENATE

                                      AND

                                   BEFORE THE

                           SUBCOMMITTEE ON PERSONNEL

                                     of the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                                   ----------

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   ----------

                            FEBRUARY 3, 11, 25, 2015

                                   ----------

             Printed for the use of the Committee on Armed Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.fdsys.gov/

                                   __________

                               U.S. GOVERNMENT PUBLISHING OFFICE
    94-844 PDF                     WASHINGTON : 2015

    ________________________________________________________________________________________
    For sale by the Superintendent of Documents, U.S. Government Publishing Office,
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                          COMMITTEE ON ARMED SERVICES

                         JOHN McCAIN, Arizona, Chairman

    JAMES M. INHOFE, Oklahoma            JACK REED, Rhode Island
    JEFF SESSIONS, Alabama               BILL NELSON, Florida
    ROGER F. WICKER, Mississippi         CLAIRE McCASKILL, Missouri
    KELLY AYOTTE, New Hampshire          JOE MANCHIN III, West Virginia
    DEB FISCHER, Nebraska                JEANNE SHAHEEN, New Hampshire
    TOM COTTON, Arkansas                 KIRSTEN E. GILLIBRAND, New York
    MIKE ROUNDS, South Dakota            RICHARD BLUMENTHAL, Connecticut
    JONI ERNST, Iowa                     JOE DONNELLY, Indiana
    THOM TILLIS, North Carolina          MAZIE K. HIRONO, Hawaii
    DAN SULLIVAN, Alaska                 TIM KAINE, Virginia
    MIKE LEE, Utah                       ANGUS S. KING, JR., Maine
    LINDSEY GRAHAM, South Carolina       MARTIN HEINRICH, New Mexico
    TED CRUZ, Texas

                       Christian D. Brose, Staff Director

                   Elizabeth L. King, Minority Staff Director

                                     ______

                           Subcommittee on Personnel

                    LINDSEY GRAHAM, South Carolina, Chairman

    ROGER F. WICKER, Mississippi         KIRSTEN E. GILLIBRAND, New York
    TOM COTTON, Arkansas                 CLAIRE McCASKILL, Missouri
    THOM TILLIS, North Carolina          RICHARD BLUMENTHAL, Connecticut
    DAN SULLIVAN, Alaska                 ANGUS S. KING, JR., Maine

                                      (ii)

                                C O N T E N T S

                                  ----------

                                february 3, 2015

                                                                       Page

    The Findings of the Military Compensation and Retirement
      Modernization Commission.......................................     1

    Maldon, Hon. Alphonso Jr., Chairman, Military Compensation and
      Retirement Modernization Commission; Accompanied by
      Commissioners Hon. Larry L. Pressler, Hon. Stephen E. Buyer,
      Hon. Dov S. Zakheim, Michael R. Higgins, GEN Peter W.
      Chiarelli, USA (Ret.), Hon. J. Robert Kerrey, and Hon.
      Christopher P. Carney..........................................     4
    Questions for the Record.........................................    57
    Appendix A--Final Report of the Military Compensation and
      Retirement Modernization Commission............................    74
    Appendix B--Legislative Proposals of the Military Compensation
      and Retirement Modernization Commission........................   366
    Appendix C--Addendum to the Report of the Military Compensation
      and Retirement Modernization Commission........................   525
    Appendix D--Statement of the Fleet Reserve Association...........   590
    Appendix E--Statement of the Air Force Association...............   600
    Appendix F--Statement of the Commissioned Officers Association...   604
    Appendix G--Statement of the Concerned Veterans for America......   616
    Appendix H--Statement of the Enlisted Association of the National
      Guard..........................................................   622
    Appendix I--Statement of the National Association for Uniformed
      Services.......................................................   634
    Appendix J--Statement of the National Defense Industrial
      Association....................................................   639
    Appendix K--Statement by the Reserve Officers Association........   646
    Appendix L--Joint Letter.........................................   655
    Appendix M--Statement of the Veterans of Foreign Wars of the
      United States..................................................   668
    Appendix N--Statement of the Warrant Officers Association........   680
    Appendix O--Letter from the Conjoined Military/Veterans Service
      Organization...................................................   683

                               february 11, 2015

    The Retirement and Compensation Proposals of the Military
      Compensation and Retirement Modernization Commission...........   695

    Zakheim, Hon. Dov S., Commissioner, Military Compensation and
      Retirement Modernization Commission; Accompanied by
      Commissioners Hon. Larry L. Pressler, Hon. Dov S. Zakheim,
      Michael R. Higgins, GEN Peter W. Chiarelli, USA (Ret.), and ADM
      Edmund P. Giambastiani, Jr., USN (Ret.)........................   696
    Parke Holleman, Deirdre, Executive Director, The Retired Enlisted
      Association....................................................   714
    Frank, Robert L., Chief Executive Officer, Air Force Sergeants
      Association....................................................   719

                                     (iii)

    Jones, Richard A., Legislative Director, National Association for
      Uniformed Services.............................................   723
    Nicholson, Alexander, Legislative Director, Iraq and Afghanistan
      Veterans of America............................................   727
    Questions for the Record.........................................   736

                               february 25, 2015

    The Healthcare Recommendations of the Military Compensation and
      Retirement Modernization Commission............................   741

    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.), and ADM Edmund P. Giambastiani,
      Jr., USN (Ret.)................................................   742
    Raezer, Joyce W., Executive Director, National Military Family
      Association....................................................   770
    Ryan, VADM Norbert R., Jr., USN (Ret.), President and Chief
      Executive Officer, Military Officers Association of America....   795
    Snee, Thomas J., National Executive Director, Fleet Reserve
      Association....................................................   802
    Hargett, Major General Gus L., Jr., ARNG (Ret.), President,
      National Guard Association of the United States................   807
    Questions for the Record.........................................   818

    THE FINDINGS OF THE MILITARY COMPENSATION AND RETIREMENT MODERNIZATION
                                   COMMISSION

                                  ----------

                           TUESDAY, FEBRUARY 3, 2015

                                           U.S. Senate,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:33 a.m. in room
    SD-G50, Dirksen Senate Office Building, Senator John McCain
    (chairman) presiding.
        Committee members present: Senators McCain, Inhofe,
    Sessions, Wicker, Ayotte, Fischer, Cotton, Rounds, Ernst,
    Tillis, Sullivan, Lee, Graham, Reed, McCaskill, Manchin,
    Gillibrand, Donnelly, Hirono, Kaine, King, and Heinrich.

           OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN

        Chairman McCain. Good morning. The committee meets this
    morning to receive testimony from the commissioners of the
    Military Compensation and Retirement Modernization Commission.
        I want to thank each commissioner for your diligence and
    hard work over many months to develop the recommendations you
    will present to us today. Our witnesses today are the
    commission chairman, the Honorable Alphonso Maldon, Jr., the
    Honorable Larry Pressler, the Honorable Stephen Buyer, the
    Honorable Dov Zakheim, Mr. Michael Higgins, General Peter
    Chiarelli--and I understand that Senator Bob Kerrey is snowed
    in, in New York--and the Honorable Christopher Carney.
        This year, a signature issue for this committee will be
    thoughtful consideration of the commission's recommendations to
    modernize military compensation and retirement benefits. As we
    do, I encourage the members of this committee and my colleagues
    in the House and the Senate to keep an open mind.
        We are also eager to hear from any military or other
    organizations that have constructive ideas to improve the
    current system. No one has a monopoly on good ideas, and we all
    come to this debate as patriots who love our Nation's Armed
    Forces and want to improve the quality of life for all who
    serve and their families.
        We honor the service and sacrifices of servicemembers and
    their families, Active Duty, Guard, and Reserve. We pledge to
    keep their well-being foremost in our thoughts as we deliberate
    the commission's recommendations.
        But upholding our sacred obligation to them does not mean
    resisting change at every turn. We must not shrink from the
    opportunity before us to create a modern system of compensation
    and retirement benefits that would provide greater value and
    choice for those it serves.
        Congress established the commission in the National Defense
    Authorization Act for the Fiscal Year 2013 to conduct a review
    of the military compensation and retirement systems, and to
    make recommendations for modernization. We asked the commission
    to develop recommendations that would, one, ensure the long-
    term viability of the All-Volunteer Force during all levels of
    conflict and economic conditions; two, improve the quality of
    life for servicemembers and their families to ensure successful
    recruitment, retention, and careers for those members; and
    three, modernize and achieve fiscal sustainability for the
    compensation and retirement systems in the 21st century.
        The military's current compensation and retirement systems
    are decades old and in their current form may be less than
    suitable for modern-day military members. Today, we have a
    nearly 70-year-old military retirement system and TRICARE, the
    military's health program, was implemented in the mid-1990s.
        Both the retirement system and TRICARE were appropriate for
    their time, but clearly, times have changed. We are here today
    to learn how the commission's recommendations could make
    compensation and benefits better for the military members and
    families of our current forces and forces of the future.
        Moreover, in a world of multiple threats and increasing
    danger, we count on young Americans to enlist or commit to
    serve in an All-Volunteer Force that protects us and our
    families. As this committee evaluates the commission's
    recommendations to modernize military compensation and
    benefits, we must carefully consider how any changes in
    compensation and benefits will motivate young people of today
    to serve in the 21st century.
        In a constrained fiscal environment, we must consider how
    best to achieve the proper balance between providing attractive
    compensation and benefits for our troops and paying for
    military modernization and readiness, effective equipment, and
    advanced training that will enable our military to respond in
    moments of crisis and keep our citizens safe.
        We can meet both of these objectives, and we must. Clearly,
    we will not have enough time today for a complete and thorough
    review of every recommendation the commission has made. That is
    why I've asked Senator Graham, chairman of our Personnel
    Subcommittee, to hold a series of hearings in the near future
    to explore all of the commission's recommendations in greater
    depth, especially in those areas of retirement and health care.
        I thank Senator Graham and Senator Gillibrand for their
    leadership on these critically important issues.
        Finally, we look forward to the testimony from the
    commission today. Their recommendations come to us unanimously
    after nearly 2 years of hard work, research, and debate. I
    encourage the commissioners to speak freely without
    reservations. Some of them I know and I'm sure will do that.
        Thank you again, commissioners, for your extraordinary
    efforts.
        Senator Reed?
        Oh, Senator Kerrey arrived.
        Thank you, Senator Kerrey, for arriving. [Laughter.]

                     STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you, Mr. Chairman. Let me join you in
    welcoming the witnesses and commending them for a job well
    done. Thank you very, very much.
        I think it is extremely important to have this hearing
    today for the reasons the chairman outlined, and I thank him
    for holding the hearing.
        This hearing comes as the Department of Defense (DOD)
    yesterday formally submitted its budget for fiscal year 2016.
    While we await the full details of the department's proposals,
    there are a few immediate notable aspects of the request.
        First, the requested top line is some $35 billion above the
    Budget Control Act of 2011 spending caps for defense. The
    spending cap, which for fiscal year 2016 was $499.8 billion,
    represents no growth in real terms. That the department has
    requested $35 billion more than current law allows shows how
    deep the funding shortfalls run, particularly with respect to
    force structure and the training and the modernization
    accounts.
        Second, the department has again requested measures to slow
    the growth of personnel costs. The department submitted these
    proposals last year. Congress supported some and elected to
    defer others until after this commission reported its
    recommendations. Many members on both sides of the aisle have
    been reluctant to support compensation and benefit reforms
    requested by the department in the past several years while
    this commission deliberated and suggested that we should wait
    until this report is submitted.
        This is the context in which today we hear from this very
    distinguished panel. These issues are of paramount importance
    to the Nation and to the military members and their families.
    We charge the military with fighting and winning the Nation's
    wars. Implicit in that responsibility is recruiting and
    retaining the very best in Military Service in sufficient
    quantities and ensuring that they are trained and equipped for
    their mission, prepared for the arduous duty we ask of them.
        Usually when we talk about caring for our men and women in
    uniform, the discussion is focused entirely on their pay. But
    these other elements are equally important if we want our
    servicemembers to accomplish the mission and come home alive.
        It is important to state from the outset that the goal of
    the commission is not to save money. It is to strengthen the
    All-Volunteer Force. It is to modernize a retirement system
    that is 70 years old. Importantly, it is to ensure that
    servicemembers and their families enjoy a quality of life and a
    quality of service that will enable the Services to recruit and
    retain the very best men and women for military service needed
    to meet national defense objectives.
        Under the current budget situation, I fear we are quickly
    pricing ourselves out of having a military sufficiently sized
    and adequately trained to meet the myriad tasks and threats we
    face all over the world. As we heard last week from the Service
    Chiefs, the budget caps currently in law do not allow the
    Services to meet their national defense objectives.
        Now if these recommendations that you are making are
    enacted and they do provide savings, such savings should be
    used to address force structure shortfalls and to reinvest in
    readiness and modernization.
        Finally, I would like to highlight one inequity in the
    current system that the commission has pointed out. Only 17
    percent of all servicemembers will leave with any retirement
    benefit under the current system, with officers more than twice
    as likely to leave with these benefits than enlisted personnel,
    even while enlisted personnel have always, including in the
    most recent conflicts, sustained the vast majority of
    casualties.
        We are told now that under these recommendations as many as
    75 percent of all servicemembers will leave the Services with
    some retirement benefit, even if they do not serve the full 20
    years on Active Duty, as most servicemembers do not.
        Thank you, Mr. Chairman, and thank you to our panelists for
    this important work.
        Chairman McCain. Again, I would like to thank all of the
    members of the panel, all of whom have other responsibilities
    and work that needs to be done, and they took their valuable
    time and effort to bring what I think is an excellent,
    comprehensive report, which I know will serve as guidance for
    us as we move forward with much needed reforms. I thank all of
    you again.
        Mr. Chairman, we are ready to listen to your statement.
    Thank you, again, for your chairmanship.

      STATEMENT OF HON. ALPHONSO MALDON, JR., CHAIRMAN, MILITARY
         COMPENSATION AND RETIREMENT MODERNIZATION COMMISSION;
       ACCOMPANIED BY COMMISSIONERS HON. LARRY L. PRESSLER, HON.
    STEPHEN E. BUYER, HON. DOV S. ZAKHEIM, MICHAEL R. HIGGINS, GEN
    PETER W. CHIARELLI, USA (RET.), HON. J. ROBERT KERREY, AND HON.
                         CHRISTOPHER P. CARNEY

        Mr. Maldon. Thank you, Mr. Chairman.
        Chairman McCain, Ranking Member Reed, distinguished members
    of the committee, my fellow commissioners and I are honored to
    be here today. We thank you for the opportunity to testify. We
    also thank you for your support of the commission during the
    last 18 months and for your leadership in protecting our
    servicemembers' compensation and benefits.
        Mr. Chairman, I would like to request that our final report
    be entered into the record.
        Chairman McCain. Without objection.
        [The Final Report of the Military Compensation and
    Retirement Modernization Commission, dated January 29, 2015,
    follows:]

          See Appendix A at the end of this hearing record.

        Mr. Maldon. The All-Volunteer Force is without peer. Their
    unwavering commitment to excellence in the service of our
    Nation has never been clearer than during the last 13 years of
    war.
        As commissioners, we recognize our obligation to craft a
    valued compensation system that is both relevant to
    contemporary servicemembers and able to operate in a modern and
    efficient manner. We are unanimous in our belief that the
    recommendations we offer in our report strengthen the
    foundation of the All-Volunteer Force, ensure our national
    security, and truly honor those who served and their families
    who support them now and into the future.
        Our report is, of course, informed by our own lifelong
    experience with military service, public policy, and as public
    servants. However, our recommendations are most informed by
    insights of servicemembers, veterans, retirees, and families.
        The commission and staff visited 55 military installations
    worldwide, listened to the views and preferences of hundreds
    along the way. More than 150,000 current and retired
    servicemembers provided thoughtful responses to the
    commission's survey, and we developed working relationships
    with more than 30 military and veterans service organizations.
        Additionally, the commission received input from more than
    20 Federal agencies, several DOD working groups, numerous
    research institutions, private firms, and not-for-profit
    organizations.
        The result of this process that included 18 months of
    comprehensive, independent research, review, and analysis, are
    15 unanimous recommendations that will improve choice, access,
    quality, and value within the compensation system. Our work
    represents the most comprehensive review of military
    compensation and benefits since the inception of the All-
    Volunteer Force.
        Consistent with our congressional mandate, we reviewed each
    program to determine if and how modernization might ensure the
    long-term viability of the All-Volunteer Force, enable the
    quality of life for servicemembers and their families, and
    achieve a greater fiscal sustainability for compensation and
    retirement systems. Our recommendations do this and more,
    improving choice, access, quality, and value within the
    compensation system.
        Our retirement recommendations propose a blended plan that
    extends retirement benefits from 17 percent to 75 percent of
    the force, as Ranking Member Reed has already stated. It
    leverages the retention power of traditional military
    retirement to maintain the current force profiles, protects the
    asset of servicemembers who retire at 20 years of service, and
    reduces annual Federal outlays by $4.7 billion.
        Our health benefits recommendations improve access, choice,
    and value of health care for Active Duty family members,
    Reserve component members, and retirees while reducing outlays
    by $3.2 billion.
        Our recommendations on commissaries maintain patrons'
    grocery discount while also reducing the cost of delivering
    that benefit by more than $500 million annually.
        While these savings to the taxpayer are significant, the
    commission did not engage in a cost-cutting drill. In fact, our
    recommendations to improve joint readiness, servicemember
    financial literacy, support for exceptional families, and
    transition assistance require additional funding to ensure
    program efficacy.
        In summary, our recommendations represent a holistic
    package of reforms that modernize the structure of compensation
    programs rather than adjust the level of benefits delivered to
    the servicemembers. They sustain the All-Volunteer Force by
    maintaining or increasing the overall value of the compensation
    and benefits for servicemembers and their families, and they
    provide additional options for Service personnel managers to
    design and manage a balanced force.
        This approach creates an effective and efficient
    compensation and benefits system that after full implementation
    saves taxpayers more than $12 billion annually, while
    sustaining the overall value of compensation and benefits for
    those who serve and have served, and the families who support
    them.
        My fellow commissioners and I thank you again for the
    opportunity to testify today, and we are honored to present our
    unanimous recommendations. Mr. Chairman, we stand ready to
    answer your questions.
        [The prepared statement of the Military Compensation and
    Retirement Modernization Commission follows:]
        Prepared Statement by the Military Compensation and Retirement
                            Modernization Commission
        Chairman McCain, Ranking Member Reed, distinguished members of the
    committee: We are honored to be here and thank you for the opportunity
    to testify today. We also want to thank you for your support of the
    Commission during the last 18 months, and your leadership in protecting
    servicemembers' compensation and benefits.
        Our All-Volunteer Force is without peer. This fact has been proven
    during the last 42 years and decisively reinforced during the last 13
    years of war. It is our obligation to ensure the Services have the
    proper resources to support our servicemembers. Those resources include
    a valued compensation system that is relevant to contemporary
    servicemembers and that is operated in a modern and efficient manner.
    We are unanimous in our belief that our recommendations strengthen the
    foundation of the All-Volunteer Force and ensure our national security,
    now and into the future.
        Our recommendations sustain the All-Volunteer Force by maintaining
    or increasing the overall value of the compensation and benefit system
    for servicemembers and their families. They also provide additional
    options for Service personnel managers to design and manage a balanced
    force. Our recommendations represent a holistic package of reforms that
    modernize the structure of compensation programs, rather than adjust
    the level of benefits delivered to servicemembers. This approach
    creates an effective and efficient compensation and benefit system that
    saves the Government, after full implementation, more than $12 billion
    annually, while sustaining the overall value of compensation and
    benefits of those who serve, those who have served, and the families
    that support them.
        Our work represents the most holistic and comprehensive review of
    military compensation and benefits since the inception of the All-
    Volunteer Force. Our Interim Report, published in June 2014, documents
    the relevant laws, regulations, and policies; associated appropriated
    Federal funding; and historical and contextual backgrounds of more than
    350 compensation programs. Consistent with our congressional mandate,
    programs were reviewed to determine if modernization would ensure the
    long-term viability of the All-Volunteer Force, enable the quality of
    life for members of the Armed Forces and the other Uniformed Services,
    and achieve fiscal sustainability for compensation and retirement
    systems.
        Based on the results of this review, our Final Report offers 15
    unanimous recommendations that improve choice, access, quality, and
    value within the compensation system. Our retirement recommendation
    proposes a blended plan that extends retirement benefits from 17
    percent to 75 percent of the force, leverages the retention power of
    traditional military retirement to maintain the Services' current force
    profiles, protects the assets of servicemembers who retire at 20 years
    of service, and reduces annual Federal outlays by $4.7 billion. Our
    health benefit recommendation improves access, choice, and value of
    health care for Active-Duty family members, Reserve component members,
    and retirees, while reducing outlays by $3.2 billion. Our
    recommendation on commissaries maintains patrons' grocery discounts and
    reduces the costs of delivering that benefit by more than $500 million
    annually. Yet we did not engage in a cost-cutting drill. Our
    recommendations to improve joint readiness, servicemembers' financial
    literacy, support for exceptional families, and transition assistance
    require additional funding to ensure program efficacy. Our
    recommendations also give the Services greater flexibility to recruit
    and retain a balanced force.
        Our report is informed by our life-long experiences, but more
    importantly by the insights of a broad range of servicemembers,
    veterans, retirees, and their families. More than 150,000 current and
    retired servicemembers responded to the Commission's survey. The
    Commission visited 55 military installations, affording us the
    opportunity to discuss compensation issues with servicemembers
    worldwide. We developed an ongoing working relationship with more than
    30 Military and Veteran Service Organizations. We also received input
    from more than 20 Federal agencies; several Department of Defense (DOD)
    working groups; and numerous research institutions, private firms, and
    not-for-profit organizations. Our recommendations align compensation
    and benefit programs to the preferences of the modern Force and
    societal shifts since the inception of the All-Volunteer Force.
        Taken as a whole, our recommendations create a modern and
    innovative compensation system that will be relevant to the
    contemporary and future workforce. By maintaining or improving
    benefits, while concurrently reducing costs, our recommendations
    address the ongoing tension between maintaining servicemember benefits
    and reducing personnel budgets to meet the demands of the new fiscally
    constrained environment. We are confident that our recommendations to
    reform the compensation system protect the quality of life for
    servicemembers and their families and ensure the fiscal sustainability
    of these programs for the future.
        We thank you again for the opportunity to testify today and are
    honored to present our unanimous recommendations that have one thing in
    common: These recommendations were formulated with the benefit to the
    servicemembers, and the families who support them, as the top priority.
                       pay and retirement recommendations
        1.  Help more servicemembers save for retirement earlier in their
    careers, leverage the retention power of traditional Uniformed Services
    retirement, and give the Services greater flexibility to retain quality
    people in demanding career fields by implementing a modernized
    retirement system.

        The current military retirement system for the Active component
    (AC) is a defined benefit retirement system that vests at 20 years of
    service. Annuity payments are generally calculated by multiplying a
    member's retired pay base by 2.5 percent for each year of service
    completed. Reserve component (RC) servicemembers may request retired
    pay after 20 years of ``creditable service'' as defined in law. Under
    the current military retirement system, 83 percent of enlisted
    personnel and 51 percent of officers receive no retirement savings for
    their service.
        The Commission's recommended retirement system would maintain
    retirement pay for current servicemembers and retirees and set out a
    blended retirement plan for servicemembers entering the force. The
    blended plan would preserve the 20-year retirement with a reduced
    defined benefit multiplier of 2.0, create a defined contribution plan
    through a Thrift Savings Plan, and add continuation pay at 12 years of
    service to provide mid-career retention incentives. The recommended
    plan would provide additional options to servicemembers by authorizing
    them to choose full or partial lump-sum payments in lieu of their
    working-age defined benefit payments. The proposed plan would allow the
    Services to maintain their current force profiles. It would provide
    retirement benefits to potentially more than 1 million servicemembers
    who, under the current system, would leave Service without any
    Government-sponsored retirement savings, yet it would maintain the
    value of the retirement system for servicemembers who serve 20 years or
    more. A blended retirement system would also provide flexibility to the
    Services to obtain the appropriate mix of skill and experience needed
    to maintain a balanced force.

        2.  Provide more options for servicemembers to protect their pay
    for their survivors by offering new Survivor Benefit Plan coverage
    without Dependency and Indemnity Compensation offset.

        The current Survivor Benefit Plan (SBP) gives retiring
    servicemembers the option to provide a lifetime monthly annuity to
    qualified survivors. Servicemember premiums cover approximately two-
    thirds of the full cost of SBP coverage, and DOD subsidizes the
    remaining amount. Eighty percent of servicemembers who retired in 2013
    enrolled in SBP. Survivors of retirees, entitled to Dependency and
    Indemnity Compensation (DIC) payments from the Department of Veterans
    Affairs (VA), are restricted by law from receiving the full amounts of
    both SBP and DIC benefits (SBP benefits are offset by the amount of DIC
    received). The Commission found the DIC offset of SBP very unpopular
    with servicemembers.
        The Commission recommends maintaining the existing SBP program for
    servicemembers who want to select subsidized coverage and remain
    subject to the SBP-DIC offset, yet also granting servicemembers the
    option of choosing modernized SBP coverage that balances greater
    participation cost with no DIC offset. Survivors of servicemembers who
    elect the new SBP coverage would derive a greater overall benefit by
    receiving full SBP and DIC payments.

        3.  Promote servicemembers' financial literacy by implementing a
    more robust financial and health benefit training program.

        The Services currently implement personal financial management
    training for their members according to their internal policies.
    Nevertheless, military personnel regularly make minimum payments, pay
    late fees, or pay over-the-limit charges on credit cards, and commonly
    borrow from nonbank financial institutions (e.g., pawn shops).
    Servicemembers who get in financial trouble often lose their security
    clearance, which is costly to both the individual and the DOD. These
    facts demonstrate insufficient knowledge among some servicemembers with
    regard to managing their personal finances. The Commission concluded
    that existing financial literacy programs do not adequately educate
    servicemembers and their families on financial matters.
        The Commission's recommendations, particularly with regard to
    retirement and health care, would provide increased choice and require
    educated financial analysis on the part of servicemembers. The
    Commission recommends that DOD increase the frequency and strengthen
    the content of its financial literacy training. Servicemembers should
    receive financial training throughout their careers, including
    mandatory health benefits seminars when they register one or more
    dependents, and when they are nearing retirement from the military.
    Implementing a comprehensive training program would help educate
    servicemembers, provide them with enhanced tools to better protect
    their finances, and develop a culture of personal financial
    responsibility.

        4.  Increase efficiency within the Reserve component by
    consolidating 30 Reserve component duty statuses into 6 broader
    statuses.

        Although Active component members have a single duty status--Active
    Duty--Reserve component (RC) members serve under a variety of duty
    statuses. In the current system, each time the purpose or the source of
    appropriation for an RC member's orders changes, existing orders must
    be cancelled, and new orders must be issued. The current RC status
    system aligns poorly to current training and mission support
    requirements, complicates effective budgeting, and causes members to
    experience disruptions in pay and benefits as they transition among
    different duty statuses.
        The Commission recommends replacing the 30 current RC duty statuses
    with six broader statuses. Simplifying RC statuses would support both
    operational and training missions, better enable the purpose of RC
    duties to be tracked to justify budgets requests, and facilitate a
    seamless process for RC members.
                         health benefit recommendations
        5.  Ensure servicemembers receive the best possible combat casualty
    care

        The Military Health System (MHS) relies heavily on military
    treatment facilities (MTF) as training platforms to maintain the
    clinical skills of the military medical force. Military medical
    personnel assigned to MTFs deliver health care primarily to active-duty
    servicemembers and their families, then, as space is available, to
    military retirees and other eligible beneficiaries. Because most MTFs
    do not have sufficient case mix and volume to adequately prepare
    military medical personnel for deployment into an operational
    environment, each Service has created separate trauma training programs
    to provide medical personnel additional training prior to deployment.
    There is, however, no consistency or standardization in the
    organization or requirement for this just-in-time trauma training.
    Continuing with this method for training medical personnel does little
    to preserve critical skills acquired over the last 13 years of war.
        Congress should establish a four-star command to oversee all joint
    readiness, especially medical readiness. The proposed central oversight
    would ensure a necessary high-level joint focus overall and, more
    specifically, enhance the MHS as a training platform for identified
    Essential Medical Capabilities required by the medical force in support
    of deployed operations. Increased oversight would afford the medical
    force greater opportunities for continued training, creating a more
    ready force both in peacetime and in preparation for contingency
    operations.

        6.  Increase access, choice, and value of health care for active-
    duty family members, Reserve component members, and retirees

        The DOD's TRICARE program provides health care benefits for Active
    and Reserve component servicemembers, retirees, their dependents,
    survivors and some former spouses at MTFs or through a network of
    civilian health care providers. The Commission found that TRICARE's
    payment schedule limits available doctors. It limits choice to only a
    small number of plans with a one-size-fits-all approach to covered
    benefits and determinations of medical necessity. The current benefit
    lacks flexibility in its program design and contracting process, which
    hinders adoption of advances in the health care sector. TRICARE also
    restricts access to care with a frustrating appointment and referral
    process. Beneficiaries prefer greater choice in their health care
    benefit options. Providing a wide range of different health plan
    options at different costs incentivizes cost-conscious consumer
    decision-making in health care.
        The Commission recommends that AC families, RC members, and
    retirees would receive a better health care benefit by allowing them to
    choose from a selection of commercial insurance plans offered through a
    DOD health benefit program administered by the Office of Personnel
    Management. This program, which we call ``TRICARE Choice,'' would
    increase beneficiaries' choice, enhance their access to care, and
    deliver a better value. Under an insurance model, the ease and
    timeliness of patients' access to health care would improve because
    beneficiaries would not be subject to DOD's lengthy and frustrating
    process for making appointments and obtaining referrals. The network of
    health care providers would be improved, especially in rural areas and
    areas without a substantial military presence. A broader network of
    providers would particularly assist RC members and retirees, who often
    live away from major active-duty installations. Active-duty
    servicemembers, for reasons related to operational readiness, would
    continue to receive their health care through their units or the direct
    care system MTFs.

        7.  Improve support for servicemembers' dependents with special
    needs by aligning services offered under the Extended Care Health
    Option to those of state Medicaid waiver programs

        Servicemembers with exceptional family members (EFM) require
    specialized supplies and services that are not provided through
    TRICARE. State Medicaid waiver programs can satisfy these needs, but
    the frequency with which military families are moved between States,
    combined with the long waiting lists in most States, result in military
    families not having access to this support. The Extended Care Health
    Option (ECHO) is a DOD alternative, used when State services are
    unavailable. As it is currently implemented, ECHO does not provide
    coverage equal to state Medicaid waiver programs. As a result, many
    military families with EFMs do not have access to the same level of
    support as their civilian counterparts.
        Aligning services offered under ECHO with those of state Medicaid
    waiver programs would enhance coverage for exceptional family members
    to ensure consistency with civilian programs. This change would improve
    continuity of support for EFMs as servicemembers and their families are
    relocated to support the DOD mission.

        8.  Improve collaboration between Departments of Defense and
    Veterans Affairs

        The Joint Executive Committee (JEC) coordinates numerous health
    care activities between DOD and VA, including efforts in regards to
    electronic health records, drug formularies, resource sharing, and
    interagency billing. Yet there remain substantial opportunities for
    enterprise-wide collaboration through standardization, elimination of
    barriers, and adoption of best practices. The Commission found
    numerous, ongoing weaknesses exist in joint collaboration and cost-
    effectiveness between the health care services of DOD and VA.
        The Commission recommends that the JEC should be granted additional
    authorities and responsibilities to standardize and enforce
    collaboration between DOD and VA, to include: defining and monitoring
    expenditures for common services that are regularly jointly conducted
    throughout DOD and VA health-care systems; approving in advance any new
    capital assets acquisition, or sustainment, restoration, and
    modernization of capital assets, of either DOD or VA medical
    components; overseeing electronic health record compliance with the
    Office of the National Coordinator for Health Information Technology
    standards across both DOD and VA; ensuring that the DOD and VA
    establish a health care record within the VA electronic health record
    system for all current military servicemembers; creating a uniform
    formulary to include all the drugs identified as critical for
    transition by the JEC beginning immediately with pain and psychiatric
    classes of drugs; and establishing a standard reimbursement methodology
    [process] for DOD and VA provision of services to each other. These
    actions should substantially ease the transition of servicemembers and
    improve collaboration between the Departments.
                        quality of life recommendations

        9.  Protect both access to and savings at DOD commissaries and
    exchanges by consolidating these activities into a single defense
    resale organization.

        DOD operates a system of commissaries and three separate systems of
    exchanges. These four systems, and their associated organizations,
    provide discounted groceries, merchandise, and other services to
    servicemembers and their families around the world, in locations
    convenient to those living on or near military installations. They also
    facilitate or provide services at sea and in theater. In surveys and
    testimony, many servicemembers have identified this benefit as relevant
    and valuable and some have indicated that the discounts are critical to
    their personal financial health. However, financial pressures within
    DOD have resulted in proposals to significantly reduce the funding
    appropriated to operate these organizations, primarily focused on
    commissaries.
        Consolidating commissary and exchange activities into a single
    Defense Resale Activity would maintain or improve the benefit, while
    making changes in structure, law, and policy that would enable more
    aggressive reductions in appropriated funding. Despite their
    differences, these retail organizations perform similar missions, for
    similar patrons, with similar staff, using similar processes. A
    consolidated resale organization, with combined resources, increased
    operational flexibility, and better alignment of incentives and
    policies, would improve the viability and stability of these systems.
    Multiple DOD-sponsored studies have identified strategies to improve
    cost-efficiency. Organizational boundaries, different cultures and
    business strategies, competing incentives, and restrictive policies
    have inhibited the aggressive pursuit of many of these strategies.
    Creating a consolidated organization would reduce these barriers and
    better position commissaries and exchanges to meet the needs of the
    Military Services and servicemembers. The proposed plan would also
    maintain grocery subsidies at DOD commissaries, while improving the
    efficiency of the benefit delivery.

        10.  Improve access to child care on military installations by
    ensuring DOD has the information and budgeting tools to provide child
    care within 90 days of need.

        Military child care is widely acclaimed for its quality,
    affordability, and ability to satisfy the unique needs of military
    parents, but is frequently a source of frustration because of its
    limited availability. Current models for planning and resourcing full-
    time military child care often result in long waiting times,
    particularly for children who are 3 years old and younger, the ages for
    which care tends to be most expensive and least available from other
    sources. Although DOD has established a goal to provide military child
    care within 90 days of need, that goal is not yet being met, and in
    some cases waiting times are not being reliably measured or reported.
        Ensuring DOD has the information and budgeting tools to provide
    child care within 90 days of need would both improve DOD's
    understanding of the effect of the unmet demand for military child care
    and enhance DOD's ability to provide a timely response to that demand.
    DOD should standardize reporting and monitoring of child care wait
    times across all types of military child care to better understand the
    need for services. To quickly respond to the need, the Commissioners
    recommend reestablishing the authority to use operating funds for minor
    construction projects up to $15 million for expanding or modifying
    child development program facilities serving children up to 12 years of
    age. Recognizing that staffing, rather than facilities, is often the
    limiting factor, DOD should also streamline child care personnel
    policies to help ensure proper staffing levels.

        11.  Safeguard education benefits for servicemembers by reducing
    redundancy and ensuring the fiscal sustainability of education
    programs.

        DOD and the VA provide many programs that deliver educational
    benefits to servicemembers and veterans. Current education assistance
    programs include the Post-9/11 GI Bill, the Montgomery GI Bill Active
    Duty, the Montgomery GI Bill Selected Reserve, the Reserve Education
    Assistance Program, and Tuition Assistance. There are duplicative and
    inefficient education benefits that should be streamlined to improve
    the sustainability of the overall education benefits program.
        Montgomery GI Bill Active Duty should be sunset on October 1, 2015.
    Reserve Education Assistance Program (REAP) should be sunset,
    restricting any further enrollment and allowing those currently
    pursuing an education program with REAP to complete their studies.
    Already enrolled servicemembers who elect to switch to the Post-9/11 GI
    Bill should receive a full or partial refund of the $1,200 that was
    paid to buy in to the MGIB-AD. Eligibility requirements for
    transferring Post-9/11 GI Bill benefits should be increased to 10 years
    of service, plus an additional commitment of 2 years of service. The
    housing stipend for dependents should be sunset on July 1, 2017.
    Eligibility for unemployment compensation should be eliminated for
    anyone receiving housing stipend benefits under the Post-9/11 GI Bill.
    When providing feedback in comments to the Commission, Servicemembers
    repeatedly emphasized the importance of education benefits as
    recruiting and retention tools. Ensuring the robustness of education
    programs is one of the best ways to guarantee the future of the All-
    Volunteer Force. This recommendation would also support GI Bill
    benefits, including transferability, while improving their fiscal
    sustainability.

        12.  Better prepare servicemembers for transition to civilian life
    by expanding education and granting states more flexibility to
    administer the Jobs for Veterans State Grants Program

        DOD, in partnership with the Department of Labor (DOL), the VA, and
    the Small Business Administration, maintains the Transition GPS program
    to help servicemembers and their families prepare for a successful
    transition to civilian life. Transition GPS services are delivered
    through a series of workshops administered by each Service. The DOL
    administers One-Stop Career Centers which offer employment services for
    job seekers across the country, including veterans after they have
    transitioned to civilian life. These facilities are part of state
    workforce agencies or employment commissions and are partially funded
    through a number of grants under DOL's Jobs for Veterans State Grants
    program. Despite these services, transitioning from military service to
    civilian life is more difficult than it needs to be. DOD should require
    mandatory participation in the Transition GPS education track for
    servicemembers planning to attend school after separation or those who
    have transferred their Post-9/11 GI Bill benefits. The Department of
    Labor should permit state departments of labor to work directly with
    State VA offices to coordinate administration of the Jobs for Veterans
    State Grants program. Furthermore, One-Stop Career Center employees
    should attend Transition GPS classes to develop personal connections
    with transitioning veterans. A review of the core curriculum for
    Transition GPS should be required to reevaluate whether the current
    curriculum accurately addresses the needs of transitioning
    servicemembers, and DOD, VA, and DOL should be required to produce a
    one-time joint report regarding the challenges employers face when
    seeking to hire veterans.

        13.  Ensure servicemembers receive financial assistance to cover
    nutritional needs by providing them cost effective supplemental
    benefits.

        The Department of Agriculture's Supplemental Nutrition Assistance
    Program (SNAP), better known as the ``food stamps'' program, and the
    Family Subsistence Supplemental Allowance (FSSA), the Military
    Services' alternative to SNAP, have the same congressional mandate and
    overarching goal of providing nutritional assistance to eligible
    beneficiaries. In many circumstances, however, it is easier to qualify
    for SNAP than it is to qualify for FSSA. SNAP benefits are typically
    more generous, and unlike FSSA, SNAP recipients have no obligation to
    inform their chain of command, thus avoiding perceived embarrassment or
    stigma. Estimates of servicemembers receiving SNAP vary widely because
    States are not required to collect or share data on servicemembers. DOD
    needs a better understanding of the number of Service families using
    SNAP and the financial situations of those families.
        Although FSSA should be retained for servicemembers in overseas
    locations where SNAP assistance is unavailable, it should be sunset in
    the states and territories that provide SNAP benefits. The SNAP program
    should capture and share information on active-duty servicemembers
    receiving benefits to better inform military compensation and policy
    decisions. Adopting this recommendation would ensure servicemembers
    receive optimal supplemental nutritional assistance.

        14.  Expand Space-Available travel to more dependents of
    servicemembers by allowing travel by dependents of servicemembers
    deployed for 30 days or more.

        The Secretary of Defense is authorized to provide air travel for
    servicemembers, certain retirees, and their family members on a space-
    available basis. Space-Available travel regulations provide eligible
    passengers access to seats on military air transport flights that would
    otherwise be empty. Unused seats on DOD-owned or controlled aircraft
    are only made available to Space-A travelers once space-required (duty)
    passengers and cargo have been accommodated. Current DOD policy permits
    unaccompanied dependents to use Space-A travel, but only when their
    sponsor is serving a deployment of at least 120 days. In recent years,
    frequent deployments have been a reality for many servicemembers and
    many were shorter than 120 days, making dependents of these deployed
    servicemembers ineligible for Space-A travel.
        DOD should allow unaccompanied dependents of servicemembers
    deployed for 30 days or more to use Space-A travel. The quality of life
    of servicemembers' dependents should be improved by providing this
    access to unaccompanied travel on military aircraft.

        15.  Measure how the challenges of military life affect children's
    school work by implementing a national military dependent student
    identifier.

        Children of active-duty servicemembers are not identified
    separately in nationwide reporting of student performance. Most
    elementary and secondary school student registration data systems do
    not include an indicator of students who have a military affiliation.
    These children experience unique stresses associated with parental
    deployments and frequent relocations that can adversely affect academic
    performance. As a result, national reports on student performance
    cannot reliably differentiate military dependent students from all
    others.
        A military dependent student identifier should be implemented so
    that Elementary and Secondary Education Act reporting can identify
    students who are children of active-duty servicemembers. This
    information would enhance support for military dependent students by
    facilitating DOD's ability to monitor academic performance.
        Thank you again for the opportunity to testify regarding our
    recommendations. We also want to thank all who contributed to our final
    report. The Commission is grateful to have been given the opportunity
    to make recommendations to strengthen the best All-Volunteer Force in
    the world. Ensuring our servicemembers, veterans, retirees, and their
    families' get the support they need is a responsibility the Commission
    took very seriously. Thank you to all those who serve, those who have
    served, and the families that support them.

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        Chairman McCain. Thank you very much, Mr. Chairman. If it
    is okay, I'll just have a couple of brief questions, because I
    was briefed by you already. If any of the members of the
    committee wish to respond to any questions by me or other
    members, just signify and you'll be recognized.
        Just two brief questions, Mr. Chairman. How do you know
    that your recommendations will provide the same force structure
    to the Services, on the issue of the proposed compensation
    system? In other words, right now, there is an incentive to
    remain for 20 years. In this present plan, there will be
    retirement compensation literally throughout. So do we have
    incentive for people to remain in for a career or disincentive?
        Mr. Maldon. We do, indeed, Mr. Chairman. In our
    recommendations, we did a blended plan here. We already have a
    defined benefit, and we added a defined contribution to this to
    make sure that we can do the retention or provide for the
    retention that the Services told us that they wanted us to.
        I am going to have Commissioner Higgins talk to the
    specifics of that recommendation, Mr. Chairman.
        Chairman McCain. Thank you.
        Mr. Maldon. Commissioner Higgins?
        Mr. Higgins. Thank you very much, Mr. Chairman, and
    Chairman McCain.
        Sir, the system we have devised includes the incentives,
    the flexibility, and the choice that people want in force, so
    we feel, at its essence, it's going to be a very powerful
    retention tool. When we look forward at how the system will
    operate over time, our belief is, and supported by our
    analysis, and in this case, it was the RAND Corporation model,
    which was the dynamic retention model used, we believe that our
    proposal will exactly model the current force profiles. It will
    have the tools within it, including continuation pay, Thrift
    Savings Plan, which is with matching, which is currently not
    offered today. It will include the tools that will draw people
    through the 20-year career, much like the defined benefit does
    today, and to some large extent, because the defined benefit is
    retained under our proposal, about 80 percent of that defined
    benefit.
        So these new tools to meet the demands of choice
    flexibility, along with the defined benefit that is retained,
    we believe will operate very effectively. The modeling that we
    have done will support that.
        Chairman McCain. Thank you. On the issue of health care,
    how does this incentivize beneficiaries to seek the most cost-
    effective means of getting health care?
        Mr. Maldon. Mr. Chairman, thank you for the question. That
    was very important to us as we took a look at the programs that
    are providing the benefits to our servicemembers.
        As we traveled across the country and we talked to
    families, servicemembers, Reserve component members, retirees,
    after listening very, very carefully to the conversations and
    discussions that we had in terms of what people said they
    wanted, they preferred as values choice, access, and value of
    health care. Those were the themes that just kept coming time
    and time again.
        I'm going to ask Commissioner Buyer to speak specifically
    to that question.
        Mr. Buyer. Thank you, Mr. Chairman and members of the
    committee. Cost-effective means, I look at it from two ways.
    One is to the government. The other is to the families.
        When we looked at this, it was at how we can achieve both.
    Presently under TRICARE, we don't, because there really aren't
    sufficient utilization management tools. It is a very limited
    network because of the very low reimbursement rates and how the
    TRICARE contractors actually recruit providers into the
    networks and pay below Medicare rates.
        So with regard to the families, we said, ``can we do
    better, not only for the government with regard to the cost but
    also with regard to the families and improve the quality of
    care, give them the choice that they want and get better
    access?'' We found that if we move to a system whereby we have
    what we call TRICARE Choice, which is very similar to a Federal
    Employee Health Benefit (FEHB) model whereby they select from
    available plans in a particular geographic region. It does call
    for more empowerment of the individual. We are asking that that
    individual is able to select a plan that best fits their
    family. When we do that, the plans themselves that are then
    managed and administered by the Office of Personnel Management
    (OPM), those plans will have effective management unitization
    tools, and it becomes more cost-effective not only to the
    families but, in particular, to the government, Mr. Chairman.
        Chairman McCain. Thank you.
        Senator Reed?
        Senator Reed. Thank you very much, Mr. Chairman.
        Let me direct this question to General Chiarelli, and
    anyone else who would like to respond.
        Part of your recommendation with respect to health care is
    also strengthening the military treatment facilities (MTF), the
    traditional facilities that have to be ready to deploy, if we
    deploy. Part of it, as I understand the proposal, is that they
    would be part of these health care systems.
        Can you comment from your perspective as former vice chief
    on this whole issue of strengthening the military medical
    infrastructure along with giving individuals more choices in
    the health care? Or if someone else wants to.
        General Chiarelli. No, I'm more than happy to.
        Senator Reed. Yes, sir.
        General Chiarelli. I think we are in a death spiral right
    now in our MTF, from the standpoint of they just don't have the
    number of reps that they need to keep their doctors up to
    standard. This is a way that we can bring into our MTFs the
    kind of cases that contribute to battlefield medicine.
        That is what makes this system so different than any other
    system. We need well-trained doctors, not only to treat
    patients in hospitals, but to be ready to deploy wherever we
    send them and provide that same kind of treatment on day one of
    the conflict.
        This will allow us to attract into our MTFs the kind of
    cases that will keep those skills up, and are so absolutely
    crucial to our survive-of-wounds rate in the last 14 years of
    war.
        It will do that on day one of the next conflict. I really
    believe that this is something that is going to ensure that we
    have that combat medical readiness capability we need moving
    into the future. If we don't do it, we are going to have a
    very, very difficult time being able to provide that.
        Senator Reed. So this is not just about the benefits to the
    individual military personnel. This is about the overall
    viability of the health care system in the military?
        General Chiarelli. Absolutely, and that is one of the
    reasons why we looked so strongly at a readiness command,
    because we really believe there is going to have to be somebody
    who is keeping an eye on this system to ensure that the
    Services are doing the kinds of things that are necessary to
    keep those MTFs viable training grounds for our physicians.
        Senator Reed. Let me direct this to the chairman. You can
    decide who is appropriate.
        I'm sure I'm not alone, but when we mobilize National
    Guardsmen and Guardswomen and reservists, they are the ones who
    sometimes have the most difficultly getting into the health
    care plan, getting their benefits, making sure that their
    family who is not close to a medical facility, who may be far
    removed. It seems to me that this approach that you are
    suggesting, choosing among a set of private insurance plans,
    would be much more easily accessed by Reserve components. Is
    that accurate, Mr. Chairman?
        Mr. Maldon. That is correct, Senator Reed. One of the
    things that happens with our proposal for the Reserve
    components is, anytime they are mobilizing or being activated,
    the family members normally will go without coverage. There is
    a period of time that they just don't have coverage when that
    happens. This will solve that problem for them because they
    won't have to worry about going long periods of time without
    coverage of health care when the Reserve component member
    activates and deactivates.
        Mr. Buyer. Senator Reed, I mean, that is an excellent
    question. That strategic reserve that we built over time really
    wasn't prepared operationally. We know that. You funded it. You
    did a lot of things to bring it up, round it out, and make the
    total force better in the 13 years of war. But with regard to
    the undesirable choices that reservists and their families had
    to make upon those mobilizations to be part of those
    contingency operations, you are absolutely right, Senator.
        So when we looked at this and said, with regard to that
    total force, even though we really pressured the chiefs, do we
    really want an operational reserve versus a strategic reserve?
    They really do, but they don't want to call it that because
    they don't want to fund it.
        But what is realistic is, when we talk about the war after
    next or how to fund the war after next, and caring for the
    people, when it comes to the health care, that benefit needs to
    be for the total force. So for the Reserve components, that
    continuity of care that your questioning goes to, it is so
    disruptive for the family.
        If we say from day one when you join the Reserve component
    that health care is part of that benefit, you can select the
    type of plan that best fits your family, your premium is 25
    percent. We capped it at 25 percent for the premium. Then there
    is no disruption in the continuity. They like their local
    providers.
        Then if they are on for a longer period of time, they've
    come, gone on Active Duty, they are part of the contingency
    operation, then they go on to the Active Duty plan, they
    receive their basic allowance for health care that takes care
    of the premium for that of their family.
        Senator Reed. Thank you very much, Mr. Chairman.
        Mr. Maldon. Senator Reed, if you don't mind, I would like
    to have another member of our commission speak to that as a
    reservist, please, Commissioner Carney.
        Mr. Carney. Thank you, Mr. Chairman.
        Mr. Reed, those of us who lived in sort of rural areas and
    were on Reserve duty, it wasn't TRICARE exactly. It was more
    like ``try to find care.'' This takes care of that.
        What we are offering now is a system that provides a
    network that is robust enough to care not only for the member
    when they are on their civilian side, but also for the families
    when the member is deployed. That is exactly what we are trying
    to do here and do it in a way that is fiscally sustainable.
        Medical readiness as well as dental readiness are critical
    aspects of the overall readiness mission. If we can do that
    with this kind of system, with a TRICARE Choice system, then I
    think this is a good step forward.
        Senator Reed. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman McCain. Senator Inhofe?
        Senator Inhofe. Thank you, Mr. Chairman.
        I would say to my good friend Steve Buyer, who I used to
    sit next to on the House Armed Services Committee, that I agree
    with you, except I'm more concerned about today's war than I am
    the war after next. Right now is when we are having the
    problems that we are having.
        We had a hearing last week. We had Schlesinger, George
    Schultz, Madeleine Albright. They went back and reminisced
    about what our capabilities were at that time, and what is
    expected, and even read the charge that President Reagan had
    made at one time in determining what a defense budget should
    be.
        The reason I'm saying this is I look and I agree with
    Senator Reed who talked about the inadequacy in meeting the
    threats. I agree with Director Clapper when he says, ``Looking
    back over my now more than half a century in intelligence, I
    have not experienced a time when we have been beset by more
    crises and threats around the globe'' than we are right now.
    That in light of the fact that we also have the force structure
    problems.
        I'm very proud of all of our chiefs. General Odierno has
    been before us, and all of the rest of them, talking about how
    significant this is and it is something that is unprecedented.
        The reason I bring this up, we have a quality group here, I
    would say, Mr. Chairman. I just think after this is over, you
    should reconvene and get into this thing as to the current
    threat that is out there and the inadequacy that we are facing.
    It is one thing for the chiefs to come forward and talk about
    what is going to happen with sequestration. But when you folks
    with your backgrounds come forth, to me that gives a different
    sense of meaning. I would hope that we might consider that.
        I was a product of the draft and look at things a little
    bit differently than others. In fact, I was one that was not at
    all optimistic that the All-Volunteer Force would be the
    quality force that it is. I was wrong, although there were some
    advantages to the draft at that time.
        I think that when you are examining the charge that were
    given to you, and I would ask you the question, what have you
    decided motivates the young people to serve in the All-
    Volunteer Force? Then, why are so many of them leaving, if you
    could zero in on two or three reasons as to why they don't stay
    on?
        Quite often, we go back and talk about how much cheaper it
    is for us to retain than to retrain. The extreme example is to
    get a pilot to the point where they can do an F-22 quality and
    the reenlistment bonus is $250,000 but the cost to retrain is
    $17 million. Now scale that down to whatever forces that we
    have here.
        What is the major reason that they come in and then they
    leave?
        Mr. Maldon. Thank you for the question, Senator Inhofe.
        We spent a lot of time looking at that, that specific issue
    that you address. It is a very important one. As we think about
    how to modernize the compensation programs, compensation
    programs for tomorrow, we are thinking about exactly what is
    required for the military to be able to recruit and retain
    people. We have to think about the way the new generation
    think, what they value, what they prefer. Those are the kind of
    things that we listened to and heard as we talked to people.
        As it was already indicated here today, 83 percent of the
    enlisted force actually wind up leaving without any kind of
    retirement benefits, which is one of the reasons that we made
    the recommendation that we did, to be able to extend some of
    the retirement benefits for those servicemembers who will serve
    and then move on to do other things from 17 percent to 75
    percent.
        I'd also like to point out that a couple of things that we
    were told specifically by the servicemembers is that they are
    concerned about the service to their country and the G.I. Bill.
    Those were two of the things that were very important to them
    in terms of why they would come in, what they were looking for.
    Get an education benefit, be able to take advantage of that,
    which is a strong recruiting tool, and then move on to
    something else.
        Senator Inhofe. Very good. Thank you, Mr. Chairman.
        Chairman McCain. Senator Manchin?
        Senator Manchin. Thank you, Mr. Chairman. Thank you all for
    being here.
        I guess this would be to anybody who wants to answer the
    question. But my thing is, is that it is a very difficult
    position you are being put into and we all are, because I don't
    think anyone questions the commitment the Service people and
    all people in military have to the United States of America.
        I know in West Virginia we feel very strongly about that,
    people willing to take a bullet. I have always been able to
    explain when I was Governor, when they would explain or
    complain about whether it be our state police retirement or our
    fireman's retirement, they are willing to put their life on the
    line every day for you.
        So people are willing to pay a higher price for that but
    they still want it to be fairly comparable. Do you all look at
    that from the standpoint--I can tell you, in most all State
    budgets or municipality budgets, the firemen and police
    pensions are out of whack, they are under water, and we are
    trying to get them back. There is going to have to be some
    sacrifices. But to the point, we have to recognize the
    sacrifice they are making for us.
        How do you balance this out? What would I tell the National
    Guardsmen of my State that have been deployed maybe three and
    four times, and we are looking at changing some of the
    compensation? What type of literacy training are we giving to
    help them on their retirement? Why do we have so many that
    leave at 10 years of service in the military to go into private
    contracting for the extra pay overseas in Afghanistan and Iraq?
    What is the magic number of 10 years? I find most of our
    soldiers of fortune that leave our military that we spent an
    awful lot of time and energy training them, leaving and going
    for the higher pay. Can you give me that magic thing at 10
    years what they lock in and what gives them that freedom to do
    that? Whoever wants to chime in on this.
        Mr. Maldon. Yes, Senator. Senator, thank you very much for
    that question. We, certainly, have spent a lot of time talking
    about that. I am going to ask Commissioner Kerrey, Bob Kerrey,
    to share the specifics of that.
        Senator Kerrey. Well, first of all, I think you would be
    having a difficult time retraining men and women to serve in
    the military had this Congress not made all of the changes that
    it made since we have been fighting this war for the last 14
    years. I mean, if you just look at what you've done with pay
    and compensation, it is now better than market. It needs to be.
        The changes that have been enacted by Republicans and
    Democrats have not been given enough praise, in my view,
    because had those changes not been done, given the stress on
    families today--I'm a very proud geezer father. I have a 13-
    year-old. If we think about having to move our son once every 4
    or 5 years, it is a traumatic thing inside of our household.
    That is way more stability than anybody in the military gets.
        So the stress on the families has increased over the past
    14 years. Thanks to congressional action, the pay and benefits
    now are quite strong, and they need to be in my opinion.
    Otherwise, we are going to have a difficult time retaining men
    and women.
        The second thing that has happened, and the Senator and
    fellow draftee referenced the good old days, the American
    people now are quite proud of their military. They are quite
    confident that they are getting the kind of support that they
    need. But Americans are a lot more patriotic and they care
    deeply about the men and women who are serving.
        I think that attitude makes a big difference to people's
    willingness to serve. I would say the combination of patriotism
    and the combination of pay and benefits, those two things
    together have made a big difference.
        When I looked at the recommendations, Senator, that we are
    making, the two big questions that I ask are, are we keeping
    faith with the men and women who have served? Those of you who
    have understand that what happens is that you give up your
    freedom. If you get ordered to do something or go some place,
    you do it.
        So are we keeping faith with those who have served and are
    serving? I answer emphatically yes.
        Second, the recommendations that we make, will it enable us
    to continue to recruit and retain in the All-Volunteer Force.
    Again, I answer emphatically yes.
        But it is something that you constantly have to pay
    attention to. I think there is a qualitative difference between
    the public pensions at the fire and police level. Those firemen
    can get a little ornery, and the police can get a little
    ornery. They don't have a Commander in Chief that tells them
    exactly what to do. I get orders to report to so and so
    location, I say yes, sir, and go.
        Whereas in negotiation with the fire union and the police
    union, you have serious negotiations about where they're going
    to go and what they're going to do.
        So I think there is a qualitative difference between the
    relationship of the American people and the men and women who
    have signed up and sworn that oath, given up their freedoms,
    and even in training exercises, put their lives and health at
    risk.
        Senator Manchin. Well, it's not a hard sell. Basically, in
    my State and most States around the country are very committed
    to our military force, and they want to make sure they are
    compensated and taken care of and given the care they need.
    They just want to make sure we are doing it in an efficient
    manner, and if we are giving them the training and expertise
    and literacy training they need to make decisions.
        Senator Kerrey. I would say, Senator, I think the moment
    that ends, no matter what you pay men and women, they are not
    going to sign up. The moment that that attitude changes, as it
    was in the 1970s, it is going to be difficult to recruit people
    to Service.
        Senator Pressler. We have a tradition on our Indian
    reservations. A lot of people serve 3 or 4 years and very
    rarely go for a career. I always had a difficult time getting
    our Native Americans to go to the Military Academies. But it
    seems that, aside from whatever we do, there is a tradition in
    our country of a lot of people wanting to serve 3 to 5 years.
    Of course, we need those people. That is particularly true in
    rural areas in States such as mine and with Native Americans.
        Senator Manchin. Thank you, Mr. Chairman.
        Chairman McCain. Senator Fischer?
        Senator Fischer. Thank you, Senator McCain.
        Mr. Chairman, you've mentioned flexibility a couple of
    times here in your statements. In the report, it says that the
    force may benefit from a flexible retirement system that
    incentivizes them to remain in Service longer than other
    occupational specialties with regard to doctors, cyber-
    personnel.
        Do you have specific proposals? I would like to dig down a
    little bit into this. Do you have any specific proposals that
    the commission recommended? Do you see each Service setting a
    different requirement there? If so, do you anticipate any
    problems? Do you see competition among the Services?
        Mr. Maldon. Thank you very much, Senator, for the question.
    I am going to ask Commissioner Zakheim to respond to the
    specifics of your question first.
        Mr. Zakheim. Thank you, Mr. Chairman.
        Senator, each of the Services already has different types
    of bonuses to keep people on. For instance, nuclear engineers
    and specialists get special bonuses from the Navy and so on.
        Our proposal does not tell the Services how they should do
    it. What we are trying to do here is give them maximum
    flexibility, so that if there are, as you pointed out, certain
    specialties that, frankly, like doctors, you actually get
    better with more time in your practice, then the Services
    upfront can decide that they want to recruit an individual and
    have that individual stay on longer than the normal term. But
    it works both ways, actually. It is not just to keep people
    longer. They can sign up some for less.
        We wanted to give them maximum flexibility, so at the same
    time that we are giving the individual choice, we are giving
    the Services flexibility. Again, it goes back to the question
    about what kind of a force do you want to shape? The Services
    are the ones who know that best, of course.
        Senator Fischer. When you looked at the surveys, were there
    any issues identified that the commission did not make
    recommendations on? I guess I'm thinking specifically of the
    housing allowance. That has been a big issue in the past. The
    President has made proposals but yet it was not addressed by
    the commission. Are there other instances there? Really, why
    didn't you address the housing? We hear about that a lot.
        Mr. Maldon. Senator, thank you so much for the question.
    We, indeed, took a very, very hard look at the Basic Allowance
    for Housing (BAH)/Basic Allowance for Substance, and we
    actually looked at the pay table. We looked at the structure of
    all of those programs.
        We clearly asked ourselves three questions. Number one,
    were these programs delivering the benefits that they were
    intended to? Number two, were the benefits being delivered in
    the most cost-effective way possible? Third, could this
    commission design a clear path for modernization to those
    programs, in terms of improving those programs.
        After looking at those, we did not feel that we could
    design a clear path to modernization for those programs, and
    instead we could provide a much better benefit to the
    servicemembers and do it in the most cost-effective way by
    making the recommendations that we have made.
        Senator Fischer. Would it be fair to say that the
    commission supports with what the Congress did then with the
    housing allowance? Or do you support the President's proposal?
        Mr. Maldon. Senator, again, thank you for the question. I
    am going to ask Commissioner Higgins to respond to the
    specifics of that question
        Senator Fischer. Thank you.
        Mr. Higgins. Thank you, Mr. Chairman, Senator.
        Clearly, BAH, in our view, is operating effectively to
    provide the housing that our servicemembers need. There are a
    number of the elements of the compensation system that drew our
    attention very dramatically that we did not elect to meddle in,
    if you will, because we believe they are operating effectively.
    Others would include the pay raise mechanism. The pay table
    itself we believe is operating correctly, special pays and
    allowances, and BAH, I think along with that.
        Now on each, if you believe that you need to save money,
    then obviously the Congress could act to reduce programs. That
    is your choice. Our objective was modernization, and systemized
    modernization where we go into the structure of a program. We
    did not believe that the structure of those programs were
    deserving of modernization.
        If I could go back to your other question as well, Senator,
    the Service Chiefs asked for flexibility. One of the primary
    complaints about the retirement system as it exists today is
    that it is overtly rigid, inflexible. Service Chiefs implored
    us to seek opportunities for greater flexibility. We delivered
    that section you are referring to.
        Are there some potential frictions between the Services?
    Would it cause some concern? Do we believe it is going to be
    used instantaneously? No. There will be uncertainty, and I
    think that will keep that proposal in check, perhaps for years.
    But there will come a day when greater flexibility in the
    retirement system will be needed. That provision will be there
    to deliver that to the managers.
        Senator Fischer. It would also allow the Services then to
    compete for the men and women that they need to perform in
    different areas, correct?
        Mr. Higgins. Always a difficult issue, controlling
    competition between the Services. The service cultures are,
    indeed, incredibly strong. You always want to endeavor to limit
    competition and create systems that operate for the best
    interest of the total force. But there will be some insecurity,
    and I think that will cause this, as enticing as it may be to
    some people inside the Pentagon. Whether or not it rises to a
    level where it is implemented is a serious question that is
    going to take time to resolve.
        Senator Fischer. Thank you, sir.
        Thank you, Mr. Chairman.
        Chairman McCain. Senator Gillibrand?
        Senator Gillibrand. Thank you, Mr. Chairman, for this
    hearing. Thank you to all of you for your very hard work.
        One of the most important considerations for me in terms of
    potential changes to benefits and compensation is that the
    approach be holistic and that we ensure the lower enlisted
    troops and families do not disproportionately feel the impact.
    Can you please walk me through why you believe this is holistic
    and how it will impact lower enlisted troops and their
    families? Anyone can answer.
        Mr. Maldon. Thank you, Senator, for your question. I am
    going to ask Commissioner Chiarelli if he would please respond
    to the question.
        General Chiarelli. I think we have done everything we
    possibly can to make it holistic and apply to everyone. We have
    two charts that go into the retirement. One enlisted E-7 to
    show what his retirement is under the current system, and what
    it would be under the new system. I think you can see that it
    is clear that he or she would do much better under our proposed
    system than they would under the current system.
        We have one for officers that shows the same thing.
        I don't think it's just the retirement system you should
    look at. I think you should look at what we are doing with
    health care. We are giving them the ability in health care to
    go out and immediately go to see a private provider that is in
    their insurance network. Or if they would rather choose to go
    to the MTF because that is where they feel they can get the
    best care, they can go to the MTF.
        Today, under most of the TRICARE programs, it takes a
    period of time before you can get that TRICARE referral, and it
    is up to 30 or 40 days from the time you want to see somebody
    until you can get out to see them, if you can find a provider.
        This applies not only to officers and warrant officers, but
    it applies to our enlisted soldiers. So I think everything in
    our recommendations was geared to ensure that whatever we
    recommended was holistic and applied to both officer and
    noncommissioned officer in the same way.
        Senator Pressler. In a holistic sense, we included
    exceptional family provisions and childcare issues in our
    report, which normally might not be in such a report. But a lot
    of the lower ranking servicemembers have a very hard time with
    waiting lists on childcare and so forth, so we tried to be
    holistic in that sense.
        Mr. Buyer. Ma'am, holistic was not only of the moment. We
    were very reverent to the past for our military traditions and
    heritage.
        Senator Gillibrand. Thank you.
        Senator Kerrey. If I could?
        Senator Gillibrand. Please.
        Senator Kerrey. There is one area we have not talked about.
    First of all, you completely destroyed me, because I tried to
    get the chairman and the rest of the commissioners to stop
    using the world ``holistic.''
        Senator Gillibrand. Sorry.
        Senator Kerrey. Obviously, I failed in that effort.
        Among the things you really need to think about is all
    these men and women at some point are going to transition back
    into the civilian life. The changes we are recommending in the
    health care side and the changes we are making on the
    retirement side make it much easier to do that, because there
    isn't an abrupt differential between what we are recommending
    and what the civilian population is doing.
        Senator Gillibrand. So to continue along that line, I'd
    love to understand better the health care proposal. I
    understand that part of the recommendation is to create a basic
    allowance for health care based on the average family's out-of-
    pocket costs to cover the cost of premiums and the co-pays. So
    how do you account for families with extraordinary needs? Will
    they pay more? I'm especially concerned about families with the
    special needs dependents, children with special needs
    specifically.
        Mr. Maldon. Senator, thank you for the question. We spent
    an inordinate amount of time talking to families across the
    country about the challenges they had with exceptional family
    members. I'm going to as Commissioner Buyer to speak to that,
    the specifics of that question.
        Mr. Buyer. There are two parts to the question. I'll do the
    health care and then the extraordinary families piece.
        To the basic allowance for health care, you are correct. In
    order to make that determination, it will be decided by OPM.
    OPM will manage the plans and they will take the average of
    those premiums of the plans that were selected in the prior
    year. They also then will look at that average to come up with
    the co-pays and the deductibles.
        Senator Gillibrand. Does OPM help families navigate it,
    because this is a new system for them.
        Mr. Buyer. Part of our recommendations with regard to
    literacy training, literacy is not only for financial literacy,
    because now, as we move into the Thrift Savings Plan and
    government contribution, there is a financial literacy piece.
    But there is also a health piece to help people navigate.
        This really is calling for more empowerment of the
    individual. It goes to that opening question that Mr. Higgins
    really posed to all of us on day one, which is that we are very
    used to our military being paternalistic. So as we look at what
    is happening in society and how dynamic, I want to say the new
    generation is, not that they are the selfie generation. They
    are the generation who want to have greater controls about
    themselves. They watch their peers making contributions into
    401(k). ``How about me? I am in the military. I want to
    participate, too.'' So we have come up with that blended.
        With regard to health care, we are also making that
    empowerment of choice in educating them about how important it
    is to make the best plan for themselves and their family. When
    we give them the financial literacy and the health literacy,
    when they leave the Service, it is a better individual and it
    is a better family.
        Mr. Maldon. Senator, if you don't mind, I'd like to have
    Commissioner Higgins follow up on the latter part of the
    question. It was two pieces.
        Senator Gillibrand. My time has expired. It is up to the
    chairman.
        Chairman McCain. That is okay. Go ahead, Mr. Higgins.
        Mr. Maldon. Thank you, Mr. Chairman.
        Mr. Higgins. Thank you, Mr. Chairman, Chairman McCain.
        Senator, we had a great deal of concern about exceptional
    family members and how we would care for them. We have a
    proposal, of course, that would add a new level of benefits for
    those families. It was one of those areas where we would
    increase costs, so we were not all about cutting. We were about
    making life better for servicemembers.
        In addition, if you had a catastrophic situation in a
    family where you had extreme cost that was related to an
    exceptional family member, there is also a fund that we would
    propose to ensure that those out-of-pocket costs did not get
    excessive. We plan on that for about 5 percent of the people.
    So there is help there.
        Chairman McCain. Senator Ayotte?
        Senator Ayotte. Thank you, Mr. Chairman.
        I want to thank all of you for the hard work and
    thoughtfulness you put into this commission and for having this
    important discussion with us.
        I do have to say, today, I'm walking back and forth between
    this committee and the Budget Committee. As I look at where we
    are, Senator Kerrey, to use the word ``holistic'' in a way that
    I think the point needs to be made here, is that if you look at
    where we are, for example, the President's budget that was just
    submitted, by 2021, our interests costs, what we are paying in
    interest, is going to exceed the Defense budget.
        As I look at the work that you have done, a bipartisan
    commission, and we look at what the biggest drivers in our debt
    are overall, looking at the big budget, mandatory spending,
    programs that we need to have similar looks at--Medicare,
    Social Security, that are very, very important programs to
    people.
        I appreciate that you have done all this work. I think we
    are looking at our military stepping forward first in making
    many changes. I think that we need to look across the entire
    budget too, because where we are is that we are going in 2016
    to defense budget only 3.1 percent of GDP and 14.3 of Federal
    spending, which is the bottom of the historic range since 1950.
        The reason I want to put that in perspective in the big
    picture for everyone, we look at the sacrifices that our men
    and women in uniform make--the separations from family,
    obviously the sacrifices they make putting their lives on the
    line, all of that. I think that the work you have done is
    really important, and we look forward to delving into it more
    deeply.
        But I hope in the bigger Congress, as we scoot between here
    and the Budget Committee today, that we look at the big picture
    and we won't be sitting in a situation where we are going to
    continue to shrink the defense of a Nation because we won't
    take on the other hard challenges that need to be taken on for
    this Nation.
        It would be great to see a group like you look at the
    bigger picture as well. I just wanted to say that, and thank
    all of you for your work.
        In terms of a specific question, I wanted to follow up on
    the retention issue, because obviously that is important to all
    of us in terms of keeping the very best military in the world
    and wanting our best and brightest to join the military.
        As we look at your proposals on recruitment and retention,
    what assumptions did the commission use regarding economic
    conditions in the country and operational tempo (OPTEMPO)? So
    meaning, what did you assume would be the rest of the private
    economic growth, because that always drives, obviously, what
    opportunities our best and brightest have? Also OPTEMPO?
        Mr. Maldon. Senator, thank you very much for the question.
    We took quite a bit of time actually looking at that and
    deliberating over those issues. We actually had experts come in
    and talk to us about the millennials and what that means, as
    well as what it means with the social environment and those
    kind of societal changes that have taken place and how that
    would affect retention.
        I am going to ask Commissioner Chiarelli to speak to the
    specifics of your question.
        General Chiarelli. I would totally agree with the chairman,
    Senator. We did.
        A good example where we provided flexibility is at the 12-
    year mark with continuation pay. That is not a fixed amount
    someone is going to get. We were going to allow the Services to
    set that amount based on the economic conditions that they have
    at the particular time to maintain the retention rates, not
    only the total retention rate but the retention rates by
    specialties that they need to continue past that 12-year mark.
        So everything we did was based around an OPTEMPO from
    peacetime to the fact that we would have to deploy the entire
    force.
        If you had told me when I was in the Army Operation Center
    on September 11 that we would be able to maintain the All-
    Volunteer Force at the OPTEMPO that we did for 13 years, I
    would have told you there was no way whatsoever. We did.
        I had aviators that literally knew that, on the 365th day
    of the year, they were going to be back down range. They would
    stay down for a year and come back and get another year at home
    before they were going back down range.
        Why they did that? A lot of it is pure patriotism, love of
    country, and a mission they believed in.
        I think it is absolutely critical that in times where we
    don't have that OPTEMPO, we give the Services the tools they
    need. I think you will find throughout our report we have done
    that, everything we can to give them that flexibility to
    maintain those retention rates.
        I would argue, in the earlier question, as I live around
    Fort Lewis, WA, today, the biggest issue for retention today is
    uncertainty. They just don't know whether they are going to
    have a job tomorrow. There is real concern in the force, as you
    wander around that post and see folks, how far the cut is going
    to go. Is there a future for me here?
        I think our retirement plan speaks to that and puts us in
    much better position, should we ever have to cut the force
    again to provide people who are leaving something when they
    leave.
        Senator Ayotte. I want to thank all of you. I have some
    additional questions I'll I submit for the record.
        I would just say, General, to your point, that goes to the
    sequester issue too, in terms of continuing to diminish what we
    are going to spend on the overall force and our readiness, and
    that is issue we already had hearings on, and we need to do
    something about. Thank you.
        Mr. Maldon. Senator, thank you. Senator, there was a
    modeling component to your question. I would like to take that
    for the record and then get back to you, too, because we do
    have very specific data and details for that.
        Senator Ayotte. Thank you.
        Chairman McCain. General Chiarelli, I wish that every
    member of the Senate could have heard your last comment,
    because we are going to be in a very significant struggle here
    in regard to sequestration. You reflect the views that were
    expressed to this committee by our four Service Chiefs last
    week, and I thank you for that.
        Senator Donnelly?
        Senator Donnelly. Thank you, Mr. Chairman.
        I want to thank all of you for your service to the country.
    You have all done so many extraordinary things for us.
        My fellow Hoosier, Congressman Buyer, is here. Thank you
    for all your work, and to all of you.
        I also want to say the importance of the extended care that
    you are providing for exceptional family members, what you have
    done in that area is really significant, and will change lives
    for family after family.
        General Chiarelli, I wanted to ask you about the unified
    drug formulary between DOD and the Department of Veterans
    Affairs (VA). You have done exceptional work in trying to stop
    the scourge of suicide. You have worked tirelessly to provide
    solutions and answers here.
        If you would tell us a little bit the challenge when you
    transfer from DOD to VA with the drug formulary and what that
    is causing?
        General Chiarelli. Thank you for that question, Senator. I
    really appreciate that.
        When I was vice chief of staff in the Army, I had no idea
    there were two different drug formularies between DOD and VA I
    really believed every single soldier who used drugs the way
    they were supposed, who had posttraumatic stress or traumatic
    brain injury and was taking an off-label antidepressant that
    was developed 30 to 40 years ago, not for the disease that they
    had, that their doctor had to work through a whole bunch of the
    different drugs to get them to the right one, that when they
    showed up to their VA on day one, they would be able to provide
    that prescription to their doctor, and he would automatically
    refill it. That is not the case.
        We have two different drug formularies. The DOD is very
    expansive, just about anything FDA has approved, they can
    prescribe them, and they do. When an individual finally gets on
    the right drug at the right dosage and goes over to the VA,
    many, many times in this particular area, antipsychotics and
    antidepressants and antipain medications, they find themselves
    in a situation where the doctor looks at them and says I'm
    sorry, I cannot refill that prescription.
        You are going to hear a lot of different stories from
    folks, but I continue to have soldiers come to me, sailors,
    airmen, and marines today--just last week, I met with one for
    coffee who had the exact same thing happen to him.
        If there is anything we can fix to get at this suicide
    problem, it would be to make sure that once we get a kid on the
    right drug and at the right dosage, wherever he goes in the
    system, he is able to get that same drug and not be told, ``I'm
    sorry, that's not in our drug formulary.''
        Senator Donnelly. Isn't there also a confidence factor for
    that person, that they feel comfortable with the drugs they are
    receiving, with the treatment they are on, and changing it up
    is like a life-changing experience?
        General Chiarelli. Most of them don't, Senator. What they
    do is they go find a private doc to go ahead and give them the
    prescription and they pay for it out-of-pocket.
        So here we have told them, ``We are going to take care of
    you. We really care for your service. This is your benefit.''
    They go over and say, ``I'm sorry, you can't have that drug.''
        I'm telling you, no one cares if you get St. Joseph aspirin
    in DOD and Bayer aspirin in VA That is not an issue. But on
    this drug formulary issue for antidepressants, antipsychotics,
    pain medications, these things you have to be weaned off of, we
    should not put our service men and women in this situation when
    they transfer over to the VA
        If it is not on the drug formulary, somebody should hand
    them a card and say go to your local pharmacy and get the drug.
        Senator Donnelly. As the General and all of you know, we
    are losing 22 veterans a day to suicide. In the Active Duty, we
    lost 132 young men and women in combat in 2013. We lost 475 to
    suicide, almost four times as many. So your efforts on this are
    life-changing.
        I would like to then follow up with a question. As we
    transition from DOD to VA, for a number of our young men and
    women, obviously, there are electronic health record
    challenges. What do you think is the next largest challenge we
    have to tackle and knock out?
        Mr. Maldon. Senator Donnelly, thank you very much for the
    question. We spent a lot of time talking about the DOD-VA
    collaboration and what that really means, what effect it has on
    health care for veterans.
        I am going to ask Commissioner Buyer to speak to the
    specifics of that question first.
        Senator Donnelly. Great. Thank you.
        Mr. Buyer. When you look at our recommendation eight,
    Senator Donnelly, we are asking that the Joint Executive
    Committee that has authority, it doesn't have power now. That
    is pure heterodox. We are asking that you give it statutory
    power to actually implement the recommendations.
        When we met with Secretary McDonald, two things we learned.
    One is they said they agree with the commission. But could you
    also--this wasn't in our recommendation and I throw this to
    you, because I anticipate the Secretary of the VA would say I
    would like to have parity, so when the Joint Executive
    Committee meets, the Deputy of the VA meets with the Under
    Secretary for Personnel. It is not the same. If you raise that
    so that the Deputy Secretary of the VA and the Deputy Secretary
    of the DOD meet at the Joint Executive Committee, and give them
    the authority with the power to implement, big difference.
        So with regard to the blended recommendations and the exact
    antidepressants or antipsychotics General Chiarelli spoke of,
    or pain medications, let the experts make that decision with
    regard to where in the formulary it should be blended. With
    respect to large capital projects, never again should we have
    the scenario where we all struggle trying to get the timelines
    for the building of an Army hospital and a VA hospital. That
    shouldn't ever occur to us again.
        With regard to your specific question, ``What do you really
    anticipate, Steve, the biggie that is going to happen next?''
    It really is this challenge, as the country moves to set these
    national standards for the electronic health records. So we
    have the scenario whereby you are responsive with regard to the
    VA and the scheduling debacle. We said that we will move to
    this Choice program, Senator McCain, that you talked about. We
    will have this increase of more non-VA care. When you are on
    the Committee on Veterans' Affairs in the House, around the
    2004, 2005 timeframe, we were spending about $400 million for
    non-VA care. Today, $6 billion. It is only going up.
        So think of this, DOD has a contract let to create their
    own new version of their electronic health record. VA is doing
    the evolution of VistA, and they want to make sure, as they
    move to their new programs, that they have data standards so
    they can be bidirectional.
        At the same time, the VA is doing more non-VA-based care in
    the private sector. In order for there to be continuity of
    care, those private docs have to be able to communicate then
    with the VA So we are talking about bidirectional, so they can
    communicate. That is a huge challenge.
        Now in DOD, as they move to their new electronic health
    record, and as we make recommendations to you to move toward
    the selection of plans, meaning there is going to be a lot of
    care provided in the private sector.
        So this setting of national standards on how the country
    will communicate is extremely important. That is what I would
    see, Senator Donnelly, as the biggie that is about to come. It
    is about your leadership on setting those national standards.
        Senator Donnelly. Thank you to all of you, and thank you
    for your extraordinary service across-the-board.
        Thank you, Mr. Chairman.
        Chairman McCain. Senator Sullivan?
        Senator Sullivan. Thank you, Mr. Chairman.
        I wanted to also thank the members of the commission for
    the great work that you have been doing for the country, now
    and before.
        I first want to get a sense of kind of the big macro
    issues, the competing issues that you have seen, Mr. Chairman,
    as part of your mandate. In particular, what I was interested
    in, is there a concern about the projected growth of benefits,
    of retirement, that ultimately will be or could be taking away
    from training and readiness? I think we all want to make sure
    we are taking care of our troops. I think, though, sometimes
    what gets lost is ultimately the best way to take care of them
    is to make sure, if and when they need to go fight, that they
    come home alive.
        Is that an issue that the commission has had to deal with
    on a broad scale? This kind of tension between competing issues
    that we are looking at with regard to military expenditures?
        Senator Kerrey. Mr. Chairman, can I take that question?
        Mr. Maldon. Senator Sullivan, thank you very much for your
    question. I knew that Commissioner Kerrey would want to answer
    this question, so I'm going to ask him to respond.
        Senator Kerrey. Since I'm notoriously holistic in my
    thinking about such things.
        I argued and I think commissioners were persuaded that for
    us to address this problem that you have identified, without
    addressing the big one--the big one is Social Security and
    Medicare. That is crushing all the appropriation accounts.
        It would be unfair to identify military retirement as the
    big problem, because it isn't. The big problem is Social
    Security and Medicare.
        So it seems to me to address military retirement without
    going after Social Security and Medicare is basically saying we
    are going to balance the budget on the back of our military
    retirees, and I think that would be a wrong thing to do and
    send a terrible signal.
        Mr. Zakheim. Could I jump in here?
        Senator Sullivan. Yes, sir.
        Mr. Zakheim. Since I had to deal with exactly that question
    at DOD when I was comptroller.
        First of all, there is a huge misunderstanding as to how
    much is being spent on military, as part of the defense budget.
    People think it is 50 percent. It is not. It is 29 percent. We
    write about that in our report.
        If you add the civilians, the defense civilians, that
    brings it up to about 40 percent. But that is a whole other
    category. That is not something we focused on.
        The real issue is, can you modernize what you are offering
    to your military at the amount of money that you are spending?
    If you can spend a little less and modernize a little more, so
    much the better.
        That is where we started. We started with modernizing. We
    started with choice. We started with what my fellow
    commissioner doesn't like, holistic approaches. But that is
    where we began.
        Then we looked how things fell out. It turned out, it fell
    out that you could actually save the government money as well.
    You could actually do better by your people and still save the
    government money, which tells you how inefficient the current
    system is.
        The reason it is inefficient is not that it was
    deliberately so. When the All-Volunteer Force started, who was
    in it? Mostly young men, unmarried. Now look at what we have. A
    completely different kind of force.
        So we have to be concerned about Extended Care Health
    Option (ECHO) programs. We have to be concerned about
    childcare. We have to be concerned about a lot of different
    things that just weren't paramount in 1975.
        That is how we approached it. We did save some money, but
    that wasn't the driver, and it shouldn't be.
        Mr. Buyer. Senator, I'd be very careful about getting
    sucked into this debate of people versus procurement.
        Senator Sullivan. I'm not talking about just procurement. I
    am talking about hard training for our troops.
        Mr. Zakheim. Again, frankly, this is not the issue, because
    the amount of spending on personnel has been level.
        The real problem, and I think Senator Ayotte pointed it
    out, and several others, is there is just not enough money
    going to defense, full stop. That is the issue.
        Mr. Buyer. When you hear that personnel costs are
    unsustainable, the baseline that is used for that is year 2000.
    The question you should and is why was the year 2000 chosen as
    the baseline to prove that somehow personnel costs were
    unsustainable? Congress made a lot of the conscious decisions
    to improve the personnel system. We did REDUX reform. We did
    the VA formulary reform. We changed the pay tables, and we did
    TRICARE for life. Then as you went into war, we did the G.I.
    Bill and the pay raises.
        So there was a reason, a clever reason, why the year 2000
    was chosen.
        General Chiarelli. I would only add, and I'm telling on
    myself now, my staff used to tell me to come up here 21 times,
    and if you go back and look at my testimony, I always quoted
    the fully burdened cost of a soldier.
        I learned through this commission work that the cost of a
    soldier hasn't really gone up. It is what you hang on that
    soldier.
        Look at an M16 rifle and what it looked like in Vietnam,
    and look at that same weapon system today with all the sights
    and bells and whistles that we are putting on it. When you look
    at the fully burdened cost, you are rolling in the additional
    costs of other things and applying that to personnel accounts,
    which I was totally wrong in doing that. I apologize.
        Mr. Zakheim. One last point, which is really important.
    General Chiarelli pointed out that he couldn't imagine, and
    neither could I when I came in in 2001, that we would be at war
    for 13 years and be able to keep all the people we kept. Well,
    if Congress and the executive branch had not done what it had
    done, as Congressman Buyer said, in 2000, 2001, 2002, do you
    think we would have kept them?
        Senator Pressler. Let me add to that, that when this
    commission was created legislatively, we were very limited in
    the sense we had to assume an All-Volunteer Force and we would
    not take anything away from anybody who has it now in certain
    areas.
        So really a lot of the commissioners might have had great,
    grand ideas, but we tried to stay within the confines of our
    legislative directives.
        Senator Sullivan. Thank you.
        Thank you, Mr. Chairman.
        Chairman McCain. General Chiarelli, it is very rare we get
    an apology from a General before this committee. I hope we will
    mark this as a historic moment. I thank you. [Laughter.]
        Senator McCaskill. Mr. Chairman, I'm surprised balloons and
    confetti didn't drop from the sky. [Laughter.]
        Chairman McCain. Senator Heinrich?
        Senator Heinrich. Thank you, Mr. Chairman.
        I want to thank all of you. Lord knows what a difficult
    charge this was. Coming from a State with incredibly high rates
    of volunteerism, I want to say how much I appreciate the fact
    that you came to these recommendations unanimously. Serving in
    this body right now we don't hear that word ``unanimously'' as
    often as we would like to.
        But I wanted to ask you if you could elaborate a little
    more for everyone here and, certainly, for this panel about the
    process you used in terms of gathering feedback from our
    servicemembers, from their families, at military installations
    and at veterans service organizations (VSO)? That was one of
    the things I was concerned about in this process, but I was
    quite impressed with the level of feedback as you move towards
    your recommendations.
        Mr. Maldon. Senator Heinrich, thank you so much for the
    question. We spent a lot of time traveling across the country
    meeting at different military installations. We met with
    servicemembers--that is, Active Duty servicemembers, Reserve
    component members, as well as retirees.
        We held sessions. We held town hall meetings. We held
    public hearings as we traveled. We would spend a lot of time
    trying to really listen. We listened very carefully to the
    comments that the servicemembers and their families shared with
    this commission, about things that they really were concerned
    about.
        They talked about OPTEMPO, the challenges with that. They
    talked about the long waiting list of trying to get their child
    into a childcare center. They talked about not getting access
    to health care and the problems that they had with trying to
    get specialty care and waiting to get through the referral
    system. All of those kind of things are what we used.
        We received tens of thousands of comments that came in to
    the office from across the country from servicemembers about
    things they were concerned about. Then we also received the
    many, many responses from the survey. The survey was a very,
    very instrumental part of this process. We sent out surveys to
    over 1.3 million retirees. We sent it out to our Active
    components and Reserves. We received over 150,000 responses
    back that said, ``Here is what it is that is important to us.
    Here is what we prefer. Here is what we value.''
        They basically stack ordered one benefit over the other, so
    we have a pretty good indication of exactly what is important
    to them.
        Senator Heinrich. I want to thank you for that. I want to
    move my next question to Senator Pressler, because I really
    appreciated your comments about the culture of service that
    exists in our Native American communities. Certainly, that is
    one of the reasons why New Mexico has had such an enormous
    overall rate of volunteerism, military volunteerism, over the
    years.
        I was wondering if you had looked at the recommendations in
    terms of having the sort of TSP model and a contribution
    portion, if you serve as an enlisted person for 4 years, very
    much at the beginning of your lifetime career, and you build
    that early nest egg through this process, what that looks like
    at aged 65-plus, whenever you actually retire? What impact
    would that have on tribal communities, as well as on rural
    communities, where there are very, very high rates of
    volunteerism?
        Senator Pressler. We do have a problem, in the sense of the
    Native Americans. I just couldn't get mine to go through the
    Academies, but they do join the Service for 3 or 4 years. They
    have a very high rate of service, and they are very proud of
    it. You go on the reservations, and I know your State, they
    have American Legion veterans and Vietnam veterans groups and
    so forth.
        The component that they would take out at least, and most
    of them go with no retirement, but they would have at least 1
    percent the government would contribute to a TSP. After 2
    years--one of my colleagues might correct me--they can
    contribute up to 6 percent, through the match.
        But when they are elderly, they will have something,
    something. It depends how our stock markets work out.
        But I think, in our country, we have to the depend on the
    citizen soldier. In my view, it isn't just to retain everybody
    for 20 years. It is for 3, 5, 6. In my case, I served for 3
    years. I got no retirement, but my percentage counted when my
    Federal civil service retirement came. So I did get something.
    I got 2 percent a year for the time I was in the military.
        Most Native Americans don't get to that, and we also have
    the compounded thing that most of them do not go back to
    careers. They go back to unemployment, and they do have all the
    problems that you know about it. But for them to have some
    connection to some small retirement benefit at the end I think
    would be a very good thing for us to have in our country.
        Mr. Maldon. Senator, I'd like Commissioner Higgins also
    follow up on that question, if you don't mind, very quickly.
        Senator Heinrich. Chairman, I'm out of time. Would you be
    willing to indulge?
        Chairman McCain. Not a problem.
        Senator Heinrich. Thank you.
        Mr. Maldon. Thank you, Mr. Chairman.
        Senator Heinrich. Commissioner Higgins?
        Mr. Higgins. Thank you, Mr. Chairman.
        Senator, tapping into the economic power of the United
    States through the Thrift Savings Plan is, indeed, a really
    powerful financial incentive.
        We looked at your point about examining what kind of growth
    would be experienced when the individual arrived at retirement
    age, say 67. The individual who had done no personal
    contributions would still, if they leave at 8 years of service,
    would still have $18,000 available to them in the their Thrift
    Savings Plan.
        But if they contributed and received the full matching of 5
    percent of their base pay, they receive at age 67 over $90,000
    in benefits that would be available to them. So it is a pretty
    powerful mechanism, and I think would serve any community,
    including Native American.
        Chairman McCain. Senator Rounds?
        Senator Rounds. Thank you, Mr. Chairman.
        Gentlemen, I most, certainly, echo the message from the
    rest of the committee up here when we talk about the work that
    you have done. Senator Pressler and I have been on the campaign
    trail together for a couple of months in the last year and we
    have met with a lot of members of the Native American tribes.
    They truly are a warrior society and we respect what they have
    provided to our country in terms of service to the Armed
    Forces.
        My question to you today is that you are trying to put
    together a system that while it is similar or at least you want
    similarities for services being provided, you are trying to
    provide these services and benefits to a whole lot of different
    groups. You have the folks that are over the age of 65, those
    between 60 and 65, retirees who have left with 20 years of
    service but not yet reached retirement age. Then you are also
    looking at those individuals who are still there within the
    military. Then you are looking at those who are coming into the
    military.
        How do you transition this from what it is today? I got a
    letter from a man who served over in Iraq, and he had 20 years
    in, came back. He says, after sequestration, the message he
    gets is, my retirement because I've done my 20 years but I'm
    not yet 60 is I get my retirement, but instead of having an
    inflation factor, I get inflation factor minus 1 percent.
        The savings to us was $6 billion, but he says, in the
    middle of sequestration, the first thing people do is come back
    to the service men and women who have served to be the first to
    give back. Why are we the first in line to get cut?
        Now today, I think the challenge this commission has and
    the challenge that this committee is going to have is to go
    back to a lot of those same individuals and say, look, here is
    $12 billion that is being reduced, or at least being
    reallocated. Are they doing it on our backs? Those of us who
    came in and thought we had a deal, knew what we had for
    retirement, knew what we had for health care, what is it? How
    are we being taken care of? Is there a transition plan that
    says we get a chance to choose A or B?
        If you could, please, I think the work you are doing here
    is important to do, but I think the challenge we are going to
    do have is how do you convince these men that are serving or
    have served that they have some options available? Is there a
    transition plan that you have thought about for those
    individuals?
        Mr. Maldon. Senator Rounds, thank you very much for the
    question. We, indeed, spent quite a bit of time talking about
    that very issue that you raised in your question. As we thought
    through all the transition assistant kind of challenges that a
    servicemember faces when they are transitioning out, we took
    all of that into consideration.
        I'm going to ask Commissioner Chris Carney to talk to the
    specifics of that.
        Mr. Carney. Thank you, Mr. Chairman.
        Once again, with my colleague right here to my right, the
    holistic approach that we took to consider the retirement and
    to make sure that we first of all did no harm, was one of the
    mandates given us to. Senator Kerrey also mentioned something
    very important, and that is that we don't try and balance the
    bank on the backs of the military. We tried to not do that.
        So in terms of specifics, some of the programs, and we
    could talk about this in further committees later on if you
    want to, but when we talk about ramp programs, so we don't
    transition automatically into something that might cost a
    little more to a retiree or a servicemember, that there would
    be build-ups over 15 years, for example.
        But one of the things that we thought was vitally important
    in all the things we recommend is a good sense of financial
    literacy. So if our recommendations are adopted, there would be
    a very robust financial literacy component for all the troops.
    That starts when they are in boot camp or basic training, and
    at various points in their career, so they can make good
    financial decisions going forward.
        What the Federal Government does often impacts them, and
    that cannot always be accounted for. Promises have been made,
    and sometimes promises have been, I don't want to say broken,
    but perhaps bent a little bit.
        But when you do the financial planning, when you enable the
    servicemember to have the tools at their disposal to make good
    financial decisions, the impact of the bending of the promise
    by the government may be reduced somewhat.
        So I have a son who is a lance corporal in the Marine
    Corps. He's making a little money now and came to me on his
    last leave and said, ``Dad, what do you know about Ford F-
    250s?'' I said, ``I don't know much, but I know you can't
    afford one.'' But a lot of kids aren't making those decisions.
    They are going ahead and buying that expensive vehicle, so they
    don't have the money necessary later on.
        We want to have a robust, as I said before, financial
    training system so they understand the value of money, they
    understand the value of money later in their careers. So when
    they hit the 12-year mark and they are making that decision, do
    I want to stay in and continue on, or do I want to go out, the
    money is there to make a good financial decision for them.
        So to try to reduce the impact of maybe a bent promise, we
    want to empower the servicemember with the ability to make good
    financial decisions to kind of reduce some of that.
        General Chiarelli. I would only add also that the specific
    thing you said, sir, about somebody who has served 20 and is
    retired, is grandfathered in the current system. They will not
    be part of this system.
        Now, in the area of benefits that may fluctuate and change,
    that might affect them. Co-pays, but that is done over a period
    of a 15-year ramp, medical co-pays.
        But that 20-year person is grandfathered in the current
    system, and it would not change.
        Senator Rounds. Thank you, Mr. Chairman. I would just say I
    hope when we are all done with this, that the thought of
    bending the promises is one that we try to get away from.
        Mr. Carney. That was, certainly, our intent, Senator. Yes.
        Senator Kerrey. I think you should see the recommendations
    too, Senator, as a continuation of what Congress has done for
    the last 13 years.
        Our goal is to improve the quality of paying benefits for
    our military. That was the primary objective of the commission.
    We have sent a group of holistic recommendations to you that we
    do think accomplish that objective.
        Mr. Carney. Senator, we really honest to God tried to keep
    the faith.
        Mr. Maldon. Senator, let me just say that I think, in
    summarizing what my colleagues have said here is that,
    everything that we did was totally done to protect the
    benefits, protect the interests of the servicemembers. I
    wouldn't want anyone to get the impression that we are implying
    that we were actually cutting benefits of the servicemembers.
    It was quite the contrary. Even though we yield savings as a
    result of the approach that we took in reforming the structure
    of those programs, there was absolutely no interest on our part
    to reduce the benefits of the servicemembers, in fact, it was
    to support those and improve those benefits. I'd just like to
    make that point.
        Chairman McCain. Senator Kaine?
        Senator Kaine. Thank you, Mr. Chairman.
        Thanks to all of you for your service. This is an
    incredibly important topic, a very difficult one, and maybe
    even a thankless one.
        I have had a chance to begin to review the recommendations,
    and I see a lot of real positives. I think some of the focus on
    matters like financial literacy, the transition from veteran
    status to civilian life in terms of employment training and
    assistance, these are very far-reaching recommendations. Very
    much appreciate your work.
        I am going to make an editorial comment that has nothing to
    do with any of you. You all were asked to serve on this, and
    you said yes, and you've done a good job.
        I am not particularly a sensitive person. But when I walk
    in and it is a panel, and we are supposed to talk about
    military compensation, and there is not one woman sitting here,
    it's just like, wow. I mean, really?
        One of the first things that happened when I got in the
    Senate was the order came down from then-Secretary Panetta to
    open up combat billets to women, to work on that.
        We have so many women serving in the armed services now,
    and on these issues, military compensation, the role of
    military families and their thought about these things are
    critical.
        I have a youngster in the Marine Corps, too. As he's
    talking to his guys, they are often talking about what their
    own families are saying to them about things commissaries,
    exchanges, retirement, health care, salary.
        So we send a signal, and you didn't form the committee, in
    terms of the membership. It was probably on us or the
    executive. But I just have to say that it seems so obvious that
    if we are really trying to have a military open to women----
        Senator Kerrey. Strike ``probably.'' It was you and the
    executive.
        Senator Kaine. Okay, yes. So then I'll make it as a point
    obviously not critical to any of you who said yes, but it is to
    us. I am stunned about it. That is my editorial comment.
        Mr. Buyer. Senator?
        Senator Kaine. Yes?
        Mr. Buyer. I would invite you to actually meet the women
    who serve on the staff. They are sharp,, brilliant.
        Senator Kaine. I'm 100 percent certain about that, but it
    is no substitution for sitting at the--because we always have
    panels in this committee that look just like this where the
    folks backing up the panel members are the smart, talented,
    incredibly competent women. I just want to see some women at
    the table. That's my editorial comment.
        Senator Kerrey. Raise it in the caucus, Senator.
        Senator Kaine. Yes.
        Let me ask about collaboration opportunities. I don't think
    this was gotten into in significant detail when I was gone, but
    what are the collaboration opportunities we can harvest between
    the DOD health system and the VA? Looking down the road, there
    have to be some economies of scale on the cost side, but there
    also have to be improvements in quality of care at both ends of
    the spectrum, if we do additional collaboration.
        Did you get into that at all, or what thoughts would you
    have for us?
        Mr. Maldon. Senator Kaine, thank you for the question. We
    spent a lot of time talk about the DOD-VA collaboration. It was
    mentioned earlier by one of my colleagues as we talked about
    the formulary issues, the benefit of having a uniform
    formulary. We talked about shared services. We talked about a
    need to do better standardization, have standardized policies.
    We have actually had conversations with the Secretary of VA
    about that and we talked to people at DOD about that.
        I am going to ask Commissioner Buyer to talk a little bit
    about some of the additional specifics here as to how we
    respond to the challenge of that and what we did about it
    within our recommendations.
        Commissioner Buyer?
        Mr. Buyer. Thank you. Senator, earlier we talked about the
    real empowerment of the Joint Executive Committee. It really
    lies to the heart of ensuring that two departments of
    government work together seamlessly. So as that solder, sailor,
    airman, Marine transitions from their active status into the
    VA, they really shouldn't feel it. As soon as they come over,
    they should feel that medical record is there and that the
    doctor who has just taken other my care, that there is true
    continuity of that care.
        That Joint Executive Committee that has authority, it
    doesn't have the power to implement. So they can just create a
    lot of paper. So we are recommending that you actually give the
    Joint Executive Committee, not only do we create parity between
    the DOD and VA who lead the committee but also give it the
    power to actually implement, and implement what.
        So the recommendations on blending the formularies with
    regard to the antipsychotics, call it the mental health drugs,
    antidepressants, pain medications, let them set classifications
    of those drugs and how it should be blended. Extremely
    important, and General Chiarelli spoke to that earlier.
        The other would be on capital projects, whether it is
    building military hospitals or a VA hospital in close
    proximity, or outpatient or super-clinics, have some resource
    sharing. A lot of sharing initiatives that you find when you go
    around, there are a lot of local agreements. It is based on
    personality-driven. But there are a lot of things that work and
    are effective from those crucibles and that the Joint Executive
    Committee can actually then centralize those decisions rather
    than that being decentralized.
        With regard to the medical information, that is the I.T.
    issue. The Joint Executive Committee can really drive how the
    electronic health record is developed through its evolutionary
    process between the evolution of VistA and this new electronic
    health record that is about to come out of DOD, and how we then
    communicate with the civilian doctors who are providing the
    non-VA-based care to the VA. Then if you adopt what we are
    recommending, this choice of civilian plans, you have doctors
    out there that are providing that care. That electronic record
    needs to ensure that it is interoperable between your doctor
    back at home and that doctor from the MTF. But guess what? When
    they transition then over into the VA, you want to make sure it
    is interoperable, too.
        Senator Kaine. That is very helpful. I would say, on the
    collaboration side, as I conclude, my sense is, with Secretary
    McDonald at the VA, he is a guy who understands collaboration.
    So there is a collaboration moment that is coinciding with the
    issuance of these recommendations, and we ought do what we can
    to take advantages of it.
        Mr. Buyer. When we met with the Secretary and the Deputy
    Secretary, they had already met with us previously and they
    also had initiated a policy paper. I haven't had to chance to
    talk to General Chiarelli about it, but they are asking that
    doctors, that that they default to the prescription that DOD
    doctor had written.
        It is kind of nice to put it on paper. I would feel much
    more comfortable if it were something that the Joint Executive
    Committee looked at and gave it the implementation authority to
    ensure that if you had a prescription on Active Duty, a mental
    health drug, when you go to DOD, to ensure that you are going
    to get that drug is extremely important, because there are a
    lot of social ills that occur if he falls backwards.
        Senator Kaine. Right. Thank you.
        Senator Kerrey. Can I just add something? At the beginning,
    Senator Kaine, the chairman invited us to speak our minds,
    which was dangerous in my case.
        I think this collaboration idea is not going to work. I
    don't think you are going to get where you want to go unless
    you start considering actually putting these two systems
    together. Because of the readiness component, it has to be DOD
    who is going to be in charge of it.
        I think you have to go further. I would give this committee
    both authorizing and appropriating authority so they can't
    basically rope-a-dope you. You have to have some pretty
    substantial change in order to get what you want.
        This is almost the 7-year anniversary of Dana Priest's
    story about Walter Reed. I remember Danny Inouye calling me up
    because both of us had been transferred out of a military
    system into the VA system. What do we need to do?
        So I spent a fair amount of time thinking about this. We
    have a good recommendation in there, and you are going to
    improve collaboration. But unless and until you consider
    putting these two systems together and changing Senate rules so
    this committee both authorizes and appropriates, it seems to
    me, unless you at least consider those two things, it is going
    to be very difficult to get the kind of changes that you want.
        Chairman McCain. Senator Tillis?
        We have always agreed with that, by the way. [Laughter.]
        Senator Tillis. I want to go back to a question or follow
    up on a question that Senator Manchin asked about the
    perception and, Senator Kerrey, I think you responded to it,
    the perception that we are losing people because we are not
    competitive with the market, say at year 10.
        I think you made the comment that we are at or above
    market. Did you to say that? Could you expand on that?
        Senator Kerrey. Actually, I did say it, and I cannot expand
    on it. It came from the analysis we did on the commission, that
    we are at or above where we are in the private sector.
        It was congressional action that did it. I think we need to
    maintain that status.
        Senator Tillis. So the perception that people are leaving
    at year 10 based on pay or benefits may not be right? There may
    be other reasons they are leaving, lifestyle or other, but not
    pay and benefits?
        Senator Kerrey. I would say that it is likely you can have
    individual cases, particularly technical individuals. Earlier
    Dov was talking about one of the problems we have is a lot of
    these new civilian companies forming up, and they will pay for
    a security clearance. They are apt to bid up what the military
    is doing.
        I think you will find exceptions to it. But I think in the
    aggregate, you will see that the military pay is at or exceeds
    what is available in the civilian world and the benefit package
    as well.
        I'm for that. General Chiarelli talked about it earlier. I
    came into this commission believing that it is likely we have a
    real problem with pay and benefits. I don't believe we do. That
    is not the problem.
        That problem has a lot more to do with the retirement
    issues, and there, as I said earlier, I think it would be
    grossly unfair to address military retirement without taking on
    the big ones, which are Social Security and Medicare.
        Mr. Maldon. Senator Tillis, let me follow up, please, on
    that question by having Commissioner Higgins talk, because we
    did quite a bit of analysis and review around that. I want him
    to talk specifically to what our modeling told us.
        Mr. Higgins. Thank you, Mr. Chairman.
        Senator, I believe, in a general sense, retention today is
    probably as good as the military has ever seen it. Having said
    that, there are select skills that have always been
    historically very difficult to maintain. Some of the stories
    that you hear often are, let's say, nuclear-skilled individuals
    in the Navy are always difficult to retain, because once they
    acquire those skills, there are very lucrative opportunities on
    the outside.
        In recent years, during the war years, what emerged was the
    10-year departure of special operators. Those people obviously
    acquired significant skills during their tenure in the military
    that now have very high values placed on them in the private
    sector.
        The military responded to that with a significant bonus
    that I think turned the tide in that community. The Navy has
    always struggled with additional bonuses and several of their
    high-demand skills. But I think as a general rule, and this may
    rely mostly on the economy and the unemployment rate, but as we
    have moved through these last few years, retention has been
    quite good.
        Senator Tillis. One final question for the chairman, or as
    directed by the chairman, the recommendations that you put
    forth, how have they been embraced by the stakeholder
    community? I have heard it said that we are providing for
    efficiency and value. It sounds like there winners and not a
    lot of losers. Are there areas out there that there are concern
    amongst some of the stakeholder groups?
        Mr. Maldon. Mr. Chairman, I think at this point the
    feedback we have gotten from the VSOs, the stakeholders of that
    like, they are very receptive to what we have done at this
    point in time. It would be premature to say they are 100
    percent on board with this, because they are still looking at
    the details of the report and our recommendations themselves,
    and they have to do their analysis as well.
        I think DOD is doing the same kind of thing, although I
    think the general feedback at this point from DOD and members
    of the joint staff is that they totally understand the merits
    of our report, what we are recommending, how those
    recommendations support fiscal sustainability of the
    compensation programs, and the fact that we have been able to
    achieve efficiencies by reforming the structures of those
    programs without taking away any benefits, in fact adding
    benefits in most cases for our servicemembers.
        Senator Tillis. Thank you, Mr. Chair.
        Senator Reed [presiding]. Senator Hirono?
        Senator Hirono. Thank you, Mr. Chairman.
        I do want to commend Senator Kaine for his observation that
    it is always good to have women at the table as well as on the
    committee.
        I am looking at your retirement plan, and again, I thank
    all of you for your service, and I'm looking at the retirement
    plan that significantly increases the number of members who
    will receive benefits. I think that is very commendable. The
    plan does require contributions, basically mandatory 3 percent
    deductions from the servicemember's pay as well as depending on
    investment return.
        Can you share with me what the current servicemembers think
    about a basically mandatory 3 percent contribution to TSP, and
    what concerns you have about volatility in the market that will
    probably arise, and what assumptions did you make regarding
    market volatility in coming up with your charts regarding
    retirement benefits?
        Mr. Maldon. Thank you, Senator, for the question.
        Senator, on each of those counts that you just mentioned,
    we actually looked at those. The response to the first part of
    your question, regarding what servicemembers think, I think we
    were informed that servicemembers felt very strongly that this
    is an increased benefit. This is kind of what they are wanting.
    This is what they are looking for.
        I think they told us through the survey responses that they
    really want choice. They want the flexibility of being involved
    in helping design the kind of compensation package they prefer,
    and then how they would receive pay. Those things are very
    important to them and they mentioned that to us.
        I am going to ask the Commissioner Zakheim to talk
    specifically to the other part of that question and those
    benefits.
        Mr. Zakheim. Thank you, Mr. Chairman.
        Senator, first of all, in the United States generally, 97
    percent of those who are put automatically into a plan stay in
    that plan. That already gives you one indicator.
        Another indicator is that right now 40 percent of the
    military are voluntarily contributing to TSP. So 4 out of 10
    without any kind of automaticity, without any kind of
    government matching, or anything like that, are putting their
    money into TSP.
        So if you take those two figures and put them together, you
    are going to get an answer that tells you that they will all
    see the benefit of this.
        Frankly, you can always opt-out if you want.
        Senator Hirono. I understand. That part I think I am
    reassured by your responses.
        On the market?
        Mr. Zakheim. On the market, the volatility, what we assumed
    is that the money would be invested in very, very conservative
    kinds of funds. Obviously, again, in TSP, you can choose from a
    variety of funds. But our assumptions were that there is one
    particular fund that would essentially follow people's
    lifestyle, so when you are younger, you are probably willing to
    take more risk. As you get older, you get more conservative.
        Again, I think the record of TSP itself, and the fact that
    people, that the civilians stay in, that the military
    voluntarily go in, tells you that they trust the fund managers
    and, of course, are making their own choices.
        So I think we felt very comfortable with the
    recommendation, in terms of market volatility.
        Senator Hirono. Thank you. That is reassuring.
        I am looking at one of your other charts, chart nine, where
    pregnancy and childbirth and newborn care are the top two
    procedures done in the MTFs. If we move into the private sector
    insurance market, what kind of effects do you think will occur
    as a result of that, in terms of cost and other impacts? These
    are huge numbers for these two procedures.
        Mr. Maldon. Senator, thank you for the question.
        Commissioner Buyer, would you respond first to the
    question?
        Mr. Buyer. I am going to do a tag team with General
    Chiarelli in my response to this.
        I think this chart when you look at it, it is surprising.
    It will be surprising to a lot of people when they look at
    this. There is an assumption that the medical providers at the
    MTF are providing procedures that really hone the skills that
    make those doctors and nurses combat-ready. Then when you look
    at a chart like this, you say, well, I suppose building the
    cohesion of the medical team, that is an added plus. But with
    regard to the skill sets that are needed, something is missing
    here.
        What I am going to do is tag team with General Chiarelli
    here because there are two pieces of this. As we move to a
    selection of plans, we want the MTF to be part of the network,
    because the procedures that the MTF needs are not these
    procedures that you see in the chart.
        So the creation of the jointness and the essential medical
    capabilities, I am going to pass it over to General Chiarelli,
    if I could.
        General Chiarelli. I think it is absolutely critical that
    you understand the concept of essential military capabilities.
    That is built into what we are doing here.
        Those are those things, simply stated, that transfer to the
    battlefield. When you get the surgeons general in here and you
    show them this chart, they will argue that, hey, we get a lot
    of great training out of taking care of all of those
    childbearing issues and childcare issues.
        All we are saying is that probably you do, but if we could
    rearrange your workload, we would give you more of the kinds of
    things that you see in combat.
        I think it is absolutely essential, as you talk to the
    different interest groups there, as a retired person, I'm
    looking at how you are going to provide care for me in my
    golden years. If you get stuck on that, you will miss the
    essential piece of what we have to do in the medical area, and
    that is care for our men and women when they are sent into
    harm's way, and ensure that we have people who are trained to
    do that based on the kinds of wounds they are going to get.
        Senator Hirono. Thank you, Mr. Chair.
        Senator Reed. Thank you.
        Senator Lee?
        Senator Lee. Thank you, Mr. Chairman.
        Thanks to all of you who are appearing here today and who
    have served on this commission to make recommendations that are
    so important.
        This is, of course, something that is going to have a
    profound impact on the men and women who are currently serving
    or have previously served in our military.
        I hope that all Americans, particularly those who are
    currently serving or are veterans, can take the time to give
    these recommendations the thorough consideration they deserve.
    They can become part of a debate, a debate that we need to have
    to help figure out how we can provide better for the needs of
    those who serve us and have served us in the past, and
    simultaneously help us to maintain the strength, the viability
    of our military.
        I will ask this question to anyone who would like to answer
    it. Did the commission find the current lack of a retirement
    program similar to that recommended by the commission, that the
    absence of a plan like that right now is having an impact on
    recruiting and retention? In other words, currently, we don't
    have a retirement system in place in the military that provides
    any benefits for those who serve for less than 20 years. Is
    that impacting recruiting?
        Mr. Maldon. Senator Lee, thank you for the question.
        When we looked, we took a very strategic approach to
    designing the right kind of structure for the compensation
    programs that are going to really support an All-Volunteer
    Force for the future. As we designed the structure for the
    program, in terms of how we might make a recommendation to
    modernize the current retirement system, we wanted to make sure
    we knew exactly what was of interest to the servicemembers that
    we would need to recruit and retain.
        The recommendations that we provided, we are absolutely
    convinced that they are the right set of recommendations here
    on having a blended retirement plan, because it does two
    things. It actually supports the retention needs by the
    Services, and it also supports the recruiting challenges that
    the Services would have.
        We believe that the recommendations that we made will
    absolutely take care of the recruiting and retention needs, and
    it is very important that they also support the current force
    profiles. The Services were very interested in making sure that
    we provided them with the tools so they could make those
    adjustments to continue to meet the recruitment and retention
    needs for the Services as we move into the future.
        Senator Lee. So moving forward, if we were to adopt
    something like this, you think it would help recruiting and
    retention?
        Mr. Maldon. Absolutely.
        Senator Lee. Let's talk about the commission's finding. Let
    me quote this to make sure I get it right. The commission
    found, ``The current compensation system is fundamentally sound
    and does not require sweeping overhaul.''
        But it also recommends that servicemembers who need
    nutritional assistance be transitioned into the Supplemental
    Nutrition Assistance Program (SNAP), the program formerly known
    as food stamps. So let me just ask the question, if
    servicemembers are in need of SNAP benefits, and if the report
    is contemplating that some or many of them will need SNAP
    benefits, that would, of course, be in addition to their
    regular compensation. Does that undermine your conclusion that
    their current compensation structure is adequate?
        Mr. Maldon. When we talk about the current compensation
    structure, we are basically talking about the pay table itself.
    We didn't see a need to change the pay table, because the pay
    table has supported the All-Volunteer Force for the last 42
    years, and specifically during the last 13 years of war.
        But we also recognize that because there are constant
    changes taking place here, a new generation, and also just the
    requirements of the servicemembers themselves, with regard to
    the size of families and that kind of thing, so there is an
    important purpose that the SNAP program served.
        We took a hard look at that, talked through that
    extensively. I will ask Commissioner Carney if he would respond
    initially. Then very quickly, Senator, I would like to ask
    Commissioner Higgins to follow up as well.
        Senator Lee. Okay. Mr. Chairman, if I could, I have one
    minor follow-up question I want to add to that, if he is going
    to answer that as well.
        I also am curious to know how many people might be, if you
    were to eliminate the Family Subsistence Supplemental Allowance
    (FSSA), how many servicemembers might be enrolled in SNAP and
    whether we have any kind of estimate as to what the increased
    cost would be.
        Mr. Carney. Senator, right now, the number of enrollees in
    SNAP from the Department of Agriculture is somewhere between
    2,000 and 22,000. That is their estimated range. That is the
    best information we received.
        On FSSA, I think there are 285 people altogether in the
    military in FSSA. Now, FSSA is restrictive. It is harder to
    get. There is also kind of a stigma attached with it as well.
    You have to go through your chain of command to get it, so does
    that impact your career somehow? So there are these kinds of
    things that make it probably less attractive and probably less
    useful, certainly, for the continental United States and the
    near territories. Now for overseas, it may still serve some
    useful purpose.
        But the SNAP program, notwithstanding the fact that it
    needs to exist for some of our military, it is something that
    is easier to get. It provides better nutritional value for the
    families that require it.
        So either phasing out or reducing the FSSA program is not a
    bad idea because SNAP fills in the gap very nicely.
        Senator Lee. Okay.
        Thank you, Mr. Chairman.
        Senator Reed. Senator McCaskill, please.
        Senator McCaskill. First, I want to note that your votes
    were unanimous; is that correct?
        Mr. Maldon. Yes. That's correct, Senator.
        Senator McCaskill. That is quite an extraordinary thing for
    all of us who sit on this side of the table. We don't see much
    very much that is unanimous, especially with the makeup of this
    particular commission. I am familiar and I have worked with
    many of you, and I know it is bipartisan, and I know you come
    from different perspectives. I know you probably came to the
    commission with different viewpoints at the beginning. The fact
    that you worked this hard and came up with this proposal
    adopted unanimously is something that I hope, before we get off
    to the races trying to politicize anything on this side of the
    table, that we pause a moment and realize that you might have
    gotten this right. This might exactly be what we need to be
    doing.
        So I want to compliment you in that regard.
        First of all, I think our country needs to save more, and
    our military always sets the example for our country, in terms
    of the values and ethics embraced by our military. So I think
    the way this plan embraces saving is terrific.
        I think most Americans don't know that if you are in the
    military, that your TSP contributions are not matched
    currently, unlike all other Federal employees who get a match.
    I think that is, obviously, a double standard that is
    inappropriate. So the fact that we would move to a match for
    members of the military makes a great deal of sense. I think
    this part of it is terrific.
        Now, here is the tricky part. If we are going to reduce
    defined benefits to 40 percent, and someone can retire with 20
    at 38, so they are 38 years old, they can't access that TSP
    until they are 59\1/2\. Then eventually, not too long after
    that, they would be looking at Social Security in addition to
    that.
        So during that period of time, assuming someone is retiring
    at 38 or 39 or 40 from the military with 20, was there any
    discussion on the commission about making a special rule or
    special circumstances where someone could access TSP before
    they were 59\1/2\?
        Mr. Maldon. Senator, I'm going to ask Commissioner Zakheim.
    These are the kind of questions that these former comptrollers
    really love to have.
        Senator McCaskill. I have missed him. We had great work,
    when I first arrived in the Senate. So I am happy to hear from
    you.
        Mr. Zakheim. Thank you so much, Mr. Chairman and Senator.
        Right now, as you well know, you retire at 20, and then you
    start getting a monthly payment. So by definition, the 40
    percent you are speaking about, you are going to get.
        Now in addition to that, once you retire, you can get a
    lump sum payment, if you choose to do so. Or you may say no, I
    don't want that, I want it later on.
        So you have in fact given the individual much more choice
    than he or she has today, because you can choose the lump-sum
    payment, and you will get that with a reduced payment until
    full Social Security kicks in. Or you can say no, I'm staying
    with my 40 percent, my monthly payments. So you basically, now,
    are in much more control of your financial situation.
        One other point as well, and this was mentioned by my
    colleague Commissioner Carney and others. We put a huge premium
    on financial education. We actually spoke to some of the
    foreign militaries to see how they do it as well.
        Right now, you take an 18-year-old or a 19-year-old or 20-
    year-old and you fire hose them for a few hours about financial
    management, and it is in one ear and out the other. What we are
    proposing to do is have regular sessions at key points in their
    careers, key promotions, or something happens in your family
    life, you get married, you have children, whatever. So they can
    learn the nuances of financial management in a way that, when
    they hit the 20 or if they leave sooner, they can make an
    informed choice about what they want to do with the money they
    are entitled to.
        So to answer your question, it seems to me, at least, that
    you are putting the person in uniform at a far greater
    advantage even with the 40 percent versus the 40 percent,
    because of the lump sum, because of the financial education,
    than they currently have today.
        Senator McCaskill. I know my time is almost up, and I thank
    you for that.
        I will have some questions for the record about whether or
    not we should allow them to continue to make contributions
    matched to TSP during the pendency of their retirement before
    they are eligible to pull out with their payment, whether or
    not that costs out in a way that would make sense to the
    commission. Some questions about why not just going to FEHBP,
    instead of creating another system. What are the advantages
    there? Are they substantive in policy or are they political?
        Finally, the one that I really would like to hear from you
    about, and I want to recognize General Chiarelli for the
    trailblazing he worked, especially in the suicide area. I am
    very familiar with how hard you worked on that, both while you
    were active and after your retirement.
        But I'm a little worried about the most expensive
    recommendation you made, which is another command, standing up
    a three star. We tried to work against quite so many flags. In
    fact, Gates, as you all know, did away in 2011 with the joint
    forces command, and I am trying to think how this new $300
    million a year stand-up adds to the expertise we have now,
    because we are still going to have surgeons general in every
    branch.
        I have to be convinced that we need another group at the
    Pentagon. I have a great deal of affection for all of our
    generals and what goes with them, but three stars are
    expensive, especially everything that goes with them. What are
    we really going to gain by adding this new command at the
    Pentagon.
        I am over my time by 1:48, so I don't know whether the
    chairman wants that to be answered now or whether you want to
    take it for the record. But that is the only part of this that
    I start out a little skeptical about.
        Mr. Maldon. Senator McCaskill, thank you very much. Just
    very quickly, I know we are out of time here, but I would like
    to take the opportunity so that we can respond to that.
        Let me just say real quickly, the readiness command that
    was recommended, we really deliberated on that. We took a lot
    of time and spent it on that. Every recommendation that we made
    in this report was made with that in mind, the need for
    readiness. There was a readiness implication to every
    recommendation that we made.
        So when we proposed a readiness command, we did this in a
    context of understanding that it is much bigger than a medical
    readiness component that it has oversight for. They are much
    larger in terms of a number of things that fall underneath
    readiness.
        The medical readiness piece is only one component of that,
    and we were basically wanting to make sure that, if we are
    going to ensure success of the medical readiness, we must have
    proper oversight. That means having the right kind of people,
    the right person in charge with the right kind of ranking to be
    able to go to the budget meetings, and to those decisionmaking
    venues and hold the presence with the other Service Chiefs, and
    to be able to actually have influence with the surgeons general
    of the Services.
        I will ask Commissioner Chiarelli to speak to that more
    specifically, if you will.
        General Chiarelli. Senator, I will only tell you that it is
    absolutely essential that in this whole process of changing the
    way we deliver medical care that we keep our MTFs a viable
    training ground for not only the doctors and physicians, but
    the entire medical team, to include our corpsmen and our
    medics, so that they are trained for the thing that civilian
    hospitals don't do and that is go to war.
        There will be a tendency as we give the opportunity to get
    their health care on the outside, there could be a tendency in
    future budget periods to draw down on what is left in that MTF
    with our eyes covered not realizing that we may have to deploy
    the people in those MTFs far away to support those individuals
    who are in combat.
        To me, that is an absolute essential piece of this entire
    thing, to ensure that we do not allow that to atrophy should we
    enter into an extended period of time when those resources do
    not have to be deployed.
        Every single one of our recommendations, as I went through
    them, and I understood where I sat before, without getting into
    great detail, I will tell you every single one of our
    recommendations impacts readiness in some way. Someone from a
    joint readiness standpoint, remember, this is what is critical,
    we gain efficiencies in jointness. Somebody from a joint
    readiness perspective has to look at the entire readiness
    portfolio to include medical and ensure that we maintain that.
        I will end by saying I think the $300 million is a very
    conservative large number. We believe many of these resources
    exist currently. When we took down Joint Forces Command, many
    of them were transferred to other locations, many of them in
    the Pentagon, and the resource, much of that, and we couldn't
    totally put our hands on it, will be pulled out and you will
    see a much smaller bill than the $300 million that is cited in
    our report.
        Senator Reed. Thank you.
        Senator Graham, please.
        Senator Graham. Thank you, all, for a lot of hard work, and
    I think a very good product. To those who want to suggest
    alternatives, you are welcome. We will take any new good idea
    to make this better. To those who think it is wrong, we will
    accept criticism. But we will not accept demagoguery. We are
    not going to play that game.
        If you have a good idea, bring it. If you think they missed
    the mark, we will certainly listen to you. But we are not going
    to play the demagoguery game, because change is afoot, and it
    is necessary.
        Congress required you to do your job. Do you understand
    what we were asking you to do? Were we trying to get you to fix
    a broken system? There is an old adage, if it's not broken,
    don't fix it. Or were we trying to get you to make a system
    better? What was your mandate, in your own mind?
        Mr. Maldon. Senator Graham, thank you for that question. It
    is our understanding that our mandate was to modernize, make
    recommendations for modernizing.
        Senator Graham. So it wasn't your mandate from Congress to
    just go save money?
        Mr. Maldon. Absolutely not. That was not our understanding.
        Senator Graham. So it was you understanding that Congress
    wanted you to look at a 70-year-old system and see if you could
    make it better and more efficient, right?
        Mr. Maldon. Correct, Senator.
        Senator Graham. On the combat medicine point, do you agree
    that we have the best combat medicine any time in the history
    of the modern military?
        General Chiarelli. After 13 years of war, we do. But I
    don't believe we had it going into this. I think we got better
    and better.
        Senator Graham. We have it now?
        General Chiarelli. Yes, and we have to maintain it.
        Senator Graham. That's right. Don't lose it.
        So if the core function of military health care is to make
    sure the force is ready to fight, then we have to make sure we
    hang on to that. That is what you are telling us, right?
        General Chiarelli. Exactly.
        Senator Graham. We learned from the Guard and Reserve when
    the war first started that a lot of people didn't have dental
    coverage and 25 percent of Guard and Reserve were disqualified
    for deployment because of dental problems. Is that true?
        Mr. Zakheim. That is true.
        Senator Graham. Congressman Buyer?
        Mr. Buyer. Yes.
        Senator Graham. That is true, because your brother is a
    dentist. We have overcome that, so we don't want to go back to
    that system of having a health care system that doesn't make
    you ready to fight, having a health care system that can't keep
    you in the fight and save your life if you get injured.
        I think Senator Kerrey probably knows more about that than
    anybody.
        So those are my guideposts. I don't want to lose ground on
    the major functions.
        As to retirement, no one is suggesting that we are changing
    the retirement system to 40 percent versus 50 percent for those
    on Active Duty, are you? Everybody is grandfathered?
        Mr. Maldon. That is correct, Senator.
        Senator Graham. I heard that conversation. If I just walked
    into this room not knowing the context, I would think that a 40
    percent retirement change had been recommended by the committee
    for those on Active Duty. That is not true.
        This chart, who did your polling?
        Mr. Maldon. That polling was done by True Choice. It has to
    do with the survey that we conducted.
        Senator Graham. I can't imagine too many things that I do
    where 80 percent of the people prefer something new to
    something they have. So you feel good about those numbers?
        Mr. Maldon. Senator, we feel very good about that,
    unanimously.
        Senator Graham. Okay. What about the retired community? Do
    you have data about how they feel about the proposed changes?
        Mr. Maldon. Well, the feedback that we have gotten is
    that----
        Senator Graham. Can you poll retired military members and
    find out?
        Mr. Maldon. We polled retired as well as Active Duty and
    Reserve components.
        Senator Graham. So what were the numbers on the retired
    community?
        Mr. Maldon. Senator, let me take that question for the
    record.
        Senator Graham. Fair enough. I want to see both ends of the
    spectrum here.
        [The information referred to follows:]

        First, it is important to note that retirement pay of retired
    servicemembers is grandfathered and therefore not affected by the
    Commission's recommendations on retirement pay.
        In the fall of 2014, the Commission surveyed current and retired
    servicemembers about their preferences for changes to military
    compensation, including retirement. More than 100,000 retirees
    responded to the survey. The results, when weighted to represent the
    overall retired population, show that retirees were evenly split
    between a preference for a new ``blended'' retirement plan (49 percent)
    compared to the plan they have now (49 percent). Although the questions
    were developed and asked before the Commission arrived at its
    recommendations and therefore did not reflect the Commission's exact
    final retirement recommendations, the questions did ask about a blended
    retirement plan that included reducing the retirement annuity
    multiplier from 2.5 to 2.0 and enhancing the Thrift Savings Plan with
    the Department of Defense matching up to 5 percent of servicemember
    contributions. These specific changes, along with others, were included
    in the Commission's recommendations. It is worth noting that retirees
    under the age of 55 (53 percent) and those who retired from the Reserve
    component (55 percent) expressed a somewhat greater preference for the
    ``blended'' retirement option compared to what they have now.

        Senator Graham. It seems to me that the jury is in, that
    the people on Active Duty like what you are proposing. If they
    had an option, they would take the new system.
        I think what we need to understand as members of this
    committee is where is the retired force. What do they think
    about the proposed changes? Because the health care changes are
    not grandfathered, is that correct?
        Mr. Maldon. That is correct, just retirement.
        Senator Graham. All right, so at the end of the day, your
    recommendations on health care are driven by the fact that we
    think we can provide better choice, more efficient for the
    patient, more efficient for DOD, and actually get more choice
    and better coverage. Is that correct?
        Mr. Maldon. That is correct.
        Senator Graham. If we do nothing in terms of health care
    costs, it is exploding in terms of DOD's overall budget, and
    somebody needs to deal with it. Is that correct?
        Mr. Maldon. In terms of fiscal sustainability, that is
    correct, Senator.
        Senator Graham. Because you have a situation where you have
    to deal with retiree health care at the expense of readiness to
    fight the war of today and tomorrow, and that is a choice we
    don't want to make.
        Mr. Maldon. That is correct.
        Senator Graham. Thank you all for your hard work.
        Mr. Maldon. Thank you.
        Senator Reed. Senator Cotton?
        Senator Cotton. Thank you all for your service, not just on
    this commission, but many of you have served our country in
    other ways.
        I have questions about some of the retirement proposals,
    and then if we have time at the end, about the commissary
    proposals.
        Could we get chart three up maybe, as a way of providing an
    illustrative point of discussions.
        Chairman Maldon, I will direct questions to you, if you
    want to farm them out that to subject matter experts, that is
    fine.
        This shows, on the left, the current defined benefit
    system. Get 20 and get half-pay. On the right, you show your
    blended plan of a defined benefit along with a TSP contribution
    and government match, and then the continuation pay at 12
    years.
        Was there any consideration about trying to move to a pure
    defined contribution system?
        Mr. Maldon. Senator, we have a defined benefit system now,
    and to move to a complete defined contribution system, we
    believe would not give us all of the retention benefits of the
    traditional military retirement. That is why we wanted to keep
    both systems blended, because we can take care of both our
    retention needs as well as the recruiting needs.
        Senator Cotton. Okay. Does anyone else want to elaborate?
        So I understand that trying to keep benefits roughly the
    same, or, in this example, better is one goal. Giving services
    and personnel flexibility is another goal. Retaining the force
    and maintaining the force is one goal. So the assessment of the
    commission is the 20-year defined benefit plan is important to
    maintain that last goal, retaining personnel for this full 20
    years.
        Mr. Maldon. Yes, Senator, that is correct.
        Senator Cotton. Any consideration of like a stairstep
    approach to the continuation pay, rather than saying the one at
    12 years, another 4 years extension, maybe having two or even
    three periods within a 20-year time horizon where you are
    encouraging people to reenlist or officers to remain?
        Mr. Maldon. Senator, the current program as it is today,
    the compensation system, we have special pay, incentive pay. We
    have those bonuses that servicemembers are being paid. So we
    have those stepping stones that servicemembers have as a
    benefit through those programs already.
        This would be that retention piece that would take the
    servicemember now to a point of having 12 years plus a 4-year
    obligation that would get him to that 16th year, which means
    they are close enough to retirement that that is the retention
    will keep them there.
        Senator Cotton. So the thinking is that not many people
    leave after 12, and very, very few leave after 16?
        Mr. Maldon. That is correct.
        Senator Cotton. Under this proposal, let's say a
    hypothetical E-7 who has had 7 or 8 years down range, three or
    four deployments. He would be leaving with his contributions to
    his defined contribution plans and the government match, is
    that right?
        Mr. Maldon. If he elected to----
        Senator Cotton. If he didn't reenlist at 7 or 8 years.
        Mr. Maldon. Yes.
        Senator Cotton. There is probably data to illustrate this.
    Do we have any problem retaining this kind of midcareer, senior
    NCO, company grade officer, field grade officer, in the 6 to 9
    year range?
        General Chiarelli?
        General Chiarelli. It depends on the military occupational
    specialty. It is one thing to retain an infantryman who is
    willing to hump a 60-pound ruck up the mountains of Afghanistan
    and keep him in as a platoon sergeant to 24 as opposed to
    someone who is trained with I.T. skills or is an airplane
    mechanic and can work in other areas.
        That is why it is absolutely essential the continuation pay
    be flexible and the Services have the ability, based on the
    military occupational specialty, to apply differing amounts
    depending on the military occupational specialty.
        I will tell you, rather than stair step, I believe that our
    RAND modeling showed this was the critical period.
        The critical period, my guys used to tell me, is 8 years
    and 27 days. The model that was in place before was, if I could
    keep someone in under a defined contribution of 50 percent past
    that magical mark, I had a better than average opportunity to
    maintain them longer.
        But our modeling for this particular plan told us that that
    the 10- to 12-year mark is absolutely critical.
        Senator Cotton. My time is almost expired, so my commissary
    question will wait for another day.
        Senator Reed. Do you want to ask another question?
        Senator Cotton. Sure. I'd be happy to.
        So I have been stationed at bases, Fort Campbell stands out
    in my mind, that had a nice commissary. But it had an even
    better Wal-Mart Supercenter right outside the gates. There are
    obviously bases in America, especially bases around the world,
    where we need an on-base commissary to provide the choices that
    our servicemembers have become accustomed to. Was there any
    consideration of assessing local sites around bases and forts,
    about whether or not a commissary is needed on that location?
        Mr. Maldon. Senator Cotton, we spent quite a bit of time
    talking to servicemembers, family members, installation
    commanders across the country on that. Polling told us the same
    thing. We had people that were in different places on how they
    perceived the value of the commissaries.
        Overwhelming, though, people believed it was very important
    to retention to have the commissaries there. There are people
    that would tell us that they have these other shops. We talked
    to some of the big shop warehouses, if you will. The stores,
    the Wal-Marts, the others, about the benefits they would offer
    if they were to offer a benefit.
        Quite honestly, at the end of the day, no one was willing
    to stand behind their comments that they made or had about
    providing savings to the servicemember.
        Our intention here was to make sure we could protect the
    benefit of the servicemembers, and servicemembers believe that
    this is a big savings to them and that they also believe it was
    a retention tool.
        That is the way we went about moving forward with our
    recommendation on the commissaries.
        Mr. Zakheim. Could I just add to that, Mr. Chairman,
    Senator, several of the big chains talked about issuing a card,
    and you probably heard that too, that they will issue some
    cards to the military. When we ask their representatives point-
    blank, would you do it? Never got a straight answer.
        At the same time, we did hear--now, look, there are some
    people who will order their food online. We know that. But by
    and large, people want that. They want it because it is
    convenient, for a start. It is near them. It is military. They
    understand it. It is responsive to their needs.
        So we looked at that and made our recommendations based on
    the feedback. Again, different folks will have different
    requirements. But pretty much overwhelmingly, this is not
    something they wanted to go away
        General Chiarelli. Proclivity to use the commissary is
    based on a whole bunch of things, and one of them is the size
    of family. We had the FSSA and SNAP issue before. There are
    arguments about how much it saves. But if you even cut the high
    number, the 31 percent, in half, it is still a great savings to
    that E-7 with four kids and a wife who made a decision to stay
    home and take care of the kids, and to be an at-home mom. It is
    an unbelievable place for them to save the kind of money they
    need as part of the benefit we provided them.
        Senator Cotton. Thank you all again for your service and
    this important report. We look forward to working on it.
        Having dealt with junior enlisted men who are new to the
    Army, I can say the financial literacy proposals are very
    critical as well. Having been a Member of Congress and now a
    Senator, I say maybe we should add that to our orientation as
    well.
        Senator Reed. Thank you very much, Senator.
        On behalf of Chairman McCain, I would like to request
    unanimous consent to include written comments in the record
    from outside groups for up to 30 days after the conclusion of
    the hearing. Any objection?
        Hearing none, so ordered.
        [The information referred to follows:]

          See Appendixes D through O at the end of this hearing record.

        Senator Reed. Also on behalf of the chairman, I would like
    to thank the witnesses for their excellent testimony, for their
    extraordinary contribution to this critically important issue.
    Thank you all very much.
        The hearing is adjourned.
        [Whereupon, at 11:56 a.m., the committee adjourned.]

        [Questions for the record with answers supplied follow:]
                   Questions Submitted by Senator John McCain
                                   healthcare
        1. Senator McCain. Commissioners, in your discussions with various
    constituencies--military and veterans' service organizations,
    servicemembers and their families, and retirees and their families--
    what were their major concerns about the current military health system
    and how do your recommendations address those concerns?
        Mr. Maldon. TRICARE beneficiaries expressed three major areas of
    concern about the program: access, choice, and value.
    Access:
             There are limited provider networks in TRICARE. For
            example, in Fayetteville, NC, 15 orthopedic doctors are in the
            TRICARE network compared to 43-163 orthopedic doctors in other
            networks.
             Unavailability of appointments with the assigned
            primary care manager leads to lack of continuity of care.
    Value:
             Cumbersome referral and authorization processes lead
            to wait times as long as 35 days for specialty care.
             Referrals for civilian care, with inadequate
            information on which civilian providers actually accept
            TRICARE, lead to families giving up on TRICARE and paying out
            of pocket to receive needed health care.
             The appeals process for medical necessity
            determination is frustrating and long.
             The one-size-fits-all approach to care does not work.
             Beneficiaries are unable to access care that serves
            their individual needs.

        The commission consistently received the following feedback from
    Reserve component (RC) members:

             There is a lack of continuity of care transitioning to
            and from active duty for the RC.
             There is a lack of continuity of care for families
            when the servicemember is activated and if the family's
            existing health care providers do not accept TRICARE.
             RC members must continue to pay the employee's share
            of the insurance premium if they choose not to accept TRICARE
            coverage. In cases in which employers stop paying the
            employer's share of the premium, RC members must fully fund the
            existing health insurance.
             When RC members are not supporting a contingency
            operation during activation, TRICARE coverage ends abruptly
            upon demobilization, allowing no time for RC members and
            families to find civilian insurance, which in turn leads to a
            break in health coverage.

        Gaining access to medical care in the civilian sector through
    various commercial insurance plans would be a simpler, quicker endeavor
    under TRICARE Choice. TRICARE Choice would provide multiple health
    insurance options from which beneficiaries would select the plan that
    best meets their current needs. This opportunity for choice would
    preclude beneficiaries from having to purchase options that are not
    necessary for meeting their individual needs, while at the same time
    providing them the care that they do need in a timely manner, with the
    provider of their choice.

        2. Senator McCain. Commissioners, you have recommended that
    military retirees' healthcare costs increase over a 15-year period such
    that retirees ultimately would pay about 20 percent of the overall
    costs of their healthcare. How did you determine that was the right
    approach to get retirees to share more of the cost for their
    healthcare?
        Mr. Maldon. Currently, the retiree premium for TRICARE Prime is
    approximately 5 percent of the cost of the program. When TRICARE began
    in the early 1990s, the retiree premium for TRICARE Prime was
    approximately 27 percent of the cost of the program. The premium was
    not indexed for inflation. The commission wanted to increase access to
    high valued commercial insurance products, while providing recognition
    of service. For this reason, the ramp stopped at 20 percent and did not
    continue to 27 percent.

        3. Senator McCain. Commissioners, in your view, how much money are
    retirees willing to pay for better healthcare for themselves and their
    family members?
        Mr. Maldon. Importantly, the commission's recommendation was
    designed to explore the answers to this question and these are
    discussed below, but the most important point to make is that the
    commission's recommendation was designed to take into account a wide
    range of differences in retiree willingness to pay for better
    healthcare. TRICARE Choice would provide a wide range of plans that
    vary along many health care attributes (e.g., network size and access).
    These plans would have different costs. There would be some lower-cost
    plans that offer a similar benefit to TRICARE today (e.g., limited
    access and networks like the current TRICARE plan). There would be
    other plans with much more expansive covered services, networks, and
    access; these plans would cost more. Retirees would be able to choose
    among such plans. A retiree with a low willingness to pay for better
    health care could choose one of the lower-cost plans that more closely
    mirrors TRICARE today, and a retiree with a higher willingness to pay
    could choose a much richer plan for a higher cost. TRCIARE Choice would
    allow retirees to self-select the plan type they prefer and empower
    retiree families to take control of their own health care experience-a
    consumer-driven model focused on value and choice.
        As part of its analyses, however, the commission did explore this
    question in some detail and developed some preliminary answers. There
    were three primary methods used by the commission:

              Examining academic literature that estimates this
            willingness to pay.
              Surveying actual retirees to estimate their perceived
            value of choice and better healthcare experience.
              Simulation modeling of the behavior of Federal
            civilians who are similar to military retirees in age, income,
            and location.

        The academic literature estimates how much workers who are not
    provided a choice of plans would be willing to forfeit of their
    employer-provided health care subsidies for the freedom to use the
    subsides to obtain their choice of plan from a menu of plans.\1\ This
    estimate, based on actual data from workers, was that the workers were
    willing to forfeit 16 percent of their subsidy. The estimates from the
    academic literature were consistent with the commission's survey
    results and with the cost share changes for retirees in the
    commission's recommendation.
    ---------------------------------------------------------------------------
        \1\ Leemore, Dafny, Kate Ho, and Mauricio Varela, ``Let Them have
    Choice: Gains from Shifting Away from Employer-Sponsored Health
    Insurance and Toward an Individual Exchange,'' American Economic
    Journal: Economic Policy, 5, no. 1, (2013): 33, 56.
    ---------------------------------------------------------------------------
        The commission directly measured the perceived valuation (very
    similar to willingness to pay) of health care benefit attributes for
    Active Duty family members in its survey. The survey did not directly
    measure perceived valuation of those attributes for retirees, but did
    measure preference intensity for them. Figure 19 on page 109 of the
    commission report provided these perceived valuations for Active Duty
    family members. The values are in annual dollar amounts.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        The intensity of preferences for retirees was provided in Figure 14
    on page 88.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        As discussed in the report, retirees' perceived value of increasing
    choices among health care providers, which was only one of the six
    health care attributes presented, was higher than the value of a 35
    percent grocery discount at commissaries or a 20 percent one-time cost-
    of-living adjustment.
        The third method looked at by the commission was the actual
    behavior of Federal civilians who were similar to retirees in age,
    income, and location. To support its cost analysis of the
    recommendation, the commission examined the insurance plan choices of
    Federal civilians and contracted with the Institute for Defense
    Analyses (IDA) to develop a simulation model of retiree (and Active
    Duty family member) health care plan choice. A detailed review of that
    model is provided in the IDA report on the commission's website (http:/
    /www.mcrmc.gov/public/docs/report/IDA-Paper-P-5213--Final--020215.pdf).
    That model predicted that most retirees would take advantage of the
    choices provided to them and upgrade to a richer health care plan
    rather than the low-cost plans similar to TRICARE today.

        4. Senator McCain. Commissioners, what are your estimates of the
    annual healthcare costs--premiums, co-pays, deductibles--for retirees
    and their families under the proposed TRICARE Choice?
        Mr. Maldon. Health care costs for retirees and their families under
    TRICARE Choice can be divided into two components. The first component
    would be what they pay for coverage similar to what they have today
    under the existing TRICARE program. To create a relevant comparison,
    cost should be compared for similar coverage. In TRICARE Choice,
    retirees would have many options for health care plans and could choose
    to purchase enhanced coverage (broader networks, better access, and
    more covered services), rather than the existing TRICARE program. The
    second component would be any additional cost retirees choose to pay to
    purchase coverage that includes these enhancements. If retirees take
    advantage of the additional choices made available to them by TRICARE
    Choice, it can be argued that they will not experience a price
    increase, but rather a compensation increase because the retirees
    receive the better coverage at a subsidized rate.
        To evaluate these separate components of cost, the commission
    considered two plans from the Federal Employees Health Benefit Plan
    (FEHBP) as examples of what types of plans might be offered in TRICARE
    Choice. The first plan is the Government Employees Health Association
    (GEHA). Although not a perfect comparison, this plan is considered most
    similar to the existing TRICARE program. GEHA includes larger networks
    than the existing TRICARE program in the markets examined by the
    commission and more covered services. But it is a lower-cost, PPO-style
    plan and is the best comparison the commission could find for the
    existing TRICARE program. The second plan is Blue Cross Blue Shield
    (BCBS) Standard. This is one of the most robust and highest-cost plans
    in FEHBP and is used to illustrate the costs to retirees who exercise
    the opportunity to select better coverage made available to them by
    TRICARE Choice.
        The table below shows the costs to retirees for these options:
    existing TRICARE program, TRICARE Choice with a plan similar to GEHA,
    and TRICARE Choice with a plan similar to BCBS Standard. The first row
    of data illustrates the costs retirees pay now under the existing
    TRICARE program. Retirees enrolled in TRICARE prime paid a $548 (in
    2014) premium. In addition, about 3 percent of retirees sponsor the
    purchase of TRICARE Young Adult (TYA) for about $2,000 and about 65
    percent purchase the TRICARE Retiree Dental Program for about $1,500
    per year. This means that the average retiree is pays approximately
    $1,544 per year in premium costs for TRICARE. Adding in their
    copayments and deductible amounts for health care provides an average
    annual cost of about $2,030 per retiree household.
        These costs would be largely unchanged in the first year of TRICARE
    Choice, when the retirees' premium cost share is 5 percent. These costs
    would increase, however, by the time TRICARE Choice was fully
    implemented with a 20 percent cost share (15 years after program
    initiation). In that year (using constant 2014 dollars), the comparable
    health care plan (GEHA) would have a premium for retirees of about
    $1,769 per year. No retirees would have to buy TYA and some retirees
    would rely on the partial dental coverage provided in GEHA instead of
    purchasing stand-alone full dental coverage, so the total premium
    amounts paid by the retiree in GEHA would be about $2,267 per year.
    Adding in copayments and deductibles provides an average annual cost of
    about $3,556 per retiree household.
        The comparison to GEHA is the best available comparison with the
    existing TRICARE program. There would be many retirees, however, who
    choose to purchase better coverage that costs more. A retiree who
    chooses to purchase better coverage, like BCBS Standard, would pay
    about $552 more per year ($3,556 to $4,108) for a plan with a value of
    about $2,763 more than GEHA (because the government would pay an 80
    percent cost share at the end of the 15-year period, the government
    would be paying the remaining $2,211 for the added value of health
    benefits. Thus, these retirees are experiencing an increase in their
    compensation.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        5. Senator McCain. Commissioners, under your proposed TRICARE
    Choice plan, Military Treatment Facilities (MTF) would be network
    providers to commercial health plans. MTFs would bill commercial health
    plans for materials and services provided, and those health plans would
    then reimburse MTFs. Today, MTFs have limited capability to perform
    billing and collections functions. What additional infrastructure and
    personnel would MTFs need to perform those functions? How much would
    that cost the Department of Defense (DOD) and what is the return on
    investment?
        Mr. Maldon. In the civilian sector, medical providers do not
    typically handle medical billing or insurance. These functions are
    usually handled by administrative or support services. There are
    companies that provide billing services to major health systems in the
    United States today. The companies also provide training for coding,
    billing procedures, collections, and related processes. The Military
    Health System (MHS) could benefit from such a professional service.
    Alternatively, MHS could expand its current third-party billing
    activities to handle the medical billing. If this latter approach were
    taken, MHS would need to ensure that existing administrative personnel
    were trained to perform such duties and that efforts currently underway
    to modernize MHS information technology (IT) would support this task.
    In 2014, DOD awarded a contract to General Dynamics to build the Armed
    Forces Billing and Collection Utilization Solution (ABACUS) to generate
    medical claims, pharmacy claims, invoices, and governmental billing
    forms at 136 military medical treatment facilities globally. ABACUS
    will replace legacy IT systems and automate, consolidate, and
    centralize the Army, Navy, and Air Force's separate health billing and
    collection IT systems. Adequate time would be required to set in place
    coding, billing, collections, and related systems, regardless of the
    system chosen, which is, in part, why the commission's proposed
    legislation includes a 2-year implementation period before
    transitioning beneficiaries into the new system.

        6. Senator McCain. Commissioners, how do your recommendations
    improve beneficiaries' access to care, quality of care, and the
    experience of care?
        Mr. Maldon. Currently, TRICARE Prime is the only option available
    at no or limited out-of-pocket cost; however, under TRICARE Choice and
    including the Basic Allowance for Health Care (BAHC), most Active
    component families could choose from numerous plans with no or limited
    out-of-pocket costs. Under an insurance model, such as TRICARE Choice,
    the ease and timeliness of patients' access to health care would
    improve because beneficiaries would not be subject to DOD's lengthy and
    frustrating process for making appointments and obtaining referrals. By
    allowing beneficiaries the opportunity to select from an array of
    health plans, they could choose coverage that best fits their
    individual needs. Providing TRICARE Choice and access to commercial
    insurance plans would give beneficiaries access to the medical
    industry's most recent innovations and procedures, and eliminate the
    lengthy DOD contracting and appeals processes. RC members who are
    called to active duty would receive BAHC, which would create options
    for helping address concerns about cost and continuity of care that
    pertain to them and their families. One option would be to use BAHC to
    purchase a plan with a provider network that includes numerous
    providers, including the family members' current provider. Another
    option would be to use BAHC to pay for a member's current civilian
    plan. With commercial health insurance, beneficiaries who live away
    from major troop concentrations would have more extensive provider
    networks in civilian health plans.

        7. Senator McCain. Commissioners, how do your recommendations
    incentivize beneficiaries to seek the most cost-effective means of
    getting healthcare?
        Mr. Maldon. TRICARE Choice would provide multiple health insurance
    plans from which beneficiaries could select the plan that best meets
    their current needs. This opportunity for choice would preclude
    beneficiaries from having to purchase options that are not necessary
    for meeting their individual needs. The recommendation also provides
    BAHC to be paid to servicemembers with dependents. The allowance
    creates a situation in which families spend their own money (subsidized
    by BAHC to be cost neutral) on health care, which provides a mechanism
    for more cost-effective decisionmaking. For example, a family is less
    likely to seek care in an emergency room for a minor injury or illness
    knowing the expense would be greater than that associated with care
    provided by a primary care or urgent care provider.
        The TRICARE system today is unable to effectively manage the rate
    at which users consume health care because it has limited use of
    monetary and nonmonetary incentives to influence beneficiaries'
    behavior and promote better health outcomes. One reason utilization is
    substantially greater in TRICARE than in the civilian sector is the
    relatively low out-of-pocket (OOP) expenses-copayments, deductibles,
    and coinsurance-experienced by TRICARE beneficiaries compared to their
    civilian counterparts. Although OOP costs are an important tool the
    health care sector uses to manage consumption of services, they usually
    are used in conjunction with nonmonetary tools to achieve greater
    results. Nonprice methods lower utilization by, among other things,
    reducing avoidable emergency room and urgent care visits, addressing
    health care needs before a hospital admission becomes necessary,
    shortening inpatient stays, and avoiding readmission. Nonprice
    techniques also can lead to better health care outcomes through disease
    management, wellness, and better coordination of care. These
    nonmonetary tools include strategies such as identifying high-risk
    patients, managing complex cases, keeping chronic diseases under
    control, and promoting wellness and preventative services. Under the
    proposed TRICARE-Choice model, health care plans would use a range of
    both price and nonprice techniques to affect beneficiary behavior and
    improve health care outcomes.

        8. Senator McCain. Commissioners, what safeguards have you included
    in your recommendations to protect active-duty family members from
    experiencing higher than usual out-of-pocket costs for healthcare?
        Mr. Maldon. The commission modeled the actual amount of out-of-
    pocket health care costs expended for current Active component (AC)
    family members. BAHC would cover all health care expenses for the vast
    majority of AC families. Based on the commission's cost estimates, 85
    percent of AC family members would have 100 percent of costs covered;
    10 percent would have marginal cost increases; and 5 percent would be
    eligible for additional assistance via the proposed catastrophic and
    chronic health care program. For this program, the commission
    recommended setting aside $50 million annually in a special fund to
    assist families with catastrophic or chronic health care needs. Because
    of BAHC and the catastrophic and chronic assistance program, the
    commission expects net health care costs should be less under TRICARE
    Choice than under the current TRICARE program for most beneficiaries.

                                  commissaries
        9. Senator McCain. Commissioners, you recommend consolidating the
    Defense Commissary Agency and the three exchange systems into a single
    Defense Resale Activity (DeRA), and you recommend retaining the current
    branding of the three exchange systems with their separate directors.
    It appears DOD could save more money through additional efficiencies
    with a single exchange system. Why do you recommend retention of
    separate exchange systems? How much additional money could be saved
    with a single exchange system under a DeRA?
        Mr. Maldon. The commission's proposal for implementing a
    consolidated resale organization includes a recommendation to initially
    retain the current branding and a director for each of the currently
    branded exchange systems. This recommendation is meant to ease the
    transition and should not be interpreted as the recommended end state.
    The intent is to eventually transition to a single organization with a
    single leadership team, a single headquarters, a single information
    technology infrastructure, a single human resources system, a single
    logistics network, a single support staff, and so forth. Many of the
    savings estimated in the commission's final report are based on these
    consolidation efforts.
        Although a Defense Resale Activity liaison position is recommended
    for each of the Services, those positions do not have to be directors.
    A consolidation of branding may eventually be pursued, but given that
    this is not expected to be a significant driver of savings it was not
    identified as a key component of implementation. The commission
    suggested that branding and organizational structure can be modified
    over time by the Board of Directors (BOD).

        10. Senator McCain. Commissioners, how would your recommendation
    impact the total amount of funds that the exchange system annually
    provides for the Services' Morale, Welfare, and Recreation programs?
        Mr. Maldon. The commission's proposal to consolidate commissaries
    and exchanges is expected to have no impact on the contributions to
    Morale, Welfare, and Recreation (MWR) programs. The commission's Final
    Report offers multiple ways that the consolidated organization would
    increase profits through reduced operating costs and increased sales.
    The Board of Directors (BOD) would determine and direct the best use of
    those profits, making tradeoffs among the needs of the MWR programs,
    the benefits of reinvesting in the resale system, and the goal of
    slowly reducing the burden on taxpayers. It is expected that the BOD
    would ensure that the MWR programs receive the same priority and
    resources that they do today.

        11. Senator McCain. Commissioners, how would your recommendation
    affect the current savings percentages that patrons receive when
    shopping in defense commissaries?
        Mr. Maldon. The commission's recommendation is focused on
    preserving and improving the benefits delivered to servicemembers and
    their families through commissaries and exchanges. At the core of this
    recommendation is a statutory guarantee that food would continue to be
    sold at cost (plus a 5 percent surcharge) in commissaries. The
    commission strongly recommended that personal health items continue to
    be sold at cost and be protected through policy. DOD would have the
    authority to protect other categories of items through policy as well.
    The consolidated organization would have the option of raising prices
    on other nonfood items but would have to find a balance between
    generating profits and maintaining customer loyalty and satisfaction.
    The prices for these other nonfood items would likely be similar to the
    discounted, but slightly higher prices found in the exchanges.

        12. Senator McCain. Commissioners, in your deliberations, did you
    consider commercialization of the commissary and exchange systems? In
    your view, how much money could be saved by out-sourcing the commissary
    and exchange systems to the private sector?
        Mr. Maldon. The commission considered commercialization of the
    commissaries and met with multiple groups investigating this
    alternative but did not find this approach to be a promising way of
    saving money. Initial analysis indicates that commercial grocers cannot
    afford to sell such a wide selection of groceries at prices similar to
    those currently offered in commissaries. The commission did not
    investigate the option of commercializing commissaries and raising
    prices because doing so would reduce the benefit to servicemembers. The
    option of subsidizing commercial grocers was rejected for multiple
    reasons. Advocates of commercialization also expressed concern over the
    many restrictions currently placed on commissaries to minimize
    competition with the exchanges.
        The commission considered but did not investigate commercialization
    of exchanges. Initial analysis indicated that the opportunity for
    savings is greater through the consolidation of commissaries and
    exchanges.

                                   child care
        13. Senator McCain. What are the average wait-list times for child
    care on military bases?
        Mr. Maldon. Currently, wait times for military child care programs
    are not tracked in a reliable way and are not routinely reported. This
    is why the commission recommended establishing mandatory, standardized
    monitoring and reporting of child care wait times. In response to a
    commission data request, the Army indicated that it is experiencing 6
    to 9 month wait times for infants and 3- to 5-month wait times for
    toddlers. The Navy estimated a 3- to 5-month average wait for infants,
    but cautioned that the methods used to calculate and report this data
    were inconsistent and may affect its accuracy. The Air Force does not
    consistently calculate or track wait times across its child care
    programs, but was able to provide information for one of its largest
    overseas bases, indicating wait times up to 7 months for infants. Wait
    times were not received from the Marine Corps.

        14. Senator McCain. What causes the child care shortage on military
    bases? Is it due to a lack of skilled personnel available to work in
    child development centers or a lack of physical space available in
    those centers? Are there any other limiting factors that we should
    consider?
        Mr. Maldon. The root causes of military child care shortages can
    vary significantly from one location to another. Although Child
    Development Center (CDC) staffing shortages was the most frequently
    cited cause, some locations are more substantially affected by
    shortages in available and properly configured facilities, shortages in
    available and qualified community-based and home-based providers, or
    shortages in funding to pay community- and home-based providers.
        Based on the limited data available, shortages are consistently
    more acute for infant and toddler care. As documented in the
    commission's Final Report, this particular cause for shortage can be
    the result of financial considerations. The cost of providing services
    for these younger children is higher and the fees collected from these
    typically younger parents tend to be lower based on their lower
    household income. Because military child care fees do not vary with the
    age of the child as they typically do in private sector child care, the
    fees paid for older children often subsidize the care for younger
    children. As a result, the mix of ages that are provided care in
    military programs may be intentionally favorable for older children,
    even when the demand is highest for infant and toddler care.
        Even though DOD salaries for child care staff are generally
    competitive, in some areas, finding interested and qualified candidates
    can still be difficult. In recent years, staffing shortages have often
    been related to the lengthy process associated with conducting
    background investigations and making hiring decisions based on the
    results of those investigations. Forthcoming updates to the policy on
    background checks for individuals in DOD child care services programs
    should shorten this process.
        In areas where facilities are needed, military construction
    (MILCON) funding may be required to build new facilities, expand
    existing facilities, or reconfigure leased facilities. These funds are
    limited and require a lengthy approval process. The commission's
    recommendation to reestablish the authority to use operating funds for
    minor construction projects at child development facilities should
    improve responsiveness when facilities are needed.
                                     ______

                  Questions Submitted by Senator Kelly Ayotte
                          compensation and retirement
        15. Senator Ayotte. Commissioners, consistent with section 674 of
    the National Defense Authorization Act for Fiscal Year 2013, Congress
    clearly established principles that should govern the commission's
    recommendations. One of those principles that Congress explicitly
    identified was the idea of grandfathering those currently serving or
    already retired. Do the commission's recommendations with respect to
    retirement pay completely comply with this governing principle set
    forth by Congress that for those currently serving or retired the
    ``retired pay may not be less than they would have received under the
    current military compensation and retirement system?''
        Mr. Maldon. Yes, retired pay would be completely grandfathered for
    servicemembers currently serving or retired. Also, consistent with the
    congressional principles set forth in the National Defense
    Authorization Act for Fiscal Year 2013, servicemembers and retirees
    would have the choice to opt in to the recommended blended retirement
    system. For those who choose not to opt in, their retired pay remains
    unchanged, and therefore would not be less than they would have
    received under the current compensation and retirement system.

        16. Senator Ayotte. Commissioners, is it correct that the
    commission proposes increasing the cost share for medical costs 1
    percent each year for 15 years so that the cost share grows from 5
    percent to 20 percent?
        Mr. Maldon. Yes, the commission did propose a gradual increase in
    cost shares for retirees not yet eligible for Medicare. Currently, the
    premium for TRICARE Prime for non-Medicare-eligible retirees is
    approximately 5 percent of the cost of the program. When the TRICARE
    program went into effect in 1996, the cost share for retirees younger
    than 65 was 27 percent of total health care costs. The premium was not
    indexed for inflation. The commission wanted to increase access to
    high-valued commercial insurance products, while providing recognition
    of service. For this reason, the ramp stopped at 20 percent and did not
    continue to 27 percent.

        17. Senator Ayotte. Commissioners, under the commission's proposal,
    would that significant cost share growth impact those currently
    retired, as well as those currently serving when they retire?
        Mr. Maldon. The change in cost-share percentage would take place in
    successive years after the recommendation is implemented. Anyone who
    was retired at that time or who retired before the 20 percent threshold
    is reached would experience a 1 percent increase in cost share per
    year. Even at the end of the designated 15-year implementation period,
    the cost share would be a smaller percentage than the 27 percent cost
    share that retirees paid when TRICARE was first created and
    substantially less than retired government civilians pay.

                           recruitment and retention
        18. Senator Ayotte. Commissioners, did your model consider the
    impact retirement and health care proposals in an individual or in an
    aggregate manner--in terms of their impact on recruitment and
    retention?
        Mr. Maldon. Recruitment and retention were considered both
    individually and in aggregate. For example, the retention modeling
    conducted by RAND showed the recommended blended retirement system
    would maintain the Services' current force profiles. The commission's
    survey showed that servicemembers strongly prefer better choice and
    access in health care plans. The recommended TRICARE Choice health care
    plan would therefore be expected to improve recruitment and retention.
        These individual effects were then aggregated to ensure the
    holistic package of reforms would maintain recruiting, retention, and
    the All-Volunteer Force. For example, the Post-9/11 GI Bill and
    retirement recommendations 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 YOS, would enable the
            Services to increase retention to the critical 12-year point in
            a military career.
             Awarding continuation pay at 12 YOS, with an
            additional commitment of 4 YOS, would bring servicemembers 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 servicemembers to stay 20 years or more.
             Maintaining 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.

                            service beyond 20 years
        19. Senator Ayotte. Commissioners, under your proposal, does the
    Thrift Savings Plan (TSP) government match end at 20 YOS?
        Mr. Maldon. The commission recommended matching contributions end
    at 20 YOS because retention modeling shows the Services' current force
    profiles would be sustained after 20 YOS without TSP matching. The
    commission testified to Congress, however, that matching after 20 YOS
    is an issue Congress should explore to ensure the recommended
    retirement plan maintains lifetime earnings of servicemembers.

        20. Senator Ayotte. Commissioners, under the commission's proposal,
    is it correct to say that the defined benefit for retirement at 20
    years would decline from 50 percent of base pay to 40 percent of base
    pay?
        Mr. Maldon. Although the recommended blended retirement system
    would maintain the majority of the current defined benefit, retired pay
    would decline from 50 percent to 40 percent of basic pay for
    servicemembers who retire with 20 YOS. These servicemembers would also
    have government-sponsored TSP assets and would receive a new
    continuation pay at 12 YOS. Using conservative estimates, this
    combination of blended retirement system benefits is projected to
    generate greater lifetime earnings for servicemembers who retire with
    20 YOS.

        21. Senator Ayotte. Commissioners, if a servicemember served for 30
    years, would the reduction of the defined benefit decline from 75
    percent to 60 percent?
        Mr. Maldon. Although the defined benefit for a servicemember who
    retires with 30 YOS would decline from 75 percent to 60 percent of
    basic pay, servicemembers would also receive government-sponsored TSP
    assets and a new continuation pay at 12 YOS.

        22. Senator Ayotte. Commissioners, when we look at these two
    proposals together--ending the TSP match at 20 years and reducing the
    defined benefit so significantly for those who serve 30 years--wouldn't
    that create a reinforcing disincentive discouraging service beyond 20
    years?
        Mr. Maldon. Retention modeling shows that the Services' current
    force profiles would be maintained after 20 YOS without TSP matching
    after 20 YOS. It is for this reason the commission did not recommend
    matching after 20 YOS.
        Matching after 20 YOS would increase retention after 20 YOS, but
    would also approximately maintain lifetime earnings for servicemembers
    who retire with 30 YOS relative to their lifetime earnings under the
    current retirement system. For this reason, the commission testified to
    Congress that matching after 20 YOS is an issue Congress should explore
    to ensure the recommended retirement plan maintains lifetime earnings
    of servicemembers.
                                     ______

                  Questions Submitted by Senator Dan Sullivan
                                    general
        23. Senator Sullivan. Commissioners, there is a quantitative
    difference between the service of our military members and other
    Federal employees; benefits and healthcare should reflect this
    disparity. Assuming Congress implements new changes like the
    recommendations the commission is suggesting, does the issue of
    grandfathering play a role?
        Mr. Maldon. Under the commission's recommendation, retired pay is
    grandfathered for currently serving servicemembers and retirees.
    Benefits from the Montgomery GI Bill and REAP are also grandfathered.
    Several of the commission's recommendations improve or maintain current
    benefits (e.g., Commissary savings, financial literacy training, and
    child care availability) or provide new options without changes to the
    current benefit (e.g., Survivor Benefit Plan). For these
    recommendations, grandfathering would not be necessary. Although it is
    not feasible to grandfather the current TRICARE program under the
    commission's recommendation, TRICARE Choice is designed to be separate
    from the Federal Employee Health Benefit Plan precisely because of the
    qualitative differences between servicemembers and other Federal
    employees.

        24. Senator Sullivan. Commissioners, if so, how do you plan to
    implement these changes to programs and services currently and
    previously used by servicemembers while applying new standards?
        Mr. Maldon. Retired pay is grandfathered for currently serving and
    retired servicemembers by the commission's recommendation. For
    grandfathered servicemembers, their retied pay would continue to be
    calculated by the Defense Finance and Accounting Service (DFAS)
    consistent with the current retirement system. For servicemembers who
    are under the proposed retirement system, DFAS would simply calculate
    retired pay using a different retired pay multiplier. In both cases,
    DFAS would use existing processes to disburse retired pay to
    servicemembers.
        The commission's recommendations also grandfather benefits under
    the Montgomery GI Bill and the Reserve Education Assistance Program
    (REAP) for servicemembers currently enrolled in those programs. The
    commission's recommendations stop new enrollments in those programs in
    favor of the Post-9/11 GI Bill.

                                   education
        25. Senator Sullivan. Commissioners, one of the best things the
    military does for its servicemembers and veterans is provide
    educational assistance and training in the form of the G.I. Bill. I
    have seen firsthand how the benefits of this program have changed the
    lives of the marines in my command, as well as their dependents. What
    impacts--if any--would alterations to the existing program have on
    those that are currently benefiting as well as those troops that hope
    to utilize it in the future?
        Mr. Maldon. The commission shares the belief that education
    benefits are very valuable to our servicemembers, with the potential to
    substantially change their lives. Based on this appreciation for the
    value of the education benefits, multiple recommendations were made.
    Sunsetting the Montgomery GI Bill (MGIB) and the REAP shifts
    servicemembers to the Post-9/11 GI Bill, which is generally more
    generous and supportive of their academic goals. Those currently using
    MGIB and REAP benefits would be grandfathered and the rules concerning
    reimbursement of MGIB fees would not change.
        For the Post-9/11 GI Bill, the recommendations to require 10 YOS
    before being eligible for transfer and the recommendation to sunset the
    living stipend for dependents using transferred benefits are both
    intended to increase the use of the Post-9/11 GI Bill for the education
    of servicemembers, which was the original and primary intent of this
    benefit. A secondary effect of these changes is that they slow the
    rapidly growing cost of transferred benefits, which threatens the
    fiscal sustainability of the benefit for all.
        The recommendations related to data collection and reporting are
    all designed to inform those who set education policy, manage these
    programs, and evaluate their effectiveness. The expected effect for
    servicemembers and their families is a gradual improvement of these
    benefits.
                                     ______

                    Questions Submitted by Senator Mike Lee
                              implementation costs
        26. Senator Lee. Commissioners, the commission report states that
    the recommendations, if implemented, would reduce Federal outlays by
    $11 billion over the next 5 fiscal years and by $12.6 billion annually
    by fiscal year 2053. Can you talk about the assumptions that were made
    in developing these estimates, and what factors, such as increased life
    expectancy, higher than assumed costs of healthcare, or smaller than
    assumed economic growth could impact those savings estimates?
        Mr. Maldon. The commission estimates its modernization
    recommendations, if enacted, would substantially reduce DOD budgetary
    costs and Federal spending over time. All Commission estimates of
    savings and cost-avoidance are expressed in fiscal year 2016 constant
    dollars, and therefore account for expected inflation. These estimates
    have been calculated using an appropriate set of assumptions, specific
    to each recommendation. For a complete list of assumption related to
    each individual recommendation, please refer to Appendix D, ``Cost
    Data,'' (p. 255) of the commission's Final Report.
        All budget estimates, including those made by the commission, can
    be affected by changes in economic conditions. Many factors, including
    shifts in economic performance and political decisions may affect the
    realization of earlier estimates. The commission's approach to
    developing estimates, however, has been fact based, rooted in commonly
    accepted financial theory and modeling, and informed by relevant
    historical data and trends. This approach serves to maximize the
    utility of commission estimates as a key element in the careful
    consideration of the commission's recommendations.

        27. Senator Lee. Commissioners, is it the commission's assessment
    that all of these recommendations could be implemented immediately with
    minimal negative impact on the Armed Forces, or do you believe some of
    the reforms could be either phased in or introduced through pilot
    programs in order to assess impact and utility for servicemembers?
        Mr. Maldon. The commission's recommendations include multiyear
    implementation timelines to ensure the necessary preparations are
    completed before implementation of the new programs. Importantly, these
    implementation steps include financial literacy training for
    servicemembers prior to implementation.

        28. Senator Lee. Commissioners, in your cost analysis, does the
    commission take into consideration the overhead costs of implementing
    these recommendations, such as the cost of introducing and managing
    Thrift Savings Plans across the force or creating and managing new a
    healthcare insurance system for all military families and retirees? How
    much time would it take to implement such recommendations?
        Mr. Maldon. The commission's cost estimates include estimates of
    implementation costs for each of the recommendations. Cost estimates
    also include administrative costs such as managing the new health
    insurance system, which would actually be a savings relative to the
    cost of administering the current TRICARE program.
        The commission's recommendations include multiyear implementation
    timelines to ensure the necessary preparations are completed before
    implementation of the new programs. It is important to note, these
    implementation steps include financial literacy training for
    servicemembers prior to implementation.

        29. Senator Lee. Commissioners, in Recommendation 6, the commission
    recommends that non-Medicare eligible retirees have access to the same
    military health benefit program as military families at a cost that
    gradually increase over time. If this recommendation were enacted,
    would these retirees be paying more for health benefits than they are
    under the current system?
        Mr. Maldon. In the first year of TRICARE Choice implementation,
    when the premium cost share is set at 5 percent, the range of premiums
    available to working age retirees would be similar to the cost of
    TRICARE Prime today and total costs of health care to retirees would be
    similar to what they are today. Fifteen years after implementation,
    when the premium cost share for working age retirees grows to 20
    percent after a 1 percent per year increase, the premiums would be
    higher than TRICARE Prime is today and the total costs of health care
    to retirees would be higher. The commission's best estimate of the
    average cost to a retiree user of TRICARE today is about $2,000. This
    includes the premium for TRICARE Prime, the average costs of extra
    programs like TRICARE Young Adult and TRICARE Retiree Dental Program,
    and their out-of-pocket costs for co-pays and deductibles. Under
    TRICARE Choice when the premium cost share has risen to 20 percent, the
    total average cost is estimated at $3,600.

        30. Senator Lee. Commissioners, the modeling used in Recommendation
    1 indicated that the new retirement system proposed would maintain the
    Services' current force profiles. Can you explain in more depth how the
    modeling for this particular recommendation worked, and if ``current
    force profiles'' refers to both a quantitative and qualitative
    assessment of the current force?
        Mr. Maldon. RAND's Dynamic Retention Model (DRM) can analyze
    structural changes in military compensation. In the commission's case
    the DRM was used to analyze proposed changes to the retirement system.
    Recent applications of the DRM include analyses for the 9th, 10th, and
    11th Quadrennial Reviews of Military Compensation (QRMCs), as well as
    analysis in support of the recent DOD review of military compensation
    reform. The model's capability has steadily increased. For example,
    new, faster estimation and simulation programs have been written;
    costing has been refined; and the model can now show retention and cost
    effects in both the steady state and the year-by-year transition to the
    steady state.
        The model is based on a mathematical model of individual decision-
    making over the life cycle in a world with uncertainty and in which
    servicemembers have heterogeneous preferences (tastes) for active and
    for Reserve service. The parameters of this model are empirically
    estimated with data on military careers drawn from administrative data
    files. The model begins with service in the active Component (AC), and
    individuals make a stay/leave decision in each year. Those who leave
    the AC take a civilian job and, at the same time, choose whether to
    participate in the Reserve component (RC). The decision of whether to
    participate in the RC is made in each year, and the individual can move
    in to or out of the RC from year to year. More specifically, a
    reservist can choose to remain in the RC or to leave it to be a
    civilian, and a civilian can choose to enter the RC or remain a
    civilian.
        The quantitative and qualitative effects of a reform are both
    important. The commission focused on the quantitative aspects of
    maintaining the baseline force profile, judged in terms of the overall
    force strength and experience mix (the number of personnel by year of
    service). In the course of analyses, the model confirmed the retirement
    recommendation can maintain the baseline force profile.
        With respect to maintaining the quality of the force, the
    commission thought about the accession of personnel who are judged to
    be high quality based on information available at the time of
    accession, and the retention of personnel who are revealed to be high
    quality through their performance in the military. Under the retirement
    recommendation there would be little if any change in accession
    requirements for enlisted and officers. Further, an important aspect of
    a compensation system is the incentives it provides for individuals to
    exert effort and to reveal their ability, and for harder working, more
    able individuals to remain in the force. The retirement recommendation,
    along with the continuation of the current promotion system (including
    criteria for promotion as well as time-in-grade constraints), maintains
    these incentives. Because both the accession requirements and the
    incentives for effort and ability are essentially the same under the
    recommendation as at baseline, the commission foresees a continuation
    of the baseline recruiting and resourcing policy, which is adaptive to
    the economic environment and the personnel needs of DOD, to be
    sufficient to sustain the quality of personnel entering the military,
    and the quality of the retained force to be sustained.

        31. Senator Lee. Commissioners, Recommendation 13 advocates for
    eliminating the Family Subsistence Supplemental Allowance (FSSA)
    domestically and replacing that assistance with the Department of
    Agriculture's Supplemental Nutrition Assistant Program (SNAP). The
    report states that only 285 servicemembers in fiscal year 2013 used
    FSSA assistance, in large part because SNAP creates fewer social
    stigmas for recipient families. Did the commission estimate how many
    servicemembers, in addition to those already on FSSA, would start using
    SNAP if FSSA was eliminated domestically? What cost increase would be
    incurred by the Department of Agriculture?
        Mr. Maldon. The commission found no reason to predict that the
    number of servicemembers who would start using SNAP if FSSA were
    eliminated domestically would be substantially larger than those who
    are already receiving FSSA benefits. No evidence was found to suggest
    that other servicemembers, who are not currently receiving FSSA
    benefits, would apply for SNAP as a result of this change. Note that
    only 75 percent of the 285 servicemembers receiving FSSA benefits in
    2013 were stationed in the United States. Based on this percentage, we
    project Department of Agriculture would incur a cost increase of
    approximately $1 million as a result of this recommendation.
                                     ______

                 Questions Submitted by Senator Jeanne Shaheen
                       preparation of the recommendations
        32. Senator Shaheen. Commissioners, how confident is the commission
    that a majority of our men and women who are serving and have served
    support the commission's recommended reforms?
        Mr. Maldon. The commission recommendations were very much informed
    by discussions with many servicemembers, family members, and retirees.
    The commission and staff visited 55 military installations, conducted 8
    public hearings, 8 town hall meetings, and many sensing sessions.
    Through these discussions, the commission heard from the Force very
    clear preferences for additional choice, access, and flexibility in
    compensation programs.
        These preferences were reinforced by the commission's survey, in
    which more than 150,000 servicemembers and retirees indicated their
    preferences for various features and levels of compensation programs.
    The sources showed that servicemembers, particularly those lower in
    rank, prefer TSP matching and autoenrollment, as well as greater access
    and choice in health benefit. Servicemembers also expressed preference
    for a wider network of civilian health care providers, coupled with
    maintaining access to health care in MTFs.
        The commission's recommendations deliver additional choice, access,
    and value to servicemembers. The retirement recommendation extends
    benefits from 17 percent to 75 percent of the force, while protecting
    lifetime earnings of servicemembers who retire with 20 YOS. The health
    benefit recommendation, TRICARE Choice, provides much more choice of,
    and access to, health care at lower costs to the majority of Active
    Duty servicemembers' families. TRICARE Choice also would provide a
    substantially better health benefit to Reserve component members, which
    would, in turn, improve medical readiness. Several of the other
    recommendations improve or sustain benefits for servicemembers, such as
    enhanced financial literacy training, greater support for exceptional
    family members, and maintained grocery discounts at DOD commissaries.

                                  cost savings
        33. Senator Shaheen. Commissioners, the commission's report details
    substantial anticipated cost savings after full implementation. How
    long does the commission assess it would take to realize full savings
    for the more significant recommendations and how substantial does the
    commission expect the upfront transition costs to be?
        Mr. Maldon. Savings estimates for the more significant
    recommendations are provided below. Upfront transition costs are
    included in each table as ``implementation costs.''
    Retirement:
        The commission estimates that its retirement recommendation would
    reduce DOD budgetary costs by $6.1 billion during fiscal year 2016-
    fiscal year 2020 and result in annual steady-state savings of $1.9
    billion by fiscal year 2046. Federal outlays would increase by $7.2
    billion during fiscal year 2016-fiscal year 2020, but decrease by $4.7
    billion annually starting in fiscal year 2053. In this estimate, DOD
    budgetary reductions are the net result of decreases in DOD's normal
    cost payments (NCPs) into the Military Retirement Fund (MRF), increases
    in automatic and matching contributions for the servicemembers' Thrift
    Savings Plan (TSP) accounts, increases in Continuation Pay (CP) for
    midcareer retention bonuses, and minor funding effects from associated
    changes in the disability retirement system. Reductions in Government
    outlays are the net result of changes in payments from the MRF to
    retired servicemembers for defined benefit (DB) annuities and increases
    in TSP contributions and CP. Outlays are higher in the near years
    because Government contributions to servicemembers' TSP accounts begin
    immediately upon implementation of the blended retirement system, yet
    reductions in DB payments are realized over time as servicemembers
    retire under the blended retirement system.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Health Benefit:
        The commission estimates that its health benefit recommendation
    would reduce DOD budgetary costs by $26.5 billion during fiscal year
    2016-fiscal year 2020 and result in annual steady-state savings of $6.7
    billion by fiscal year 2033. Federal outlays would decrease by $3.9
    billion during fiscal year 2016-fiscal year 2020 and $3.2 billion
    annually starting in fiscal year 2033. In this estimate, these
    reductions are the net result of decreases in costs for providing the
    health care benefits, decreased cost shares for some beneficiaries, and
    increased cost shares for other beneficiaries. The decline in DOD
    budgetary costs also results from accrual funding non-Medicare-eligible
    retiree health benefit costs. In developing this estimate, the
    commission worked closely with the Office of Personnel Management
    (OPM); procured the services of the IDA to conduct health benefit
    pricing analyses; and relied upon data from OPM related to beneficiary
    demographics, choices, and health care plans in the FEHBP.\2\
    ---------------------------------------------------------------------------
        \2\ The Office of Personnel Management provided support for the
    commission's analysis; however, such support does not represent an
    endorsement of, or suggest any opinion on, the report, study, or
    recommendations.
    ---------------------------------------------------------------------------

          [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Commissaries and Exchanges:
        The commission estimates that its recommendation related to DOD
    commissaries and exchanges would decrease DOD budgetary costs and
    Federal outlays by $1.0 billion during fiscal year 2016-fiscal year
    2020 and result in annual steady-state savings of $515 million by
    fiscal year 2021. In this estimate, these reductions result from a
    series of efficiencies, primarily in consolidating back office
    functions, logistics systems, and staffing. Numerous studies have
    projected that both financial savings and nonfinancial benefits can be
    achieved through a consolidation of the three exchanges.\3\ Including
    the commissaries in such a consolidation increases potential
    efficiencies. The recommendation proposes a new defense resale
    executive team that would be responsible for evaluating, selecting, and
    implementing these potential efficiencies. Realized costs and savings
    therefore depend upon the set of efficiencies selected for
    implementation.
    ---------------------------------------------------------------------------
        \3\ Office of the Assistant Secretary of Defense (Force Management
    and Personnel), DOD Study of the Military Exchange System, September 7,
    1990. See also Logistics Management Institute, Report PL110R1, Toward a
    More Efficient Military Exchange System, July 1991. See also Systems
    Research and Applications (SRA) International, Integrated Exchange
    System Task Force Analysis, 1996. See also PricewaterhouseCoopers,
    Joint Exchange Due Diligence, 1999, See also Unified Exchange Task
    Force, Modified Business Case Analysis for Military Exchange Shared
    Services, August 26, 2005.
    ---------------------------------------------------------------------------

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Education Benefits:
        The commission estimates that its recommendation related to
    servicemember education would reduce DOD budgetary costs by $87 million
    during fiscal year 2016-fiscal year 2020 and result in annual steady-
    state savings of $17 million upon implementation. Federal outlays would
    decrease by $15.6 billion during fiscal year 2016-fiscal year 2020 and
    $4.8 billion annually starting in fiscal year 2025. In this estimate,
    changes in DOD budgetary costs result from elimination of unemployment
    benefits for veterans who are using Post-9/11 GI Bill benefits.
    Reductions in Government outlays primarily accrue to VA, which funds
    the Montgomery GI Bill-Active Duty, REAP, and the Post-9/11 GI Bill.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        34. Senator Shaheen. Commissioners, in the case of the proposed
    reform to servicemember education benefits, how much of the savings
    come from the phase-out of the housing stipend for dependents and how
    much come from raising the service requirement to 10 years?
        Mr. Maldon. Changing the eligibility requirement for transferring
    Post-9/11 GI Bill benefits from 6 YOS, with a 4-year additional
    commitment, to 10 YOS, with a 2-year additional commitment, results in
    a steady state savings of $1.6 billion annually. Phase out of the
    housing stipend for dependents accounts for $3.2 billion of the
    savings.

                           healthcare recommendations
        35. Senator Shaheen. Commissioners, does the commission anticipate
    any additional burden for servicemembers obtaining healthcare through
    the existing system but having their dependents rely on a distinct
    system?
        Mr. Maldon. The commission does not anticipate any additional
    burden in obtaining healthcare under the recommended plan. Currently,
    servicemembers receive care through their units or MTFs, and their
    families receive care through the MTF or the network of civilian
    providers in their TRICARE region. Under the commission's plan, there
    would be no change in how servicemembers receive their care, and their
    families would still receive care either at the MTF or through civilian
    providers within their selected health plan's network. The major
    difference would be in how the health care benefit is provided.

        36. Senator Shaheen. Commissioners, I understand active-duty
    families could continue to access MTFs as a venue of care. How would
    this work?
        Mr. Maldon. Under the commission's recommendation, insurance plans
    operating within the geographic area around an MTF would include the
    MTF in their provider networks. Beneficiaries could choose to receive
    care at the MTF in the same way they might choose to receive care from
    other providers. To provide beneficiaries incentive to seek care at
    MTFs, copayments at MTFs would be lower than those for civilian
    providers.

        37. Senator Shaheen. Commissioners, the commission recommends the
    DOD 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 sense. How should DOD implement a robust MTM program, and what
    role will retail community pharmacies play?
        Mr. Maldon. The commission recommended DOD's TRICARE pharmacy
    benefit should 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 recommended such
    contracts require a pharmacy benefits manager to integrate
    pharmaceutical treatment with health care and to implement robust MTM,
    including the integration of MTM activities at retail pharmacies.
                                     ______

                 Questions Submitted by Senator Mazie K. Hirono
                           choice of healthcare plans
        38. Senator Hirono. Commissioners, when considering a transition to
    a new choice of commercial health plans, did the commission take into
    account the complexity and potential disruption dependents may face
    each time a Permeant Change of Station (PCS) occurs?
        Mr. Maldon. The commission did consider these concerns. With any
    permanent change of station move, military families face changes, and
    health care is no exception. When they move, families need to select
    new health care providers whether they receive care through the current
    TRICARE plan or through TRICARE Choice. In terms of their health
    insurance, families would have the option to select national, rather
    than regional, insurance plans, which would preclude the need to change
    insurance companies in a new locality. That said, because health care
    pricing is regional in nature, families might find that going with a
    less expensive regional plan better suites their needs. The
    commission's financial literacy recommendation would provide families
    support for understanding how to choose a plan that best suits their
    needs.

        39. Senator Hirono. Commissioners, what plan will be in place to
    ensure that individuals who can ill afford a disruption in care will
    not be materially harmed by having to wait to enroll in a new health
    plan until after they PCS?
        Mr. Maldon. Coverage would be seamless from location to location.
    Beneficiaries would not be removed from their old policy before they
    were added to their new one. If they needed care before they arrived at
    their new duty station and their new policy took effect, they could use
    out-of-network benefits on their old policy if needed. Beneficiaries on
    national plans would not have to change plans unless they wanted to do
    so, and would be able to use physicians from their plan's national
    network.

    cost of private medical care for pregnancy, childbirth, and infant care
        40. Senator Hirono. Commissioners, I appreciate your response to my
    question regarding moving the most common procedures performed at MTFs,
    childbirth and newborn care, to the private sector. What I am still
    concerned by is: what financial cost can be anticipated for both the
    dependent and the military when these services are moved to commercial
    health plans for treatment outside of MTFs?
        Mr. Maldon. Costs for maternity and childbirth care would depend on
    the insurance plan beneficiaries choose. As a point of comparison, the
    2015 Government Employee Health Association plan (both the High and
    Standard options) covers maternity and delivery costs at 100 percent
    with no deductible when care is provided in network. For the 2015
    Federal Blue Cross/Blue Shield (BC/BS) policies, maternity and delivery
    costs are also covered at 100 percent when care is by preferred
    providers. There is no deductible for the BC/BS Standard plan; however,
    on the BC/BS Basic plan beneficiaries are responsible for $175 of
    inpatient services per admission. Because the commercial insurance
    carriers would assume risk associated with maternity costs, there would
    be no associated costs for the military.

                               financial literacy
        41. Senator Hirono. Commissioners, did the commission evaluate the
    feasibility for implementing the robust frequency of financial literacy
    training you've recommended within the current training schedule of
    military units?
        Mr. Maldon. The commission's recommendation to increase the
    frequency and strengthen the content of financial literacy training was
    made after a thorough review of financial training policies, schedules,
    and content for Active and Reserve component members of all Services.
    Servicemembers and their families, as well as organizations devoted to
    increasing financial literacy, such as the Consumer Financial
    Protection Bureau, also provided input to the commission. Training,
    provided at more appropriate career and life milestones, would be
    beneficial to servicemembers, their families, and the Services.
    Military leaders have expressed concern regarding the amount of stress
    experienced by servicemembers in financial difficulty and the amount of
    time spent counseling those experiencing difficulties. Increased
    financial literacy training would provide proactive, vice reactive,
    effort and contribute to improved readiness.

        42. Senator Hirono. Commissioners, for many military families
    financial decisions are often made by members and their partners and,
    in some instances, solely by the partner if the member is deployed. Did
    the commission consider financial literacy programs for military
    families as a whole or only individual servicemember training?
        Mr. Maldon. The commission believes encouraging financial literacy
    within the military family unit best supports financial readiness for
    the Uniformed Services. According to the Blue Star Families' 2013
    Military Family Lifestyle Survey, 82 percent of servicemembers
    indicated their spouse should be included in financial readiness
    courses. The commission believes in the importance of financial
    literacy training for military families, and servicemembers would like
    to have their spouses included in financial training; however, it is
    difficult for the Services to mandate training for family members As
    such, the commission believes that financial literacy should be open to
    family members, but participation should not be mandatory.
                                     ______

        [Appendixes A through O follow:]

     APPENDIX A--FINAL REPORT OF THE MILITARY COMPENSATION AND RETIREMENT
                            MODERNIZATION COMMISSION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

      APPENDIX B--LEGISLATIVE PROPOSALS OF THE MILITARY COMPENSATION AND
                      RETIREMENT MODERNIZATION COMMISSION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

      APPENDIX C--ADDENDUM TO THE REPORT OF THE MILITARY COMPENSATION AND
                      RETIREMENT MODERNIZATION COMMISSION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

            APPENDIX D--STATEMENT OF THE FLEET RESERVE ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

              APPENDIX E--STATEMENT OF THE AIR FORCE ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        APPENDIX F--STATEMENT OF THE COMMISSIONED OFFICERS ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

          APPENDIX G--STATEMENT OF THE CONCERNED VETERANS FOR AMERICA

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    APPENDIX H--STATEMENT OF THE ENLISTED ASSOCIATION OF THE NATIONAL GUARD

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        APPENDIX I--STATEMENT OF THE NATIONAL ASSOCIATION FOR UNIFORMED
                                    SERVICES
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

     APPENDIX J--STATEMENT OF THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

           APPENDIX K--STATEMENT BY THE RESERVE OFFICERS ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                           APPENDIX L--JOINT LETTER

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

      APPENDIX M--STATEMENT OF THE VETERANS OF FOREIGN WARS OF THE UNITED
                                     STATES

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

           APPENDIX N--STATEMENT OF THE WARRANT OFFICERS ASSOCIATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        APPENDIX O--LETTER FROM THE CONJOINED MILITARY/VETERANS SERVICE
                                  ORGANIZATION

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    THE RETIREMENT AND COMPENSATION PROPOSALS OF THE MILITARY COMPENSATION
                    AND RETIREMENT MODERNIZATION COMMISSION

                                  ----------

                          WEDNESDAY, FEBRUARY 11, 2015

                                   U.S. Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 3:03 p.m. in
    room SD-G50, Dirksen Senate Office Building, Senator Lindsey
    Graham (chairman of the subcommittee) presiding.
        Committee members present: Senators Graham, Tillis,
    Gillibrand, and King.

         OPENING STATEMENT OF SENATOR LINDSEY GRAHAM, CHAIRMAN

        Senator Graham. Thank you, all. The subcommittee will come
    to order.
        We have our ranking member, and what I thought I would do
    is just basically let you introduce yourselves, so I don't
    destroy your names, starting with the chairman.
        Mr. Maldon. Alphonso Maldon, chairman.
        Mr. Higgins. Sir, Mike Higgins.
        General Chiarelli. Pete Chiarelli.
        Admiral Giambastiani. Ed Giambastiani.
        Mr. Zakheim. Dov Zakheim.
        Senator Pressler. Larry Pressler.
        Mr. Buyer. Steve Buyer.
        Senator Graham. Where is he? There you are. He is a House
    Member, and he's sitting in the audience. [Laughter.]
        So the testimony you gave before the full committee was
    compelling. I think you have been to the House. Is that
    correct?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. Did you all survive?
        Mr. Maldon. We are intact.
        Senator Graham. I heard it went well.
        Mr. Maldon. Thank you.
        Senator Graham. So, rather than doing an opening statement,
    I will turn it over now to our ranking member. I would like to
    ask some questions, and I appreciate your work product. It is
    an extraordinary amount of time, talented people coming up with
    I think pretty innovative solutions that could probably always
    be made better.
        So without further ado, our ranking member, Senator
    Gillibrand.

               STATEMENT OF SENATOR KIRSTEN E. GILLIBRAND

        Senator Gillibrand. Thank you, Senator Graham. I really
    appreciate this committee and your chairmanship.
        I want to note that this committee works very well
    together, in the past we have, and I know we will continue to
    work well together in a bipartisan fashion.
        I want to thank all the witnesses for your hard work. I
    appreciate the testimony you gave to the full committee.
        Many members of the subcommittee have expressed
    reservations about the Department of Defense's (DOD) proposals
    to control the growth of personnel costs, which we received
    while waiting for the findings of this commission and which
    were requested by the administration again this year. We have
    been concerned that the efforts were piecemeal rather than
    holistic, and that their short-term and long-term effects on
    servicemembers and their families were unclear. We were most
    concerned about the consequences of those recommendations on
    what we consider the most vulnerable military population, our
    most junior servicemembers.
        I am very grateful that you have looked at these issues in
    a holistic manner and really look to have some long-term
    changes that can make a difference. I am very grateful for the
    new ideas that have been put forward, and I am very eager to
    talk further about the assumptions that underpin your
    recommendations.
        Thank you, Senator Graham, for hosting the hearing.
        Senator Graham. That was excellent.
        Mr. Chairman, why don't you lead us off?

       STATEMENT OF HON. DOV S. ZAKHEIM, COMMISSIONER, MILITARY
         COMPENSATION AND RETIREMENT MODERNIZATION COMMISSION;
     ACCOMPANIED BY COMMISSIONERS HON. LARRY L. PRESSLER, HON. DOV
      S. ZAKHEIM, MICHAEL R. HIGGINS, GEN PETER W. CHIARELLI, USA
        (RET.), AND ADM EDMUND P. GIAMBASTIANI, JR., USN (RET.)

        Mr. Maldon. Mr. Chairman, thank you very much, and Ranking
    Member Gillibrand, distinguished members of the subcommittee.
        My fellow commissioners and I are honored to be back here
    in front of you today. As a commission, we stand unanimous in
    our beliefs that our recommendations strengthen the foundation
    of the All-Volunteer Force. It ensures our national security
    and honors those who serve and the families who support them,
    not only today but into the future.
        Our recommendations maintain or increase the overall value
    of compensation and benefits for servicemembers and their
    families, and provide needed flexibility for service personnel
    managers to design and manage a balanced force.
        Our blended retirement plan expands benefits from 17
    percent to 75 percent of servicemembers while maintaining the
    Services' current profile. It provides flexibility for
    servicemembers and the Services while protecting or improving
    the assets of servicemembers who retire at 20 years of service.
        These findings are based on reasonable and conservative
    estimates, including Thrift Savings Plan (TSP) investment
    returns of 7.3 percent and retired pay cost-of-living
    adjustments of 2.3 percent. To maintain current force profiles,
    TSP contributions were not recommended beyond 20 years of
    service by this commission. However, the consideration of
    matching contributions that continues beyond the 20 years of
    service may be an interest that 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 skilled
    maintenance 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 providing the cost-effectiveness of DOD
    commissaries and exchanges. Our recommendations also save more
    than $12 billion annually after full implementation without
    cutting overall servicemember benefits.
        Our recommendations align compensations and the preferences
    of servicemembers, 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 alternative benefit levels. Its analytical
    tools then enabled for the first time direct comparison between
    the values that servicemembers place on varying compensation
    and benefits packages.
        The survey validates the many comments we received from
    servicemembers and their families at the 55 installations that
    we visited.
        Our recommendation, Mr. Chairman, incorporates a
    substantial consideration of potential second- and third-order
    effects, which are reflected in our implementation timelines.
    Advancing these implementation timelines due to budget
    constraints may lead to unanticipated cost implementation
    challenges, or even failed modernization efforts. An example
    may be accelerating the multi-year back-end operational
    efficiencies of our commissaries and exchange recommendations.
        In closing, my fellow commissioners and I again thank you
    for the opportunity to testify before you today, and we are
    pleased to respond to your questions. Thank you.
        [The prepared joint statement of Mr. Maldon, Senator
    Pressler, Mr. Buyer, Mr. Zakheim, Mr. Higgins, General
    Chiarelli, Admiral Giambastiani, Mr. Kerrey, and Mr. Carney
    follows:]
        Prepared Statement by the Military Compensation and Retirement
                            Modernization Commission
        Statement of: Hon Alphonso Maldon, Jr., Chairman; Hon. Larry L.
    Pressler; Hon Stephen E. Buyer; Hon. Dov S. Zakheim; Mr. Michael R.
    Higgins; GEN Peter W. Chiarelli, USA (Ret.); ADM Edmund P.
    Giambastiani, Jr., USN (Ret.); Hon. J. Robert Kerrey; and Hon.
    Christopher P. Carney
        Chairman Graham, Ranking Member Gillibrand, distinguished members
    of the subcommittee: My fellow commissioners and I are honored to be
    here, and we thank you for the opportunity to testify today. We also
    wish to thank you for your support of the Commission throughout the
    last 18 months and for your unwavering commitment to and leadership in
    the protection of servicemembers' compensation and benefits.
        As a Commission, we stand unanimous in our belief that the
    recommendations offered in this report strengthen the foundation of the
    All-Volunteer Force, ensure our national security, and truly honor
    those who serve--and the families who support them--now and in the
    future. Our recommendations represent a holistic package of reforms
    that do not simply adjust levels of benefits, but modernize the
    structure of compensation programs for servicemembers. These
    recommendations sustain the All-Volunteer Force by maintaining or
    increasing the overall value of compensation and benefits for
    servicemembers and their families, and they provide needed options for
    Service personnel managers to design and manage a balanced force.
        We would first like to address the concern that an all-male
    Commission does not have sufficient diversity to make recommendations
    on military compensation. As stated previously, the members of the
    Commission were appointed and had no input on the composition of the
    Commission. Nonetheless, the Commissioners immediately recognized the
    need to supplement our experience through selection of our senior
    staff. Our General Counsel and two of our three portfolio leads are
    women. One is a retired two-star admiral, one is a retired Lieutenant
    Colonel, and another is the spouse of a retired Army E-8, with
    exceptional family members. Beyond our senior staff, many of our
    diverse Commission staff members are current or former representatives
    of most key military and family demographics and are current or former
    beneficiaries of many of the very programs we explored. This internal
    diversity of insight and personal experience was deeply appreciated
    and, indeed, essential to our consideration of all relevant issues.
                                   retirement
        The Commissioners recognize that an appropriate and truly
    beneficial retirement system is fundamental to keeping faith with our
    Nation's heroes. Currently, only 17 percent of enlisted members and 49
    percent of officers earn a military retirement. The Commission's
    blended retirement plan recommendation expands benefits to 75 percent
    of servicemembers, and protects recruiting and retention to maintain
    the Services' current force profiles. It also provides more flexibility
    for servicemembers, as well as for the Services that must field a
    balanced force. The Commission's recommendation also protects, and even
    improves, the assets of servicemembers who retire at 20 years of
    service (YOS), based on reasonable and conservative estimates.
        For example, the Commission's model assumes that servicemembers
    contribute only 3 percent of their basic pay to Thrift Savings Plan
    (TSP), even though 75 percent of participants in the Federal Employees
    Retirement System contribute 5 percent or more of their pay to maximize
    government matching contributions. It assumes investment returns of 7.3
    percent, consistent with TSP returns since 1989 and lower than the
    average rate of return estimated by State pension funds. It assumes 2.3
    percent annual retired pay cost-of-living adjustments, consistent with
    Department of Defense (DOD) actuarial assumptions. It further relies on
    discount rate assumptions calculated by our contractor support based on
    servicemember behaviors. To maintain current force profiles, TSP
    contributions were not recommended beyond 20 YOS; however, the
    consideration of matching contributions that continue beyond 20 YOS may
    be an area the committee wishes to explore.
        Key features of the blended retirement plan include the following:

             Grandfather retired pay for current servicemembers and
            retirees, while allowing servicemembers to opt in to the new
            blended retirement plan.
             Maintain the majority of the current defined benefit.

                     Vesting at 20 YOS for standard retirement.
                     Defined benefit multiplier of 2.0 (vs. the
                    current 2.5 percent) to maintain 80 percent of the
                    current defined benefit.

             Institute a defined contribution plan for all
            servicemembers through the Thrift Savings Plan.

                     Automatic enrollment of servicemembers to
                    contribute 3 percent of basic pay.
                     Automatic Government contributions of 1
                    percent of servicemembers' basic pay.
                     Government matching of servicemember
                    contributions of up to 5 percent of basic pay from
                    beginning of 3 YOS to 20 YOS.
                     Vesting at beginning of 3 YOS (2 years and 1
                    day).
                     Continuation pay at 12 YOS to provide mid-
                    career retention incentives.

                             ``Basic continuation pay'' of 2.5
                            times monthly basic pay for active-duty
                            servicemembers (0.5 of active-duty pay for
                            Reserve component (RC) members).
                             Additional continuation pay from
                            Services as needed to maintain desired force
                            profiles.

             Provide servicemembers more choice in how to structure
            defined benefit payments.

                     Choice to receive all or part of pre-Social
                    Security age defined benefit annuities as lump-sum
                    payments.
                     Full annuities resume at full Social Security
                    receipt age to ensure steady income later in life.

             Provide Services additional career field flexibility.

                     Authority to propose adjustments to YOS to
                    vest for defined benefit annuity for individual career
                    fields.
                     One-year waiting period after YOS adjustment
                    is proposed to Congress.
                     Enables differing force profiles to resolve
                    long-term manpower challenges.
                                joint readiness
        The primary goal of the Commission's recommendations is to maintain
    the All-Volunteer Force. A critical element of this goal is a focus on
    sustaining or improving joint readiness. There are challenges to
    maintaining joint readiness capabilities during peacetime. For example,
    currently high levels of medical readiness could be enhanced if
    Military Treatment Facilities (MTFs) had access to a different mix of
    cases, yet DOD has limited means to affect MTF workload or access to
    trauma-care cases. The recommended Joint Readiness Command would
    provide essential high-level focus on readiness for the next conflict
    and provide a strong advocate to ensure appropriate readiness funding.
    Key elements of the Commission's recommendation include the following:

             Establish a Joint Readiness Command (JRC).

                     Functional unified command led by a four-star
                    General/Flag Officer.
                     Includes a subordinate joint medical function.
                     Required structure and personnel may be
                    realigned from current Joint Staff functions.
                     Participates in annual planning, programming,
                    budgeting, and execution process.

             Establish a Joint Staff Medical Readiness Directorate.

                     Led by a three-star military medical officer.
                     Current Joint Force Surgeon billet transitions
                    to assume the increased authorities.

             Establish statutory requirement for DOD to maintain
            Essential Medical Capabilities (EMCs).

                     Limited number of critical medical
                    capabilities that must be retained within the military.
                     Secretary of Defense approves, establishes
                    policies related to, and reports to Congress annually
                    on EMCs.
                     JRC identifies EMCs; establishes joint
                    readiness requirements consistent with EMCs; monitors
                    and reports on Services' adherence to EMC policies and
                    standards; and monitors allocation of medical personnel
                    to ensure maintenance of EMCs.

             Protect and improve transparency of medical programs
            funding.

                     Active component (AC) family, retiree, and RC
                    health care should be funded from the Services'
                    Military Personnel accounts.
                     Medicare-Eligible Retiree Health Care Fund
                    should be expanded to cover health-care and pharmacy
                    for non-Medicare-eligible retirees.
                     New trust fund for health care expenditures
                    appropriated in the current year.
                     MTFs funded through a revolving fund using
                    reimbursements for care delivered.
                     MTF operations that exceed reimbursement for
                    care delivered to be funded from Services' operations
                    and maintenance accounts as cost of readiness.
                                health benefits
        The health benefit is essential for nearly all military
    constituencies. The current TRICARE program is beset by several
    structural problems that hinder its ability to provide the best health
    benefit to AC families, RC members, or retirees. It has weak health
    care networks because it reimburses providers at Medicare rates or
    lower. It limits access to care with a frustrating referral process. It
    has challenges adopting medical advancements or modern health care
    management practices in a timely manner. The Commission's
    recommendations expand choice, access, quality, and value of the health
    care benefit. Key features include the following:

             Continue to provide active-duty servicemember health
            care through their units or MTFs to ensure Services can
            maintain control of medical readiness of the Force.
             Retain current eligibility for care at MTFs, pharmacy
            benefit, dental benefit, and TRICARE For Life for all
            beneficiaries.
             Establish a new DOD health program to offer a
            selection of commercial insurance plans.

                     Beneficiaries include active-duty families, RC
                    members and families, non-Medicare-eligible retirees
                    and families, survivors and certain former spouses.
                     AC families receive a new Basic Allowance for
                    Health Care (BAHC) to fund insurance premiums and
                    expected out-of-pocket costs.

                             BAHC based on the costs of median
                            plans available in the family's location, plus
                            average out-of-pocket costs.
                             Part of BAHC used to directly transfer
                            the premium for the plan the family has
                            selected to the respective insurance carrier.
                             Remainder of BAHC available to AC
                            families to pay for copayments, deductibles,
                            and coinsurance.
                             Establish a program to assist AC
                            families that struggle with high-cost chronic
                            condition(s) until they reach catastrophic cap
                            of their selected insurance plan.

                     RC members can purchase a plan from the DOD
                    program, at varying cost shares.

                             Reduce cost share for Selected
                            Reserves to 25 percent to encourage RC health
                            and dental readiness and streamline
                            mobilization of RC personnel.
                             When mobilized, RC members receive
                            BAHC for dependents; select a DOD plan or apply
                            BAHC to current (civilian) plan.

                     Non-Medicare-eligible retirees' cost
                    contributions remain lower than the average Federal
                    civilian employee cost shares, but increase 1 percent
                    annually over 15 years.
                     Leveraging its experience, Office of Personnel
                    Management administers the program with DOD input and
                    funding.

             Institute a program of financial education and health
            benefits counseling.
                                     survey
        In an effort to gather input from key stakeholder groups, the
    Commission surveyed current and former servicemembers' preferences for
    possible changes to military compensation. This survey was designed to
    be statistically representative of key Active, Reserve, and retired
    subgroups. Some important aspects of this survey include the following:

             More than 155,000 current and former servicemembers
            completed the survey.
             Results are statistically representative the overall
            populations and key substrata (95 percent confidence interval).
             Unlike other military surveys that measure
            satisfaction with current benefits and other aspects of
            service, the Commission's survey explored servicemember
            preferences for alternatives to their compensation.
             Survey participants manipulated sliders (scaled 0 to
            100) on a set of web-enabled interactive screens to express
            their preferences for alternative levels of a benefit's feature
            (e.g., preferences for alternative TSP contributions matched by
            DOD).
             Preference scores were standardized into measures of
            relative importance across all benefit features (24 items in
            the Active Force survey) to enable comparisons and rank
            ordering of benefit features.
             The system's analytical tools also calculated a
            measure of perceived value which identified how much of a basic
            pay raise would be required to match the perceived worth
            servicemembers assigned to alterative levels of a benefit
            feature (such as alternative TSP percent's matched by DOD).
             The survey analysis tools also calculated aggregate
            preference measures for alternative configurations of
            compensation (including retirement, health care, and quality of
            life benefit changes), providing insight into how compensation
            changes could alter servicemember preferences for an overall
            pay and benefits package.
             Analysis of the survey results revealed considerable
            support across key servicemember groups for the Commission's
            modernization recommendations.
             The survey results underscore the Commission's
            position that efforts to modernize military compensation must
            be undertaken in an integrated, holistic manner.
             The Commission considered the insights gained from
            this survey valuable, yet it was just one of several sources of
            data and analysis available to support its deliberations.
             In addition to the material on the survey included in
            the Commission's Final Report, a separate report on the survey,
            along with extensive data files on the results, are available
            on the Commission's web site (MCRMC.gov).

        We offer one additional note as you review and contemplate these
    and the full complement of our recommendations. Our recommendations
    look beyond the immediate and incorporate a substantial consideration
    of potential second- and third-order effects. The implementation
    timelines in our report are a direct result of these considerations. We
    ask, therefore, that the members of the Subcommittee work to ensure the
    most effective possible implementation of any enacted recommendations.
        For example, our recommendation related to DOD commissaries and
    exchanges has a multiyear implementation timeline. The Commissioners
    are concerned that DOD budget constraints may create pressure to
    accelerate the backend operational efficiencies recommended in our
    report. An inappropriate acceleration, however, may lead to
    unanticipated costs, implementation challenges, or even failed
    consolidation of the military resale system. We ask that you give such
    concerns your full consideration as you move forward in your review and
    implementation of any recommendations.
        In closing, my fellow Commissioners and I again thank you for the
    opportunity to testify here today. It has been our honor and privilege
    to serve American servicemembers and their families as we have assessed
    the current compensation and retirement programs, deliberated the best
    paths to modernization, and offered our recommendations. We are
    confident that our recommendations will indeed serve our servicemembers
    in a positive, profound, and lasting way. We are pleased to answer any
    questions you have.

        Senator Graham. Thank you all very much. I will start off
    and try to be very brief.
        When it comes to retirement reforms, is it fair to say that
    if you are in the Service today and anywhere in the near
    future, you are going to be grandfathered? If you like the
    system you have today, you can keep it?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. So no one is being required to give up the
    current system?
        Mr. Maldon. They are not required to give up the current
    system. They can in fact opt into the new system, if in fact
    those recommendations are adopted, Mr. Chairman.
        Senator Graham. They have to opt in. If they do nothing,
    they stay in the current system. Is that correct?
        Mr. Maldon. That is correct.
        Senator Graham. When it comes to percent of Active Duty
    servicemembers who prefer the current or proposed compensation
    system, if that chart is remotely right, 80 percent prefer the
    new proposed system when they are told how to compare the two?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. How sure of that result are you?
        Mr. Maldon. Mr. Chairman, we are about as sure as we can
    be, based on the data, just looking at the data, analyzing the
    data.
        We actually used the survey results to validate the
    comments that we heard from our hearings that we had, town hall
    meetings, those sensing sessions. All of those conversations
    and discussions that we had with the servicemembers and their
    families and the Reserve component members and retirees, they
    were validated by the survey results.
        Senator Graham. Every retiree, they are going to keep what
    they have, right?
        Mr. Maldon. Let me make sure I understand your question
    again, Mr. Chairman?
        Senator Graham. People who are currently retired, who have
    already done their time, they are not affected by this?
        Mr. Maldon. They are not affected by this.
        Senator Graham. So if anybody calls you up on the phone and
    says you need to get in this fight because they are going to
    take your retirement away from you or change it, that is not
    accurate?
        Mr. Maldon. The only thing that is going to change is the
    health care piece of it.
        Senator Graham. That is why I am talking about retirement.
        Mr. Maldon. Yes.
        Senator Graham. We will get to that later.
        Mr. Maldon. Okay.
        Senator Graham. Talking about retirement, I want to make
    sure that everybody understands what we are doing.
        Mr. Maldon. That is correct.
        Senator Graham. If you have earned your retirement, if you
    have your retirement, you can keep your retirement.
        Mr. Maldon. That is correct, Mr. Chairman. It is
    grandfathered.
        Senator Graham. If you are on Active Duty today, nobody is
    making you change. But if you want to change, you can.
        Mr. Maldon. That is correct.
        Senator Graham. Now, if those numbers hold, I will have to
    ask myself why would I stop a choice that 80 percent seem to
    want? If those numbers hold, I will have a conversation with
    myself, and I think I know how that will end.
        That is an incredible work product, to have 80 percent
    willing to accept the new idea. That is just fantastic, if
    those numbers are accurate.
        Health care, the current health care system, TRICARE, do
    you agree that it is sort of, in terms of choice and provider
    participation, dying on the vine?
        Mr. Maldon. Mr. Chairman, I would say that the current
    system, the current TRICARE system, in my opinion, has
    certainly lost its usefulness. It is not as effective as it was
    at the time that it was established and served a purpose, in
    fact, in some good ways for a number of years. But the time has
    come that I believe it has, certainly, outlived its usefulness.
        Senator Graham. Well, do you agree with me that the reason
    there are fewer providers in the TRICARE network is that we are
    paying below Medicare reimbursement rates?
        Mr. Maldon. I absolutely believe that, Mr. Chairman.
        Senator Graham. I have never run a hospital, and I am not a
    doctor. But I would be reluctant to take on a patient
    population that is paying less than Medicare. So if that is
    true--is that true? TRICARE actually pays less than Medicare to
    the provider?
        Mr. Maldon. TRICARE pays at the reimbursement rate or less
    than that rate.
        Senator Graham. Okay, the best is Medicare and, many times,
    it's less.
        Mr. Maldon. That is correct.
        Senator Graham. Well, if that is true, then our military
    members and their families and our retirees are going to have
    less choice because that is an unsustainable system. Your goal
    was to replace that system with something that would give you
    more choices in health care. Is that correct?
        Mr. Maldon. Yes, Mr. Chairman. It was to get more choices.
    It was to expand the network. Tt was to actually give better
    access to health care.
        Senator Graham. Let's keep it really simple, too. Under the
    new plan, doctors and hospitals will get paid more. They will
    have a higher reimbursement rate, potentially.
        Mr. Maldon. I believe that is correct. That was the
    intention, yes.
        Senator Graham. Okay. The rate of reimbursement for the
    Federal employee health care system, is that generally higher
    than TRICARE for the providers?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. So I can see why more doctors and hospitals
    would want to participate in TRICARE Choice, because they have
    a chance of getting higher reimbursement. Under TRICARE Choice,
    the member and their families will have more choices than they
    do today under TRICARE. Is that correct?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. The belief is that they will have more
    options and higher quality. Is that correct?
        Mr. Maldon. That is correct.
        Senator Graham. That eventually the 5 percent cost share
    that is currently being appropriated or taken from the
    population is insufficient to maintain the system over time.
    Five percent of the money to pay for TRICARE comes from the
    patient population. Is that correct?
        Mr. Maldon. Yes, Mr. Chairman.
        Senator Graham. I don't know of any system in the world
    that 5 percent is the number, so we are going to have to adjust
    that number.
        The goal for me is, if we are going to adjust that number,
    that you get more for your money, that if we are going to ask
    you to pay more, you get more. I am not going to ask you to pay
    more and get less. Is that the general idea of health care?
        Mr. Maldon. That is absolutely the general idea.
        Mr. Chairman, let me add that as we had conversations with
    the military service organizations and the veterans service
    organizations, certainly from the military service
    organizations, that was one of their main concerns, that if
    they had to pay more, that they would be able to get more in
    return. I believe we have done that.
        Senator Graham. I promise them that you are not going to
    pay more and get less, and to the Guard and Reserve. You are
    going to get a better deal.
        Senator Gillibrand?
        Senator Gillibrand. Thank you, Mr. Chairman, for those
    great questions.
        So to focus again on retirement, I just wanted to get some
    detail for Guard and Reserve. Guard and Reserve are crucial
    tools for retention for troops, especially as we drawdown. But
    your recommendations about government contributions to TSP and
    bonuses favor the Active component. Did you assess the role of
    the Reserve component in retention when looking at these
    recommendations?
        Mr. Maldon. We did, indeed, assess that, Ranking Member
    Gillibrand.
        I would like to have Commissioner Higgins respond to that
    first, please.
        Mr. Higgins. Thank you, Mr. Chairman, Senator.
        Yes, ma'am. Without a doubt, our analysis included the
    impacts and implications for the Guard and Reserve of the
    retirement system that we proposed. We believe it will operate
    very similarly there as it does in the Active Force.
        Senator Gillibrand. So this chart here, does that show
    that, according to your study, the demographic prefers the
    hybrid retirement system that you have recommended? Is that
    what your chart shows?
        Mr. Higgins. The survey questions we asked were highly
    influenced by some of our early thinking about what reforms may
    be possible. The answer is yes, a lot of what was in the survey
    is what you see today as our final proposal.
        Senator Gillibrand. When you did survey the servicemembers,
    what were the things that they said they valued in a retirement
    plan?
        Mr. Higgins. Choice, flexibility, and we believe that we
    have delivered on that with a plan that is multifaceted and
    delivers the force profile, which is what the Joint Chiefs
    demanded.
        Senator Gillibrand. Your recommendation is that retirees
    leaving after 20 years of service have the option to choose a
    lump sum in place of all pension payments up through age 67, or
    to split the difference by getting half the benefit upfront and
    the other half spread out in monthly checks. All the options
    you recommend would resume monthly payments to retirees at age
    67. How do you recommend that the DOD calculate the lump sum?
        Mr. Higgins. We would suggest that they should consider an
    actuarial type of assessment and consider the interests of
    people, what would draw them to this benefit.
        Senator Gillibrand. Okay. A different topic, I am
    particularly concerned about the well-being of families, so one
    of the questions that I wanted to ask was about those military
    families who are food insecure, who don't have enough food. I
    have been concerned by the small amount of servicemembers that
    use the Family Subsistence Supplemental Allowance (FSSA). You
    have recommended eliminating it in favor of the Supplemental
    Nutrition Assistance Program (SNAP). What factors informed your
    recommendation to do away with the FSSA rather than reform it?
    Do you think the SNAP can adequately meet the needs of the
    servicemembers who live with chronic food insecurity?
        Mr. Maldon. Senator, we gave a lot of consideration to
    that. We obviously want to make sure that we don't have anyone
    who is with the need and that need is not being met, especially
    with regard to nutrition or any other kind of support that the
    military should be providing for the servicemembers.
        I am going to ask Commissioner Dov Zakheim to respond to
    the question.
        Mr. Zakheim. Thank you, Mr. Chairman.
        One of the things is that SNAP tends to be more anonymous
    for people, so that you don't have to go through the chain of
    command and let the whole world that you have a problem.
        Senator Gillibrand. Right.
        Mr. Zakheim. That is one of the bigger issues. There are
    not all that many people on the FSSA program.
        Senator Gillibrand. Right.
        Mr. Zakheim. The benefits are actually a bit better.
        Senator Gillibrand. That was the purpose of it, to give
    more support.
        Mr. Zakheim. Exactly.
        Senator Gillibrand. But it doesn't really work.
        Mr. Zakheim. So you are doing a bit better. You are keeping
    your pride and dignity. It seems, to us, that it is kind of a
    no-brainer on this one.
        Senator Gillibrand. Does the Basic Housing Allowance or
    other military benefits prevent servicemembers from qualifying
    for SNAP or will they still qualify? Did you do any analysis of
    who would qualify?
        Mr. Maldon. Thank you for that question, Senator.
        Commissioner Higgins?
        Mr. Higgins. Senator, clearly, the Basic Allowance for
    Housing would have an impact on SNAP eligibility in some
    States. But I think the States have very different formulas,
    which was one of the complications that we encountered.
        The major concern that we had was nobody really knows how
    many people actually participate in SNAP and receive the
    benefit. In addition, it appears that for most people, SNAP is
    actually a better benefit. So our original concern was to
    deliver to the families that have need the best benefit
    available. FSSA was not providing that. SNAP does.
        But following right behind that is the awareness that we
    need to understand exactly which servicemembers are on SNAP.
    This is where we come in with our reporting requirements, to
    fully get that information.
        Senator Gillibrand. To identify which ones are actually
    food insecure.
        How would this affect families serving overseas, because
    they are not eligible for SNAP.
        Mr. Higgins. We would retain the FSSA overseas, because
    there is a valid, urgent need there for the program.
        Mr. Zakheim. There is no alternative.
        Mr. Higgins. Correct.
        Senator Gillibrand. Right.
        Mr. Higgins. SNAP doesn't reach overseas.
        Senator Gillibrand. Do you plan on any particular outreach
    to try to assess which families are food insecure, so that you
    can be more supportive?
        Mr. Higgins. I think one of our recommendations is to
    ensure that the States are properly accounting for
    servicemembers and their families as they approve people for
    SNAP. The commission obviously may not be the ones making these
    decisions, but once DOD has the information, then you can
    reassess what changes to the pay system may be required, once
    you fully understand who is in need.
        Senator Gillibrand. I have a lot of other questions that I
    can submit for the record. But specifically, I want to talk a
    little bit about commissaries and exchanges, as well as child
    care on military installations and education benefits. So I
    will submit those for a written response.
        Thank you, Mr. Chairman.
        Senator Graham. Thank you. Very good questions.
        Senator Tillis?
        Senator Tillis. Thank you, Mr. Chairman.
        Gentlemen, thank you for your work. I want to go back and
    maybe cover some of the points that Chairman Graham made.
        First, I am assuming that the anticipated adoption rate of
    the new plan has a lot to do with, well, let's say somebody
    like the chairman, who is a little bit more advanced in his
    pension accruement, so he may end up deciding to stay on the
    plan, when he asks that question of himself.
        But with the pyramid being among some of the younger, less
    tenured people, it looks like it is more or less following the
    same trends that you have seen with these type of pension
    transitions in the private sector. Is that right? Does it fit
    pretty much with that adoption rate?
        Mr. Maldon. I think that is fair, yes.
        Senator Tillis. The question that I have in that is, I know
    there are some people who may have some concerns with tying
    some of the retirement to stock, but it is also using
    contemporary models another 401(k) programs to optimize the
    return. Is that correct?
        Mr. Maldon. That is correct.
        Senator Tillis. Then, in the process of doing this, one
    question I have is with respect to the adoption rate. Over what
    period of time do you think you would see the mix where the
    proposed plan, people would opt in? I am assuming there is an
    opt-in when they come into the Service, there is some period of
    time, but the ones already here can make that decision. Over
    what period of time do you see the plan being implemented?
        Mr. Maldon. Commissioner Higgins?
        Mr. Higgins. Thank you, Mr. Chairman, Senator.
        Sir, we have to be clear about the two groups of people we
    are talking about here. One is all the new accessions. They
    will be in our proposal, if our language is adopted.
        Senator Tillis. From that point forward.
        Mr. Higgins. As we recommend. As soon as they enter Active
    Duty, new accessions.
        Those who are currently serving will have the ability to
    opt in. We feel the strength and power of our proposal would
    draw many of the currently serving people in, up to a certain
    point, up to, say, 10, 12 years of service, where their
    investment in the current system is perhaps more remote in
    their perspective than what we are offering. I think you will
    see very high rates, indeed.
        Mr. Maldon. Senator, we do have a data point. We know that
    40 percent of folks in the military now are investing in TSP
    with no government match.
        Senator Tillis. So they are already in, fundamentally, the
    same sort of plan without any leverage.
        Mr. Maldon. Without any leverage. So that is a pretty good
    indication of what my colleagues just said.
        Mr. Higgins. If I could, sorry, the opting in is limited.
    There is a window.
        Senator Tillis. What is that window?
        Mr. Higgins. I believe it is 6 months, if memory serves.
        Senator Tillis. One of the questions I have, because I
    think it is a good idea to add the additional cost for
    financial literacy, and there may very well be that some may
    not opt in, not because it is not a good idea but because they
    don't understand that it is a good idea. So that is why I was
    asking about of the enrollment window.
        To what extent are we really presenting to those who have
    the choice, and are probably within a window where it will most
    likely make sense for them to go this route, that they have the
    right education and materials to make that decision?
        Mr. Maldon. Step one is a briefing for every servicemember
    concerning our recommendations, assuming they would be adopted,
    throughout the force, to ensure that the force knows what is
    available to them.
        Mr. Zakheim. It is going to be continuing. That is another
    point that is very, very important. I mean, it is not fire-
    hosing a 19-year-old for 6 hours or something, and then he or
    she has no idea after the 6 hours are over.
        We studied this in great depth. We even talked to other
    militaries about it.
        Clearly, if you have a regularized approach, people go
    through different stages in their lives. They get married. They
    have children. They get promotions. At each major stage, the
    idea is that you come back and say, well, now you are at this
    stage, here are some of the concerns you ought to bear in mind,
    here is how you might want to look at the benefits available to
    you.
        So it is a completely different approach to financial
    literacy than the military has today.
        Senator Tillis. A different line of questioning, but how
    does this work out for the government in terms of saving us
    money or managing our long-term obligations?
        Mr. Maldon. Thank you, Senator, for the question.
        There is savings, but not savings. By that, I mean there is
    a $75 million cost per year to actually support or sustain this
    kind of training that we are recommending, because we are
    talking about a very robust kind of training.
        Senator Tillis. Oh, I am sorry. I completely agree with the
    value of the financial literacy. I am back to the program as a
    whole. How do the economics of this look versus the current
    state?
        Mr. Maldon. I'm sorry, Senator. I thought you were still on
    the other question. I apologize for that.
        Commissioner Zakheim?
        Mr. Zakheim. Sure. You are going to have, initially, some
    outlays, because you have to get the TSP program going. But our
    numbers show that in budget terms, budget authority terms, you
    are already saving up to $1 billion in 2016, if you went
    immediately.
        Senator Tillis. So that is after you fund the transition
    bubble?
        Mr. Zakheim. The transition bubble is an outlay number.
    This is a net budget authority number. By the time you get out
    to where this really kicks in, so this is quite a few years
    down the pike, say 2053, you are talking about savings and
    outlays of nearly $15 billion a year.
        Senator Tillis. Great. I had another question. It is on a
    different topic, and it is with the unemployment. I read a
    little bit on it, but I would like to get your take
    recommending eliminating unemployment compensation for those on
    the post-9/11 G.I. Bill. What was the thought process behind
    that?
        Mr. Maldon. Senator, we wanted to make sure that when we
    looked at each one of these programs, we wanted to take a very
    hard look at what the intent of those benefits were and to make
    sure that they were being delivered in a cost-effective way. As
    we did that, in talking to people across the country that we
    talked to, we would find out that there were servicemembers who
    were getting unemployment benefits. They were using tuition
    assistance benefits. They used the the 9/11 Montgomery G.I.
    Bill. There were a number of duplicative benefits that
    servicemembers were receiving.
        We did not think that we could not just look at that and
    look past it, because it was just not an efficient way to do
    that. We wanted to make sure that we could sustain the
    educational benefits for a very long time. The way to do that
    was really to look at those things that we could do away with.
    The unemployment piece of that, which is something where if a
    servicemember was receiving tuition assistance and using that
    tuition assistance to go to school, there was no reason to
    actually be getting unemployment and having the BAH paid for as
    well.
        Senator Tillis. Thank you all for the work. As speaker in
    North Carolina, we were trying to get this done for our State
    employees, and I think we will ultimately do it there. This is
    great work, and I look forward to hearing more about it. Thank
    you.
        Thank you, Mr. Chair.
        Senator Graham. Senator King?
        Senator King. Thank you, Mr. Chair.
        The premise, as I understand it, was that this was not a
    budget-cutting exercise. It was a realignment of compensation
    exercise and the sort of underlying assumption was that people
    aren't going to be hurt by this. However, I note that there is
    a budgetary impact of something like $4.8 billion in year one
    and $30 billion over 10 years.
        That money isn't coming out of the air. Isn't that coming
    from military personnel in one way, shape, or form?
        Mr. Maldon. Thank you, Senator, for the questions.
        Those are savings, but those are savings that we arrived at
    by achieving efficiency in some the various programs that were
    decades-old and just weren't serving a purpose. The funding for
    those programs were there. The benefits to servicemembers, from
    what the servicemembers have told us, is that they just were
    not meeting their requirements.
        I am going to ask Commissioner Higgins to speak
    specifically to the cost savings there.
        Mr. Higgins. Sir, with regard to retirement, where there
    were significant savings, as you suggest, we believe, and our
    analysis would confirm, that servicemembers who stayed in 20
    years, over the course of their lifetime, their assets will be
    as good or better under our proposal.
        That could vary based on the assumptions that you apply to
    that formula, but what I would like to maybe clarify for you,
    where I think you are going, is do we save this money on the
    backs of servicemembers who are loyal, faithful, and serve
    through their 20 years?
        Senator King. Well, you are showing $30 billion in savings.
    Like I said, it is not coming out of the air. It is coming from
    somewhere.
        Mr. Higgins. With regard to retirement, it is a more
    effective use of dollars. We are moving dollars from future
    benefits to current dollars. Those dollars are far more
    effective in producing retention than dollars that are paid
    later in a differed plan. We are delivering a Thrift Savings
    Plan, the continuation pay, new choices, new flexibility, a
    lump sum, for example, on retirement.
        Those are all things that people want that we delivered
    under a modernization, not a cost-cutting objective, but a
    modernization objective. We deliver on those, and those are
    highly effective in producing retention. That is what our
    analysis that we believe in suggests is true.
        Senator King. Well, you mentioned retention, and it seems
    to me that is what this is all about. A fundamental difference
    in the military system than in the private sector is that in
    the military system, you have to grow your talent. You don't
    hire middle managers in midcareer. So retention is the whole
    deal.
        I am concerned, for example, how the new system would
    affect somebody who has done their 20 years, because you get
    some of the most important service between 20 and 28 or 30
    years. My understanding is that the incentive to stay those
    additional years really diminishes under the plan that you are
    proposing. Can you react to that thought?
        Admiral Giambastiani. Senator, if I could, I think, first
    of all, it is important for you to know that of the nine
    commissioners who have unanimously put this report together
    that I am guessing we have 130, 140 years of military service
    amongst all nine of us. I don't know the exact number, but it
    is pretty close.
        So we looked at this, how we sustain the All-Volunteer
    Force. Having, for example, speaking for myself, I came in
    during Vietnam, during the draft era. I had a lot of fine
    people serving with me. But the midgrade chief petty officers,
    sergeant majors, all of those senior enlisted frankly didn't
    exist in big numbers and didn't stick around very long. So that
    is part of the retention profile that we looked at, in addition
    to officers.
        Senator King. They got nothing.
        Admiral Giambastiani. Correct.
        Senator King. The current system is it is 20 years or
    nothing. Isn't that correct?
        Admiral Giambastiani. Well, no. It is for 20 years for
    retirement pay. They get the G.I. Bill. There are other V.A.
    benefits. But the retirement plan.
        So we looked at this, and as you can see from our surveys,
    we went out and talked with folks. We wanted to make sure that
    we maintained the best profile.
        The chairman in his opening statement said that the Joint
    Chiefs asked us to look very carefully at the profiles that the
    Services needed over a career path. So we tried to put together
    a whole series of packages.
        We looked at 350 programs, frankly, and we came up with
    only 15 recommendations. The reason is that those are the most
    important to provide the value, the benefits, the access,
    choice, retention, all the rest of it. We think we have put a
    pretty complete package together.
        I would say one thing. Will some of the retirees pay more?
    The answer is yes. We have a program in health care where the
    non-Medicare, Social Security-eligible retirees will pay 1
    percent more per year, if you will, from the 5 percent they are
    currently paying over a 15 year period, up to a total of 20
    percent.
        So, yes. There are a couple of these were somebody's going
    to pay a little more like that. But the vast majority of these
    are, for example, because we reduced the TRICARE staff
    significantly, we have reduced the Defense Health Agency staff
    in the Pentagon by transferring many of these to this Federal-
    type health program, if you will, including the Military
    Treatment facilities.
        That is where we come up with a lot of these, if you will,
    efficiencies and savings, so that we can finance these better
    programs.
        Mr. Zakheim. Senator, as you probably know, I used to be
    Comptroller of the Pentagon, so I worried a lot about budgets.
    There are really two ways to approach what you are raising. One
    is to say that I have to find some money. How do I do it? So I
    will slice off here, I will slice off there.
        The other is to get entirely off the cost curve. That is
    what we have done. It is not just retirement that saves you
    money. As Admiral Giambastiani just said, the health care
    approach that we are taking saves you money. Yet, it benefits
    the consumer.
        When you think about it, in the private sector, that
    happens all the time. Computers get cheaper. They get better at
    the same time they get cheaper.
        What we are essentially doing is getting off the classic
    cost curve, a cost curve that, by the way, has been around in
    some cases for 70 years, give or take, and saying, if you have
    an entirely new approach, you not only save some money, which
    was not, as the chairman said, our priority, but you are really
    bringing your military into 21st century choice.
        It is a very different military from when I came into this
    business in the mid-1970s, when most of the military people
    were young, single, no families. A lot of these issues never
    arose. It is different, and, essentially, this is a 21st
    century program.
        Senator King. Well, I am not taking a position on your
    proposal yet. I just want to underline that this retention
    issue, it seems to me, is really crucial. We cannot make a
    mistake because it may be 10 years before it manifests itself.
    That is why I think we really to be careful with fully modeling
    it, thinking about it, having a representative group that fully
    understands the survey and what the options are.
        So I just throw that out, Mr. Chairman.
        Mr. Zakheim. Senator, you are absolutely right. One of the
    things, if you look at, and this actually points to the
    comprehensiveness of what we are doing, why it all hangs
    together. So you have, for instance, under our approach, the
    G.I. Bill, 10 years you vest. You commit to 2. That brings you
    to 12. At 12 years, you get continuation pay. You commit to 4
    more. It brings you to 16. At that point, you are in for 20.
        So if you look at the package, it is actually a phenomenal
    retention tool, and that is what the analysis that we had
    showed, to a great degree.
        Mr. Maldon. Senator King, let me also add, please, that DOD
    sent a white paper to the commission last March. They concluded
    that a blended retirement plan like the one we have proposed
    would sustain the recruiting and retention, just to kind of
    make that point here, that that was their conclusion with their
    white paper, which we took into consideration as we moved
    forward with our deliberation.
        Admiral Giambastiani. I think it is important to understand
    that you are creating a problem today as you ask individuals to
    leave the Service who have gone on two, three, four deployments
    and they leave with absolutely nothing.
        My biggest concern is that they are going to talk to other
    people about how they answered their country's call, were
    planning to stay in for 20, and then asked to leave. I think
    our recommendation would go a long way in correcting what I
    believe is wrong there.
        Senator Pressler. Senator King, your very original
    question, I just want to add one footnote, where does this
    money come from? In part, there is a reduction from 2.5 percent
    a year that one gets in their retirement formula. Our plan
    would reduce that to 2 percent. That is probably where some
    heavy lifting is going to come. Probably that will be objected
    to, to some extent.
        But your very original question was where does the money
    come from. Some of it comes from that in the retirees' formula,
    the formula will reduce. Now it is 2.5 percent a year. It will
    be reduced to 2 percent a year, I believe. Correct me if I am
    wrong.
        Senator Graham. Thank you. Very good question, but as I
    understand the blended plan, you get a 40 percent guarantee
    defined benefit, but you get a matching Thrift Savings Plan for
    your entire 20 years. I think you are going to get more money
    at the end of the day.
        Mr. Zakheim. Senator, we have a chart I think that we could
    put up for you.
        Senator Graham. Well, the chart I am looking at is 80
    percent of the people want to transfer into the other system. I
    think I know why.
        But we are going to vote in about 5 minutes, and I will
    just start it off.
        I think he asked a really good question about retention.
    The G.I. benefit, the Webb bill, for lack of a better word.
    Senator Webb did a great job. Senator McCain and I had a real
    concern.
        I want to be generous after 4 years, but I want to keep
    people around. So one thing we did that I think was really
    smart, is if you stay in 12 years, after 12 years, you can
    actually transfer your G.I. benefits to your kids. I'm working
    on grandkids.
        So think about this. If you retire, now the G.I. benefit
    that you didn't use in the military, basically pay for your
    education, there will be a pretty healthy benefit left, if you
    manage your career right. You can actually pay for your kids'
    college. I thought that was a real incentive to stay past 12
    years, that if you make it to 20, you can take the G.I. benefit
    and actually use it for the benefit of your children.
        But the goal is to be generous, sustainable, and keep
    people around who we want to keep around. I hate the fact that
    after 12 years of fighting in Iraq and Afghanistan, you get a
    pink slip and you get zero. Under sequestration, that is going
    to be more likely than not.
        Remember what we are doing to the force here. We are going
    to reduce personnel down to the lowest level since 1940 in the
    Army. That means a lot of people are going to be asked to leave
    before they get to 20, and get nothing for it. That is why we
    have to be smart about sequestration and about what you are
    trying to do.
        So any second rounds?
        Senator Tillis. I look forward to actually meeting with
    some of your representatives to talk more about the plan
    design. I think Senator King makes a great point. If there are
    documented savings and there are things we can realize, versus
    on paper savings, then there is something to be said for
    turning those savings back into even more benefits for the
    veterans, really use those for strategic investments that
    address retention, those sorts of things.
        A question I had is since this has come out, I see what the
    graphic says here in terms of the adoption rates, but what are
    you hearing from people? When I have gone through these types
    of conversions before, everybody hates it until you go through
    the financial literacy and really show what it means to the
    large number of people who will probably opt into it. Are you
    getting resistance now? Is it generally positive? Where are you
    in terms of the stakeholder community and feedback?
        Mr. Maldon. Senator Tillis, I think at this point in time I
    do still believe that it is kind of early in the process to
    really give a definitive answer to that question. But I think
    for the most part, the support the recommendations, the report,
    is getting, it seems people are rather supportive of it.
        I think it is fair to say that a lot of the key
    stakeholders who would be impacted in some way by this or
    associated in some way with the decisions are thinking that
    they still need to know more about the details. So we are in
    the process of going through that. So I am sure we don't have
    the final decisions from them in terms of where they might be
    at this point in time. Most are supportive at this time.
        Admiral Giambastiani. If I could add, Senator, in talking
    with members of the Joint Chiefs, these are the Service Chiefs,
    they would tell you that at the beginning of this process when
    this commission stood up, there was a tremendous amount of
    doubt with the Active-Duty Force out there that you were
    messing with my retirement system. Senator Graham made that
    point many times at the beginning here.
        Once the message has gotten out by the senior officers and
    senior enlisted across the force, the heat level went down
    dramatically. So that is very important for those stakeholders.
        Mr. Zakheim. I would just add, Senator, and this is purely
    anecdotal, I am getting a lot of emails from people, some whom
    I know and some whom I don't. I mean, it is literally running
    99-1 in favor.
        Senator Tillis. Well, I would think that you benefit from
    this working relatively well in a lot of large, complex
    organizations out there. I do think, though, that what Senator
    Graham opened up his comments with is very important. If you
    like your current plan you will have the option to keep it, and
    we mean it this time. So I think that that is critically
    important.
        When you wind into that the financial literacy, this is
    something that is critically important, something I have seen
    benefit from policy down in North Carolina, then you are going
    to help these folks make some very positive decisions. I think
    they will become positive supporters of this plan.
        So thank you for your work. I look forward to learning more
    about it.
        Senator Graham. Thank you, all. Anything else? I think they
    have just called the vote. Does anybody have any more
    questions?
        If not, we will let you go. Well done.
        One final thought, if you are 18 years in, I am probably
    sticking with what I got. But if I am just getting started, I
    like the blended plan.
        We have to fix sequestration, because Senator King has
    raised a great point. How do you retain people? Well, under
    sequestration, you can't. You are going to have to let a lot of
    people go. We need some kind of system to at least be fair to
    these people. If you are going to let them go, you ought to pay
    them for their honorable service rather than just say thank
    you.
        So I appreciate the hard work.
        Mr. Maldon. Thank you, Mr. Chairman.
        Senator Graham. Why don't we go vote? We will stand in
    adjournment, go vote, and come back to the second panel. How
    does that sound?
        Senator Gillibrand. That is perfect.
        Senator Graham. Okay.
        [Recess.]
        Senator Graham. Thank you all.
        Can we get the second panel upfront and ready to go?
        I apologize. We had to go vote.
        So panel two, could you introduce yourself, starting with
    the Air Force Sergeants Association.
        Mr. Frank. I am Rob Frank, retired Chief Master Sergeant of
    the U.S. Air Force, and I am the CEO for the Air Force
    Sergeants Association.
        Ms. Parke Holleman. Good afternoon. I am Deidre Parke
    Holleman. I am the head of the Washington office of The Retired
    Enlisted Association.
        Mr. Jones. My name is Rick Jones. I am the legislative
    director for the National Association for Uniformed Services.
        Mr. Nicholson. I am Alexander Nicholson, legislative
    director for Iraq and Afghanistan Veterans of America.
        Senator Graham. Thank you all for coming. I don't have an
    opening statement. Would you all like to go with ladies first?
    How would you like to do this? Do you want to give a quick
    opening statement, or do you just want to take questions?
        Ms. Parke Holleman. Well, I wrote it. I will give it a
    shot.
        Senator Graham. Well, you wrote it, and I will listen to
    you, if you read it.

     STATEMENT OF DEIRDRE PARKE HOLLEMAN, EXECUTIVE DIRECTOR, THE
                      RETIRED ENLISTED ASSOCIATION

        Ms. Parke Holleman. Thank you kindly. Chairman Graham and
    members of the subcommittee, thank you for the opportunity to
    testify on behalf of the men and women of The Retired Enlisted
    Association concerning the retirement recommendations made by
    the Military Compensation and Retirement Modernization
    Commission.
        May I ask that our full written statement be made part of
    the record?
        Senator Graham. Yes, ma'am. Your entire written statement,
    including the first panel, will be made part of the record.
    Thank you.
        Ms. Parke Holleman. Thank you.
        The Retired Enlisted Association is the largest veterans
    organization in the Nation that was created specifically for
    enlisted personnel from all the branches of the armed services.
    We were founded in 1963 and congressionally chartered in 1992.
        The commission has outlined a series of recommendations
    that would result in the blended retirement system that
    contains elements of a defined contribution retirement plan
    while retaining a good bit of the military's current 20-year,
    cliff-vesting defined benefit plan.
        We are very grateful that you wish to hear our views,
    though a bit breathless as well. We are told the Pentagon, with
    all their resources, is working like mad to develop response to
    present to the President in 60 days. We have only had 13 days
    to prepare comments to present to you.
        Because of that timetable, we must say that even with the
    fine cooperation of the commission's members and staff, we are
    far from having the numbers, details, and analysis that are
    needed to accurately and thoroughly assess the recommendations.
        With that large caveat, we acknowledge that the report of
    the commission is a serious analysis that contains interesting
    proposals. It is clear that they made an honest attempt to
    change and, in their view, improve the system as it is now.
        But first, we should note that the present cliff 20-year
    retirement system has worked very well for over 40 years for
    our all-volunteer military. It has worked during good and bad
    economic times, and amazingly well during the last 13 years of
    war. Therefore, we believe that Congress should adopt the
    medical model of first do no harm when considering overhauling
    the present system.
        On the other hand, we agree improvement should be made
    whenever possible to a system designed not only to attract
    personnel to our Armed Forces who will defend our Nation but
    also to care for him who shall have borne the battle and for
    his widow and his orphan, as President Lincoln said. We
    recognize, of course, that this is now the motto of the
    Department of Veterans Affairs, but it is equally true when it
    comes to those currently serving, not just for those who have
    left the Services.
        It is a splendid idea to provide a portable retirement
    investment account for those who serve in our uniformed
    services but leave, for whatever reason, before serving 20
    years. It is also a first-rate idea to provide effective
    financial education to all those who serve. But neither benefit
    should be paid for by reducing the retirement of those who
    served 20 years or more.
        Does this proposal do that? We are worried that it may. We
    have many concerns.
        First, clearly, there is a 20 percent cut in the defined
    benefit plan value from 50 percent to 40 percent. How is that
    made up? There is the Thrift Savings Plan where, except for an
    initial 1 percent, retirees must contribute their own money to
    receive any of the government's matching contributions.
        It should be noted, as was noted earlier, that currently 40
    percent of the presently serving force is contributing to
    nonmatching TSP to augment their present defined plan. Thus,
    this advantage to future members would be lost.
        Another issue of concern is that the 12-year bonus payment,
    which is listed as part of the retirement calculation but
    certainly looks like present taxable income and not tax-
    deferred income, it seems to us that in order for that to be
    part of the retirement calculation, a change in the law would
    have to be made.
        In addition, the commission says that they are leaving the
    method of calculating the lump sum payment proposal to the
    Secretary of Defense, as was discussed a bit in the first
    panel. We question whether that is appropriate since a new
    Secretary could change the method with the stroke of a pen.
        Further, is the discount rate used in calculating present
    value of future money correct? According to the senior pension
    fellow of the American Academy of Actuaries, who is quoted the
    Military Times regarding the commission's use of a 12.7 percent
    discount rate, it is not. I quote, ``Twelve percent, my gosh.
    That is an outrageous rate to use for something like that.''
        The article went on to say private sector companies would
    normally use 4 percent to 5 percent, but he said that he would
    use an even lower rate, perhaps 2 percent to 3 percent, because
    the U.S. Government is considered the safest lender in the
    world.
        We believe that the reason for this dramatic disparity is
    because the commission is not using actual value of an E-7's
    present retirement, which DOD pegged at $1.1 million last year,
    but rather the servicemember's perceived value of the benefit.
    It appears to us the thought behind this is that if the
    servicemember's perception is favorable, even if it is
    incorrect, retention will not be harmed.
        That assumption may be correct, but is it appropriate? The
    value of a retirement plan should first be analyzed
    objectively, not subjectively. Doesn't Congress have a duty to
    protect the objective interests of the men and women who in the
    future will continue to serve the Nation in danger,
    inconvenience, and loneliness for 20 or more years?
        The commission has proposed that servicemembers be given
    effective financial education, and we agree. Shouldn't this
    sophisticated financial analysis be used when considering the
    creation of a new retirement system. We believe that it should
    even when changes are being considered in part for the
    admirable goal of improving the situation of those who have
    served 3, 5, or more years in our same uniformed services.
        These are just a few of the worries and questions that we
    have concerning the commission's retirement proposals. I will,
    of course, try my best to answer any questions you may have for
    me.
        Again, thank you for the opportunity to speak before you
    and thank you for all that you do for our servicemembers.
        [The prepared statement of Ms. Parke Holleman follows:]
             Prepared Statement by The Retired Enlisted Association
        Chairman Graham, Ranking Member Gillibrand, and members of the
    subcommittee, thank you for this opportunity to submit testimony on
    behalf of the men and women of The Retired Enlisted Association
    concerning the retirement recommendations made by the Military
    Compensation and Retirement Modernization Commission (MCRMC). The
    Retired Enlisted Association is the largest veterans organization in
    the Nation that was created specifically for enlisted personnel from
    all branches of the armed services. We were founded in 1963 and
    congressionally chartered in 1992.
        The MCRMC has outlined a series of recommendations that would
    result in a blended retirement system that contains elements of defined
    contribution retirement plan while retaining a good bit of the
    military's current 20-year, cliff-vesting defined benefit retirement
    plan.
        We are very grateful that you wish to hear our views though a bit
    breathless as well. We are told that the Pentagon, with all of the
    resources at its command, is working feverishly to develop a response
    to present to the President in 60 days. We have only had 13 days to to
    prepare comments to present to you.
        Because of that timetable we must say that even with the fine
    cooperation of the Commission's members and staff we are far from
    having the numbers, details, and analysis that are needed to accurately
    and thoroughly be able to assess the recommendations. With that large
    caveat we acknowledge that the report of the MCRMC is a serious
    analysis that contains interesting proposals. It is clear that the
    Commission made an honest attempt to change and, in their view, improve
    the system as it is now.
        But first we should note that the present cliff 20 year retirement
    system has worked very well for over 40 years in our All-Volunteer
    military. It has worked during good and bad economic times, and
    amazingly well during the last 13 years of war which, after all, is
    what it its purpose is. Therefore, we believe Congress should adopt the
    medical motto of ``first do no harm'' when considering overhauling the
    present system.
        On the other hand we agree improvements should be made whenever
    possible to the system that is designed not only to attract the
    personnel in our Armed Forces who are required to defend our Nation,
    but also ``To care for him who shall have borne the battle and for his
    widow, and his orphan,'' as President Lincoln said. We recognize, of
    course, that this is the motto of the Department of Veterans Affairs.
    But it is equally true when it comes to those currently serving, not
    just for those who have left the Services.
        It would be a splendid idea to provide a portable retirement
    investment account for those who serve in our uniformed services but
    leave (for whatever reason) before serving 20 years. It is also a first
    rate idea to provide effective financial education to all those who
    serve. But neither benefit should be paid for by reducing the
    retirement of those who serve 20 years or more in the Services.
        Does this proposal do that? We are worried that it may. Clearly
    there is a 20 percent cut in the Defined Benefit Plan value from 50
    percent to 40 percent. How is that made up? There is the Thrift Savings
    Plan (TSP) where the retirees must contribute their own money to
    receive any of the government's matching contributions. (It should be
    noted that currently 40 percent of the presently serving force is
    contributing to non matching TSPs to augment their present defined
    plan. Thus this advantage would be lost.)
        Another issue of concern is the 12 year bonus payment, which is
    listed as part of the retirement calculation but certainly looks like
    it is present taxable income and not tax deferred. It seems to us that
    in order for that to be part of the retirement calculation a change in
    the law would have to go through the Ways and Means Committee. In
    addition, the Commission says they are leaving the method of
    calculating the lump sum payment proposal to the Secretary of Defense.
    We question whether that is appropriate since a new secretary could
    change the method with a stroke of the pen.
        Further, is the discount rate used in calculating present value of
    future money correct? According to the senior pension fellow for the
    American Academy of Actuaries, Mr. Donald Fuerst, who is quoted in the
    Military Times, regarding the Commission's use of a 12.7 discount rate
    and I quote: ``Twelve percent! My gosh, that is an outrageous rate to
    use for something like that.'' The article went on to say private
    sector companies would normally use a 4 percent or 5 percent but Mr.
    Fuerst said that he would use an even lower rate (perhaps 2 percent or
    3 percent) because the U.S. Government is considered the safest lender
    in the world.
        We have heard that the reason for this dramatic disparity is
    because the Commission is not using actual value of an E-7's retirement
    (which the Department of Defense (DOD) pegged as $1.1 million last
    year) but rather the servicemember's ``perceived value'' of the
    benefit. It appears to us the thought behind this is that if the
    servicemembers' perception is favorable, even if it is incorrect,
    retention will not be harmed. That assumption may be correct--but is it
    appropriate? Doesn't Congress have a moral duty not to mislead men and
    women who have served this Nation in danger, inconvenience and
    loneliness for 20 or more years? The Commission has proposed that
    servicemembers be given effective financial education, and we agree.
    Shouldn't this education occur before they are asked to make these
    crucial and complicated decisions? We believe that honor requires
    members understand what these changes would mean to them even when
    these changes are being proposed, in part, to protect the interests of
    others who have served 6 or 8 or 10 years in the same uniformed
    services.
        We recognize there is real concern about the lack of fairness in
    the current retirement system when it comes to military members who
    leave after 10, 12, or other multiple years of service but have no
    savings or investments to show for that service. This seems especially
    unfair to those who may have served multiple combat tours in Iraq and/
    or Afghanistan.
        We agree that the current retirement system needs to be changed in
    order to give servicemembers an investment portfolio they can take with
    them when they leave the Service, even if they do not stay for a 20
    year career. However, we strongly oppose any reduction in the
    retirement benefits career military personnel currently receive as a
    way a paying for a new benefit for those who leave prior to 20 years.
        The retirement recommendation of the MCRMC gives us concern because
    it appears to provide a greater incentive to leave at critical
    retention points, especially during periods of great stress for
    personnel such as they have experienced since 2003. It also appears to
    give less incentive to those who stay for a 20 year career to remain in
    the Service after the 20 year point. That's because the government
    contribution to the TSP ends at 20 years, which means the only addition
    to the TSP that would occur after 20 years would be contributed by the
    servicemember. It seems to us that any senior noncommissioned officer
    or any officer who is an O-5 or O-6 would be smart to leave at that
    point. If that happens, the Services would lose the cadre that are
    their very backbone and the resulting loss of expertise and leadership
    would severely harm them.
        We also question the wisdom of putting additional financial
    pressures and worries on senior personnel deployed to a combat zone
    should the market drop, as happened in 2008. The stress of serving and
    providing leadership in a combat zone, as well as keeping in touch with
    family members and dealing with family issues should not be increased
    by adding on additional pressures regarding retirement financial
    matters.
        The Commission's recommendations for changes in the Guard-Reserve
    pay and retirement generally follow those recommended for active duty
    personnel. However, there are some exceptions and we believe, as has
    happened so often in the past, Guard-Reserve members could end up that
    is not equal, in terms of treatment, to the active duty in spite of
    their exemplary performance during the past 12 years of war.
        Specifically, the recommendation for continuation pay at the 12th
    year of service is for an amount that is equal to 0.5 times the serve
    member's monthly basic pay, as if the member were on active duty.
    However, the active duty continuation pay is recommended to be 2.5
    times monthly basic pay. We believe this is unfair and discriminatory
    and the Guard-Reserve amount should be 2.5 times monthly basic pay, the
    same as the active duty.
        In addition, the commission's recommendation calls for the Guard-
    Reserve member to earn basic pay in a ``given period'' to make TSP
    contributions and to receive government contributions into their TSP
    accounts. This ``given period'' needs to be clearly defined and needs
    to take into account varying drill periods among Reserve component
    members, depending on their type of drill status.
        There also needs to be clarification regarding whether Reserve
    component members would get the lump sum payment when they enter the
    Retired Reserve, just as active duty members would.
        As we have stated before, many aspects of the Commission's proposal
    deserve much more study before it would be appropriate to come to any
    sort of definite conclusion as to its merit. But it is readily apparent
    to TREA that the Commission's proposals seek an equivalency between
    military occupations and those in the private sector. On this we simply
    do not think that the proposals hit their mark.
        It is laudable that the Commission has made such a serious attempt
    at making sure every servicemember leaves with ``something'' at the end
    of their time in service. But this proposal will simply not accomplish
    the mission of creating a smooth transition between the military and
    civilian sectors. We agree that a system like this will make the
    transition into the private sector easier for those who fail to
    complete 20 years of service, but it will not erase the vast gulf that
    already exists between the military and the private sector.
        When a servicemember with a Military Occupational Specialty (MOS)
    of 19-K, which is an M1A1D/A2 tank crew member, transitions out of the
    Service they are told that ``there is no civilian equivalent'' in the
    private sector. The mission of DOD is ostensibly to provide for the
    national defense. But many servicemembers are trained in warfighting
    skills and it is not surprising that for those individuals the private
    sector has difficulty in translating military skills and placing value
    on military experience.
        The Commission's proposals are a welcome attempt to rectify this
    inequity. The fact is, however, that this incongruity between military
    service and the private sector will never be erased. Servicemembers who
    get out after one or two enlistments, usually at the 4 to 8 year point
    of time in Service, will still be junior to their age cohort when they
    eventually take private sector jobs. This ``seniority delta'' will
    remain for their entire career, as will reduced salaries and wages when
    compared to their age cohort. As all human beings are limited to a
    finite number of working years, there is simply no way to overcome this
    fact of military service.
        Another inconvenient fact about military service is that the longer
    one serves in the military, the greater the impairment their career
    suffers when they inevitably transition out. The vast majority of
    military retirees are not four star admirals or generals with $500,000
    defense contractor consulting jobs lined up; they are E-7s with many
    fewer options. They are unable to build up equity in a home because
    they are moving every 2 to 3 years, and their educational
    accomplishments are often lacking as well.
        Frankly, this proposal disincentivizes these individuals from
    serving any longer than exactly 20 years in the military. Every month
    longer that they serve is another month that they are missing out on an
    employer match to their TSP, or to a 401(k). As rational actors (as the
    vast majority of individuals who serve 20 years in the U.S. military
    are) most people are going to move to a situation that is the greatest
    benefit to them. For servicemembers to serve any longer than 20 years
    sizeable bonuses or other inducements are going to be needed to get
    them to stay in the military when they realize they may be missing out
    on a matching employer contribution to their TSP or 401(k).
        If a servicemember decides to stay in the military for more than 20
    years, they are taking on an even greater risk that the TSP portion of
    their retirement may not be there when they retire. One need not go
    back to 1929, only to 2008 for an example of what can happen. It has
    taken nearly 5 years for the average 401(k) to return to the level that
    it was at in 2008--not to mention all of the growth potential that has
    been lost. It seems unfair to ask servicemembers, even after they pass
    the 20 year point, to bear the risk of their TSPs declining in value
    even as they volunteer to die in defense of this great country.
        In the final analysis, this proposal from the Commission attempts
    to bridge the gap between military and civilian employment, but does
    not accomplish what it sets out to do. Wage and salary gaps that result
    in lessened career earnings will still persist. Further, in attempting
    to save money by ending the DOD's matching contribution to the TSP at
    20 years it actually disincentivizes the vast majority of
    servicemembers from spending any more than 20 years and 1 day serving
    their country. As DOD knows, many of these servicemembers have skills
    and knowledge that the military cannot afford to lose, en masse, at
    exactly 20 years.
        One aspect of the Commission's proposal that we think Congress
    should strongly consider supporting is the one that makes ability to
    transfer the Post-9/11 GI Bill to dependent family members vest once
    the servicemember reaches 10 years in Service.
        The Post-9/11 GI Bill is one of the great legislative
    accomplishments of the 21st century because it shows how America honors
    those who have committed to defend her. By covering the full cost of
    in-State public school tuition to attend any accredited school in the
    country as well as providing money for books, housing, and a monthly
    stipend returning servicemembers are permitted to concentrate their
    full attention on their studies while they successfully reintegrate
    back into American Society.
        Recognizing the vast value that the Post-9/11 GI Bill has to
    servicemembers in this way will strengthen the morale of America's
    fighting force far into the future. That being said, we have grave
    concerns about the part of the proposal that would take away the
    housing stipend from dependents that have had the benefit transferred
    to them. Making college less affordable, even if it only refers to
    housing costs, for the dependents of servicemembers who have served our
    country honorably for over 10 years seems an odd way to honor their
    sacrifice.
        We look forward to participating in more debate about how to
    strengthen the current system to overcome these obvious hurdles and we
    are happy to answer any questions on these issues.

        Senator Gillibrand [presiding]. Mr. Frank?

      STATEMENT OF ROBERT L. FRANK, CHIEF EXECUTIVE OFFICER, AIR
                      FORCE SERGEANTS ASSOCIATION

        Mr. Frank. Ranking Member Gillibrand, members of the
    subcommittee, it sure is an honor to be here to speak on this
    particular commission's report. We have some early analysis, of
    course, with similar concerns that she has outlined, but I am
    going to get right to the point. Why is it that we are talking
    about reforming the system? To be frank, and the elephant in
    the room, is this about saving money? Is it about the bottom
    line? $12 billion is nothing to sneeze at when it comes to
    savings of our government taxpayer dollars.
        But the commission has reported to us that no, that wasn't
    the objective of this. Is this change for the sake of change?
    We have a perceived antiquated system. It is decades old and
    people say it should be modernized to match the private sector.
    I will point to the fact that other than when our retirement
    system has been tinkered with, and Congress, certainly, has
    done a good job of fixing that in the past, that this is
    ushered in the All-Volunteer Force. It has got us through good
    economic times and bad. It certainly has put us through 20
    years of high operations tempo and war.
        But when we talked to the commission, they said our
    objective was to create a better system. So the real question
    is, how is this a better system for the Services? Does it
    combat a perceived recruiting and retention issue? I am ready
    to tell you that is a phantom menace. We haven't missed
    recruiting goals in years. As a matter fact, over the last
    couple of years, we have had to tell people that they need to
    leave. Notably so, we do give them severance pay and other
    things as they leave the service. But again, our recruiting and
    retention issues are not a problem in today's military.
        We are led to believe that 83 percent get out with nothing.
    That is nothing except for that $80,000 education, significant
    home loan guarantees, hundreds of thousands of dollars in
    training and experience they will take to get a great job,
    numerous veteran benefits, a 401(k) style system that they can
    invest in today for their future retirement, and, of course,
    the title of veteran. In recent times, less than 1 percent
    carry that title.
        Retention is the biggest concern I think that we have. We
    can look at the past, and back in 1986, of course, we changed
    the retirement system. Ten years later, Congress had us take
    some time to fix that system. What is it going to look like 10
    years from now if this is enacted?
        The cumulative effects of everything else that is on the
    table, not to consider necessarily what is in this report but
    everything else, and then we create a system where it is easy
    to off-ramp at early points in their career, could have
    significant impact on retention, especially when the economy
    rebounds.
        This system has been compared to the private sector, and
    let me be very clear about this. This way of life has no
    comparison. To add to that, in the private sector, if you are
    running a company, you have someone with 10 years' experience
    who gets out, what do you do? You go hire somebody with
    equivalent experience to take their place, and you move on with
    the mission of your company.
        We cannot do that in the U.S. military. We must grow our
    experience. It is different, and we have to take that into
    consideration.
        Senators, we need people to go 20-plus years. In the Air
    Force, most significantly, our enlisted corps, we have a higher
    rate of folks who go to 20-plus years for a reason. We need
    them to do that.
        We as an association urge the committee to proceed with
    caution. Education about this new system has to be upfront.
    Financial education in my background, I can tell you, it is not
    enough for what they need, especially when they have to start
    making decisions about their own retirement.
        The chart said 80 percent were in favor of this. I know the
    charts are gone now, but it said 80 percent were in favor of
    this. Now that everything is in context, and we have run our
    surveys, I can tell you that there is a stark difference in
    what people currently serving in uniform today say about the
    choice between this system, what they have today, and what the
    future proposal is.
        We, certainly, don't want the budget to be balanced on the
    backs of our servicemembers. We welcome change. Change is good,
    but change for the better.
        To take away from those who have gone the long term, the
    ones we need to go long term, to take away from that to give to
    those who are one and done will have a significant effect on
    the All-Volunteer Force. Thank you.
        [The prepared statement of Mr. Frank follows:]
              Prepared Statement by CMSGT Robert L. Frank, (Ret.)
        Chairman Graham, Ranking Member Gillibrand, and members of this
    committee, thank you for this opportunity to present the views of the
    Air Force Sergeants Association (AFSA) on the military retirement
    recommendations of the Military Compensation and Retirement
    Modernization Commission.
        AFSA is a 110,000 member strong, federally chartered, worldwide
    veterans and military service association representing the quality-of-
    life interests of current and past enlisted airmen as well as their
    families. We are in a unique position to have a good understanding of
    the views of enlisted servicemembers as half of our membership is
    currently serving in uniform and half are retirees or veterans. We have
    chapters at every Air Force base around the world, as well as a variety
    of retiree chapters. As such, we have the pulse of our members and
    regularly receive feedback on a variety of important issues.
        We want to thank the committee for its historic, nonpartisan focus
    on protecting this Nation and those extraordinary military citizens who
    subject themselves to unlimited liability to make freedom possible. We
    know your work here today is not an academic exercise. The
    recommendations of the commission and how this Congress acts on them
    will have a great impact on the morale of those serving, their
    decisions whether or not to pursue the military as a career, and the
    attitudes and well-being of those who love and support them. More
    importantly, these recommendations will have a significant impact on
    those who have not yet decided to serve, as well as the effect on
    retention well into the future.
        Today, I want to briefly comment on the commission recommendations
    relative to changing the structure of the military retirement program
    itself. The tasking to the commissioners was extraordinary, and we
    certainly applaud their dedicated efforts. Their challenges were
    unique, and they delivered several recommendations for you to consider
    as this nation's military moves forward. We understand budget
    protection and reduction was not the stated motivation of the
    commission; rather, it was primarily the long-term efficacy of the All-
    Volunteer Force and the quality of the lives of those who serve.
        Some say the current pay, benefits, and retirement systems are too
    generous. We would ask, ``What is the basis for comparison to make that
    statement?'' We would assert that you cannot fairly compare the lives
    of military members with those of other citizens, and there is no
    ``job'' like this for a true comparison. Military members face unique
    day-to-day risks, demands, and challenges, and a condition of their
    employment is a pledge to give up their very lives if ordered to do so.
    As such, it would seem to us that the measurement of success of the
    current compensation, benefits, and retirement systems has to be based
    on the success of recruiting and retention.
        Compensation in this report has been compared to private sector
    programs, yet unlike the private sector, the military services cannot
    hire experience into most of their positions, and must rely on
    ``growing'' experience. Because we must retain servicemembers at
    various degrees to keep experience levels right, a retirement and
    compensation system has to entice a significant portion of
    servicemembers to make the military a full career to 20 years and
    beyond. We urge the committee to proceed with caution, find the
    unanswered questions, and note the challenges we have seen already in
    the All-Volunteer Force. Errors with adjustment to the retirement
    system has occurred in the past and it has required Congress to take
    corrective action.
        The current retirement system has also been characterized as an
    ``old system'' which hasn't been drastically altered in nearly 70
    years. Yet it is a system that ushered us into an All-Volunteer Force,
    served us in good and bad economic times, through significant personnel
    downsizing over the past few decades, and certainly has maintained a
    ready force through 13 years of war with more than 20 years of heavy
    deployment cycles. We believe there are times that call for bold
    decisions; but we also believe a primary motivator should be to not
    harm a system that seems to be working.
        Specifically, my comments today will center on Recommendation #1 to
    ``help more servicemembers save for retirement earlier in their
    careers, leverage the retention power of traditional uniformed services
    retirement, and give the Services greater flexibility to retain quality
    people in demanding career fields by implementing a modernized
    retirement system.'' I will also include Recommendation #3, to
    ``promote the financial literacy of servicemembers by implementing a
    more robust financial and health benefit training program,'' in my
    comments as a related measure.
        While we are intrigued with the intent of these recommendations, we
    have serious concerns about some details of the proposals. Our members
    have told us the current retirement system has served us well since the
    initiation of the All-Volunteer Force in 1973. Our nation does not
    currently have an overall military recruiting and retention problem. In
    fact, such problems have usually not cropped up unless there is
    tinkering with their pay and benefit programs. Therefore, we will be
    interested in further examining the justification to change an untested
    system that may or may not have the same consistently positive results.
    The commission cited many private sector programs in comparison, but as
    previously stated, there are stark differences between the private
    sector and military service. Changes made today could take 10 or more
    years to reveal their success or failure. There is no better example of
    this than the passage The Military Reform Act of 1986 (better known as
    ``Redux'') which triggered severe retention issues in the mid to late
    1990s requiring congressional intervention to stop them in 1999.
        First, we will be interested in viewing the details of the specific
    surveys that resulted in these recommendations. As you know, enlisted
    servicemembers represent about 83 percent of the overall force. As
    such, decisions made in regard to the military retirement program will
    primarily impact enlisted members and their families. Based on the
    views of our members, our understanding has been that the vast majority
    of them are content with the current system that provides them with a
    solid retirement benefit based on the extraordinary career they serve
    over the long term--without their need to constantly monitor and
    participate in the details of the growth and development of the
    retirement benefits they will eventually receive. So our first major
    interest would be to examine the specific survey results received from
    the large majority of servicemembers who are current and past
    noncommissioned members.
        A second concern that we believe is an important one is that the
    recommendations may well encourage early departure from the military--
    rather than promoting a full, 20-year service career. We believe most
    involved in these recommendations recognize the need for a strong
    career force to ensure continuity, training, mentorship, and
    leadership. As you know, our military members have certainly been
    stressed during the past decade--with repeated deployments, persistent
    separations from families, increased group and individual taskings due
    to cuts in our military forces, and the unique challenges of their
    military operations and tactics of the particular enemies they are
    facing. It would seem the recommended changes provide servicemembers
    with greater incentives to leave at critical career points. We would
    ask this committee to take a close look at the choices offered in
    relation to the stresses on military members and their families, and if
    the changes might set in motion future retention problems.
        Next, in looking at the numbers, it is apparent those who would
    choose to serve beyond 20 years under the recommended system would
    derive less of a financial benefit than they do under the current
    system. We believe it is important to always keep in mind the
    possibility that the decisions this committee makes in regard to
    military retirement changes could backfire. The recommended changes
    could entice members who currently would choose to serve full careers
    to instead opt to leave military service in order to start different
    career paths in civilian industry that do not have the career stresses
    and unique challenges of military life. Again, we would be moving to an
    untested system to replace one that is already working, potentially
    leaving a hollow force without critical experience and leadership at
    certain levels. Accordingly, we challenge this committee to make its
    decisions to call for change--only if you are very confident that no
    unnecessary risks to the maintenance of the All-Volunteer Force will be
    set in motion.
        Additionally, the recommended system would only provide government
    matching of the thrift saving aspect of the blended program up to the
    20-year point. It would seem to us that this, in itself, would
    encourage those members who reach 20 years of service to find another
    career outside of military service to continue to gain matched
    contributions and make the most of a defined compensation system.
    Again, we would suggest that this aspect of the recommended program--of
    encouraging departure at critical career points--should be closely
    scrutinized.
        Concerning the thrift savings portion of the blended retirement
    system, we would make a few observations.
        First, a greater management burden and risk would be shifted from
    the employer (the Department of Defense) to the employees
    (servicemembers)--who are already very occupied in carrying out their
    military duties, often overseas, in spartan conditions, and at great
    risk. Furthermore, many of our servicemembers lack the knowledge to
    fully understand how to manage the investment funds they will be
    expected to use under this proposal.
        Second, the recommended blended retirement system should first
    include a program to promote and provide for financial literacy
    training, such as has been recommend in this report. Having worked
    during my active duty years as an Air Force First Sergeant and in later
    years with the Office of Servicemember Affairs of the Consumer
    Financial Protection Bureau, I can personally attest to the specific
    financial capabilities and challenges of servicemembers--and several of
    the ``traps'' they can fall into. While any such training would be
    commendable, one would have to take a close look at the logistics,
    funding, and practical applications of this training. Some very
    important questions would include these:

             Would the financial education training program be
            enthusiastically funded by DOD, or would it be a prime, first-
            in-line target for future spending cuts--as are some other
            military personnel programs?
             Would it be carried out as a part-time, additional
            duty (as many programs in the military tend to be), or would it
            be taught by a dedicated team of professional financial
            counselors?
             Will financial counseling be provided early on, before
            Basic Military Training to ensure these servicemembers fully
            understand the system they are about to enter?
             How large would this financial training force be?
            Would it be adequate to provide counseling when needed at all
            military locations?
             Would this program include family financial training/
            planning as well--considering that participation of a spouse is
            important when making career decisions?
             Who will review the curriculum of such training
            outside of those facing budgetary pressures?
             Will the recommended, blended system be placing those
            who are simply financially illiterate and/or unlikely to grasp
            the full breadth of the training at a career disadvantage?
            Remember we are dealing with military members of various
            capabilities, aptitudes, and educational backgrounds.
             Would such a training effort leverage already-
            existing, very successful agencies and programs such as those
            provided by the Consumer Financial Protection Bureau?

        Mr. Chairman, AFSA has worked for many years with members of the
    overall Armed Services Committees and its subcommittees--this
    subcommittee in particular, since we primarily focus on quality-of-life
    programs. Together, we have worked on and achieved many things that
    have greatly benefited the force and which have made the All-Volunteer
    Force effort successful.
        We have watched you adjust military pay in the past, gauged the
    results, and made further adjustments when warranted to get it ``just
    right.'' Similarly, during the past 40 years of the All-Volunteer
    Force, we have seen a few minor adjustments to the military retirement
    system.
        However, in the coming months this committee will exercise its
    collective wisdom to decide if a major departure from the currently
    working system is justified and appropriate. We do not envy you in that
    regard, and we fully recognize the burden of leadership you have chosen
    to carry out on behalf of this Nation.
        As this committee moves forward in looking at the range of
    recommendations made by the Commission, on behalf of this association
    and the 110,000 enlisted members we represent, we pledge our
    cooperation, participation, and support of your effort to make the
    right decisions for the great men and women who serve to protect and
    defend the interests of the American people.

        Senator Gillibrand. Mr. Jones?

     STATEMENT OF RICHARD A. JONES, LEGISLATIVE DIRECTOR, NATIONAL
                   ASSOCIATION FOR UNIFORMED SERVICES

        Mr. Jones. Mr. Chairman, Madam Ranking Member, Senator
    King, the National Association for Uniformed Services
    appreciates the opportunity to testify and appreciates the
    Military Compensation and Retirement Modernization Commission
    (MCRMC) commissioners' decision to hold harmless the current
    retirement system for those currently retired and for those
    currently serving. We also applaud MCRMC's recommendation for
    no change in TRICARE for Life.
        The MCRMC report, however, has some questions in it. What
    we question is the pay-for of the TSP innovation. The MCRMC
    report makes a simple but questionable change in the retirement
    system. It takes the current system as it stands with 20-year
    program and voluntary TSP and adds government participation
    with a 1 percent automatic TSP contribution and matching
    contributions up to 5 percent.
        There is one more aspect. It drops the retirement
    multiplier 20 percent, cutting it two times for the years of
    service from 2.5. The result, the retirement check would be 20
    percent less under the proposed plan, 20 percent less.
        Of course, one of the key questions about the commission's
    report is why is it necessary to shave the 20-year program in
    order to enhance the system for those who leave early?
        In recent past testimony, we have heard principal Defense
    Department officials tell us the current military retirement
    system is neither unaffordable nor spiraling out of control,
    remaining a relatively constant percentage of pay over time.
        Since issuance of the report a little less than 2 weeks
    ago, the National Association for Uniformed Services has
    already heard a barrage of critical comments. One said, ``I
    depended on that retirement check when I transitioned to
    civilian life.'' Another member said, ``You are better off
    being a policeman, a fireman.'' And, ``The blended plan
    requires servicemembers to actually pay into the account.
    Basically, that's a pay cut of 3 percent.''
        Another questionable element of the package recommends
    stopping the government's automatic and matching TSP
    contributions at the 20-year mark. The retirement package is a
    critical incentive to stay in service beyond 20 years.
        There are many valid reasons. It generally takes 15 to 20
    years to train and prepare the next generation of infantry
    battalion commanders, of submarine captains. We need to create
    these experienced leaders.
        The National Association for Uniformed Services agrees that
    young men and women who serve three, four, or five deployments
    would be better off if offered something after honorable
    service other than a pink slip and the door. We also see,
    however, that the current 20-year cliff retirement program has
    proven its mettle.
        It works, through nearly 70 years. It is not spiraling out
    of control. It remains a powerful pull for career service and
    keeping experience at hand.
        It may be prudent to upgrade the TSP account. However, it
    should not come as a result of cutbacks in the military career
    incentive package.
        Thank you for the opportunity to testify. I appreciate it.
        [The prepared statement of Mr. Jones follows:]
     Prepared Statement by The National Association for Uniformed Services
        Chairman Graham, Ranking Member Gillibrand, and members of the
    subcommittee:
        The National Association for Uniformed Services (NAUS) honors and
    applauds the Military Compensation and Retirement Modernization
    Commission (MCRMC) Commissioner's decision to hold fast the moral
    contract for those who have retired and for those currently serving on
    a career path. The retirement system is not disturbed for those
    currently retired or those currently serving. Also we applaud MCRMC
    recommendation for no change in TRICARE for Life. It, too, is held in
    honor.
        Of course, the NAUS welcomes improvement. We ask, however, that any
    proposed change to the present retirement system do no harm. The fact
    that our All-Volunteer Force (AVF) is without peer, the best in the
    world, has been proven over the past more than 40 years and clearly
    demonstrated at most other times. The current retirement system has
    helped sustain the AVF, and we should be guarded not to jeopardize this
    achievement.
        The NAUS sees nothing wrong with servicemembers being provided a
    government match to their Thrift Savings Plan (TSP) choice. It might be
    a good idea to provide a matching TSP to strengthen the compensation
    system for those servicemembers who leave the force prior to a full
    career.
        At present, more than 40 percent of the Force already participates
    in the TSP program without government participation. Adding a
    government contribution could make it more attractive. However, we
    question the ``pay for'' of this innovation.
        The MCRMC report makes a simple but questionable change in the
    retirement program. In essence, it takes the current system as it
    stands--a 20-year program with an available TSP--and adds government
    participation. The government would make a 1 percent automatic TSP
    contribution and match contributions up to 5 percent. There one more
    aspect, the report calls for a 20 percent reduction in the retirement
    multiplier--dropping it to 2.0 from 2.5.
        The result is that a servicemember with a 20-year career would
    receive a retirement check amounting to 40 percent of his final basic
    pay, 20 percent less than under the current plan.
        Of course, one of the key questions about the Commission's report
    is why reduce the 20-year calculation. Is it necessary to shave the 20-
    year program in order to enhance the system for those who leave early?
        In recent past testimony, Dr. Jo Ann Rooney, principal deputy
    under-secretary of Defense for Personnel and Readiness, said the
    current military retirement system is ``neither unaffordable, nor
    spiraling out of control, as some would contend'' noting that
    retirement costs as a percentage of pay are projected to be relatively
    constant over time.
        There are many valid reasons to keep the current retirement system.
    It generally takes 15 to 20 years to generate the next generation of
    infantry battalion commanders and submarine captains. As a result, the
    department must ensure that the military retirement policy promotes
    greater retention and longer careers necessary to create these
    experienced leaders. A civilianized system with the introduction of
    investment risk many not be the right approach for the military.
        Since issuance of the report less than 2 weeks, the NAUS has
    already heard from a number of members and supporters about this
    proposal.
        Let me run down a few of their comments:

            -  The difference is this . . . with the 20-year deal, you knew
            what to expect. Very black and white. With this ``new deal,''
            there are many ``what ifs'' that can change depending who is
            running the country . . . people like stability on issues like
            this.'
            -  I don't know what I would have done during my transition to
            civilian life without my immediate retirement pay after 20
            years.
            -  They're basing that 401(k) off past performance. What
            happens if you retire on a down market, or if the market goes
            total bust?
            -  Under the new proposed retirement you're better off being a
            policeman or firefighter.
            -  That chart of theirs presumes that the E-7 under the current
            system is not saving or investing or deferring anything . . .
            total hogwash.
            -  Nothing is stopping the servicemember from contributing to
            the TSP right now . . . other than the fact that it would make
            the difference in the charts not as great.
            -  Let's not forget another assumption . . . that the future
            holds no more economic crashes to wipe out the 401 accounts
            again.
            -  The blended plan requires servicemembers to actually pay
            into the account. Basically this cuts pay by 3 percent.

        Another questionable element of the package recommends stopping the
    government's automatic and matching TSP contributions at the 20 year
    mark. MCRMC officials call this a force shaping item while
    simultaneously recognizing the heightened costs of sustaining the
    contribution beyond 20 years.
        In 2006-2007, Congress recognized the importance of retirement
    benefit as an incentive to stay in service. It thoughtfully changed
    retirement rules to allow the multiplier to run beyond 30 years for
    senior enlisted and senior officers. The change was an incentive to
    encourage these senior people to stick around.
        In that period, 4,000 people with greater than 30 years of service
    stayed--3,000 were senior enlisted and 1,000 were senior officers. As
    retired Navy Admiral and Commissioner Edmund Giambastiani said,
    ``Having a Command Sergeant Major who's been in for 36 years who will
    stay for another four really makes a huge difference--tremendous amount
    of experience.''
        The congressional decision to retain experience during wartime made
    a difference. Congress rightly concluded retention was more affordable,
    in lives and money, than retraining.
        There remain many questions and considerations--the analysis of
    this report has only just begun. The NAUS agrees, however, that we
    would be better off if the young men and women who served three, four
    and five deployments were offered something after honorable service
    other than a pink-slip and the door.
        Government participation in the currently available TSP account
    could be helpful in advancing the present 40 percent servicemember
    participation rate. These servicemembers voluntarily contribute without
    any kind of automatic government contribution.
        The NAUS recognizes, however, that all investing for retirement is
    subject to risk, including the possible loss of the money you invest.
    To ensure an adequate retirement, conservative financial advisors
    believe savings rates need to be between 12 percent and 15 percent of
    income (including an employer match). That would require a set aside of
    upwards of 7 percent of present disposable pay.
        Investment is often times compared to a yo-yo. The market goes up
    and down. Historically, however, the market has acted more like a man
    walking up hill with a yo-yo. It still goes up and down but over time
    it runs generally uphill, and may it always be so. But the future is
    uncertain and one must remember that past performance is no guarantee
    of future results.
        We still remember the severity of 2008 and the years it took to
    regain the loss after the crisis of that period. We are concerned that
    altering the certainty of a regular retirement check at 50 percent of
    base pay may be a disincentive for mid-level officers and top enlisted
    to continue their careers.
        The NAUS applauds Congress for taking action over the 13 years of
    war to maintain the powerful pull of the 20-year retirement system, to
    raise pay, enhance health benefits and enact the Post-9/11 GI Bill. If
    you had not taken these actions, it is questionable as to whether we
    would have the military strength we have today.
        In recent testimony before Congress, Commissioner and former
    Senator Bob Kerry said, ``I came into this commission believing that
    it's likely we have a real problem with pay and benefits.''
        But, Commissioner Kerry concluded, ``It would be unfair to identify
    military retirement as the big problem because it isn't. The big
    problem is Social Security and Medicare, so it seems to me, to address
    military retirement without going after Social Security and Medicare is
    basically saying we're going to balance the budget on the backs of our
    military retirees. I think that it would be a wrong thing to do and
    send a terrible signal.''
        Many pundits and other so-called experts around the beltway
    continually write critically about military pay and benefits. As John
    Finkel writes in The Good Soldier, if some of these folks could get out
    from behind their desks ``into the lead Humvee and go out on Route
    Predator or Berm Road, they could experience, as our troops do, the
    full `pucker' factor. They could experience it the next day, too, and
    the day after that and then maybe, they could go back on the job and
    tell the reality of service--at least we'd hear the truth.''
        Defending our national security is a tough job. It is arduous
    service and demands enormous sacrifice that many Americans are
    unwilling to commit. Clearly, we need to assure quality recruitment and
    retention, and we need to retain experienced career personnel. NAUS has
    concerns that this proposal, which mirrors private sector models,
    carries the incentives to assure an appropriate retention outcome.
        Over the years the current 20-year cliff retirement program has
    proven its mettle. It works. Though the military retirement system is
    nearly 70 years old, it is not spiraling out of control. While it may
    be prudent to upgrade the TSP account, it must not come as a result of
    cutbacks in the military career incentive package. The strength of our
    national security depends mainly on three pillars; a vibrant economy, a
    strong defense and a faith in the Nation and support for those who
    serve.
        The question regarding the Military Compensation and Retirement
    Compensation report is whether faith has been broken. Once the
    servicemember's appreciation of the compensation or care they are given
    is broken, no matter what ``bells and whistles,'' it's going to be
    difficult to recruit people to serve or to retain their skills.
                 on the other hand, sequestration is a problem
        Sequestration, however, is a problem. We were told sequestration
    would never happen. But here we are in year three facing the blunt and
    irresponsible approach to taming our annual deficits and reining in the
    enormous debt we and future generations face.
        Under sequestration, defense, which accounts for less than 15
    percent of the budget, is forced to take 50 percent of sequester cuts.
    It is disproportional by any measure of understanding and incredibly
    detrimental to our national security.
        The results of these cuts have already been devastating to our
    national security. The Air Force is approaching the smallest it has
    been since 1946; the Navy is approaching a historic low level of ships;
    the Army is on its way to the lowest troop level since before World War
    II; and the Marine Corps will be down two divisions.
        Sequestration is a blunt instrument. It was wrong when the
    President proposed it; it was wrong when Congress accepted it; it was
    wrong when enacted, wrong when signed; and wrong when implemented.
        The NAUS implores you to end defense sequestration.

        Senator Gillibrand. Thank you, Mr. Jones.
        Mr. Nicholson?

     STATEMENT OF ALEXANDER NICHOLSON, LEGISLATIVE DIRECTOR, IRAQ
                  AND AFGHANISTAN VETERANS OF AMERICA

        Mr. Nicholson. Thank you, Ranking Member Gillibrand. Even
    though he stepped out, I have to say, as a native South
    Carolinian and representing an organization headquartered in
    New York, it is a particular honor to testify for this
    particular combination of chairman and ranking member.
        On behalf of Iraq and Afghanistan Veterans of America
    (IAVA) and our nearly 300,000 members and supporters, we
    appreciate the opportunity to share with you our views on the
    final report of the Military Compensation and Retirement
    Modernization Commission.
        To give you the bottom line upfront on the commission's
    recommendations from our perspective, we see them as somewhat
    of a mixed bag. Some of the recommendations align well with the
    recommendations that we and other military and veterans
    organizations have been advocating for years while others
    appear to be bold new steps in a positive direction that merits
    serious consideration. However, a few of the other
    recommendations raise questions and concerns for IAVA and our
    members.
        But first, let me talk about some of our areas of
    agreement. We are in strong alignment with the commission on
    the need for increased DOD-VA cooperation up to and including
    sharing systems and information. The process of transitioning
    from Active Duty to veteran status is still disjointed.
    Operation Iraqi Freedom/Operation Enduring Freedom veterans
    often report gaps in care and assistance when leaving DOD and
    entering the VA system.
        Another area in which we strongly agree with the commission
    is on the urgent need for increased financial literacy and
    benefits stewardship education for servicemembers and military
    families, especially if you are going to change the dynamic and
    require troops to take more personal responsibility for their
    part of their own benefits package outcomes. We see the need
    for this not only in countless examples of predatory lending
    targeting servicemembers but also predatory for-profit
    educational institutions going after servicemembers' and
    veterans' valuable post-9/11 G.I. Bill benefits.
        Second, IAVA is interested in taking a deeper dive into the
    commission's recommendations regarding alternate retirement
    plan packages. In our 2014 annual survey of our members, 36
    percent of respondents felt that the military retirement system
    should be reformed. Of those respondents, when allowed to
    select multiple options, 67 percent favored a 401(k) style
    benefit for noncareerists, 33 percent favored increasing the
    overall value of the current retirement benefits, and 59
    percent favored a partial early retirement benefit for 10 or 15
    years of service.
        To many of IAVA members, who are by definition combat
    veterans, it seems fundamentally unfair that one can serve for
    10 or 12 years with three, four, or five more deployments and
    leave with absolutely no retirement benefit at all, yet a
    careerist who never deployed could be entitled to a full
    retirement package. Therefore, IAVA is open to reforms that
    would amend the current system to allow noncareer troops the
    opportunity to receive some retirement benefits.
        Lastly, IAVA has some serious concerns and questions with
    some of the commission's recommendations regarding reductions
    in post-9/11 G.I. Bill benefits. We will continue to analyze
    these numerous comprehensive recommendations the commission has
    articulated before developing final views. However, fundamental
    reductions in post-9/11 G.I. Bill benefits, even for
    dependents, raise red flags for IAVA and our members.
        We appreciate the opportunity to offer our views on the
    commission's recommendations and look forward to working with
    each of you and your staff and the committee to improve the
    lives of servicemembers, veterans, and their families. Thank
    you.
        Senator Gillibrand. Thank you.
        I will reserve my questions for the end. We will go to
    Senator King.
        Senator King. Thank you all for your testimony. It is very
    helpful, and also for your service.
        Ms. Holleman, I had to smile when one of the first things
    you said was the proposals are interesting. In Maine, when
    somebody says something is ``interesting,'' that means forget
    it. I sort of get the drift. ``Oh, that is interesting.''
        As you can tell from my prior line of questioning, I am
    very concerned about the issue of retention and particularly
    retention beyond 20 years, or retention of those people who
    have solid service credentials between, say, 12 and 20 years.
    Talk to me about the cliff vesting of the current system and
    how you think this would either improve retention or diminish
    it.
        Mr. Frank?
        Mr. Frank. Senator, I came in in 1987. I came in under the
    REDUX retirement plan. Ten years later, I am working a flight
    line. I am having a hard time finding a specialist to help me
    fix my airplane so we can get it in the air, and it is because
    we had a system in place that people said, you know what, I am
    not making this a career. We don't have the experience that we
    need at these particular levels.
        So, of course, it was changed. We had the option to go back
    to the High-3 system as we moved forward. TRICARE, of course,
    was coming online at that time, again, health care changes.
        Fast forward to where we are at now. As the economy gets
    better and there are less perceived value of a retirement
    system based on this new system, especially if they are not
    educated on how to properly invest or the way to go about doing
    this, you are going to have people--this is almost like REDUX
    on steroids. It is an easier off-ramp.
        You know what? I have some money now that I have socked
    away. It is even easier for me to depart the Air Force or the
    services and go out and work for this company that has offered
    me a great job. We would salute them smartly and say thanks for
    your service. But we could very well put ourselves in a
    position to have problems with those key components.
        They talk about, hey, if you go to 12 years, it will get
    you to 16, and 16 will get you to 20. But under this new
    system, I don't know.
        Senator King. But all of you said in one way, shape, or
    form the current system is working, why change it? My
    understanding is it is working great for people to stay for 20
    years, and it is not working at all for people who stay 12 or
    13 or 8. They could have three or four deployments and end up
    with zip in terms of retirement benefits.
        How is that fair or appropriate? Don't we have to do
    something about that? Isn't this proposal one of the only real
    options for dealing with that problem?
        You talked about this, from the point of view of your
    groups.
        Mr. Nicholson. Sure, I think that we would absolutely agree
    that something has to be done to give some sort of benefit to
    those who are noncareerists. I think, however, we would agree
    with our VSO and MSO colleagues that we don't want to also do
    that at the expense of those who are careerists.
        It is not necessarily a zero-sum game, or we don't have to
    look at it that way. We don't want to necessarily support
    reducing their benefits.
        Senator King. But I think this is important. The way I read
    the math, you are not reducing their benefits. They are getting
    40 percent instead of 50 percent, but the other 10 percent, if
    there is any kind of decent compounding with the contribution
    and the match.
        By the way, somebody characterized it as a 3 percent pay
    cut. Well, you can look at it that way, but it is voluntary,
    and then government is going to match it on the other side.
    That is 3 percent. I mean, it works out both ways.
        But you are going to end up with the same or more money,
    aren't you? I mean, it is not accurate to say that you're
    cutting people's retirement benefits. If you stay 20 years and
    get the 40 percent and the 401(k), what it looks like, don't
    you end up in the same place or better?
        Mr. Jones. At what age does one retire? Is it 40, 42? At
    what age does one receive the TSP? So for that period of time,
    between your age of retirement and the acceptance of the TSP
    401(k) program, you have benefits that are reduced 20 percent
    through that period. That is practically where a lot of the
    money comes from that it is being saved in this program. Do you
    follow?
        I retire at age 42, and I get 40 percent instead of 50
    percent under the current program in my retirement check. I
    wait until I am 65 or 60 to receive TSP. That is where you
    begin to make an equivalence.
        Senator King. So that is the difference that you see as the
    disadvantage of this program to somebody who stays longer than
    20 years.
        Mr. Jones. Well, the other thing that you mentioned
    earlier, that a lot of the senior officials who are in the
    military stay beyond 20, 20 to 28. Between 20 and 28, there is
    no TSP match. There is no contribution of 1 percent for those
    folks.
        So when you speak about retention, Congress decided in 2007
    that they needed that experience. So what they did was to allow
    retirement benefits to continue beyond 30 years. I think two
    members of the panel stayed with the military for that period
    of time beyond 30 years.
        That experience counted. It saved not only money that might
    have been required for training, but it saved lives through
    that experience. So that was a very important thing that
    Congress did in 2007.
        Senator King. What is your reaction to the problem of the
    12-year veteran who has served three or four deployments and
    ends up with no retirement benefits whatsoever?
        Mr. Jones. Well, I thought I made it clear in my statement
    and I will do it again, the deal is that we like that part. We
    think there should be some TSP agreement, if they can make a
    contribution. Forty percent of folks voluntarily get into that
    program.
        Evidently, there are 17 percent of people who go on for
    retirement. If every retired person, 17 percent of the force,
    was part of that voluntary 40 percent, that still would leave
    23 percent of the folks in service who are not making a career
    in TSP.
        So that is an acceptable program. If you can enhance it, it
    will be like magic. People would love to come in.
        Senator King. So you would do the TSP but not the cut from
    50 to 40.
        Mr. Jones. Absolutely. I am not at a negotiation table
    here, but there could be some program like that, and it would
    enhance that benefit for particularly those in this drawdown. I
    mean, we are pulling people out of the combat zones and giving
    them the pink slips.
        Senator King. That is going to be a real problem in the
    next several years.
        I hope you all can help us get rid of the sequester,
    please. Can we all agree that that is something we need to work
    on together?
        Mr. Jones. The final page of testimony is that that is the
    real problem, the sequester. That is what we would love to see,
    the end of that sequester for defense.
        As was mentioned earlier by the chairman, there is a
    substantial reduction in Navy ships, in the force for the Air
    Force, right down the line. This is a very dangerous time, and
    there are problems all around the world, hotspots from Iraq to
    the Japanese sea.
        Senator King. Well, I hope, as part of your communications
    mission, you will not only be reacting to this issue, but also
    communicate to your Representatives and your Members the
    importance of dealing with sequester, because that is a huge
    problem. It is going to cost American lives.
        Thank you.
        Ms. Parke Holleman. May I say, quickly, we are. We are all
    talking about sequester. But when you are analyzing the
    proposed package, I would ask that you analyze it at 1 percent,
    just the 1 percent, all the way up to the 5 percent matching. I
    would ask that you do both, because, as Senator Gillibrand
    said, there are many, particularly enlisted young ranks, who
    cannot afford or at least, certainly, don't feel they can
    afford a 3 percent cut in their pay. There are people with real
    financial problems in our young enlisted ranks. The 3 percent
    or the 5 percent matching could be could really feel like a
    bridge too far for them.
        So when you are looking at that, I would be grateful if you
    looked at various, not just the 5 plus 1, but the 3 and the 1
    by itself.
        Senator King. Thank you.
        Ms. Parke Holleman. Thank you.
        Senator King. Mr. Chairman?
        Senator Graham [presiding]. Senator Tillis?
        Senator Tillis. Thank you all for being here. I thank you
    for your service and your continued service.
        A couple questions. I mean, first, would you all agree that
    giving more servicemembers more retirement benefits is a good
    thing?
        Mr. Jones. It is good thing.
        Senator Tillis. That we do have a problem with those men
    and women who are serving who are not going the full 20 years,
    that we owe it to them to provide them with something more than
    they are getting today?
        Mr. Jones. We could improve that.
        Senator Tillis. The next question I had, is this report is
    fairly fresh. And I see Mr. Frank, I know you have a copy of
    the report before you, I believe. It looks like it is tabbed in
    the first 15 or 20 pages. My guess is, like us, you haven't
    been able to thoroughly exhaust going through it, modeling it,
    and reviewing all the recommendations.
        Mr. Frank. That is correct.
        Senator Tillis. So you have to spend some time doing that,
    coming up with use cases and really understanding how this
    affects your members and the stakeholders who are referred to.
    I am going through that same process.
        Ms. Holleman, you made a comment that reminded me of a
    discussion I literally just had yesterday with one of my
    legislative staff who was talking about the TSP and the
    matching. This person, college educated, I think he actually
    even did some finance studies in school, was questioning the
    wisdom of taking advantage of the math. I had to sit down with
    him like I did with my daughter and my son, when they first had
    to do that.
        I would say that it may look to a younger person that that
    is insurmountable. But I think if we really educate them
    through financial literacy, they will realize it will be a
    great long-term benefit to them.
        That is one of the reasons I am excited one of the
    recommendations is increased investment in financial literacy,
    so that they can make informed decisions. And in some cases
    perhaps the 1 percent or 3 percent or 3 percent or 5 percent
    isn't achievable. But I hope for many it will be, because it
    benefits them long term.
        I guess my question goes back to the feedback that you are
    getting. Is the feedback that you are getting from your members
    now more based on a fear of the unknown or documented examples
    of where this would be less preferable than the status quo?
        Mr. Frank. I would tell you, Senator, from our association
    that the feedback that we have is significantly different than
    what they put on a chart. So 80 percent of anybody in favor of
    anything is suspect sometimes. So I don't know that I ever
    found that in the Air Force, that anybody was ever in favor 80
    percent.
        So again, this is early returns, but it is statistically
    significant that now that they see the whole picture, and I
    know how the question kind of led out with the survey was.
    Would you like this, would you like this, and then they put it
    together with people who are good with those kind of things.
    But the reality is, now that people see it in context, it is,
    ``Oh, wait a minute, I am not sure.''
        I think, to Chairman Graham's point earlier, they have been
    in the Service a while. ``I am not sure that this necessarily
    what I like to do.''
        But they are also looking at other suggestions in there, in
    the particular report. But to that one, at least this is a
    known safe factor for me.
        Senator Tillis. Mr. Frank, I think you touched on an
    important point. And as I said earlier about Chairman Graham,
    he is in a much more advanced state, shall we say, in terms of
    his career progression, so it probably isn't going to make
    sense for him, which has proven to be the case in a number of
    other cases. We are talking about people being an opt-in into
    the other plan. Silence is consent with the current plan.
        So just understanding we have that has a level set. This is
    not changing the deal for those who came in with this option.
        We need to go through a process here of education. But I
    would really encourage you, as you are going through and
    forming an opinion about this, this is reminiscent of a few of
    the cycles that I have done before I entered public service and
    private sector work.
        I agree with your opening comment. There is no job like the
    job of serving in the U.S. Armed Forces. But I do believe that
    this program is something that could potentially provide some
    balance. But what we need to do is provide the resources so
    that the people who ultimately give you feedback, they cannot
    possibly know the use cases that apply to that, in the same way
    that they may not completely understand the compounding
    opportunity that they could have if they hopped into the plan.
        So I think that we have to do a lot of work so that we can
    get feedback and identify any outliers where maybe there are
    some things that would have. to be changed, if we were to move
    forward with this plan.
        So I hope we can get your commitment and make sure that we
    provide assistance. I know that my staff will be pouring
    through this plan, and that we'll give you the information so
    you can model it, because I do believe the adoption rate is
    probably not too far off from what was ultimately seen in large
    programs done in, say, a 300,000-person organization that I
    have had some exposure with.
        So just keep your mind open. I think you should always be
    vigilant and do exactly what you are doing here and advocate,
    but keep your mind open and figure out what we can do to
    provide you with information to do that modeling.
        I do have some things that are probably--you made positive
    comments on I think the recommendation on financial literacy.
    You would generally agree that is a good thing, not only in
    terms of making a decision about this retirement plan but for
    long-term financial planning.
        Ms. Parke Holleman. Absolutely.
        Mr. Frank. Senator, and to add to that, I think you have to
    get to them early, before basic training.
        Senator Tillis. Absolutely. In fact, we are doing that in
    high school down in North Carolina now as a part of financial
    literacy curriculum requirements. I agree with you.
        Do you all agree that on other areas, outside of the
    retirement plan, that SNAP provides more robust benefits than
    FSSA?
        Ms. Parke Holleman. I do, yes, Your Honor. [Laughter.]
        Senator Tillis. You can call me Thom.
        Ms. Parke Holleman. Thank you kindly.
        Mr. Frank. Senator, in my experience as a first sergeant,
    the FSSA was actually to get away from the stigma of food
    stamps. It just was a pain in the rump, I will say, to work
    through that. So SNAP probably would be a better option.
        Ms. Parke Holleman. There are only a few hundred people in
    that program, because of the problems. Since the commission
    recommended that it continue overseas, then we are very much
    for that recommendation.
        Senator Tillis. Thank you. Any other comments?
        Mr. Jones. It is a rational proposal.
        Senator Tillis. Okay.
        Do you all also believe that the G.I. Bill is a good
    incentive for retention?
        Mr. Frank. Certainly.
        Mr. Jones. It is for recruitment, the G.I. Bill is a
    tremendous recruitment incentive. Retention was modified and
    well done by the current chairman and also the current chairman
    of the full committee. We supported that when it was presented.
        Mr. Frank. Its transferability is a retention tool. I am
    concerned about the proposed change a little bit, but
    definitely a tool.
        Senator Tillis. And, Senator Graham, did I hear you were
    working on grandchildren?
        Senator Graham. Not mine, but others'.
        If I did the Strom thing, it's possible, but I better get
    started.
        [Laughter.]
        Senator Tillis. If I could just ask a couple more
    questions, I know my time has expired. These are things that I
    didn't get to the other panel, and that was if you had all dug
    in long enough to form any opinions about the recommendations
    on the national student identifier, benefits or concerns?
        Mr. Nicholson. That has been on the lower end of our
    priority list.
        Senator Tillis. How about space available travel?
        Mr. Nicholson. That seems like a good one.
        Mr. Jones. Excellent idea.
        Senator Tillis. And do you think it is going to have any
    effect on availability for retirees? I didn't get a chance to
    ask that of the panel members.
        Mr. Frank. Well, Senator, as a matter of fact, I had a
    conversation with a couple folks the other day on this very
    topic, and that is exactly what they brought up, for retirees,
    it may take some space there. I think we have to look at this a
    lot further. Off-the-cuff, it looks like a great thing. If
    space is available, allow them to do that. But it might have an
    impact.
        Senator Tillis. I was going to submit that as a follow-up
    question to the first panel. But I want to let you all know
    that this is something that is very important to me. I come
    from North Carolina. We have a couple people in uniform down
    there, and this is a very, very important matter to me. I
    welcome you to come to my office and discuss your concerns with
    my staff and with me. Thank you.
        Mr. Nicholson. Senator Tillis, could add one more thing to
    your earlier question? On the issue of member feedback, the
    numbers I cited earlier, the 36 percent of respondents who were
    in favor of reforming the retirement system, we do one of the
    largest annual service surveys of Iraq and Afghanistan veterans
    in the country. At the time we did our 2014 survey, we of
    course didn't know what the proposals were going to be. We
    tried to formulate questions to get at this issue in advance,
    having, of course, talked to the commissioners about where they
    were going with this.
        We intend to survey more specifically in our 2015 survey,
    which we will deploy in a couple weeks, on the specific
    recommendations.
        But I would just think that one of the biggest things we
    have been seeing, because in addition to our quantitative
    surveys, I mean, a lot of our feedback is qualitative. It is
    through social media. The biggest thing I have been seeing is
    what you mentioned earlier, the fear of the unknown. A lot of
    people are under the mistaken impression, still, no matter how
    many times we say, you all say, and the commissioners say that
    this not going to be impact those who are currently in or
    currently retired, the biggest fear that we see seems to be
    that it is. They don't believe it or they're not hearing that,
    for some reason.
        So if the methodology of the commission in arriving at
    their 80 percent figure is to have explained what the system
    would be and then gauge a reaction, I don't find it beyond the
    scope the reality that the 80 percent number could be accurate.
    But the biggest issue I think not only in gathering accurate
    data, but in terms of P.R. for the commission itself moving
    forward, and any changes that might be pursued and proposed, is
    clarifying and amplifying that data point that this isn't going
    to impact those who are currently in the system.
        Senator Tillis. Mr. Nicholson, that is a great point. And
    just to reinforce it, when I say, if you like your plan, you
    can keep it, when I hear the commission say, at repeated
    requests from me and Senator Graham that that is the case, that
    will be an area that we'll be working on to confirm, because I
    think it is critically important. You don't break a promise
    that you made to the people who entered with that expectation.
    I think that is critically important.
        The other thing that I will send as a follow-up to the
    commission is so that you can provide the kind of tools--I
    don't know what the implementation strategy would be here, and
    the stakeholder engagement strategy would be. But it almost,
    certainly, needs to use the kind of tools that are used in the
    private sector to say, if you are a soldier at this point in
    time and you model out the financial choices that will be a
    part of financial literacy, I would presume to give them that
    informed decision about what this exactly means to them, that
    this decision makes, so that we can really begin to identify
    the people to become a part of that potentially 80 percent or
    60 percent, whatever that number is, and the ones who may have
    legitimate concern in the plan design that we need to address.
    We will be pursuing that as a part of our due diligence.
        Thank you, all.
        Mr. Jones. Senator, one thing on the plan, that you can
    keep it. There is a provision in the recommendations that
    allows the Secretary to change the 20-year period for career
    either to more years or to fewer years. So if you can keep your
    plan, the Secretary may change it.
        Senator Graham. Thank you. Well, we will fix that, if that
    is true.
        So the bottom line is you have to look at it this way. The
    chairman of this committee is a military retiree. I am not
    going to go to John McCain and say we are going to take your
    retirement away. I'll let someone else do that. We're not. That
    wouldn't be fair. So just chill out. Nobody's going to mess
    with something you've already earned.
        If I don't get court-martialed, I'm retiring in August
    after 33 years. I'm not going to screw with my own retirement.
    If nothing else, you can believe that.
        I'm not going to put people in the position who have
    served, ready to retire, that they are going to lose anything.
    It is not fair. If you are on Active Duty today and this is
    your first day of Active Duty, you can keep the current system
    until we pass a bill, if we ever do, because to do otherwise is
    not fair.
        It is not fair to kick somebody out at 12 at no fault of
    their own, because we are reducing the force and Congress is
    stupid to do sequestration. That is your guys, the Iraq and
    Afghan vets. We want to do right by them, and that means a new
    benefit that doesn't exist today. We want a sustainable,
    generous benefit.
        Here is my belief, that if you are going to enlist in the
    military the day after we reform the system, you are going to
    know on day one that the defined benefit plan is 40 percent. If
    that is not a good deal for you, don't join. Go somewhere else.
    If you are halfway decent at managing your money, you'll make
    up the 10 percent.
        But, Ms. Holleman, we are going to make sure that the 1
    percent is modeled out because a lot of people live paycheck to
    paycheck. So I want to take the most conservative estimate of 1
    percent and see how much of the 10 percent that makes up.
        From 20 to 30, I am not worried about that group because at
    20, you are basically working for half pay anyway. You just
    obviously like your job, because you could quit and get half
    your salary and go do something else. So the reason people stay
    past 20 is they just like what they do, and they want to get
    promoted and maybe increase their retirement. So I am not
    really worried about that so much, Mr. Jones.
        But what I am worried about is, does the math add up? It
    sounds like a good deal, but let's test it. And if you need
    more time to run the numbers, you are going to get it, because
    this is a transformational change. And we want to do it
    thoughtfully.
        If I were a young person coming into the military, let's
    say I had been in 4 years, I would take the blended plan in a
    heartbeat. You are just going to have more. But if I am 16, 17
    years in, I'm sticking with what I have. It makes no sense.
        So I bet you that 19 percent reflects people who are close
    to 20, and that 80 percent, whether it is accurate or not,
    probably reflects people under 10.
        When you look at the G.I. Bill, it rewards people to stay
    past 12 by transferring their benefits to their kids. That is a
    big deal. That is one less expense in retirement, paying for
    your kids' college. Under the current plan that they are
    proposing, you get a bonus to stay in, an incentive to stay in,
    so that helps retention. I think those two things make sense.
        The idea that you are paying for this on the back of the
    people past 20, I don't really buy that. But I want to know
    more about it, because you can't create a new benefit helping
    the 12-year guy, the 8-year guy, without something giving. And
    I don't want to punish somebody because you are helping
    somebody else.
        But I think this modernization effort of a blended plan
    will serve the country well. A 40 percent defined-benefit is a
    pretty good deal. There are not many deals like that in society
    today.
        But what we are asking people to do is an incredible thing,
    and that is to get shot or get killed. So I am going to make
    sure that you get a good deal. If it is below 20 percent cost
    share, it will be because I think you have earned a discount
    when it comes to health care.
        So please be mindful that this committee wants to embrace
    modernization, but it won't be punitive. But if it does save
    money to make the system more sustainable, that is a good
    thing, because we are $17 trillion, $18 trillion in debt and we
    ought to be looking for savings where we can.
        So I will shut up now and take any final comments.
        Mr. Frank. Chairman Graham, it was a great opportunity to
    come talk, and we do appreciate the opportunity the extended
    time to look at this.
        To your point, there are only a few marks in here. It is a
    little beat up, but it is going to get worse. And we would love
    to spend some time, obviously, discussing it with all of you in
    the future and help find the way forward.
        Senator Graham. We will try to be reasonable and make sure
    you have a reasonable amount of time. I will be very sensitive
    to that.
        Mr. Frank. Thank you.
        Senator Graham. Thank you all so much for participating and
    representing your interests very well. Thank you.
        The hearing is adjourned.
        [Whereupon, at 4:53 p.m., the subcommittee adjourned.]

        [Questions for the record with answers supplied follow:]
              Questions Submitted by Senator Kirsten E. Gillibrand
                                   retirement
        1. Senator Gillibrand. Commissioners, the Department of Defense's
    (DOD) own studies, and those of outside think tanks, seem clear that
    your average 17-21 year old does not spend a lot of time thinking about
    the retirement system or what kind of healthcare the military will give
    them when they retire 40 years in the future. This seems reasonable
    since most servicemembers--above 70 percent--only serve one enlistment.
        Instead, it seems more likely that young recruits care about cash
    compensation, housing, and education benefits. The commission undertook
    an extensive study of these values and preferences. According to the
    commission's study, does this demographic prefer the hybrid retirement
    system you recommend here?
        Mr. Maldon. Yes, the Commission's survey showed that lower pay
    grade groups, both enlisted and officer (E1-E4 and O1-O3) generally
    preferred the blended retirement model. For example, E1-E4 active-duty
    servicemembers prefer the blended plan by a margin of 60:40.

        2. Senator Gillibrand. Commissioners, the commission's
    recommendation is that retirees leaving after 20 years of service have
    the option to choose a lump-sum in place of all pension payments up
    through age 67, or to split the difference by getting half of the
    benefit upfront and the other half spread out in monthly checks. All
    the options the commission recommends would resume monthly payments to
    retirees at age 67. How does the commission recommend that DOD
    calculate that lump sum?
        Mr. Maldon. The Commission does not recommend a specific
    methodology for calculating the lump sum. In general, it is expected
    that the lump sum would be calculated as the present value of all or a
    portion of retired pay between retirement and age 67. The present value
    would be calculated with a selected discount rate, and assuming a level
    of expected retired pay cost-of-living adjustments (COLAs). However,
    the Commission recommends that the Secretary of Defense establish
    policy to calculate lump sums, including discount rates and COLA
    assumptions.

                          financial literacy programs
        3. Senator Gillibrand. Commissioners, currently every branch has
    different policies on how they provide financial literacy. Would the
    new proposed program be standardized across the branches or left up to
    each branch to set their own policies?
        Mr. Maldon. The recommendation establishes minimum training
    timelines that would be standardized across the Services. This minimum
    standard would ensure a level of commonality for financial literacy
    training that servicemembers receive. The Services would retain the
    flexibility to offer additional training to their respective
    servicemembers.
        Minimum training events would be provided during initial training
    or upon arrival at the first duty station; during leadership and pre-
    and post-deployment training; at transition points (e.g., Active
    component to Reserve component, separation, and retirement); at major
    life events (e.g., marriage, divorce, birth of first child, disabling
    sickness or condition); and upon request of the individual.

        4. Senator Gillibrand. Commissioners, the commission report
    recommends DOD hire outside firms to provide financial literacy
    training. Currently every branch has a different set of policies on how
    they provide financial literacy. Does the commission agree that all the
    branches should have the same financial training provided for their
    military member?
        Mr. Maldon. The recommendation establishes minimum training
    timelines that would be standardized across the Services. This minimum
    standard would ensure a level of commonality for financial literacy
    training that servicemembers receive. The Services would retain the
    flexibility to offer additional training to their respective
    servicemembers.
        Minimum training events would be provided during initial training
    or upon arrival at the first duty station; during leadership and pre-
    and post-deployment training; at transition points (e.g., Active
    component to Reserve component, separation, and retirement); at major
    life events (e.g., marriage, divorce, birth of first child, disabling
    sickness or condition); and upon request of the individual.

        5. Senator Gillibrand. Commissioners, how are the commission's
    recommendations different from current financial literacy training in
    the military?
        Mr. Maldon. The Commission's recommendation substantially increases
    the frequency and content of financial literacy training for
    servicemembers, as well as provides common minimum training standards
    for all Services. Based on the 2013 Blue Star Families Annual Lifestyle
    Survey, only 12 percent of servicemember respondents indicated they
    were receiving financial education from servicemember training. The
    Commission's recommended changes to financial literacy training would
    ensure servicemembers universally received financial literacy training
    at certain key times over the course of their military career. Another
    change would be hiring professional trainers to provide financial
    literacy training, ensuring that servicemembers are receiving training
    from certified financial advisors.

                department of defense commissaries and exchanges
        6. Senator Gillibrand. Commissioners, in fiscal year 2013, the
    Defense Commissary Agency reported the average discount for commissary
    patrons to be 30.5 percent and the exchanges reported savings between
    20 and 24 percent. Respondents to the commission's survey indicated
    that a commissary discount of 10 percent or less offers little to no
    value. What impact will the commissions' recommendation have on the
    level of discounts at commissaries and exchanges?
        Mr. Maldon. The Commission's recommendation is focused on
    preserving and improving the benefits delivered to servicemembers and
    their families through commissaries and exchanges. At the core of this
    recommendation is a statutory guarantee that food would continue to be
    sold at cost (plus a 5 percent surcharge) in commissaries. Although
    just as it is now, no restrictions would be placed on exchange pricing,
    to remain competitive in the face of increased private-sector
    competition, the exchanges would need to continue to offer substantial
    discounts. The nine strategies suggested in the Commission's final
    report offer the consolidated resale system additional opportunities to
    reduce costs and increase revenue. These strategies include the
    following: consolidate and optimize logistics networks, consolidate
    staffing creating shared services business units, convert some or all
    of the commissary workforce from APF to NAF employees, expand
    commissary sales through the introduction of convenience items with
    variable pricing, aggregate procurement of supplies and services,
    reduce second destination transportation costs, aggregate and align
    capital expenditures, expand the Military STAR card to commissaries,
    and consolidate retail space. Pursuing some or all of these
    opportunities can increase profits. The additional profits can be used
    to increase the discount on nonfood items, improve the commissary and
    exchange facilities, increase Morale, Welfare, and Recreation (MWR)
    dividends, or reduce the appropriated fund burden. To satisfy the Board
    of Directors, the Executive Director of the consolidated resale system
    would need to find the right balance among these competing demands,
    satisfying the needs of the Military Services and the needs of
    shoppers. Shoppers would not be satisfied unless they were provided the
    right goods and services, in a safe and pleasant environment, at an
    acceptable discount.

        7. Senator Gillibrand. Commissioners, how does the commission
    envision maintaining the profits that go to Morale, Welfare and
    Recreation activities in this new system?
        Mr. Maldon. The Commission's recommendation preserves the partial
    dependency of MWR programs on resale profits. The Commission's Final
    Report offers multiple ways that the consolidated organization can
    increase profits through reduced operating costs or increased sales.
    Through the Board of Directors, the Military Services would determine
    and direct the best use of those profits, making tradeoffs among the
    needs of the MWR programs, the benefits of reinvesting in the resale
    system, and the goal of slowly reducing the burden on taxpayers.

        8. Senator Gillibrand. Commissioners, has the commission considered
    allowing veterans, regardless of retirement or duty status to use the
    Exchanges online? How would this affect the profitability of the
    Exchanges?
        Mr. Maldon. The Commission considered multiple options for
    expanding the list of authorized patrons, both in exchange facilities
    and online. The decision to increase the patron base must consider
    multiple factors, such as estimated profits, concerns over fairness,
    the likely response from private-sector retailers and their
    representatives, and the control and management of access. Although it
    is reasonable to expect some increase in profits, the Commission did
    not find defensible analysis to quantitatively estimate that increase.
    Accordingly, no effort was made to assess the objections that may be
    raised by States, commercial retailers, and other groups regarding
    substantial expansion in the eligible population of tax-free shoppers.

             improve access to childcare on military installations
        9. Senator Gillibrand. Commissioners, did the commission look at
    how the proposed reduction in the force structure would impact the
    current childcare wait times?
        Mr. Maldon. Child care services, demand for those services, and
    associated wait times can vary substantially from location to location.
    The data needed to establish a baseline and perform a credible analysis
    of the effect of force structure reductions at each location was not
    available.
        To address changes in force structure and other variables affecting
    demand, the Commission instead focused its child care recommendations
    on standardizing the tools needed to measure demand and minimize the
    obstacles to satisfying that demand. Upon implementation of these
    recommendations, the Military Services would be better able to
    understand and respond to changes in demand, including effects
    associated with local force reductions.

        10. Senator Gillibrand. Commissioners, bases have 24 hour
    operations; why did the commission not make recommendations on how to
    help military families with childcare during nights and weekends?
        Mr. Maldon. The Commission received only a few inputs citing
    concerns with the availability of military child care outside of normal
    business hours. Many parents cited the extended hours offered in Child
    Development Centers (CDCs) as one of the advantages over private-sector
    alternatives, noting the CDC's willingness to open early to support
    activities like physical training or stay open late to support extended
    working schedules.

                safeguard education benefits for servicemembers
        11. Senator Gillibrand. Commissioners, many current servicemembers
    have made decisions about whether to extend their service based on the
    current G.I. Bill benefits and what they could do for themselves and
    their families. I am concerned that making changes without a
    grandfathering process would pull the rug out from under these
    servicemembers plans. Did the commission look at how many
    servicemembers would be impacted by the 2017 sunset in your
    recommendations?
        Mr. Maldon. Yes, this is why the Commission recommended sunsetting
    the living stipend for dependents on July 1, 2017. Doing so would allow
    time for families to identify alternative methods of paying for room
    and board if needed.
        Using available historical data, the Commission estimated that
    approximately 400,000 dependents would need to identify alternative
    methods of paying for room and board. It is important to note that more
    than 33 percent of children to whom Post-9/11 GI Bill benefits have
    been transferred are younger than 10 years old, and thousands of these
    children are infants.

        12. Senator Gillibrand. Commissioners, did the commission consider
    alternatives that would allow for greater grandfathering of the current
    benefits?
        Mr. Maldon. Under the Commission's recommendation, retired pay is
    grandfathered for currently serving servicemembers and retirees.
    Benefits from the Montgomery GI Bill and REAP are also grandfathered.
    Several of the Commission's recommendations improve or maintain current
    benefits (e.g., Commissary savings, financial literacy training, and
    child care availability) or provide new options without changes to the
    current benefit (e.g., Survivor Benefit Plan). For these
    recommendations, grandfathering would not be necessary. It is not
    feasible to grandfather the current TRICARE program under the
    Commission's health care recommendation.

                          transition to civilian life
        13. Senator Gillibrand. Commissioners, one of the commission's
    recommendations is focused on strengthening the new Transition GPS
    program that requires several reports to Congress. What is the
    commissions' assessment of the current effectiveness of the current
    Transition GPS program?
        Mr. Maldon. Although overall veterans' unemployment has remained
    lower than that over nonveterans during the last 2 decades, since 2005,
    veterans age 18 to 24 have consistently had a higher unemployment rate
    compared to nonveterans. One large company told the Commission that
    veterans, even those who complete the Transition GPS program, do not
    necessarily have the networking skills they need to get jobs. Despite
    the fact that a recent survey showed 44 percent of veterans attend
    school part- or full-time, the education track of Transition GPS is
    optional. Assessing the outcomes of the program is difficult because
    the matrixes needed to do so are incomplete. Veterans may also benefit
    from more face-to-face interactions with employees at One-Stop Career
    Centers. Currently, these employees are not required to attend
    Transition GPS workshops and their participation in veteran-focused job
    fairs is not monitored or reported.

                         military dependents education
        14. Senator Gillibrand. Commissioners, the commission has
    recommended adding military dependent student identifiers to the
    Elementary and Secondary Education Act (ESEA). What benefit does the
    commission see from tracking military dependents?
        Mr. Maldon. Currently, there is no systematic way to identify
    issues military students might experience because of the military
    lifestyle. Tracking information reported about these students through
    the ESEA data submitted by schools would provide DOD with the means to
    compare military children against their peers and to identify areas
    where additional support might be needed to better serve military
    children in their schooling.

        15. Senator Gillibrand. Commissioners, does the commission think
    that more resources will be required to help teachers and
    administrators be better prepared to meet the needs of military
    children?
        Mr. Maldon. Currently, military children are not identified as such
    in public school data reported to the Federal Government. Large-scale
    data specifically pertaining to military children's achievement in
    school does not exist; therefore, the Commission did not consider if
    more resources are required to help teachers and administrators be
    better prepared to meet the needs of military children. The first step
    is to identify any concerns about military children's schooling by
    tracking their achievement, and the Commission's recommendation
    regarding the military student identifier creates a tool for generating
    data needed to do so.

        THE HEALTHCARE RECOMMENDATIONS OF THE MILITARY COMPENSATION AND
                      RETIREMENT MODERNIZATION COMMISSION

                                  ----------

                          WEDNESDAY, FEBRUARY 25, 2015

                                   U.S. Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 2:36 p.m. in
    room SH-216, Hart Senate Office Building, Senator Lindsey
    Graham (chairman) presiding.
        Committee members present: Senators Graham, McCain, Cotton,
    Tillis, and Gillibrand.

         OPENING STATEMENT OF SENATOR LINDSEY GRAHAM, CHAIRMAN

        Senator Graham. Hearing come to order. I apologize for
    being late.
        We have a vote at 2:45 p.m., so let's just get started, see
    how far we can go, and just keep the trains running, here, so
    we get the testimony we need from this distinguished group.
        The Military Compensation and Retirement Modernization
    Commission (MCRMC) has been introduced to the committee about
    four times. Are y'all still the same people you were before?
        Mr. Maldon. We are, Mr. Chairman.
        Senator Graham. Okay. If you could just start with the
    Admiral, here, for the record, announce who you are, then we'll
    get started. I'll defer any opening statements to the Senator
    from New York.

               STATEMENT OF SENATOR KIRSTEN E. GILLIBRAND

        Senator Gillibrand. Mine's really short, but I am just
    going to say thank you to Senator Graham for his leadership on
    this committee. I want to join him in welcoming all of you to
    be our witnesses.
        We've already held a full committee hearing and a Personnel
    Subcommittee hearing on the MCRMC's findings and
    recommendations. Obviously your work is incredibly important to
    this committee. Today's hearing will address the MCRMC's
    recommendations to improve health benefits for our
    servicemembers and families. I'm especially interested in
    hearing from our witnesses about how these recommendations
    address the issues of healthcare access, healthcare choice, and
    healthcare quality for the junior enlisted families and for
    military families with special needs dependents.
        Recent reports indicate that many Military Service
    organizations have reservations about these specific
    recommendations. We will hear from some of these Service
    organizations today during the second panel. I take their
    concerns seriously and will ensure that their concerns are
    addressed before we consider any major overhaul of the military
    healthcare system.
        Again, thank you for your excellent effort in this regard.
    We're very grateful for your hard work.
        Senator Graham. That was well done, and quick.
        Senator Gillibrand. Short and sweet.
        Senator Graham. Admiral.
        Admiral Giambastiani. Good morning, sir. Ed Giambastiani,
    retired Navy.
        Mr. Buyer. Congressman Steve Buyer, class of 1980.
        Senator Graham. Go Dogs.
        Mr. Maldon. Al Maldon, chairman.
        Mr. Higgins. I'm Mike Higgins.
        General Chiarelli. Pete Chiarelli.
        Senator Graham. Thank you all for your great service. We'll
    receive your testimony.

      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.), AND ADM EDMUND P.
                     GIAMBASTIANI, JR., USN (RET.)

        Mr. Maldon. Thank you, Mr. Chairman, Ranking Member
    Gillibrand, distinguished members of the subcommittee. My
    fellow commissioners and I are honored to be here with you. We
    thank you for the opportunity to testify before you again
    today.
        As a Commission, we stand unanimous in our belief that the
    recommendations offered in our report strengthens the
    foundation of the All-Volunteer Force, it ensures our national
    security, and it truly honored those who serve and the families
    who support them. Our recommendations sustain the All-Volunteer
    Force by maintaining or increasing the overall value of the
    compensation of benefits for servicemembers and their families,
    and provide needed options for service personnel managers to
    design and manage a balanced force. Our recommendations,
    further, save the government more than $12 billion annually
    after full implementation.
        Today, we specifically address our recommendations to
    improve the military health benefit. Modernization of the
    health benefit was one of the most sacred trusts given to this
    Commission. There is no benefit more fundamental, nor one more
    personal, than that which maintains the very health and well-
    being of our Nation's heroes and their families.
        As commissioners, we share the unequivocal belief that a
    high-quality health benefit is essential for all military
    constituencies, and we find that the current TRICARE program
    falls short of this aspiration. TRICARE, as it exists today, is
    beset by several structural problems that deny our Active Duty
    families, Reserve-component members, and retirees the high-
    quality health benefit they deserve.
        Low reimbursement rates result in weak healthcare networks,
    a frustrating referral process that limits access to care
    unnecessarily. A key medical advancement and modern healthcare
    management practices are often slow to be adopted. The current
    TRICARE program limits choice, access, and quality. Conversely,
    our recommended--our recommendation on TRICARE Choice program
    expand all three while increasing the overall value of the
    health benefit to the servicemember.
        Choice and access are important components of a high-
    quality health benefit, and we believe they can be delivered
    without undermining the existing Military Treatment Facility
    (MTF) structure and the training platform it provides. Current
    TRICARE beneficiaries already elect MTF-based care through
    TRICARE Prime, even when other options are available to them.
    The Commission's survey showed that servicemembers strongly
    prefer a health benefit that both increases choice of civilian
    providers and ensure continued access to MTF care.
        Moreover, our proposed TRICARE Choice offer the same
    incentives to choose MTF care as DOD's less robust TRICARE
    reform proposal, and would be expected to result in the same
    retention of workload at the MTFs. Our recommendations further
    offer tools to improve medical readiness by attracting new
    cases into the MTFs, especially those related to combat
    casualty care.
        Currently, there are serious challenges to maintaining
    joint combat medical capabilities with the typical mix of cases
    during peacetime. As a result, military medical personnel often
    rely on just-in-time proficiency training at civilian
    hospitals, and the Services substitute wartime medical
    personnel requirements with nonoperational family and retiree
    care specialists during peacetime. Our healthcare
    recommendations improve the viability of MTFs as a readiness
    training platform by providing our families and retirees with
    greater access, choice, and value to their healthcare
    experience.
        Finally, Mr. Chairman, our recommendation on DOD/Department
    of Veterans Affairs (VA) collaboration improves the healthcare
    experience for transitioning servicemembers. Just one example
    of insufficient collaboration, drug formularies continue to
    differ between DOD and VA, to the detriment of our
    transitioning servicemembers. Differing formularies often
    results in uncertainty, tension, and a lack of continuity of
    care for wounded warriors that should not exist, especially for
    those managing pain and mental health concerns. Our
    recommendations ensure proper continuity of care, regardless of
    the organizational considerations.
        In closing, my fellow commissioners and I again thank you
    for the opportunity to testify here today. It has been our
    honor and privilege to serve our servicemembers and their
    families in our role as commissioners, and a particular honor
    to seek ways to improve and modernize the health benefit. We
    are confident that our recommendations will serve our
    servicemembers in a positive, profound, and lasting way.
        We are pleased to answer your question at this time.
        Thank you.
        [The prepared statement of Mr. Maldon follows:]
        Prepared Statement by the Military Compensation and Retirement
                            Modernization Commission
        Chairman Graham, Ranking Member Gillibrand, distinguished members
    of the subcommittee: My fellow commissioners and I are honored to be
    here, and we thank you for the opportunity to testify today.
        As a Commission, we stand unanimous in our belief that the
    recommendations offered in our report strengthen the foundation of the
    All-Volunteer Force, ensure our national security, and truly honor
    those who serve--and the families who support them--now and into the
    future. Our recommendations represent a holistic package of reforms
    that do not simply adjust levels of benefits, but modernize the
    structure of compensation programs for servicemembers. These
    recommendations sustain the All-Volunteer Force by maintaining or
    increasing the overall value of compensation and benefits for
    servicemembers and their families, and they provide needed options for
    Service personnel managers to design and manage a balanced force. Our
    recommendations also create an effective and efficient compensation and
    benefit system that saves the Government, after full implementation,
    more than $12 billion annually, while sustaining the overall value of
    compensation and benefits of those who serve, those who have served,
    and the families that support them.
                                joint readiness
        Some have suggested that increasing access to and choice among
    health care providers would impair readiness by limiting training
    opportunities in Military Treatment Facilities (MTF). Yet beneficiaries
    currently have complete freedom to use TRICARE Standard or Extra to
    seek care outside of MTFs, but they often choose TRICARE Prime and
    receive MTF care. The Commission's survey also showed that
    servicemembers strongly prefer a health benefit that, while increasing
    choice of civilian providers, allows continued access to MTF care. The
    Department of Defense's (DOD) TRICARE reform proposal recommends
    elimination of TRICARE Prime with lower MTF co-payments to incentivize
    continued MTF usage. TRICARE Choice proposes the same incentives and
    should therefore result in the same retention of readiness workload at
    MTFs.
        Furthermore, our recommendations contain additional tools that
    enable DOD to improve medical readiness by attracting new cases into
    MTFs, especially those related to combat casualty care. There are
    serious challenges to maintaining joint combat medical capabilities
    with the typical mix of cases seen in the military health care system
    during peacetime. As a result, military medical personnel have had to
    rely on just-in-time proficiency training at civilian hospitals. The
    Services also regularly substitute wartime medical personnel
    requirements with medical specialties that provide non-operational
    family and retiree care during peacetime. DOD has recommended closing
    or repurposing many MTFs that do not have sufficient workload to
    adequately support readiness training. Conversely, our health care
    recommendations improve the viability of MTFs as readiness training
    platforms, while providing our families and retirees greater access,
    choice, and value to their health care experience. Key elements of the
    Commission's recommendation include the following:

             Establish a Joint Readiness Command (JRC).

                     Functional unified command led by a four-star
                    general/flag officer.
                     Includes a subordinate joint medical function.
                     Required structure and personnel may be
                    realigned from current Joint Staff functions.
                     Participates in annual planning, programming,
                    budgeting, and execution process.

             Establish a Joint Staff Medical Readiness Directorate.

                     Led by a three-star military medical officer.
                     Current Joint Force Surgeon billet transitions
                    to assume the increased authorities.

             Establish statutory requirement for DOD to maintain
            Essential Medical Capabilities (EMC).

                     Limited number of critical medical
                    capabilities that must be retained within the military.
                     Secretary of Defense approves, establishes
                    policies related to, and reports to Congress annually
                    on EMCs.
                     JRC identifies EMCs; establishes joint
                    readiness requirements consistent with EMCs; monitors
                    and reports on Services' adherence to EMC policies and
                    standards; and monitors allocation of medical personnel
                    to ensure maintenance of EMCs.

             Protect and improve transparency of medical programs
            funding.

                     Active component (AC) family, retiree, and RC
                    health care should be funded from the Services'
                    Military Personnel accounts.
                     Medicare-Eligible Retiree Health Care Fund
                    (MERHCF) should be expanded to cover health care and
                    pharmacy for non-Medicare-eligible retirees.
                     New trust fund for health care expenditures
                    appropriated in the current year.
                     MTFs funded through a revolving fund using
                    reimbursements for care delivered.
                     MTF operations that exceed reimbursement for
                    care delivered to be funded from Services' operations
                    and maintenance accounts as cost of readiness.
                                health benefits
        A high-quality health benefit is essential for all military
    constituencies. Yet, the current TRICARE program is beset by several
    structural problems that hinder its ability to provide the best health
    benefit to active duty families, Reserve component members, or
    retirees. It has weak health care networks because it reimburses
    providers at Medicare rates or lower. It limits access to care with a
    frustrating referral process. It has challenges adopting medical
    advancements or modern health care management practices in a timely
    manner. The Commission's recommended TRICARE Choice program expands
    choice, access, quality, and value of the health benefit. Key elements
    of the Commission's recommendation include the following:

             Continue to provide active-duty servicemember health
            care through their units or MTFs to ensure Services can
            maintain control of medical readiness of the Force.
             Retain current eligibility for care at MTFs, pharmacy
            benefit, dental benefit, and TRICARE For Life for all
            beneficiaries.
             Establish a new DOD health program to offer a
            selection of commercial insurance plans.

                     Beneficiaries include active-duty families, RC
                    members and families, non-Medicare-eligible retirees
                    and families, survivors, and certain former spouses.
                     AC families receive a new Basic Allowance for
                    Health Care (BAHC) to fund insurance premiums and
                    expected out-of-pocket costs.

                             BAHC based on the costs of median
                            plans available in the family's location, plus
                            average out-of-pocket costs.
                             Part of BAHC used to directly transfer
                            the premium for the plan the family has
                            selected to the respective insurance carrier.
                             Remainder of BAHC available to AC
                            families to pay for copayments, deductibles,
                            and coinsurance.
                             Establish a program to assist AC
                            families that struggle with high-cost chronic
                            condition(s) until they reach catastrophic cap
                            of their selected insurance plan.

                     RC members can purchase a plan from the DOD
                    program, at varying cost shares.

                             Reduce cost share for Selected
                            Reserves to 25 percent to encourage RC health
                            and dental readiness and streamline
                            mobilization of RC personnel.
                             When mobilized, RC members receive
                            BAHC for dependents; select a DOD plan or apply
                            BAHC to current (civilian) plan.

                     Non-Medicare-eligible retirees' cost
                    contributions remain lower than the average Federal
                    civilian employee cost shares, but increase 1 percent
                    annually over 15 years.
                     Leveraging its experience, Office of Personnel
                    Management administers the program with DOD input and
                    funding.

             Institute a program of financial education and health
            benefits counseling.
                              dod-va collaboration
        Our recommendation on DOD-VA collaboration improve the health care
    experience for transitioning servicemembers. For example, drug
    formularies continue to differ between DOD and VA to the detriment of
    transitioning servicemembers. Differing formularies create tension
    maintaining servicemembers on medications with which they are familiar
    and transitioning servicemembers to new medication on new formularies.
    This tension should not exist, especially for pain medication and anti-
    psychotics. We believe creating a single formulary for these
    medications is the best and only means of ensuring continuity of care
    regardless of organizational considerations. Key elements of the
    Commission's DOD-VA collaboration recommendation include:

             Grant additional authorities and responsibilities to
            the Joint Executive Committee to standardize and enforce
            collaboration between the DOD and VA to:

                     Establish within 6 months a strategic uniform
                    formulary to include all drugs identified as critical
                    for transition from DOD to VA status.
                     Oversee electronic health record compliance
                    with national health information technology standards
                    ensuring health care data can be quickly and easily
                    shared between the departments.
                     Approve or disapprove in advance any new DOD
                    or VA medical capital asset acquisition or
                    modernization of capital assets, of either DOD or VA
                    medical components.
                     Define common services and planned
                    expenditures for them, and certify consistent with
                    strategic plan.
                     Establish a standard reimbursement methodology
                    for DOD and VA provision of services to each other.

        In closing, my fellow Commissioners and I again thank you for the
    opportunity to testify here today. It has been our honor and privilege
    to serve servicemembers and their families as we have assessed the
    current compensation and retirement programs, deliberated the best
    paths to modernization, and offered our recommendations. We are
    confident that our recommendations will indeed serve our servicemembers
    in a positive, profound, and lasting way. We are pleased to answer any
    questions you have.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Graham. Well, thank you all very much for your hard
    work. We'll just get right at it.
        One of the recommendations is that the amount of money to
    pay TRICARE bills, past increase on the patient side, is 5
    percent. Is that correct?
        Mr. Maldon. It's--that's 5 percent--there--it is at 5
    percent.
        Senator Graham. Okay. So, the bottom line is, of all the--
    of the dollar we'll pay for TRICARE, 5 percent comes from those
    utilizing the service. Is that correct?
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. The norms in the private sector, somewhere
    in the 20s--28? Is that right?
        Mr. Maldon. About 28 percent.
        Senator Graham. TRICARE originally was at 28 percent----
        Mr. Maldon. 27, I believe.
        Senator Graham. 27 percent.
        Mr. Maldon. Yes, Mr. Chairman.
        Senator Graham. Your recommendation is to get it to 20
    percent over 15 years.
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. You believe we have to do that to make
    TRICARE sustainable, no matter what we do.
        Mr. Maldon. It is our belief that that is absolutely
    correct.
        Senator Gillibrand. Congressman Buyer, do you see a way to
    maintain the 5 percent and keep the program viable?
        Mr. Buyer. No.
        Senator Graham. Okay.
        All right. Now, you have retirees under 65 who are TRICARE
    recipients. Will they get a--an allowance in this new system?
    How much will their premiums go up beyond the 5 percent? Will
    their copayments go up? Will their deductibles go up?
        Mr. Maldon. Mr. Chairman, they do not. Retirees--non-
    Medicare-eligible retirees do not get a basic allowance for
    healthcare as the active Duty----
        Senator Graham. How much----
        Mr. Maldon.--family would do.
        Senator Graham.--more can the retired force expect to pay
    if we go to this new system, per person?
        Mr. Maldon. Today, Mr. Chairman, they're paying about--
    roughly $500. Under the new system, the worst-case scenario
    would be up to about $1,760--$1,760--$69.
        Senator Graham. So----
        Senator Gillibrand. That's per year? Is that per year?
        Senator Graham. Per year?
        Mr. Maldon. Per year.
        Senator Graham. Wow. 17- what?
        Mr. Maldon. That's $1,769. That's the worst-case scenario.
        Senator Graham. Gotcha.
        Mr. Maldon. That's out to the----
        Senator Graham. I gotcha.
        Mr. Maldon.--the 15 years.
        Senator Graham. I gotcha. Oh, so that's after the premium--
    --
        Mr. Maldon. That's after the--that's premium that will take
    you out to that----
        Senator Graham. No, I got you. So, aside from premiums,
    will their copayments or deductibles go up? Do we know?
        Mr. Maldon. There would be some other costs in there.
    There's copay costs and deductibles, and some of those costs
    may be there.
        Senator Graham. I'll tell you what I want you to do. I want
    you to give me kind of a summary of what the median would look
    like. I want the retired force to know, ``Here's what it would
    cost you to make this change.''
        [The information referred to follows:]

        Health care costs for retirees and their families under TRICARE
    Choice can be divided into two components. The first component would
    what they pay for coverage similar to what they have today under the
    existing TRICARE program. To create an apples-to-apples comparison,
    cost should be compared for similar coverage. In TRICARE Choice,
    retirees would have many options for health care plans and could choose
    to purchase enhanced coverage (broader networks, better access, and
    more covered services), rather than the existing TRICARE program. The
    second component would be any additional cost retirees choose to pay to
    purchase coverage that includes these enhancements. Should retirees
    take advantage of the additional choices made available to them by
    TRICARE Choice and is not a cost increase to the retiree. Instead, it
    is, in fact, a compensation increase because the retirees receive the
    better coverage at a subsidized rate.
        To evaluate these separate components of cost, the Commission
    considered two plans from the Federal Employees Health Benefit Plan
    (FEHBP) as examples of what types of plans might be offered in TRICARE
    Choice. The first plan is the Government Employees Health Association
    (GEHA). This plan is considered the most similar to the existing
    TRICARE program, although is not a perfect comparison. GEHA includes
    larger networks than the existing TRICARE program in the markets
    examined by the Commission and more covered services. But it is a
    lower-cost, PPO-style plan and is the best comparison the Commission
    could find for the existing TRICARE program. The second plan is Blue
    Cross Blue Shield (BCBS) Standard. This is one of the most robust and
    highest-cost plans in FEHBP and is used to illustrate the costs to
    retirees who exercise the opportunity to select better coverage made
    available to them by TRICARE Choice.
        The table below shows the costs to retirees for these options:
    existing TRICARE program, TRICARE Choice with a plan similar to GEHA,
    and TRICARE Choice with a plan similar to BCBS Standard. The first row
    of data illustrates the costs retirees pay now under the existing
    TRICARE program. Retirees enrolled in TRICARE prime paid a $548 (in
    2014) premium. In addition, about 3 percent of retirees purchase
    TRICARE Young Adult (TYA) for about $2,000 and about 65 percent
    purchase the TRICARE Retiree Dental Program for about $1,500 per year.
    This means that the average retiree is paying about $1,544 per year in
    premium costs for TRICARE. Adding in their copayments and deductible
    amounts for health care provides an average annual cost of about $2,030
    per retiree household.
        These costs would be largely unchanged in the first year of TRICARE
    Choice, when the retirees' premium cost share is 5 percent. These costs
    would increase, however, by the time TRICARE Choice was fully
    implemented with a 20 percent cost share (15 years after program
    initiation). In that year (using constant 2014 dollars), the comparable
    health care plan (GEHA) would have a premium for retirees of about
    $1,769 per year. No retirees would have to buy TYA and some retirees
    would rely on the partial dental coverage provided in GEHA instead of
    purchasing stand-alone full dental coverage, so the total premium
    amounts paid by the retiree in GEHA would be about $2,267 per year.
    Adding in copayments and deductibles provides an average annual cost of
    about $3,556 per retiree household.
        The comparison to GEHA is the best available comparison with the
    existing TRICARE program. There would be many retirees, however, who
    choose to purchase better coverage that costs more. A retiree who
    chooses to purchase better coverage, like BCBS Standard, would pay
    about $552 more per year ($3,556 to $4,108) for a plan with a value of
    about $2,763 more than GEHA (because the government would pay an 80
    percent cost share at the end of the 15-year period, the government
    would be paying the remaining $2,211 for the added value of health
    benefits. Thus, these retirees are experiencing an increase in their
    compensation.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Graham. Now, the hope is that, if you make this
    change, the benefits go up and make it worth the additional
    investment. That's the goal of this, right, is to give you more
    choices, better healthcare?
        Mr. Maldon. Yes.
        Senator Graham. Okay.
        Mr. Maldon. Yes, Mr. Chairman.
        Senator Graham. All right. Now, Active Duty family members,
    they'll get a basic allowance, so they'll have no out-of-pocket
    cost. Is that correct?
        Mr. Maldon. That is correct.
        Senator Graham. For the median program.
        Mr. Maldon. That is correct, Mr. Chairman.
        Senator Graham. For the median cost.
        Mr. Maldon. Yes.
        Senator Graham. Will their deductibles or copayments
    appreciably go up under TRICARE Choice?
        Mr. Maldon. Let me ask----
        Senator Graham. Do they have any copayments or deductibles?
        Mr. Maldon. Let me ask Commissioner Higgins if he would
    respond to that question, please.
        Mr. Higgins. Senator, today there are copayments that----
        Senator Graham. Right.
        Mr. Higgins.--Active Duty people pay. If they remain inside
    the MTF, obviously those are minimal. But, the key here is that
    there are two pieces to the basic allowance for healthcare. One
    is the premium. They----
        Senator Graham. Right.
        Mr. Higgins.--pay the 28 percent.
        Senator Graham. Right.
        Mr. Higgins. The other piece is the copayments that they
    are expected, in that median plan, to pay. So, we would project
    that 85 percent of people would not see a copayment or out-of-
    pocket expense beyond what they're doing today.
        Senator Graham. Okay, that's my question. I want you to
    validate that. Eighty-five percent of the people in the current
    TRICARE system would not expect to see an increase in
    copayments.
        Mr. Higgins. That's correct. They would be fully----
        Senator Graham. Everybody's going to expect to see an
    increase in premiums if we adjust from the 5 percent.
        Mr. Higgins. That's, of course, the 5 percent only applies
    to the----
        Senator Graham. Retirees.
        Mr. Higgins.--working-age retiree----
        Senator Graham. Yes.
        Mr. Higgins.--not the Active Duty----
        Senator Graham. That's--not Active Duty family members.
        Mr. Higgins. Right.
        Senator Graham. Okay. So, 85 percent of the people seem to
    be immune from any copayment increase if they----
        Mr. Higgins. That----
        Senator Graham.--go to TRICARE Choice.
        Mr. Higgins. That would be our analysis----
        Senator Graham. Active Duty----
        Mr. Higgins.--yes, sir.
        Senator Graham. Okay. Guard and Reserve, is that still the
    same?
        Mr. Higgins. The Guard and Reserve package is a little bit
    different. The TRICARE Reserve Select would have a cost share
    of 25 percent, and that would be, as it is today, fully
    burdened to the individual.
        Senator Graham. How much more would they have to pay, in
    terms of dollars?
        Mr. Higgins. It would be my view, I believe, that there
    wouldn't be much of an increased cost. We're going to take that
    percentage----
        Senator Graham. Right.
        Mr. Higgins.--and make it a lower percentage burden to the
    individual, from 28 down to 25.
        Senator Graham. Okay. I guess what I'm saying is, just give
    me some estimate of out-of-pocket cost, here. You've given me a
    good estimate from 500 to 1,769 over the next 15 years.
        Mr. Higgins. Sir, if----
        Senator Graham.--in terms of premiums, in the worst-case
    scenario. On the copayment side, I'd like some kind of
    analysis, too.
        [The information referred to follows:]

        Health care costs for retirees and their families under TRICARE
    Choice can be divided into two components. The first component would
    what they pay for coverage similar to what they have today under the
    existing TRICARE program. To create an apples-to-apples comparison,
    cost should be compared for similar coverage. In TRICARE Choice,
    retirees would have many options for health care plans and could choose
    to purchase enhanced coverage (broader networks, better access, and
    more covered services), rather than the existing TRICARE program. The
    second component would be any additional cost retirees choose to pay to
    purchase coverage that includes these enhancements. Should retirees
    take advantage of the additional choices made available to them by
    TRICARE Choice and is not a cost increase to the retiree. Instead, it
    is, in fact, a compensation increase because the retirees receive the
    better coverage at a subsidized rate.
        To evaluate these separate components of cost, the Commission
    considered two plans from the Federal Employees Health Benefit Plan
    (FEHBP) as examples of what types of plans might be offered in TRICARE
    Choice. The first plan is the Government Employees Health Association
    (GEHA). This plan is considered the most similar to the existing
    TRICARE program, although is not a perfect comparison. GEHA includes
    larger networks than the existing TRICARE program in the markets
    examined by the Commission and more covered services. But it is a
    lower-cost, PPO-style plan and is the best comparison the Commission
    could find for the existing TRICARE program. The second plan is Blue
    Cross Blue Shield (BCBS) Standard. This is one of the most robust and
    highest-cost plans in FEHBP and is used to illustrate the costs to
    retirees who exercise the opportunity to select better coverage made
    available to them by TRICARE Choice.
        The table below shows the costs to retirees for these options:
    existing TRICARE program, TRICARE Choice with a plan similar to GEHA,
    and TRICARE Choice with a plan similar to BCBS Standard. The first row
    of data illustrates the costs retirees pay now under the existing
    TRICARE program. Retirees enrolled in TRICARE prime paid a $548 (in
    2014) premium. In addition, about 3 percent of retirees purchase
    TRICARE Young Adult (TYA) for about $2,000 and about 65 percent
    purchase the TRICARE Retiree Dental Program for about $1,500 per year.
    This means that the average retiree is paying about $1,544 per year in
    premium costs for TRICARE. Adding in their copayments and deductible
    amounts for health care provides an average annual cost of about $2,030
    per retiree household.
        These costs would be largely unchanged in the first year of TRICARE
    Choice, when the retirees' premium cost share is 5 percent. These costs
    would increase, however, by the time TRICARE Choice was fully
    implemented with a 20 percent cost share (15 years after program
    initiation). In that year (using constant 2014 dollars), the comparable
    health care plan (GEHA) would have a premium for retirees of about
    $1,769 per year. No retirees would have to buy TYA and some retirees
    would rely on the partial dental coverage provided in GEHA instead of
    purchasing stand-alone full dental coverage, so the total premium
    amounts paid by the retiree in GEHA would be about $2,267 per year.
    Adding in copayments and deductibles provides an average annual cost of
    about $3,556 per retiree household.
        The comparison to GEHA is the best available comparison with the
    existing TRICARE program. There would be many retirees, however, who
    choose to purchase better coverage that costs more. A retiree who
    chooses to purchase better coverage, like BCBS Standard, would pay
    about $552 more per year ($3,556 to $4,108) for a plan with a value of
    about $2,763 more than GEHA (because the government would pay an 80
    percent cost share at the end of the 15-year period, the government
    would be paying the remaining $2,211 for the added value of health
    benefits. Thus, these retirees are experiencing an increase in their
    compensation.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Higgins. The----
        Senator Graham. That's all I'm asking.
        Mr. Higgins. If I could, Mr. Chairman, when we look at
    retirees today, the working-age retiree, we have determined
    that their out-of-pocket costs are approximately--a little over
    $2,000, on average.
        Senator Graham. Okay.
        Mr. Higgins. Many pay much less if they stay within the
    MTF. But, many are paying dental premiums, many are paying for
    adult-child coverage that is quite expensive. So, on average,
    the retiree--working-age retiree--is about $2,000, and final
    end state, 15 years from now, we would project that that
    retiree, who's going to get the adult child in their healthcare
    plan under TRICARE Choice, is going to be out-of-pocket
    somewhere around $3,500. So, we're looking at a increase of
    less than two times.
        Senator Graham. Okay, thank you.
        Senator Gillibrand.
        Senator Gillibrand. Thank you.
        One of my concerns is the needs of families with special
    needs. Your report says that there should be a DOD program
    available to assist families with a high-cost chronic condition
    or a catastrophic event or illness with medical expenses until
    they reach their health plans' catastrophic caps or are no
    longer required to pay out-of-pocket costs. Active Duty
    families should apply for the--to this program for additional
    funding to cover copayments that substantially exceed their
    basic allowance for healthcare. How do you envision this
    operating?
        Mr. Maldon. Thank you, Senator, for the question. I'm going
    to ask Commissioner Buyer to respond to that question, please.
        Mr. Buyer. In our report, I'll refer you to pages 265
    through 267. What we seek to do is to mitigate the financial
    risks of the chronic and catastrophic illnesses to the Active-
    Duty family households. So, when you take about the average
    median plan, and you're about--around the $995s, say just under
    $1,000. We--back--when we did--prior to Medicare Part D, we
    used to talk about the ``donut hole,'' with drug costs. There's
    kind of a hole here, also, meaning you're covered to $1,000,
    but, when you get to $2,000, that's the cap, and then you're
    triggered into a fund. We've come up with a calculation that we
    believe that funding the program with about $50 million
    annually will allow for the complete coverage of expenses for
    that family in excess of $2,000.
        Senator Gillibrand. Okay. Who will be in charge of deciding
    who receives the additional funding and how to define
    ``chronic'' and ``catastrophic'' conditions?
        Mr. Buyer. You have the plans. So, the--each of the plans--
    when you have a family member that--with a particular condition
    for which they're being treated, if, in fact, it's chronic, and
    you have catastrophic coverage. I mean, my gosh, it could--it
    could be--catastrophic could be any form of--type of an illness
    or an accident. When those costs exceed $2,000, it triggers
    into the fund.
        Senator Gillibrand. Okay.
        Admiral Giambastiani. If I could, the Secretary of Defense
    or Department of Defense (DOD) would determine that.
        Senator Gillibrand. Okay.
        How--would families with special-needs dependents be
    automatically enrolled, or do they need to figure this out?
        Mr. Maldon. Yes. Commissioner Higgins, I'm going to ask you
    to respond to that question.
        Mr. Higgins. We don't envision an enrollment, per se,
    although I think a family with a special-needs individual in
    the family would be well-recognized in the system, and there
    would be an acknowledgment that, after the first year or 2,
    that there would be--it would be consistent to consider them a
    special category, and there wouldn't be an--a very arduous kind
    of administrative process.
        Senator Gillibrand. Okay. How did you assess the $50
    million fund? How did you assess that that would be the right
    amount of money?
        Mr. Higgins. We calculated what the out-of-pocket costs
    would be today, where that--the basic allowance for healthcare
    would take--the allowance for out-of-pocket costs would take
    them. Where that line crossed, we considered what the costs
    would be for all the population beyond the crossing lines. That
    was calculated to be $50 million. You could add money to that,
    obviously, and push that line back. That would be perhaps a
    decision Congress might want to consider. But, we believe that
    we have the right analysis, on $50 million after the crossing
    lines, where you have out-of-pocket costs match each other.
        Mr. Maldon. Senator, that's based on 5 percent, too, I
    thought, just to be sure. It was 5 percent of the people we
    thought that would fall within that category.
        Senator Gillibrand. Now, it's not clear, would this program
    also apply to family of military retirees, or is this just for
    Active Duty?
        Mr. Maldon. It's Active Duty, Senator.
        Senator Gillibrand. Okay. So, did you assess possible costs
    for medically retired wounded warriors having access to these
    kinds of funds to pay for medical expenses for any special-
    needs dependents they have?
        Mr. Maldon. No, we did not. I mean, no, it will not.
        Senator Gillibrand. Okay.
        So, what would they--so, someone who is a veteran, who is--
    wounded warrior who has a child with autism, what do they do?
    They just don't get coverage through this system, or there's no
    extra money if they do have catastrophic-care requirements?
        Mr. Maldon. Commissioner Higgins, would you respond to the
    question?
        Mr. Higgins. Senator, I'm assuming you're talking about
    somebody that qualified for a disability retirement.
        Senator Gillibrand. Yeah.
        Mr. Higgins. They would be covered in the same way as a
    working-age retiree would be covered.
        Senator Gillibrand. But, you said retirees aren't covered--
    their families aren't covered.
        Mr. Higgins. I'm sorry. The----
        Senator Gillibrand. So, I'm asking about dependents of
    retirees or medically wounded--wounded warriors. So, let's say
    you're Active Duty, you have an autistic child, you're trying
    to get the medical necessities for your child----
        Mr. Higgins. I see.
        Senator Gillibrand.--to develop. You get wounded in
    Afghanistan. You are--must retire, for--due to that injury.
    What does that dependent do? Are--is there any coverage for
    them? Have you assessed cost? What happens?
        Mr. Higgins. I believe I would like to correct that, then.
    They would not be covered, because this would be an Active Duty
    benefit. I--if I do understand you correctly now. So, a
    wounded----
        Mr. Maldon. Yes, let us take that, Senator Gillibrand----
        Senator Gillibrand. Just----
        Mr. Maldon.--for the record.
        Senator Gillibrand. Just analyze that fact pattern for me.
        Mr. Maldon. Okay.
        Senator Gillibrand. Because it's real. It's the kind of
    thing that happens.
        Mr. Buyer. But, I think it's also--it's also worthy--you've
    brought up a scenario that we didn't think about.
        Senator Gillibrand. Yeah.
        Mr. Buyer. I want to thank you for that. But, it's also
    worthy for you to improve our work product. So, if you have the
    consideration that, ``You know what? I think this fund, for
    these special needs''--because this is really narrow population
    that you've defined, here----
        Senator Gillibrand. Yes.
        Mr. Buyer.--because the VA's not going to cover that
    dependent, and whether they access into this fund is probably a
    worthwhile recommendation, and it's right in your jurisdiction
    to do.
        Senator Gillibrand. Okay.
        Admiral Giambastiani. When I was on Active Duty, I thought
    the Exceptional Family Member Program was working and that we
    were sending people where they could get the medical care they
    needed. When we went around to posts, camps, and stations and
    talked to servicemen all across the country, we found out it is
    not working, according to spouses, that many of them are sent
    to places where they cannot get critical care.
        Senator Gillibrand. Right.
        Admiral Giambastiani. I honestly believe that this program
    would increase the access to that care for the Active
    component----
        Senator Gillibrand. Now, are you----
        Admiral Giambastiani.--soldier.
        Senator Gillibrand. Did you do any analysis about whether a
    stigma would be created for people who access this fund? Or was
    that not an issue raised? Meaning, you may not want your
    commander to know that your wife has a chronic condition that--
    whatever. It may be personal. It may be something that--so, is
    it known--is it known by your commander unit that you're
    accessing this fund, or does it stay----
        Admiral Giambastiani. Well----
        Senator Gillibrand.--confidential under healthcare?
        Admiral Giambastiani. I remember the day I could no longer
    go and pick up my wife's medical records at the MTF, when HIPAA
    went into play--in play. So, I believe that that would----
        Senator Gillibrand. It would stay confidential.
        Admiral Giambastiani.--that would be confidential under
    HIPAA, which the military follows very, very strictly.
        Senator Gillibrand. Okay. Because we--I worked a lot on
    special----
        I'm over time.
        Senator Graham. No, take your time.
        Senator Gillibrand. I worked a lot on getting funding for
    special-needs treatment specifically under TRICARE. So, that
    work gets vitiated to a significant degree if other options are
    now available. I just don't want to lose the access that we
    were trying to develop for special-needs kids if a
    servicemember gets injured, which happens all the time. So, we
    just want to make sure this population has services.
        Admiral Giambastiani. I--if I could just add, we--as
    General Chiarelli said, we spent a lot of time looking at
    exceptional family members on the Active Duty side. We did not
    spend as much time on the----
        Senator Gillibrand. On retirees.
        Admiral Giambastiani.--veteran side.
        Senator Gillibrand. Okay.
        Mr. Buyer. But, the medically retired, I think it's
    awesome. I mean, you went right to something very narrow and
    specific. If you try to define that population----
        Senator Gillibrand. It's going to be----
        Mr. Buyer.--it might be 12.
        Senator Gillibrand. Yeah, it's going to be----
        Mr. Buyer. I mean, it's going to be----
        Senator Gillibrand.--specific.
        Mr. Buyer.--really small.
        Senator Gillibrand. Yeah.
        Mr. Buyer. So, adding that to access this fund, I think, is
    probably--is well worthy of your consideration.
        Senator Gillibrand. Thank you.
        Senator Graham. With that, we're going to just recess.
    We're going to go vote. We have back-to-back votes, and so,
    we'll stand in recess. When Senator Tillis gets back, tell him,
    please, to just go ahead and chair the hearing, and we'll be
    right back.
        Thank you.
        Senator Gillibrand. Thank you.
        [Recess.]
        Senator Tillis [presiding]. Thank you all. If we can come
    back to order.
        I think the chairman and the ranking member will be back
    momentarily, but, since I'm probably the only other one that
    was going to ask questions of this panel, we'll go ahead and
    proceed.
        I'd like to start with kind of normalizing the first
    numbers, Chairman Maldon, that you and Senator Graham
    discussed, and that was the $500 to $1,700 number. I'm just
    trying to normalize that, because I think we need to make sure
    it's communicated properly, because--are you saying that the
    $500, in today's dollars with the new program design at year
    15, is at $1,700?
        Mr. Maldon. Yes, Senator Tillis, it's at the--today it's
    $500--roughly $500. What we are saying is that, 15 years from
    today, that cost would have--would be $1,769----
        Senator Tillis. Could you go----
        Mr. Maldon.--approximately.
        Senator Tillis. Could you go on to discuss if--let's just
    say we keep current state, and the number under the current
    state is $500--what the projection would be 15 years from now
    if you did nothing. Has there been math on that?
        Mr. Maldon. We did some math on it. I honestly don't
    remember exactly what those numbers might be at this point in
    time. I'll ask my colleagues, here, if anybody might remember.
    If not, I'll----
        Senator Tillis. Okay. If it's----
        Mr. Maldon.--take it for the----
        Senator Tillis.--not readily available, if we could ask you
    to----
        Mr. Maldon. I'll take it for the record. Let me take it for
    the record.
        Senator Tillis. Because I think that that's--it's very
    important for people to understand that this is not added
    purely because of the change in program design, that some of
    these are rising costs of insurance, healthcare, and a number
    of other factors over a 15-year period.
        Mr. Maldon. Yeah. We will do that. It is constant dollars
    that we're talking about. But----
        Senator Tillis. All right.
        Mr. Maldon.--we'll definitely take that for the record, and
    I can get back to you on this.
        [The information referred to follows:]

        The estimates on the change in retiree health care costs that have
    been provided by the Commission have been in constant or real dollars,
    i.e., they are in a base year so that simple comparisons of the costs
    at different points in time can be made on a comparable basis. In
    constant dollars, the TRICARE Prime premium for retirees declined from
    the program's inception in 1995 until 2012. In fiscal year 2013, the
    TRICARE Prime premium became indexed to retirement pay increases and
    thus is now fixed in constant dollar terms.
        The 2016 President's budget request eliminates the TRICARE Prime
    program for non-Medicare-eligible retirees and introduces a new premium
    at the Prime level for the remaining (modified) version of TRICARE
    Standard/Extra that was previously provided for free.

        Senator Tillis. Okay.
        Mr. Maldon. Okay?
        Senator Tillis. Something else that was in the--I think,
    the opening paragraph of your opening statement, was the $12
    billion that would, I think, be saved. The--typically, the leap
    one would make, who may be a stakeholder in this, is that $12
    billion comes at the expense of something less than they're
    going to receive. I'm assuming, similar to the pension
    strategy, it may come from efficiencies and other things. Can
    you talk about the key sources of the--the sources of that $12
    billion in savings?
        Mr. Maldon. Yes, Mr. Chairman. I'm going to ask
    Commissioner Higgins to start off talking about it, and then
    we'll have others talk about it, as well.
        Mr. Higgins. Senator, the $12 billion that you refer to has
    three parts. One would be the savings from just moving to an
    accrual system for the working-age retiree. That has budgetary
    savings of $4 billion. So, just looking at the healthcare
    components of all this, of what we propose, we would suggest
    that the cost shares are going to produce roughly $2 billion in
    savings. Better utilization, better management of the program
    is going to develop about $5.2 billion of savings there. So, we
    are increasing cost shares for the working-age retiree. As a
    result, they are part of the savings, obviously.
        Senator Tillis. So, some of that is as a result of the cost
    share, but not all of it. You're saying somewhere on the order
    of $5 billion of the $12 billion?
        Mr. Higgins. Is the purely utilization management that the
    private sector is going to bring to the program. For example,
    we're going to put $4.5 billion of those total savings back
    into the system, in terms of your choice, in terms of the
    improved network, in terms of that healthcare management, that
    quality management that's going to produce quality healthcare
    for people. We believe that we're pushing back into that system
    about $4.5 billion. So, the net savings, just looking at the
    healthcare aspect alone, is about $2.7 billion.
        Senator Tillis. Do you have any sense where some of the
    increased cost comes with a benefit of increased value? Where--
    to the extent there's going to be more--or is there something,
    as you're talking to the stakeholders--I know that the choice
    becomes a factor which seems to rate pretty highly among many
    that would be a part of the plan. But, can you give me some
    sense of how much of that--the additional costs or the cost
    share is somehow compensated for by much higher value for the
    money?
        Mr. Higgins. Mr. Chairman, you want to----
        Mr. Maldon. Yes. One of the things that takes place, Mr.
    Chairman, is that there's an expense in----
        Senator Tillis. He's back. It was a fleeting moment.
    [Laughter.]
        Mr. Maldon. Okay, I apologize. Okay.
        Senator, is the--there's an expansion of the network that
    takes place there. Then, in terms of just the program
    management, in itself, just bringing about efficiencies and
    streamlining the processes of the way the work is done, of some
    of that. Also, just in increasing the value of the services
    that they were to get with regard to the doctors, themselves--I
    mean, the medical professionals, and--because now you're
    talking about the people that would not be reimbursed at the
    reimbursement rate or lower rate, so you have increased quality
    that would hopefully come with that, as well.
        General Chiarelli. I would argue that--also, that I don't
    think that there's a single one of the groups that'll follow us
    that would argue they don't want to see the best possible
    medical care for servicemembers when deployed into harm's way.
    Central to our recommendations is that, ensuring that our
    doctors are trained in a way that, as I've said before, on the
    first day of battle, they can provide the same kind of care
    they have after 13 years of battle. That's a critical piece. As
    these--as the Services get smaller, the number of dependents
    gets smaller, we need to find ways that attract additional
    people into the MTFs, but also the right kind of caseload into
    the MTFs, so that we have that critical, critical combat
    medical readiness.
        Senator Tillis. Then, the last thing--sorry, Mr. Chairman,
    if I may--just, again, going back to initial reactions by
    stakeholder groups, either those who would be in the plan or
    the providers. What sense do you have of their reaction? We're
    going to hear, I think, shortly, but what sense do you have, in
    terms of the challenge that we would have to convince those who
    are--would be beneficiaries of other changes, that it's the
    appropriate path?
        Mr. Maldon. I'm going to ask Commissioner Buyer to respond
    to your question.
        Mr. Buyer. So, if I may, Mr. Chairman, right now in
    TRICARE, we have very limited networks. Okay? The networks are
    limited because of the reimbursement rates. So, in order for
    me--you're a doctor, I'm one of the TRICARE contractors. I want
    you in my network, but I want to make money, too. So, I get you
    in my network, but I'm going to pay you below--below Medicare
    rates.
        Now, you look at your practice, and you say, ``Okay, of my
    practice, I can only take so much Medicare, so much Medicaid,''
    right? You make these decisions. You say, also, ``I may be a
    veteran. I'm going to do this because of the flag, my
    patriotism,'' but you can only do that for so long, right?
        So, here's what I'd like you to see. You say, ``Well, how
    does the family really feel about this?'' Well, access is
    pretty important, right, to a health network. In TRICARE, our
    networks are very limited. So, take for example--we'll go to
    Fayetteville, Fort Bragg. So, for orthopaedic surgery--you blew
    out your knee, right, or your son or daughter has, in an
    athletic event, and you need to see an orthopaedic surgeon. In
    the TRICARE network around Fort Bragg, you get access to only
    15 orthopaedic surgeons. If you are in the BlueCross/BlueShield
    plan, under TRICARE Choice--you chose the BlueCross/
    BlueShield--you get access to 163 orthopaedic surgeons. How
    come only 15 out of the 136 are in the network? Because of the
    low reimbursement rates, right? So, those rates are going to
    begin to limit the choice.
        So, when you say, ``How does it impact the family?'' You
    want the access to the very best of healthcare, and, in order
    for someone to qualify as a provider under a BlueCross/
    BlueShield plan, they don't select just anybody, they have to
    meet their own qualifications to be a provider within their
    plan. They want the best. They don't--and what does TRICARE do?
    Does TRICARE have any specialty requirements in order to be in
    their plan? No. It's just you'll accept below-Medicare rates.
        This is incredibly important when you begin to see the
    differences from family practice, OB-GYN--you can go down a lot
    of different specialties and you'll be able to see how these
    limited networks limit the access and choice and access to good
    quality healthcare.
        Senator Tillis. Thank you. That chart reminds me that I
    need to enroll in vision care, now that I'm here in the Senate.
    [Laughter.]
        But, thank you, Mr. Chairman.
        Mr. Buyer. The reason I have the GEHA plan, there, the
    Government Employees Health Plan, is--that's about the median.
        Senator Graham [presiding]. Right.
        Mr. Buyer. We couldn't find an actual plan in the
    marketplace to say what would be the median. So, Mr. Chairman,
    you talked about the median----
        Senator Graham. Right.
        Mr. Buyer.--early on. That's about it.
        Senator Graham. That's 87? What number is that?
        Mr. Buyer. Yes, that would be 87 or in the GEHA plan, which
    is about the median.
        Senator Graham. Okay.
        Mr. Buyer. But, if you wanted the BlueCross, oh, my gosh,
    the numbers--oh, I'm sorry, it's 43 for orthopaedic surgeons.
        Senator Graham. Gotcha.
        Mr. Buyer. So, TRICARE would be 15----
        Senator Gillibrand. Reimbursement rates or that's----
        Mr. Buyer.--GEHA median plan is 43; with BlueCross/
    BlueShield, 163.
        Senator Graham. Gotcha.
        Mr. Buyer. So, look at the avenue of choice and access and
    quality of healthcare. Pretty extraordinary.
        Senator Graham. Your----
        General Chiarelli. I would also point out, besides being
    it--the cost, and paying below Medicare rates, there's another
    bureaucratic requirement, and that's to get certified by
    TRICARE to be in the network. Many people--many doctors back
    away from joining the network when they realize that there's
    the additional bureaucratic requirement to get certified and
    made part of the network, even though they're certified in
    their State to provide that care.
        Admiral Giambastiani. Finally, if I could say, when you
    look at this chart, this is just a static chart that exists
    today. As we go on in the history of TRICARE, these numbers
    keep getting wider and wider and wider, which is why we think
    TRICARE, long term, is in a death spiral.
        Senator Graham. Well, that was very impressive for a House
    member. So----[Laughter.]
        Senator Cotton.
        Mr. Buyer. You have a feigned memory, Mr. Chairman.
    [Laughter.]
        Senator Graham. Senator Cotton. Nope, you're next.
        Senator Cotton. So, your comment about vision makes me
    think of a--an element of the essay ``What Does ISIS Really
    Want from the Atlantic,'' last week, where the reporter had
    gotten--had talked about the roots of ISIS, and he went to
    interview a jihadi in London, said that no one really
    understood how great Sharia was, because all they saw was the
    beheadings and the cutting off of hands. They didn't understand
    all the social-justice elements of it: free public education,
    free housing, free healthcare. The reporter asked the jihadi,
    ``But, doesn't Great Britain already have free healthcare?''
    The jihadi said, ``No, a lot of stuff like vision isn't
    covered.'' [Laughter.]
        So, maybe that's the legitimate grievances that they have.
        Mr. Chairman, I'll start with you. So, I mean, as I've gone
    through some of the recommendations--and I've heard, last week,
    from a lot of folks at home--one point that you commonly hear
    is, ``Well, we're going to have to pay for more.'' I mean, it
    is a--is it a fair characterization to say maybe you're paying
    a little bit more, but you're also getting a lot more?
    Furthermore, you would be getting less for what you're already
    paying for if we proceed with the current sequestration
    policies?
        Mr. Maldon. I think that is absolutely correct, Senator
    Cotton.
        Senator Cotton. Okay. I mean, other--feedback from other
    folks on the panel?
        But, how--when you--we were talking to the beneficiaries
    here, and they, in the end, just see that they have a higher
    bottom line. Like, what are the key benefits that you think we
    can tell them, like, ``No, this is what you're getting if you
    pay a little bit more on a periodic basis''?
        General Chiarelli. Well, I would argue the mere fact that
    you take it out of the government contracting business and--DOD
    contracting--and you don't wait 5--you have a 5-year contract
    that's very, very difficult when a new medical procedure comes
    out, of some kind, to go ahead and modify that contract. That
    5-year contract turns into an 8-year contract after the protest
    takes place. So, in the eighth year, all those things that were
    brought to medicine in that 7-year period aren't available to
    the TRICARE recipient. That's why we've literally got people
    that we're putting together treatment plans for traumatic brain
    injury and post-traumatic stress at the NICO at Walter Reed.
    They go under the TRICARE system, and TRICARE, their insurance,
    refuses to pay for 50 percent of the things that are on the
    plan that we said that this particular servicemember needed, to
    get better. That, to me, validates Admiral Giambastiani's
    statement that this system is broken.
        Senator Cotton. Other feedback?
        Admiral?
        Admiral Giambastiani. I would just tell you that you just
    look at the way the numbers keep going. Unfortunately, what's
    happened over the years is, because we haven't changed the
    copays, because we haven't changed any of the fees, because
    they've remained virtually static, you have to get money out of
    it somewhere out of the system. So, we keep changing the size
    of the sectors or the areas of responsibility. We try to
    collapse contracts that--the DOD is working as hard as they can
    to make it as efficient, but, ultimately, what happens to this
    is, you reduce the amount of available care to beneficiaries,
    you reduce the quality, because the groups that are available
    to do this have shrunk considerably. So, therefore, the system
    keeps eating itself from within, is what I would tell you.
    That's why I think it's in a death spiral.
        Mr. Buyer. I would just like to add this. In the 1990s,
    after the first Base Realignment and Closure (BRAC), and it was
    exposed that the military retiree really wasn't enjoying the
    freedom and liberties that they had fought for, because they
    felt that they had to live in close proximity to a military
    base to access healthcare. Then the BRAC exposed them, that,
    wait a minute, that the government was about to throw them onto
    Medicare. Congress responded with TRICARE for Life. When we did
    that, we essentially said to the military retiree, ``You're
    free. You can live anywhere you want in the country that you
    fought to defend.'' It really changed the interdynamic of the
    military retiree, because now they can go live with their
    children and know their grandchildren. Better yet, when they go
    do that--and I'm a military retiree of which I'm a military
    retiree--I look at this and say, ``I can actually access better
    choice, a greater number of highly qualified doctors.'' There
    is--it's not written about in the press.
        This debacle that occurred in the VA, on waiting times--the
    reason America got so upset about it was because of the
    integrity question. It really was. We still--we--if you go in
    and you look at the inside of the MTFs today, talk to those
    soldiers and the families, talk to the wives. The waiting times
    for primary care and specialty care--shameless.
        So, accessing this under TRICARE Choice, not only for the
    families, but also for the military retirees, that gray-area
    retiree, we get them better access to care, increase their
    choice, and increase their quality.
        So, that's what they get for a little more money.
        Senator Cotton. I mean--go ahead, Mr. Chairman.
        Mr. Maldon. Senator, I'd just also add to this--and, I
    think, in terms of just summarizing it, here, into three
    different areas. For the Active Duty family members, they get
    those--for their money, there's no additional costs, here, but
    they get a lot more, in terms of choice, access, and so forth,
    as my colleagues have already said. Then, for the Reserve
    components, they get a lot more, because, one, the cost has
    been reduced from 28 percent of their premium to 25 percent, so
    they--that's a--there's a cost savings there to them. It's a
    lower cost there. In addition to that, there are--there's no
    break in coverage when the Reserve component member is
    mobilizing, deploying, and back and forth, and so forth. They
    don't have that break in coverage that they would have under
    the current system. They're going to have consistent coverage
    during that period of time, which would be a much better value
    under the new--under our proposed----
        Mr. Buyer. Could I----
        Mr. Maldon.--recommendations.
        Mr. Buyer. Could I add one more? The big winners, that
    isn't really talked about in this, are those that live in the
    rural areas. They're the ones who are the really big winners
    under this type of a health system. Because when--if you're
    subject to the TRICARE today, and you're in a limited network,
    it's so limited, whereby sometimes you go against your
    migratory pattern. We don't talk about that very often. But,
    someone from a small town thinks that they need to go to a
    bigger town for better healthcare. Of if I'm in a bigger town,
    I need to go to the bigger city for better healthcare.
        In the TRICARE network, sometimes when they sign up a
    particular doctor, they may say, someone in a town of 10,000,
    you have to go over to the town of 3,000 people to go get your
    healthcare. It just drives them crazy. It really does.
        This type of plan, we can access a greater--I'm sorry, I
    didn't mean to point in front of your face--but you great--you
    access a greater number of healthcare providers in rural areas,
    Senator Cotton, and that is a huge benefit in this plan.
        Senator Cotton. I'll yield back.
        Senator Graham. Excellent question.
        Anything else, Senator Gillibrand?
        Senator Gillibrand. No.
        Senator Graham. Thank you all. We will----
        Absolutely.
        Senator Cotton. Since there's no more questions----
        Is it your best estimate that beneficiaries in the system,
    even if they pay--in certain cases, pay a little bit more than
    they do now--still, on average, will be paying less than
    similarly situated beneficiaries who did not serve in our
    military?
        Mr. Maldon. Yes. In fact, they'd be paying less than what
    someone that was a part of a healthcare plan similar to FEHBP.
    They'd be paying less than those civilian employees that would
    be enrolled in that plan.
        Senator Cotton. That's at--everyone's in agreement on that
    point? So----
        Admiral Giambastiani. Yes.
        Senator Cotton. Admiral? Yes.
        So, one might say that to--in response to the point that we
    promised our veterans that they would receive a certain level
    of healthcare, and that would be a better or lower priced care
    than civilians who didn't serve receive, yes, this proposal is
    going to keep that promise.
        Mr. Buyer. Absolutely.
        Senator Cotton. Yes.
        Mr. Buyer. Because today someone who worked at a depot as a
    Federal civilian employee is getting access to better
    healthcare than the servicemember in uniform or his--in
    particular--not necessarily him, it's his family, in the
    TRICARE network. Because the TRICARE network is so limited so
    that Federal civilian employee is getting access to better
    healthcare for his children than the servicemember for theirs.
    That's not right.
        Senator Cotton. When you take into account the entire
    package of healthcare benefit, price, access, quality, so
    forth.
        Mr. Buyer. Yes.
        Senator Cotton. That the promise we made to our
    servicemembers is that they would receive that package,
    relative to civilians, not necessarily that that package would
    never change in any way for the rest of time.
        Mr. Buyer. For the rest of time? Well, I don't----
        Senator Cotton. For the----
        Mr. Buyer.--I don't know what that means. But, for--for the
    rest of time.
        Senator Cotton. For----
        Mr. Buyer. I do know, for the military retiree, for
    example, they're very artful, okay, in their words that they
    will select, because they're, ``Oh, I've been promised
    healthcare for life.'' I mean, you----
        Senator Cotton. That's because soldiers are very artful----
        Mr. Buyer. Well, you'll----
        Senator Cotton.--and always have been.
        Mr. Buyer.--you'll hear artful things. But, they have----
        Mr. Maldon. No, but----
        Mr. Buyer.--they have had a tremendous benefit. They really
    have.
        General Chiarelli. But----
        Mr. Buyer. But it's----
        General Chiarelli. But, it----
        Mr. Buyer. Go ahead.
        General Chiarelli. No, I'm just saying, if you look at the
    details of our legislation, one of the things we did was, we
    saw that TRICARE used to be good, not so good today, because of
    actions taken by DOD. Okay? Because they need to save money. We
    turned to Commissioner Zakheim and said, ``Bulletproof this.
    Set this legislation in a way that, if we can get this through
    and get this benefit in the hands of these folks, that nobody
    will be able to do that.'' He did. I won't give you the
    specifics of that, but he did in our legislation.
        Mr. Buyer. So, my conclusion is, for that military retiree,
    when they've been at 5 percent--they were at 27 percent, right,
    and they're at 5 percent today, and we walk them up to 20 over
    15 years. They are getting so much more value in a health--in a
    quality health system that their complaint does--is not
    legitimate.
        Senator Cotton. Yeah, I mean, I think it's important that
    we all be prepared--Republican, Democrat alike, and the
    commissioners--to answer these questions, because we will get
    those questions, and I think we're all in agreement that we all
    want the same thing for the retirees. We just have to be able
    to explain to them exactly how the new system will work and how
    much better the package could be for them, despite the discrete
    changes they see in their lives.
        Mr. Maldon. Senator, I think that it is fair to say,
    though, that the retirees--in all of the travel that we did
    across the country in townhall meetings, into sessions, and
    public hearings, and so forth--retirees basically--they told us
    that they didn't mind seeing an increase, frankly, in that cost
    sharing, as long as they got value for it. They wanted to make
    sure there was improved value for it. I think that's what we
    have provided in those recommendations that we've----
        Senator Cotton. Yes.
        Mr. Maldon.--made.
        Senator Cotton. Thank you.
        Senator Graham. Thank you all very much.
        So, let's hear some--from retirees. Y'all are next.
        Thank you very much.
        Next panel, please. [Pause.]
        Thank you all very much. Could you introduce yourselves,
    starting from the--my left to the right?
        Ms. Raezer. Hi, Mr. Chairman. I'm Joyce Raezer, with the
    National Military Family Association.
        Admiral Ryan. Norbert Ryan, with the Military Officers
    Association of America.
        Mr. Snee. Retired Master Chief Tom Snee, Fleet Reserve
    Association, sir.
        General Hargett. Gus Hargett, National Guard Association
    (NGAUS).
        Senator Graham. Thank you all.
        I will defer my opening statement and allow Senator
    Gillibrand to say anything she would like.
        Senator Gillibrand. Thank you for your service. Thank you
    for being here. We look forward to your testimony.
        Senator Graham. Speaking of military retirees--Senator
    McCain, would you like to say anything?
        Chairman McCain. I'm retired. [Laughter.]
        Senator Graham. Okay. With that insight, we'll let the
    panel move forward.
        So, just----

      STATEMENT OF JOYCE W. RAEZER, EXECUTIVE DIRECTOR, NATIONAL
                      MILITARY FAMILY ASSOCIATION

        Ms. Raezer. Okay, thank you very much, Mr. Chairman and
    Ranking Member Gillibrand, Senator McCain. We appreciate the
    opportunity to speak on behalf of National Military Family
    Association and the families we serve about the healthcare
    proposals of the Military Compensation and Retirement
    Modernization Commission.
        We thank the commissioners for their thoughtful approach,
    outreach, and dedication to obtaining input from troops and
    their families.
        Military families deserve nothing less than the best
    possible health coverage and care. They also expect the
    readiness of their servicemember to perform the mission as well
    as the readiness of their medical providers to meet the
    challenges of the battlefield in its aftermath to be a
    priority.
        We agree with--our association agrees with the
    commissioners who have testified that the current TRICARE
    benefit and system to deliver that benefit is unsustainable.
    Budget pressures continue to diminish the benefit, delay
    access, and threaten military medical readiness in what has
    been DOD's most frequently proposed reform: raise the fees
    charged to beneficiaries. When we asked for their input last
    year for the Defense Department's military health system
    review, families cited bureaucratic hassles to obtain
    referrals, lack of continuity of care, inability to obtain
    timely care, and a lack of coverage for certain services.
        We do know that many families remain satisfied with
    TRICARE, the care they receive and the low cost of that care.
    But, what could happen to that care when financial pressures
    take a greater toll on the military hospitals or the TRICARE
    benefit over time? Our association is open to other healthcare
    options for military families because DOD has been well aware
    of many TRICARE problems--in some cases, for years--but has
    failed to take corrective action. We support, in principle, the
    concept of moving military families to high quality commercial
    health plans as a way to improve access to providers and offer
    more coverage options that match families' needs, but we need
    more information.
        Military families are concerned, as you are, Mr. Chairman,
    about what would happen to out-of-pocket costs. Even when
    assured that the proposed basic allowance for healthcare would
    be set to ensure most Active Duty families have no additional
    cost, families are unconvinced. They cite recent changes to the
    basic allowance of health--housing formula as evidence the
    healthcare allowance could become a target for cost-cutting.
    They worry how a formula based on averages will support larger-
    than-average families or those with a family member with a
    chronic or a catastrophic health condition, as you mentioned,
    Senator Gillibrand. They also--the families of the wounded also
    cited the same kind of questions that you are asking, so
    appreciate you asking those. Many families tell us the cost
    proposed for retirees and their families are too high, despite
    the gradual ramp-up.
        In our written statement, which we've submitted for the
    record, we've outlined many logistical challenges involved in
    implementing TRICARE Choice and the need for families to have
    the tools they need to make informed decisions. We do believe
    the Commission's proposal does contain important protections
    for families, protections they don't have now, but which must
    be in--written into any statute implementing the changes.
        Implementation plan must also address unique circumstances
    of military life. For example, FEHBP plans only cover Applied
    Behavioral Analysis (ABA) therapy for autistic children if a
    State requires that coverage. A unique circumstance of military
    families would be, we would need to see that coverage in any
    plan offered to military families. Change also demands an
    analysis of the potential impact on military hospitals to avoid
    unintended consequences for beneficiaries and military medical
    readiness.
        I would like to touch briefly on one additional
    recommendation from the Commission, because of its relation to
    healthcare, which is recommendation 7, to align the services
    offered under the Extended Care Health Option, ECHO, to those
    of State Medicaid waiver programs. The ECHO benefit is
    currently underutilized because of bureaucratic requirements
    involved in obtaining some services, such as respite care, and
    a mismatch between the benefit and what families experience
    that they need. This match--mismatch forces families to apply
    for State Medicaid waiver programs and get stuck on waiting
    lists whenever they move to a new State. Adopting the
    Commission's recommendation would provide for better continuity
    and coverage of services.
        In an era of budget constraints, when military families see
    any proposed change in their benefits as just another attempt
    to cut costs, it's important to rebuild their trust and show
    them their service is valued. We hope the Commission's
    proposals prompt a thorough discussion of how to deliver the
    best health benefit possible for military families.
        Questions you ask about--and others ask about the
    Commission's proposals should also be asked about the current
    system. How does the structure promote medical readiness? How
    does it ensure timely access and quality care at the best
    possible price for both beneficiaries and the government? Now
    is the time to have that conversation. So, thank you for
    beginning it.
        [The prepared statement of Ms. Raezer follows:]
         Prepared Statement by the National Military Family Association
                               executive summary
        The National Military Family Association (NMFA) appreciates the
    creation by Congress of the Military Compensation and Retirement
    Modernization Commission (MCRMC or the Commission) and we thank the
    commissioners and their staff for their work over the past 18 months.
        Recommendation 5: Ensure servicemembers receive the best possible
    combat casualty care by creating a joint readiness command, new
    standards for essential medical capabilities, and innovative tools to
    attract readiness-related medical cases to military hospitals.
        Recommendation 6: Increase access, choice and value of health care
    for active duty family members, Reserve component members, and
    retirees.
                                readiness first
        The MCRMC recognizes the Military Health System's (MHS) dual
    mission by making two separate recommendations aimed at modernizing the
    MHS. The proposed Joint Readiness Command (JRC) is charged with
    ensuring servicemembers receive the best possible combat casualty care
    while the TRICARE Choice concept proposes a new way to deliver the
    health benefit. We agree with the MCRMC assessment that the two
    proposals are interdependent. While the JRC and TRICARE Choice
    recommendations must be in sync, the MHS must start with maintaining
    and improving readiness as the primary objective of any modernization
    proposal. Military families expect the readiness of their
    servicemembers to perform the mission, as well as the readiness of
    their medical providers to meet the medical challenges of the
    battlefield and its aftermath, to be a priority.
        national military family association position on tricare choice
        The Commission's health care proposal merits further study and
    serious consideration. Offering military families a selection of high
    quality commercial health plans could provide them with better access
    to high quality care, a more comprehensive set of benefits, and the
    ability to tailor coverage options based on individual family needs.
    Our Association believes military families could benefit from increased
    choice in health care options.
        While our Association supports, in principle, the concept of moving
    military families to high quality commercial health plans, more
    information and analysis are needed before we can fully endorse the
    Commission's health care proposal. The MCRMC report raises several
    questions and areas of concern. Some segments of the military family
    community will incur significantly higher out-of-pocket costs versus
    the current system. Implementation details are sparse for important
    aspects of the plan. Most importantly, we believe a change of this
    magnitude demands a more thorough analysis of the potential impact on
    MTFs to avoid unintended consequences for beneficiaries and military
    medical readiness.
        We agree with Commissioners who have testified before Congress that
    TRICARE--both the benefit and the system to deliver the benefit--is
    unsustainable as currently structured. Specifically, TRICARE's
    beneficiary satisfaction and fiscal sustainability have both declined.
    Given fiscal constraints, future improvements to address beneficiary
    dissatisfaction are unlikely. In fact, further dilution of the TRICARE
    benefit seems inevitable. Therefore, we are receptive to alternative
    ways of delivering the military health care benefit to families.
        Our Association believes growing TRICARE beneficiary
    dissatisfaction and increased cost pressures warrant a reexamination of
    how DOD delivers the health benefit to military families.
                        mcrmc recommendations we support
             Recommendation 7: Improve Support for Servicemembers
            Dependents with Special Needs
             Recommendation 10: Improve Access to Child Care on
            Military Installations
             Recommendation 13: Ensure Servicemembers Receive
            Financial Assistance to Cover Nutritional Needs by Providing
            Them Cost-Effective Supplemental Benefits
             Recommendation 14: Expand Space-Available travel to
            more families of Servicemembers
             Recommendation 15: Measure how the Challenges of
            Military Life Affect Children's School Work by Implementing a
            National Military Dependent Student Identifier

        We support the proposal to improve support for dependents with
    special needs, reducing their reliance on State programs that very few
    are able to access. We thank the Commission for recognizing the
    importance of child care for the readiness of servicemembers and their
    families. Making access to Federal nutrition programs easier will help
    servicemembers and their families meet their nutritional needs. We have
    supported the need for a Military Student Identifier for several years
    as a means of tracking graduation rates and other milestones for
    military children as they move from one school district to another.
                       recommendations we cannot support
             Recommendation 2: Provide more options for
            servicemembers to protect their pay for survivors
             Recommendation 11: Safeguard education benefits for
            servicemembers by reducing redundancy and ensuring the fiscal
            sustainability of education programs.

        We cannot support the Commission's recommendation on the Survivor
    Benefit Plan (SBP), as it does nothing to eliminate the SBP-DIC offset
    for today's survivors and imposes additional costs on some of the most
    vulnerable military families. We believe Congress should preserve the
    full Post 9-11 GI Bill for military families whose servicemembers have
    already transferred the benefit.
                    recommendations requiring further study
             Recommendation 1: Help more servicemembers save for
            retirement earlier in their careers, leverage the retention
            power of traditional Uniformed Service retirement, and give the
            Services greater flexibility to retain quality people in
            demanding career fields.
             Recommendation 3: Promote servicemembers' financial
            literacy by implementing a more robust financial and health
            benefit training program.
             Recommendation 9: Protect both access to and savings
            at Department of Defense commissaries and exchanges by
            consolidating these activities into a single defense resale
            organization.

        The proposals for the new retirement system and the health care
    proposal call for servicemembers and their families to make responsible
    choices that will require a robust financial training program. We
    wonder how DOD and the Services will accomplish this financial training
    for both the servicemember and his/her spouse. We also have concerns
    about the proposal to merge commissary and exchange operations and
    worry about the effect this change would have on the military resale
    system. We will seek more information on how these proposals could be
    implemented and encourage Congress to do the same.
        Chairman Graham, Ranking Member Gillibrand, and distinguished
    members of the subcommittee, the National Military Family Association
    (NMFA) thanks you for the opportunity to present testimony concerning
    recommendations of the Military Compensation and Retirement
    Modernization Commission's (MCRMC or the Commission) report. Our
    primary consideration as we read the report was the impact on the
    quality of life of military families--the Nation's families. We are
    concerned about the long-term viability and availability of the
    benefits, programs, and resources that help servicemembers and their
    families maintain readiness. We appreciate the Personnel Subcommittee's
    recognition of the service and sacrifice of these families. Your
    response through legislation to the ever-changing need for support has
    resulted in programs and policies that have helped sustain our families
    through more than a decade of war.
        Our Association appreciates the creation of the Commission by
    Congress and we thank the commissioners and their staff for their work
    over the past 18 months. Their task, to conduct a holistic evaluation
    of the entirety of the military compensation system, has been a
    daunting one. Indeed, in our statement before the Personnel
    Subcommittee of the Senate Armed Services Committee last year, we
    requested that Congress delay making any substantial legislative
    changes to personnel policies until the Commission had finished their
    study. Now it is our turn to comment on the recommendations the
    Commission has made in their report.
        We thank the Commissioners and their staff for seeking insights
    from our Association and others during all stages of the Commission's
    process. We surveyed military families for their input and concerns. We
    prepared a statement and were invited to testify as part of a panel
    before the Commission in November 2013 to share what we had heard from
    military families. We encouraged military families to attend the town
    hall sessions with the commissioners in their localities. We met with
    commission staff members on numerous occasions to answer questions and
    to share information. Since the release of the Commission report, we
    continued to elicit the thoughts of military families on the
    recommendations.
        The main focus of our statement today will be on the Commission's
    health care recommendations. Additionally, we appreciate the
    opportunity to share our thoughts on other pertinent recommendations
    that we feel impact military families. We hope our analysis will be
    useful to you as you weigh the merits of the recommendations and think
    about implementation.
                       mcrmc health care recommendations
        Recommendation 5: Ensure servicemembers receive the best possible
    combat casualty care by creating a joint readiness command, new
    standards for essential medical capabilities, and innovative tools to
    attract readiness-related medical cases to military hospitals.
        Recommendation 6: Increase access, choice and value of health care
    for active duty family members, Reserve Component members, and
    retirees.
          background: the dual missions of the military health system
        The Military Health System (MHS) is unique in that it has dual
    readiness and benefit provision missions. The MHS readiness mission
    must achieve both a medically ready fighting force that is healthy and
    capable of deploying as needed and a ready medical provider force
    capable of delivering health and combat-casualty care for
    servicemembers in operational environments. The MHS benefit provision
    mission is responsible for providing the earned health care benefit to
    family members, retirees, and survivors. The two missions intersect
    when military medical personnel provide care to family members and
    retirees in the Military Treatment Facilities (MTFs) honing their
    medical skills in the process.
        The MCRMC recognizes the MHS dual mission by making two separate
    recommendations aimed at modernizing the MHS. The proposed Joint
    Readiness Command (JRC) is charged with ensuring servicemembers receive
    the best possible combat casualty care while the TRICARE Choice concept
    proposes a new way to deliver the health benefit. In both
    recommendations, the MCRMC acknowledges that the two proposals are
    interdependent, but cites few--if any--concerns on how one might
    negatively impact the other.
        With our Association's mission and expertise in advocating for
    military families, we have clear perspectives on how the MCRMC's
    proposals might impact beneficiaries. However, we also have concerns
    about how these recommendations could affect the MTFs' future viability
    and the ability of the MHS to achieve its military medical readiness
    goals. We realize that while the JRC and TRICARE Choice recommendations
    must be in sync, the MHS must start with improving readiness as the
    primary objective of any modernization proposal.
        national military family association position on tricare choice
        The Commission's health care benefit proposal merits further study
    and serious consideration. Our Association believes military families
    could benefit from increased choice in health care options. Offering
    military families a selection of high quality commercial health plans
    could provide them with better access to high quality care, a more
    comprehensive set of benefits, and the ability to tailor coverage
    options based on individual family needs.
        While our Association supports, in principle, the concept of moving
    military families to high quality commercial health plans, more
    information and analysis are needed before we can fully endorse the
    Commission's health care proposal. The MCRMC report raises several
    questions and areas of concern. Some segments of the military family
    community will incur significantly higher out-of-pocket costs versus
    the current system. Implementation details are sparse for important
    aspects of the plan. Most importantly, we believe a change of this
    magnitude demands a more thorough analysis of the potential impact on
    MTFs to avoid unintended consequences for beneficiaries and military
    medical readiness.
        why is our association open to changing or dismantling tricare?
        We agree with Commissioners who have testified before Congress that
    the TRICARE status quo is unsustainable. TRICARE--both the benefit and
    the system in place to deliver that benefit--faces pressure on multiple
    fronts and beneficiaries will continue to feel that pressure as they
    access care and in the cost of that care. Specifically, TRICARE's
    beneficiary satisfaction and fiscal sustainability have both declined.
    Congress has directed DOD to find efficiencies in the MHS. While it has
    adopted some better business practices, DOD's most-frequently-proposed
    ``efficiency'' seems to be raising beneficiary cost shares. Given
    fiscal constraints, future improvements to address beneficiary
    dissatisfaction are unlikely. In fact, further dilution of the current
    TRICARE benefit seems inevitable. Therefore, we are receptive to
    alternate ways of delivering the military health care benefit to
    families.
                          beneficiary dissatisfaction
        The Commission's findings regarding TRICARE beneficiary
    dissatisfaction are on point. Many military families encounter
    difficulties in using the TRICARE benefit. Among the most common
    complaints are:

              Access Challenges:

                    - TRICARE's cumbersome referral and authorization
                    process is not only a hassle, but often leads to
                    treatment delays. These are particularly problematic
                    for a highly mobile population that must endure the
                    referral and authorization process after each PCS
                    simply to continue already established specialty care.
                    Military family members with chronic conditions cite
                    examples that the cumulative effect of repeated
                    treatment interruptions has had a negative impact on
                    their long-term health outcomes.
                    - Limited provider networks pose challenges to families
                    seeking care. Network provider shortages are more
                    pronounced in certain areas of the country and with
                    certain specialties, particularly behavioral health
                    care.
                    - Inadequate access standards and insufficient measures
                    within many MTFs mask beneficiaries' (including active
                    duty servicemembers') reported difficulties in
                    obtaining appointments. This disconnect was highlighted
                    in the Military Health System Review ordered by
                    Secretary of Defense Chuck Hagel in 2014.

              Coverage Issues:

                    - TRICARE is slow to cover emerging technologies and
                    treatment protocols. Families frequently complain that
                    TRICARE does not cover services commonly reimbursed by
                    commercial plans such as molecular diagnostic tests and
                    intensive outpatient programs for mental health issues.
                    - TRICARE's pediatric coverage is also problematic.
                    TRICARE is authorized to approve purchased care only
                    when it is ``medically or psychologically necessary and
                    appropriate care based on reliable evidence.'' The
                    Defense Health Agency's (DHA) hierarchy of reliable
                    evidence includes only ``published research based on
                    well-controlled clinical studies, formal technology
                    assessments, and/or published national medical
                    organization policies/positions/reports.'' There is no
                    doubt that evidence of effectiveness is a cornerstone
                    of medical necessity, yet such tightly prescribed data
                    for children is not always readily available. Pediatric
                    providers are adamant advocates of robust research for
                    children's health needs, but the reality is strict
                    adherence to this adult-based standard of reliable
                    evidence results in military children being denied care
                    and treatment that is widely accepted and practiced
                    elsewhere in the health care system.

              Lack of Choice:

                    - TRICARE's uniform benefit means that military
                    families cannot choose from various coverage options to
                    best meet their needs. This is frustrating for families
                    who could benefit from nontraditional care such as
                    chiropractic.
                    - Current Reserve component options pose problems for
                    families during mobilization/demobilization. Switching
                    to TRICARE when the servicemember is activated can
                    result in disruptions in care, while maintaining the
                    servicemember's employer-sponsored health insurance can
                    lead to significant out-of-pocket costs. We have long
                    advocated giving National Guard and Reserve members
                    more flexibility to maintain their employer-sponsored
                    coverage for their families during activation.

              Customer Service:

                    - TRICARE is slow to adopt customer service innovations
                    from the private sector such as the Nurse Advice Line.
                    We advocated for a nurse advice line for several years
                    and many commercial health plans offered nurse advice
                    lines long before DHA rolled out their version in 2014.
                    - TRICARE's contracting process leads to customer
                    service problems during transitions between regional
                    contractors. In April 2013, military families
                    experienced issues with referral authorization and
                    customer service during the West Region transition to a
                    new managed care support contractor. These issues were
                    compounded by what the Government Accountability Office
                    determined was a lack of oversight by DOD.\1\ It took
                    months before beneficiary support was running smoothly
                    under the new contractor.
    ---------------------------------------------------------------------------
        \1\ More-Specific Guidance Needed for TRICARE's Managed Care
    Support Contractor Transitions GAO-14-505: Published: Jun 18, 2014.
    Publicly Released: June 18, 2014.
    ---------------------------------------------------------------------------
                    - TRICARE beneficiary communications are inadequate
                    particularly when dealing with coverage changes. There
                    are numerous instances of TRICARE implementing coverage
                    changes without notifying beneficiaries and/or
                    providers, resulting in beneficiary confusion and, in
                    some instances, significant out-of-pocket expenses. For
                    instance in January 2013, TRICARE ceased reimbursement
                    for lab-developed tests including prenatal and
                    preconception cystic fibrosis screenings. They failed
                    to notify beneficiaries and providers that they were no
                    longer covering this prenatal screening test that has
                    been the standard of care for over 10 years. As a
                    result, these tests were not reimbursed and some
                    beneficiaries faced $800 in out-of-pocket charges.

        One main reason we support the MCRMC's concept of shifting military
    families to commercial health plans is that DOD has been well aware of
    these TRICARE problems, in some instances for years, but has failed to
    take corrective action.
        TRICARE's pediatric coverage is a prime example of DOD's failure to
    address known issues. Based on urging from pediatric health care
    stakeholders, the National Defense Authorization Act (NDAA) for Fiscal
    Year 2013 mandated a DOD review of military kids' health care and
    related support. That report, Study on Health Care and Related Support
    for Children of Members of the Armed Forces, identified significant
    gaps and areas for clarification related to TRICARE's pediatric
    reimbursement policies. The TRICARE for Kids Stakeholder Coalition, a
    group of pediatric provider organizations, military and veterans'
    service organizations (including our Association), disability groups,
    and military families, has urged DOD to share their plans for
    implementing solutions and help us identify areas where legislative
    fixes are necessary. Since the study's release in July 2014, we have
    met with DHA once to share our reactions to the report, but have not
    heard any details on next steps. DHA's seeming inability to move
    forward in a timely manner and engage in transparent communication
    lowers stakeholder and beneficiary confidence that improvements are
    possible.
        Any discussion of beneficiary dissatisfaction must differentiate
    between TRICARE as a whole and the direct care system. While we believe
    most MCRMC findings on TRICARE beneficiary satisfaction are accurate,
    the report contains some examples (e.g., never seeing the same primary
    care provider or the inability to choose your providers) that military
    families tell us are issues most often in the direct care system, not
    necessarily TRICARE as a whole. It is important to note that the
    MCRMC's TRICARE Choice proposal does not address beneficiary complaints
    regarding the direct care system other than by allowing dissatisfied
    beneficiaries to seek care somewhere else in the hope competition will
    incentivize the MTFs to improve.
        Additionally, it is important to acknowledge there is a segment of
    the beneficiary population that is satisfied with the current TRICARE
    system. Some have been fortunate enough never to experience the
    problems outlined above. Others accept these issues as part and parcel
    of getting ``free'' health care. As advocates for military families we
    focus on solving beneficiary problems and improving the Military Health
    System but, in the course of our work, we also hear from families who
    are content with the status quo and won't relate to the dissatisfaction
    areas outlined in the MCRMC's report. Our concern for these families
    centers on what could happen to their care if financial pressures take
    a greater toll on the MTFs or the TRICARE benefit over time. If the
    status quo is unsustainable, what will happen to their satisfaction
    with the system and the quality of their care?
                             fiscal sustainability
        Year after year, DOD contends that the TRICARE program is fiscally
    unsustainable as currently structured. Officials highlight the limits
    Congress has placed on beneficiary cost shares while expanding benefits
    (e.g., TRICARE for Life). They cite statistics showing the health care
    budget is growing as a percentage of overall DOD spending. They contend
    that growing health care costs will limit DOD's ability to fund
    readiness and modernization. DOD's statistics can be debated, but there
    is no doubt about the relentless pressure to erode the TRICARE benefit
    by increasing fees and reducing available resources to the system.
        The Defense Health Agency (DHA) points to purchased care as the
    largest driver of military health care spending. As currently
    configured, TRICARE has limited options for reducing purchased care
    spending in ways that won't negatively impact beneficiaries. TRICARE
    contracts are configured such that providers and beneficiaries have
    minimal incentives to manage utilization. In fact, certain TRICARE and
    MTF policies drive beneficiaries to more expensive venues for care. For
    instance, when acute care appointments are unavailable at the MTF
    (either because the MTF is closed or completely booked), TRICARE
    requires a referral and authorization to seek Urgent Care from a
    network provider. Some MTFs go a step further and simply refuse to give
    any referrals to network Urgent Care. Beneficiaries who find themselves
    in this situation often have no choice but to seek more expensive care
    at the Emergency Room.
        Despite DOD initiatives to become more efficient, cost cutting
    pressures will continue. Our Association fears attempts to reduce
    purchased care spending will result in erosion of network provider
    access and questionable coverage policies. Provider reimbursement rates
    will continue to decline, resulting in fewer providers participating in
    the TRICARE network. Alternatively, providers might further limit the
    number of TRICARE patients they will see due to low reimbursement
    rates. The result will be diminished access to care for military
    families. While maintaining the current TRICARE program gives the
    appearance of delivering a promised benefit, we fear that ongoing cost
    cutting measures will reduce TRICARE's value in ways that might not be
    readily apparent to beneficiaries until it's too late and they have no
    other options.
        Our Association believes that growing TRICARE beneficiary
    dissatisfaction and increased cost cutting pressures warrant a
    reexamination of how DOD delivers the health benefit to military
    families.
          evaluating tricare choice: advantages for military families
        Our Association believes the Commission's health care proposal has
    the potential to provide military families with a more robust and
    valuable health care benefit than they have today. Offering families a
    selection of high quality commercial health plans could provide them
    with better access to high quality care, a more comprehensive set of
    benefits, and the ability to tailor coverage options based on
    individual family needs. We also appreciate the Commission's efforts to
    maintain minimal out-of-pocket costs for active duty families. We also
    thank the Commission for its recommendation to keep the TRICARE for
    Life benefit for our Medicare-eligible beneficiaries as it is today.
    TRICARE for Life is working the way Congress intended.
        Our Association supports the concept of transitioning active duty
    military families, as well as working-age retirees and their families
    and survivors, to a high quality DOD health benefit program since it
    would offer the following advantages:

             Enhanced Access to Care:

                    - TRICARE Choice promises to offer beneficiaries more
                    robust provider networks with greater access to primary
                    care and specialists. Since commercial health plans
                    reimburse providers at market rates versus the
                    discounted Medicare rates TRICARE offers, they are able
                    to attract more providers to their networks.
                    - TRICARE Choice should streamline access to specialty
                    care. Many commercial plans allow beneficiaries to
                    direct their own health care. Even families who elect
                    an HMO type plan should find less cumbersome referral
                    and authorization processes than they currently face
                    with TRICARE.
                    - A selection of national commercial health plans
                    should streamline the transition of care during most
                    PCS moves. Under TRICARE Choice, families will not have
                    to modify their enrollment when moving from one area of
                    the United States to another, assuming they have
                    selected a TRICARE Choice plan with national coverage.
                    - Barriers to Urgent Care will be eliminated with
                    TRICARE Choice. Families will be able to elect plans
                    that do not require a referral and authorization for
                    Urgent Care.
                    - Beneficiaries retain access to MTFs for medical care
                    with TRICARE Choice. Many military families are
                    familiar and comfortable with MTFs. Others value MTF
                    providers' cultural competency and sensitivity to
                    military family challenges. It is important that
                    TRICARE Choice offers beneficiaries continued access to
                    MTF care.

             Better Coverage Policies: Commercial health plans
            should reduce problems with TRICARE coverage, such as
            questionable pediatric reimbursement policies and lack of
            coverage for emerging technologies and treatment protocols.
            Coverage decisions would no longer be subject to rigid TRICARE
            regulations regarding medical necessity, the hierarchy of
            reliable evidence, and, in some cases, the additional step of
            requiring Congressional approval for a new benefit. While
            beneficiaries certainly want safe and effective treatment,
            commercial plans would offer more comprehensive coverage for
            services and procedures widely accepted by the medical
            community that don't meet TRICARE's rigid standards. Whether or
            not a procedure is medically necessary would no longer be a DOD
            decision.
             Greater Choice:

                    - TRICARE Choice would allow military families to
                    tailor coverage to best meet their needs versus the
                    current TRICARE benefit that provides uniform coverage
                    and meets some families' needs better than others.
                    - TRICARE Choice plans would offer coverage options
                    that are currently unavailable such as vision,
                    chiropractic, and acupuncture.
                    - More robust provider networks should give
                    beneficiaries greater choice in selecting their
                    providers.
                    - We appreciate that the MCRMC recognized the patient
                    care management tools used by U.S. Family Health Plan
                    (USFHP). USFHP knows our community and has high
                    satisfaction among beneficiaries. We agree with the
                    MCRMC suggestion that some USFHP plans could continue
                    as TRICARE Choice options for military families since
                    we believe most USFHP families would like to retain
                    their coverage.
                    - National Guard and Reserve members will have more
                    attractive options under TRICARE Choice.

                             We have long advocated for more
                            flexibility in allowing Guard and Reserve
                            members to retain their employer sponsored
                            health plan for their families while activated.
                            The Basic Allowance for Health Care (BAHC)
                            gives them the option of applying BAHC to their
                            employer plan premiums. This will enable
                            Reserve component families to maintain
                            continuity of medical care during servicemember
                            activation.
                             For families that prefer using TRICARE
                            during activation, a menu of commercial plans
                            will better serve Guard and Reserve members in
                            areas not near a military installation where
                            current TRICARE networks may be particularly
                            weak.

             Minimal Active Duty family out-of-pocket costs (in
            principle). Although we are not convinced the current MCRMC
            proposal completely insulates active duty families from
            excessive medical expenses, we appreciate that the Commission
            acknowledges the principle of minimal out-of-pocket costs for
            active duty families and proposes the creation of the Basic
            Allowance for Health Care to give families a way to cover their
            health care costs.

        Underpinning our assessment of TRICARE Choice advantages is the
    assumption that the menu of commercial plans would be comparable to or
    better than those offered via the Federal Employee Health Benefit
    Program (FEHBP.) We believe this is a valid assumption since the MCRMC
    uses FEHBP as a point of reference in their report and suggests that
    the Office of Personnel Management (OPM) manage the DOD program due to
    their proven track record with FEHBP.
        Our Association believes the Commission's TRICARE Choice health
    care proposal has the potential to provide military families with a
    more robust and valuable health care benefit than they have today.
    However, while we are open to the idea of transitioning military
    families to commercial health plans, the MCRMC report raises questions
    and concerns that must be addressed before we can fully support the
    Commission's health care proposal.
         evaluating tricare choice: areas of concern and clarification
        First, we believe a change of this magnitude demands a more
    thorough analysis of the potential impact on MTF caseload to avoid
    unintended consequences for beneficiaries and military medical
    readiness. Second, some segments of the military family community will
    incur significantly higher out-of-pocket costs versus the current
    system. Third, implementation details are sparse for important aspects
    of the plan.

        1.  TRICARE Choice's Impact on MTFs/Military Medical Readiness is
    Unclear

        Even though the MTFs will remain an integral component of military
    family health care delivery under the MCRMC's proposal, the report
    contains very few details on the potential impact TRICARE Choice might
    have on the direct care system. We have the following concerns:

             The MCRMC report contains no analysis of TRICARE
            Choice's impact on MTF caseload. TRICARE Choice makes two
            radical changes to beneficiary health care. It introduces a co-
            pay for MTF treatment and it provides unfettered access to
            civilian providers. Yet, there is no analysis of the potential
            impact these changes might have on MTF beneficiary caseload.

                    - From a beneficiary standpoint, will DOD still insist
                    on the option of employing ``sticks'' to drive
                    beneficiaries back into the MTFs if the lower co-pay
                    ``carrot'' is insufficient motivation? DOD has
                    frequently employed the ``stick'' approach to pull the
                    patients it needs into the direct care system, most
                    recently in the ``MTF recapture'' efforts that limited
                    TRICARE Prime beneficiaries' ability to enroll with a
                    civilian network Primary Care Manager even if they had
                    already established a relationship with that doctor.
                    It's been our experience that many military medical
                    providers believe they must maintain the ability to
                    force military families into the MTFs in order to
                    maintain needed skills and patient loads.
                    - From a readiness standpoint, what happens if a
                    significant percent of family members and retirees
                    elect to leave the MTF and receive care in the civilian
                    market and the MTFs no longer have means to force them
                    in when they need the bodies for training and
                    maintaining provider proficiencies? Will the MTFs
                    remain viable? The MCRMC recommendation seems to assume
                    MTFs will respond to patients' new opportunities for
                    choice by improving quality and other enhancements to
                    draw beneficiaries in. What happens if their efforts
                    aren't enough?

             The Joint Readiness Command (JRC) is charged with
            attracting a different mix of medical cases into MTFs to better
            support combat-care training and medical readiness. We are
            pleased the Commission emphasized that care for active duty
            servicemembers is a key part of readiness and so proposed no
            changes in how they would get their care. We hope the readiness
            focus they propose will improve the care and readiness of
            servicemembers for their missions. We understand and appreciate
            the goal of bringing new Essential Medical Capability (EMC)
            cases into the MTFs as part of that readiness focus. However,
            we are skeptical the tools the MCRMC suggests for the JRC will
            be sufficient in attracting the necessary caseload,
            particularly if currently enrolled beneficiaries leave the MTFs
            in great numbers.

                    - The ability to adjust MTF reimbursement rates is
                    cited as one tool to attract EMC cases, but decisions
                    on where to seek medical care, particularly in trauma
                    and complex cases, typically do not involve price.
                    Since price shopping isn't currently a significant
                    factor in consumer behavior for medical care decisions,
                    we question how much impact alternative prices would
                    have in attracting EMC cases to MTFs.
                    - Another tool the MCRMC outlines for the JRC is
                    establishing commercial reimbursement rates and
                    associated billing systems, improving authorities, and
                    allowing greater access to veterans and civilians with
                    relevant complex cases and trauma. However, the MTFs
                    would be competing for these cases with established
                    medical systems that employ marketing departments and
                    campaigns as well as established relationships in the
                    local community. Simply opening the MTFs to the broader
                    community may not be enough to attract the desired EMC
                    cases.
                    - The MCRMC report states that financial incentives,
                    specifically lower co-pays at MTFs versus those for
                    civilian providers, would encourage beneficiaries to
                    seek care at the MTFs. However, beneficiaries currently
                    pay nothing out-of-pocket for MTF care and it is
                    unclear what impact a co-pay will have on beneficiary
                    decisions regarding where to seek care.

             From a JRC implementation standpoint, it is unclear
            who would be responsible for working out the details at the
            individual MTF level. Who sets the standards for what services
            and medical specialties will be available at the MTF? Is that
            an MTF commander decision? A Service decision? A Joint Medical
            Command might have had more authority over MTF implementation.
            It seems there is high potential for inconsistencies and lack
            of coordination on readiness needs.
             The MCRMC report is unclear on the magnitude of the
            desired shift from beneficiary care to EMC cases. If the goal
            is a major shift away from beneficiary care (such as labor/
            delivery/newborn care), is there sufficient civilian medical
            capacity to absorb increased demand for care from military
            families, particularly in remote locations with significant
            troop concentrations, such as Twentynine Palms, CA; Fort Polk,
            LA; and Fort Riley, KS?
             TRICARE Choice does nothing to address access and
            quality issues within the MTFs. Although the MCRMC report
            highlights areas where beneficiaries are unsatisfied with the
            direct care system, their proposal does nothing to address
            those complaints other than to say beneficiaries can now vote
            with their feet and go elsewhere for care. In fact, the renewed
            emphasis on combat casualty care skill building, while
            critically important for military medical readiness, might
            actually exacerbate problems with care for family members and
            other beneficiaries. What will the process be for determining
            the level at which MTFs will participate as network providers
            in the TRICARE Choice civilian plans and for managing that
            participation as MTF staffing and focus on the EMCs evolves?

        TRICARE Choice introduces radical changes to the beneficiary health
    benefit with no estimate of the impact on MTF caseload. While the Joint
    Readiness Command proposal calls for a strategic shift to EMC cases in
    the MTFs, details on this transition are sparse. We believe a change of
    this magnitude demands a thorough analysis, including a forecast of
    beneficiary demand for MTF services under TRICARE Choice and an
    estimate of the likely increase in EMC cases within the direct care
    system.

        2.  Potential for Significant Out-of-pocket Costs
    Active Duty Families
        The MCRMC report acknowledges that TRICARE Choice will result in
    increased out-of-pocket costs and these higher costs would effectively
    reduce overall active duty compensation if they were not offset with
    the creation of the Basic Allowance for Health Care (BAHC). Although we
    appreciate the MCRMC's attempt to address this issue, we are not
    convinced the current proposal sufficiently insulates active duty
    families from excessive out-of-pocket health care expenses for the
    following reasons:

             TRICARE Choice's Catastrophic Cap is Unspecified: A
            key advantage of the current TRICARE plan is a low catastrophic
            cap. By limiting annual out-of-pocket expenses to $1,000 per
            family, the current TRICARE benefit limits the financial risk
            currently serving families face from health care costs. The
            catastrophic cap amount for TRICARE Choice plans is not
            specified, so we have no way of assessing the financial risk
            families would face under the MCRMC's proposal. We must have
            details on this element of TRICARE Choice to complete our
            evaluation.
             Details are Sparse on the Chronic/Catastrophic
            Program: The MCRMC proposes that active duty families facing
            chronic or catastrophic conditions and resulting copayments
            that substantially exceed their BAHC could receive assistance
            from a new catastrophic fund. But, the report provides very few
            details on this program. How would eligibility be determined?
            What process would families follow to apply for the fund? Would
            there be an appeals process? What portion of costs exceeding
            BAHC would be reimbursed? There is no mention of adjusting the
            program based on lessons learned. Implementation must include a
            mechanism for adjusting policies and processes to ensure the
            program achieves the desired outcomes. We fear that applying
            for this fund would become another hurdle for families facing
            already challenging circumstances. More importantly, given one
            of the main benefits of TRICARE Choice is removing DOD from the
            coverage determination process, we are opposed to giving DOD
            authority over coverage decisions for families with chronic or
            catastrophic conditions.
             The BAHC Formula Raises Concerns:

                    - BAHC is calculated to cover the premium cost share of
                    the health plan selected in the prior year by the
                    median active duty family. This methodology introduces
                    risk that the BAHC will be eroded over time if families
                    scrimp on their choice of plans. We contend there
                    should be a high standard for the type of plan that is
                    appropriate for military families given the impact of
                    family member health on servicemember readiness. The
                    quality of health plans for military families should
                    also be commensurate with the extraordinary sacrifices
                    made by servicemembers and their families. The level of
                    the BAHC should be set based on the costs of plans
                    available for their location in the current year and
                    not on what families chose in the prior year.
                    - Under the TRICARE Choice plan, large families become
                    vulnerable to higher out-of-pocket expenses. The
                    portion of BAHC intended to cover out-of-pocket costs
                    is calculated as the average copayment amount by all
                    active duty family member beneficiaries in the prior
                    year. Although details are limited, the MCRMC has
                    confirmed to us BAHC would not vary based on family
                    size. While there would be no difference in family
                    premiums based on family size, a large family will
                    almost certainly incur higher copayment expenses than
                    the ``average'' family and those additional expenses
                    will not be covered by BAHC. The current TRICARE
                    benefit provides a zero out-of-pocket cost option for
                    health coverage for all active duty families regardless
                    of family size. TRICARE Choice should be modified to
                    minimize out-of-pocket costs for larger than average
                    families.

        To move beyond the principle of minimal out-of-pocket costs and
    gain more visibility on the financial impact of TRICARE Choice on
    actual military families, we would like to see more data on out-of-
    pocket expenses for a variety of family circumstances (family size plus
    high/med/low health care utilization) crossed against a variety of plan
    types to get a better understanding on potential out-of-pocket
    expenses.
        Although the MCRMC states its goal is to minimize out-of-pocket
    expenses for active duty families to avoid a reduction in overall
    active duty compensation, several elements of the TRICARE Choice
    proposal could lead to significant out-of-pocket costs for some
    families. The BAHC calculation must ensure a baseline of excellent
    medical coverage with minimal out-of-pocket expenses for all active
    duty families. The MCRMC must also be more transparent about the risk
    of out-of-pocket costs by providing specifics on TRICARE Choice plans'
    catastrophic cap(s) and the chronic/catastrophic program.
    Non-Medicare Eligible Retirees
        The MCRMC report acknowledges that beneficiaries will incur higher
    out-of-pocket expenses with TRICARE Choice versus the current benefit.
    For active duty families, as outlined above, the MCRMC seeks to
    mitigate these higher costs with BAHC so as to avoid reducing overall
    active duty compensation. Retirees would not receive BAHC and would
    thus be fully responsible for premiums and cost shares. The
    Commission's proposal focuses on the advantages of choice and states
    that military retirees should pay a lower premium than civilian
    employees as a recognition of their service. However, it does not
    address the perceived reduced value of the military retirement package
    resulting from TRICARE Choice. While our Association has not opposed
    moderate TRICARE fee hikes in the past, we believe out-of-pocket
    expenses for retirees under TRICARE Choice could become too high and
    diminish the value of the earned retirement benefit unless safeguards
    are written into law.

             Premiums and Out-of-pocket Expenses Will Be
            Significantly Higher than TRICARE as it stands today: Although
            the MCRMC report does not provide specifics on premium costs,
            an ultimate 20 percent premium cost share (after a 15-year
            ramp-up), higher out-of-pocket expenses, and copays associated
            with the civilian could be as much as thousands of dollars more
            per year than retirees currently pay for TRICARE Prime. We
            agree with the Commission, however, that the availability of
            additional benefits and automatic coverage of adult children up
            to age 26 at no additional premium may partly close the gap
            between what retirees currently pay under TRICARE and what they
            would pay under TRICARE Choice when fully implemented.
             TRICARE Choice's Catastrophic Cap is Unspecified: A
            key advantage of the current TRICARE plan for retirees is a low
            catastrophic cap. By limiting annual out-of-pocket expenses to
            $3,000 per family, the current TRICARE benefit limits the
            financial risk military retiree families face from health care
            costs. The catastrophic cap amount for TRICARE Choice plans is
            not specified, so we have no way of assessing the financial
            risk retiree families would face under the MCRMC's proposal. We
            must have details on this element of TRICARE Choice to complete
            our evaluation, but it's important to acknowledge that DOD has
            proposed increases to the retiree catastrophic cap under the
            current system.

        As we have stated, we believe pressures on the current system will
    result in increased beneficiary costs and so understand an accurate
    forward-looking ``apples to apples'' comparison between TRICARE as it
    might be in 10 years vs. TRICARE Choice does not exist. We do
    appreciate the Commission recognized the need for a 15-year transition
    to the 20 percent cost share ceiling for working-age retirees and that
    they recognized the government's responsibility to absorb a higher
    level of the premium costs for military retirees than for civilians in
    recognition of their military service. However, current retirees and
    currently serving career military members developed an understanding of
    the value of their retirement health care benefit based on over 2
    decades of TRICARE history. Just as higher out-of-pocket costs
    associated with TRICARE Choice would reduce overall active duty
    compensation if not offset by BAHC, even higher premium and out-of-
    pocket costs for non-Medicare eligible retirees reduces the value of
    the earned retirement benefit package. While we accept the
    inevitability working age retirees will pay more for their health care
    in the future, we believe TRICARE Choice, as proposed by the
    Commission, may go too far in undercutting the earned retirement
    benefit.
    Wounded Warriors/Medically Retired Servicemembers
        The MCRMC's TRICARE Choice proposal makes no mention of wounded
    warriors or medically retired servicemembers. This omission must be
    addressed before we can fully assess TRICARE Choice. We do have two
    main concerns regarding TRICARE Choice for wounded warriors as it is
    currently presented:

             Out-of-pocket Expenses: Currently, non-Medicare
            eligible medically retired servicemembers receive the same
            TRICARE benefit as all other non-Medicare eligible retirees. We
            believe any changes to the TRICARE benefit must maintain
            minimal out-of-pocket costs for medically retired
            servicemembers. The MCRMC's TRICARE Choice proposal, with its
            high out-of-pocket expenses for non-Medicare eligible retirees,
            is not an acceptable benefit for wounded warriors and their
            families. We also need more information on how TRICARE Choice
            plans will work for the families of retired wounded warriors
            and other military retirees who may receive some or all of
            their care from the VA or be eligible for Medicare Part B
            because of their injuries.
             Severely Injured Wounded Warriors: We are disappointed
            that the MCRMC proposal does not address out-of-pocket expenses
            the severely wounded currently face to maintain their medical
            coverage. Specifically, if an individual is so severely injured
            that he/she qualifies for Social Security Disability Insurance
            for 2 years, he automatically qualifies for Medicare Part B.
            Qualified individuals MUST take Part B in order to maintain
            TRICARE status. If an individual fails to enroll in Part B, he
            LOSES both TRICARE and Medicare coverage and must wait an
            extensive period of time and pay significant penalties to re-
            enroll. For many severely injured individuals, this means they
            lose all access to their previous healthcare providers and/or
            options for other healthcare needs. The current cost for Part B
            coverage is approximately $110/month. This amount increases
            regularly.

        Our Association requests more information from the Commission on
    how TRICARE Choice will be configured for medically retired
    servicemembers and their families. We also ask the Commission to
    consider the problems the severely wounded face in accessing their
    health care benefit as part of their modernization proposal.
        The MCRMC must be more transparent and detailed about the potential
    out-of-pocket costs faced by all beneficiary categories.

             The BAHC calculation must be modified to ensure it
            covers out-of-pocket expenses for an excellent baseline plan
            for all active duty families regardless of family size.
             TRICARE Choice's out-of-pocket expenses for non-
            Medicare eligible retirees must not reduce the value of the
            earned retirement benefit package.
             Finally, consideration must be given to how TRICARE
            Choice will work for medically retired servicemembers to ensure
            minimal out-of-pocket costs for wounded warriors and their
            families.

        3.  Concerns Regarding TRICARE Choice Implementation Details

        Many TRICARE Choice implementation details are lacking in the
    Commission's proposal. We have identified several issues, which must be
    addressed to ensure successful implementation of a complex program:

             Ensuring Coverage Meets Unique Military Family Needs:
            We appreciate that the MCRMC proposal says DOD should provide
            OPM with recommendations on the unique needs of the eligible
            Uniform Services beneficiary population. However, we would like
            assurances on some specifics:

                    - For military families who move frequently, a variety
                    of high quality national plans is critical. Selecting a
                    national plan will be the only way for mobile families
                    to avoid a deductible and catastrophic cap reset with
                    each move. National plans will also maintain coverage
                    consistency and lessen disruption and hassle during
                    geographic moves.
                    - It is important coverage DOD has already deemed
                    necessary and appropriate for military beneficiaries,
                    via inclusion in the current TRICARE benefit, is part
                    of TRICARE Choice commercial plans. For instance,
                    TRICARE covers Applied Behavior Analysis (ABA) for
                    beneficiaries regardless of location, whereas FEHB
                    plans only cover ABA in States that mandate ABA
                    coverage. ABA coverage that varies from State to State
                    is not suitable for a mobile military population.
                    Similarly, TRICARE offers beneficiaries access to
                    behavioral health care without referral or prior
                    authorization. We would expect similar accommodations
                    for behavioral health care access in TRICARE Choice
                    Plans.
                    - It is essential commercial plans and BAHC policies
                    take into account the unique situations military
                    families face. Many families geo-bach--that is, the
                    servicemember lives in a different location from his/
                    her family members due to the spouse's career, kids'
                    education or other considerations. Other families
                    relocate during lengthy servicemember deployments.
                    Policies must be in place to ensure these unique
                    situations do not put military families at risk for
                    higher costs or coverage lapses.

             Beneficiary Education and Communication: TRICARE
            Choice would require an unprecedented level of beneficiary
            communication and education.

                    - Under TRICARE Choice, servicemembers continue to
                    receive care through the military, but the spouse and
                    family members are covered under the new health plans.
                    Therefore, the servicemember AND spouse must be
                    educated on how to select the best plan for their
                    family. This includes the basics of commercial health
                    insurance (e.g., definitions of premium, deductible,
                    cost share, co-pay), tools to help select the best plan
                    for the family, and scenario planning to help families
                    understand the trade-offs and potential out-of-pocket
                    expenses associated with various options.
                    - This education process must be ongoing, as many
                    families will face new health plan choices every 2-3
                    years with PCS moves. They will not only need
                    refreshers on the basics of selecting the right health
                    plan, but they will need information on how coverage
                    varies based on location, to include what care will be
                    available through the MTFs as network providers in the
                    civilian plans. MTFs must be involved in the education
                    process.

             Financial Planning Guidance: BAHC paid directly to
            servicemembers will be difficult to manage for some. It is
            critical that financial education prompts servicemembers to
            create a plan for BAHC that helps them apply the allowance to
            out-of-pocket medical expenses versus other discretionary
            spending. The success of the Basic Allowance for Housing has
            been cited as evidence servicemembers can successfully direct
            an allowance to its intended purpose. However, unlike housing
            expenses that are stable and regularly recurring, medical bills
            are highly variable in amount and timing, requiring more
            sophisticated budgeting skills.

        Given the role spouses play in health care decisions and family
    finances, it is critical that education and communication programs and
    resources are designed to accommodate spouses as well as
    servicemembers. Child care and evening/weekend options are critical
    factors to achieve spouse participation in any in-person classes. If
    the servicemember is responsible for selecting a plan and that
    servicemember is deployed, how will the spouse--who in all likelihood
    will be the person managing the family's use of the health plan--be
    involved in the decision on which plan to choose?
        While all Americans face a learning curve when making health
    insurance decisions, it is imperative servicemembers and their families
    are prepared to successfully navigate TRICARE Choice's commercial
    health plan options. Military families lead complicated, stressful
    lives. We cannot set them up for additional challenges related to
    health care and finances. Additionally, the impact of poor choices,
    including limited access to health care or financial problems
    associated with unpaid medical bills, has the potential to reverberate
    beyond the individual family and negatively impact military readiness.
    Providing effective education on health care choices for servicemembers
    and their spouses while they on active duty will ultimately benefit
    them as they make the transition to civilian life after their service.
           concluding thoughts on the mcrmc's tricare choice proposal
        Recent media coverage and Congressional hearings, together with the
    legislative language included in the report, imply the MCRMC report
    should be viewed as a turnkey plan, ready for implementation. Given the
    number of unanswered questions regarding the health care proposal, we
    view the TRICARE Choice proposal as a first step in a needed process
    toward change. While we believe the MCRMC health care concept has merit
    and we support the idea of moving military families to high quality
    commercial health plans, the MCRMC proposal requires much more analysis
    and concept optimization before it could be implemented. The statute
    authorizing TRICARE Choice must also set clear baseline standards that
    ensure families have access to high quality plans that meet their
    unique needs at the best possible cost.
        Furthermore, change of this magnitude will take some time to
    implement. In the meantime, we encourage Congress and DOD to seek
    solutions to the many problems described by the MCRMC report as they
    relate to military family health care. These issues deserve to be
    addressed without waiting for wholesale change. Ensuring the current
    system is still held accountable, while developing ideas for the future
    is a very important way Congress and the DOD can build and repair trust
    with the families who depend on their military health care benefit.
                        mcrmc recommendations we support
        We appreciate the opportunity to comment on other recommendations
    from the Commission report that affect the quality of life of military
    families.
        Recommendation 7: Improve Support for Servicemembers Dependents
    with Special Needs
                     expand benefits available through echo
        The Commission's proposal to improve support for military families
    with special needs family members by increasing benefits available
    through the Extended Care Health Option (ECHO) program is a critical
    step in easing challenges faced by these families. Our Association
    supports this proposal without reservation.
        Additionally, we ask: (1) Congress consider extending ECHO
    eligibility to families for 1 year after retirement or separation to
    ensure they have access to much-needed care and services for their
    special needs family member, and (2) DOD review procedures for
    accessing care through ECHO to remove unnecessary requirements and ease
    the process for vulnerable military families.
        Caring for children with complex medical needs can be incredibly
    expensive. Such children often require nutritional support,
    incontinence supplies, and other costly items vital to their care but
    non-medical in nature and therefore not covered by some insurance
    plans, including TRICARE. Most families in this situation ultimately
    turn to State Medicaid programs, which provide this kind of assistance
    through waiver programs to individuals whose families do not qualify
    based on income. Because the demand for these services far outstrips
    the supply, lengthy waiting lists to receive assistance are common in
    most States. For that reason, these services are often out of reach for
    a military family who must relocate every 2 to 3 years. A military
    family who places their special needs child on a Medicaid waiver
    waiting list must start again at the bottom of the waiting list
    whenever they move to a new State.
        The ECHO program was designed in part to address this imbalance, by
    allowing military families with a special needs child or spouse to
    access non-medical services not covered under TRICARE. According to
    TRICARE's website, benefits covered under ECHO include ``training,
    rehabilitation, special education, assistive technology devices,
    institutional care in private nonprofit, public and State institutions/
    facilities and, if appropriate, transportation to and from such
    institutions/facilities, home health care and respite care for the
    primary caregiver of the ECHO-registered beneficiary.'' However, in
    practice military families have found it difficult to obtain services
    through the program.
        This reality was reflected in TRICARE's May 30, 2013 report, ``The
    Department of Defense Report to Congress on Participation in the
    Extended Care Health Option (ECHO),'' detailing military families'
    usage of the ECHO benefit. In 2012, DOD reported 99 percent of funds
    expended through the ECHO program were spent on Applied Behavioral
    Analysis (ABA) therapy and ECHO Home Health Care (EHHC). \2\ Although
    these services are important and popular with special needs families,
    it is impossible to see this statistic and not wonder why families are
    not accessing the long list of other services ostensibly available to
    them under ECHO.
    ---------------------------------------------------------------------------
        \2\ The Department of Defense Report to Congress on Participation
    in the Extended Care Health Option (ECHO), May 30, 2013, available at
    http://tricare.mil/tma/congressionalinformation/downloads/
    ExpansionEvaluationEffectivenessTRICAREProgramECHO.pdf
    ---------------------------------------------------------------------------
        In our Association's view, there are two reasons why special needs
    military families are not utilizing the ECHO program. First, as the
    Commission also noted, ECHO simply does not cover many of the products
    and services needed by special needs families. For example, many
    families need larger than normal diapers for their disabled children.
    ECHO deems diapers a convenience item and will not pay for them,
    although State Medicaid programs regularly pay for incontinence
    supplies. Aligning ECHO benefits more closely with State Medicaid
    programs, as the Commission recommends, would provide much needed
    support to special needs military families.
        ECHO services are also under-utilized due to the procedural hurdles
    TRICARE has put in the path of those seeking benefits. An example is
    the policy regarding respite care. For families with special needs
    children, the time away afforded by respite care is vital. Access to
    quality respite care allows families to run errands, spend time with
    other children, and simply recharge. Respite care is ostensibly
    available through the ECHO program, but TRICARE policies limit its
    utility. Specifically, TRICARE requires families use another service
    through ECHO in any month that respite care is also provided. We are
    grateful the Commission recommended eliminating this requirement, which
    creates an artificial barrier preventing families from accessing needed
    care.
        We have heard reports that special needs families may soon find
    their access to respite care limited as the military Services eliminate
    or reduce respite care they provide through the Exceptional Family
    Member Program (EFMP). Each Service operates its own EFMP program
    designed to assist special needs families with assignment coordination,
    referral and family support. As part of their family support, the
    Services' EFMP programs provide respite care for military families with
    eligible special needs family members. We have been told that the Army
    intends to eliminate this program and the other Services may soon
    follow suit. Given this cutback, it is even more important to ensure
    families can access much-needed respite care using their ECHO benefit.
                           need for transitional care
        We also note the ECHO program is only available to currently
    serving military families. Families who transition out of the military,
    whether through retirement or separation, immediately lose eligibility
    for ECHO benefits. This abrupt cutoff places an undue burden on
    families who are already coping with the stress of caring for a special
    needs family member. While families may eventually be able to access
    services through State Medicaid programs, they often face long waiting
    lists, which leads either to gaps in treatment or financial hardship
    for a family trying to pay for needed care. As more servicemembers and
    families transition out of the military, this problem will become more
    widespread. To ease the hardship for families in this situation, we
    recommend ECHO eligibility be extended for 1 year following separation
    or retirement to provide more time for families to obtain services in
    their communities or through employer-sponsored insurance.
                         impediments to accessing echo
        Our Association has identified other TRICARE policies that inhibit
    families' use of ECHO. TRICARE mandates families first use public
    assistance where available before accessing services through ECHO and
    requires families to submit a Public Facility Use Certificate
    explaining why public assistance is unavailable or insufficient when
    requesting ECHO benefits. Families seeking a respite care provider must
    find one who meets the strict requirements for such providers set by
    ECHO. These conditions can be confusing for families already coping
    with the stress of caring for a disabled family member. We suggest
    Congress review this and other requirements associated with accessing
    benefits through ECHO as you evaluate the MCRMC proposal, with the goal
    of streamlining the process for special needs military families.
        Recommendation 10: Improve Access to Child Care on Military
    Installations
      military families need affordable, accessible child care where they
                                      live
        We are gratified the Commission recognized the importance of high
    quality, affordable child care to military families. Their
    recommendation to exempt child care providers from furloughs and hiring
    freezes is a common sense solution to an issue that has been a source
    of anxiety for families during recent budget crises. We also appreciate
    the Commission's concern about the lengthy waiting lists families often
    confront when seeking care at installation Child Development Centers
    (CDCs) and agree that funds should be available to expand or modify
    facilities to increase the number of child care spaces. However, we
    also note a large number of military families--more than 70 percent--do
    not reside on an installation. For these families, on-base CDCs may not
    be the best solution.
        According to the 2013 Demographics Profile of the Military
    Community, more than 40 percent of servicemembers have children. Of the
    nearly two million military-connected children, the largest cohort--
    almost 38 percent--is under age five.\3\ Like all working parents,
    servicemembers with young children need access to affordable child care
    in order to do their jobs. However, the military lifestyle comes with
    unique challenges and complications for families. Servicemembers rarely
    live near extended family that might be able to assist with child care.
    Their jobs frequently demand long hours, including duty overnight. They
    are often stationed in communities where child care is expensive or
    unavailable.
    ---------------------------------------------------------------------------
        \3\ 2013 Demographics Profile of the Military Community. Rep.
    Office of the Deputy Assistant Secretary of Defense (Military Community
    and Family Policy), http://www.militaryonesource.mil/12038/MOS/Reports/
    2013-Demographics-Report.pdf
    ---------------------------------------------------------------------------
        For all of these reasons, many military families rely on child care
    provided through their installation (either CDCs or in Family Child
    Care (FCC) homes). Yet, the demand for child care exceeds the supply.
    Statistics cited by the Commission are supported by the experiences
    military families share with us: in many locations, the waiting list
    for care is so long that the CDC is essentially not an option for many
    families. The problem is exacerbated by the frequent moves associated
    with military life. Following each Permanent Change of Station (PCS)
    move, a military family must restart the process of looking for care in
    their new community and frequently find themselves again at the bottom
    of the waiting list.
        There are three factors contributing to the long waiting lists at
    installation CDCs: lack of physical space, staffing shortages, and wait
    list management. We support the Commission's recommendation that
    Congress reestablish the authority to use operating funds to construct
    or renovate CDCs. Streamlining the process to build new facilities and/
    or renovate existing ones could provide the physical space to ensure
    that more military families can access installation child care.
    Although, we wonder where funding to operate these new facilities will
    be found.
        We also welcome the Commission's simple, common-sense
    recommendation to exempt child care providers from hiring freezes and
    furloughs. High rates of employee turnover are not uncommon at child
    care centers, both at DOD facilities and in the civilian world.
    However, high turnover combined with a hiring freeze can make it
    impossible for CDC directors to staff their facilities appropriately.
    We also heard from many families in 2013 concerned about how they would
    find child care if CDC employees were furloughed due to sequestration.
    No military family should have to worry about losing needed child care
    because of a budget crisis.
        We agree with the Commission that CDCs should improve the
    procedures they use to manage their waiting lists. Currently lists are
    unreliable, making it difficult for families to know whether it is
    worth waiting for a space to open at the CDC or if they should seek
    care elsewhere. At the same time, if the Services do not have reliable
    information about the length of their waiting lists it is impossible to
    ascertain if they are meeting their own standards or allocating
    resources appropriately.
        As stated above, less than 30 percent of military families live on
    installations, which can make installation child care an inconvenient
    choice. Many families prefer to seek care near their homes or close to
    a spouse's job. However, families seeking child care in civilian
    communities often find the costs are extremely high, much more so than
    on-base care. For those families, the fee assistance program offered by
    the Services is invaluable, allowing them to afford quality child care
    in their communities. We urge the Services to continue funding this
    program and to expand eligibility so families are assured of finding
    quality child care regardless of their location.
        Recommendation 13: Ensure Servicemembers Receive Financial
    Assistance to Cover Nutritional Needs by Providing Them Cost-Effective
    Supplemental Benefits
                  meeting military families' nutritional needs
        We are pleased the Commission chose to address the issue of
    financial assistance for low-income military families. We have long
    recognized that, while the majority of military families are able to
    make ends meet, some families struggle financially. This is especially
    true of junior enlisted servicemembers with larger families. The Family
    Subsistence Supplemental Allowance (FSSA) was designed to assist those
    families by increasing their household income until it reaches 130
    percent of the Federal poverty level. However, we agree with the
    Commission that military families needing nutrition support are better
    off seeking this aid through the Department of Agriculture (USDA)
    Supplemental Nutrition Assistance Program (SNAP), both because it is
    often easier to qualify for SNAP and because that program provides a
    higher benefit. For this reason, we agree with the Commission that the
    FSSA program should sunset in the United States, although the program
    must be maintained overseas. We also agree that more information about
    the number of military families relying on SNAP is needed. In addition,
    we also ask Congress to evaluate available nutritional support programs
    to determine if they are adequately meeting the needs of low-income
    military families, whatever their location.
        The Commission reports just 285 servicemembers received FSSA
    benefits during fiscal year 2013. At the same time, the number of
    families receiving benefits through SNAP was much higher, according to
    figures cited by the Commission based on estimates by the U.S.
    Department of Agriculture. We agree the low number of families seeking
    aid through FSSA may be due in part to the application process, which
    requires the approval of the servicemember's commanding officer. The
    anonymity of applying for food stamps and not having your command know
    about your financial straits may appeal more to the servicemember.
        While SNAP is indeed a significant help to many military families,
    we note the program's inclusion of Basic Allowance for Housing (BAH)
    paradoxically means families living in high cost locations do not
    qualify for assistance while families of similar size and servicemember
    rank do in places with lower housing costs. Because BAH only covers the
    cost of rent and utilities, it does not help families with the higher
    cost of food, gasoline, and other necessities in areas such as Hawaii,
    southern California, and Washington, DC. We ask Congress to evaluate
    the SNAP program to see if this disparity can be addressed in a way to
    better meet the needs of low-income military families. We agree DOD
    needs better visibility over data that can provide information on
    families on the financial edge who would benefit from food support
    programs. They must analyze the data to determine what other assistance
    might be needed to support these families.
        Recommendation 14: Expand Space-Available travel to more families
    of Servicemembers
                supporting military families during deployments
        We appreciate that the Commission listened to military families in
    the town halls by responding to their requests for greater access to
    Space-Available travel during separations. We believe that the ability
    to change this policy already exists, but raising the issue in the
    Commission report may bring it higher visibility.
        Recommendation 15: Measure how the Challenges of Military Life
    Affect Children's School Work by Implementing a National Military
    Dependent Student Identifier
                tracking military children's education progress
        For years, our Association has advocated for creating a national
    student identifier for military-connected children in public schools.
    While we have been pleased to see several States begin tracking
    military students in their classrooms, we agree with the Commission
    that in order to obtain reliable, consistent data this initiative
    should be implemented at the Federal level. A military student
    identifier will allow researchers and policy makers to better
    understand the impact of military life on academic achievement and
    enable them to direct resources more effectively to support military
    children.
        Our own research has shown that experiencing the repeated,
    prolonged deployment of a parent can lead military children to show
    symptoms of stress and anxiety at higher rates than their civilian
    counterparts.\4\ Military children are also more mobile than other
    students, moving an average of six to nine times between kindergarten
    and their senior year. There is no data on military students'
    attendance, graduation rates, performance on standardized tests or
    other commonly measured indicators of academic achievement. Creating a
    report-only subgroup of children who have parents or guardians serving
    on active duty in the seven Uniformed Services, as the Commission
    suggests, would fill this gap and allow policy makers to more
    effectively direct programs and services to support military students.
    ---------------------------------------------------------------------------
        \4\ Chandra, Anita. Views from the Homefront: The Experience of
    Youth and Spouses from Military Families. Rep. RAND Corporation, http:/
    /www.rand.org/pubs/technical--reports/TR913.html
    ---------------------------------------------------------------------------
                       recommendations we cannot support
        While we support many of the Commission's recommendations, several
    of their proposals concern us. We cannot support the Commission's
    recommendation on the Survivor Benefit Plan, as it does nothing to
    eliminate the SBP-DIC offset for today's survivors and imposes
    additional costs on some of the most vulnerable military families. We
    believe Congress should preserve the full Post 9-11 GI Bill for
    military families whose servicemembers have already transferred the
    benefit.
        Recommendation 2: Provide more options for servicemembers to
    protect their pay for survivors
        we need the dic offset eliminated for today's surviving spouses
        We appreciate the Commission listening to the concerns of retirees
    and surviving spouses about the inequity of the Department of Veterans
    Affairs Dependency and Indemnity Compensation (DIC) offset to the
    Survivor Benefit Plan (SBP) annuity. However, we cannot support the
    recommendation put forth by the Commission giving retired
    servicemembers the option of funding the elimination of the offset by
    paying a higher premium.
        Our Association has long believed the benefit change that will
    provide the most significant long-term advantage to the financial
    security of all surviving families would be to end the Dependency and
    Indemnity Compensation (DIC) offset to the Survivor Benefit Plan (SBP).
    Although we know there is a significant price tag associated with this
    change, ending this offset would correct an inequity that has existed
    for many years. Each payment serves a different purpose. The DIC is a
    special indemnity (compensation or insurance) payment paid by the VA to
    the survivor when the servicemember's service causes his or her death.
    The SBP annuity, paid by DOD, reflects the longevity of the service of
    the military member. It is ordinarily calculated at 55 percent of
    retired pay. Military retirees who elect SBP pay a portion of their
    retired pay to ensure their family has a guaranteed income should the
    retiree die. If that retiree dies due to a service-connected
    disability, their survivor becomes eligible for DIC.
        We have concerns about the Commission's proposed changes to the SBP
    premium structure. It would leave the 60,000 surviving widows/widowers
    who currently absorb the offset in the same situation they are now--
    continuing to have their SBP annuity offset by their DIC payment. We
    need Congress to address the elimination of the offset to those who pay
    the premium and don't receive their complete benefit now! Only 8
    percent (4,580) of SBP/DIC recipients are active duty death surviving
    spouses. Over 57,500 are the surviving spouses of retirees who have
    paid SBP premiums subsidized by DOD.\5\
    ---------------------------------------------------------------------------
        \5\ Department of Defense Office of the actuary . . . 09-30-14
    ---------------------------------------------------------------------------
        As stated, the SBP annuity and the DIC annuity are paid for two
    separate purposes. The retiring servicemember chooses to ensure the
    financial security of his/her surviving spouse by enrolling in the
    Survivor Benefit Plan. There is a chance the retiree may die of a
    service-connected disability. We maintain the payment of the DIC is the
    responsibility of the VA regardless of what other insurance or annuity
    the survivor may be eligible for. No other survivors of Federal
    employees (former military members) are subject to the offset when they
    receive both a survivor annuity and the DIC. Surviving children
    receiving SBP are not subject to the offset. Since the retiree already
    pays a premium for SBP, why should he/she also subsidize the payment of
    the VA DIC annuity?
        The Commission notes in its report the increased election of SBP by
    retired servicemembers, comparing an election rate of 52 percent in
    1993 to an election rate of 79 percent in 2013. This increase is due in
    great part to the elimination of the Social Security offset authorized
    by the NDAA for Fiscal Year 2005 (Public Law 108-375) and phased in
    over a 3-year period ending in 2008. Increasing the SBP premium to
    11.25 percent would discourage retirees from signing up for the higher
    coverage unless they were severely disabled and had no other options.
    Those with severe disabilities who have been medically retired may be
    least financially able to pay higher premiums even though their
    survivors would have the greatest stake in having the offset
    eliminated.
        We are especially concerned the Commission did not address how the
    survivors of those who die on active duty would be affected if this
    recommendation would be enacted. Would they continue to experience the
    DIC offset to SBP? For many of the survivors of junior servicemembers,
    the DIC completely offsets the SBP annuity. We have questions where the
    funding would come from to fully fund both the DIC and SBP benefits for
    these survivors? How would the proposed changes to the retirement
    system figure into this?
        We are encouraged at the suggestions the Commission has made on
    providing an analysis of the costs and benefits of the options to the
    retiring servicemember and their spouse. Again, it is important to have
    all the information to make an informed decision on retirement and
    survivor plans. But, we cannot support asking the retiree to fund both
    the unsubsidized portion of the SBP and the VA provided DIC payment on
    the chance he/she may die of a service-connected disability.
        Recommendation 11: Safeguard education benefits for Servicemembers
    by reducing redundancy and ensuring the fiscal sustainability of
    education programs.
     honor the contract with those who have already transferred the benefit
        As anyone who has pursued higher education can attest, tuition is
    only a fraction of the cost of attending college. Living expenses,
    books and fees add significantly to students' costs. Recognizing this
    reality, Congress included a living stipend in the Post 9-11 GI Bill.
    This valuable benefit has allowed many servicemembers to complete their
    educations and launch careers. Other servicemembers judge the best
    choice for them and their families is to transfer the benefit to a
    dependent spouse of child. Servicemembers incur an additional service
    obligation with the understanding the entire benefit--to include the
    living stipend--will transfer to their designated recipient.
        In the Commission's view, it is time to evaluate the effectiveness
    of transferability of the Post 9-11 GI Bill on retention and better
    align the benefit to meet retention goals. However, they fail to
    acknowledge many servicemembers have already transferred the benefit--
    and met their additional service obligation--but their dependents have
    not yet had the opportunity to use their earned GI Bill benefits.
    Servicemembers with young children accepted an additional service
    obligation with the understanding their families would have full use of
    the Post 9-11 GI Bill benefit. They made financial arrangements and
    savings plans based on those provisions. They made difficult choices
    and possibly passed on other opportunities to ensure their earned
    benefit became one their dependents could use. These servicemembers
    honored their part of the contract. Now we ask Congress to do the same
    and preserve the full Post 9-11 GI Bill for those military families who
    have already transferred the benefit.
        It is worth noting servicemembers who transfer their Post 9-11 GI
    Bill benefits and fail to meet the required service obligation are
    required to repay the benefit. The VA recognizes in transferring the
    benefit the servicemember has entered into a contract and must meet the
    terms of the agreement. Should servicemembers expect any less? We
    acknowledge the Post 9-11 GI Bill is an exceptionally valuable benefit.
    In a time of fiscal constraint, Congress may have to make difficult
    decisions regarding its future viability. However, the contracts of
    those who have already earned the benefit must be honored.
                    recommendations requiring further study
        We believe several MCRMC recommendations have promising elements,
    but will require more study and further questions in order for the
    Commission to answer our concerns. The proposals for the new retirement
    system and changes in health care call for servicemembers and their
    families to make responsible choices that will require a robust
    financial training program. We wonder how DOD and the Services will
    accomplish this financial training for both the servicemember and his/
    her spouse. We also have concerns about the proposal to merge
    commissary and Exchange operations and about the effect this change
    would have on the military resale system. We will seek more information
    on how these proposals could be implemented and encourage Congress to
    do the same.
        Recommendation 1: Help more servicemembers save for retirement
    earlier in their careers, leverage the retention power of traditional
    Uniformed Service retirement, and give the Services greater flexibility
    to retain quality people in demanding career fields.
                 taking responsibility for your own retirement
        As advocates for the entire military family community, our
    Association is keenly aware of the inequities inherent in the current
    retirement system. The majority of the families we serve remain in the
    military for fewer than 20 years and thus leave with little or no
    retirement savings. Recognizing this disparity, we support the
    Commission's recommendation to create an employer match to
    servicemember Thrift Savings Plan (TSP) accounts, which would create a
    valuable, transportable retirement benefit for servicemembers
    regardless of how long they spend in the military. At the same time, we
    strongly believe in the value of the defined benefit plan, both as a
    retention tool and as a vital element in retirees' financial well-
    being. We commend the Commission for creating a hybrid system that
    would maintain the majority of the defined benefit plan along with a
    defined contribution.
        While we would like to support the recommendation fully, we do have
    concerns. The proposal shifts both risk and responsibility for
    retirement savings from the government to the individual servicemember.
    In addition, the recommendation would lead to a significant income
    reduction for future working-age retirees compared to the current plan.
    We ask Congress to consider the following issues prior to making any
    decision about retirement changes.
           the ``blended'' retirement system: questions and concerns
             Increased responsibility for retirement while
            purchasing power is eroded: The value of the TSP is tied
            directly to the level of individual contributions. If
            servicemembers choose not to participate, or make smaller
            contributions, the value of the benefit is diminished.
            Currently 40 percent of servicemembers choose to participate in
            TSP even though DOD provides no match. While under the proposal
            enrollment in the plan would be automatic, servicemembers would
            have the choice not to participate. To their credit, the
            Commission paired this recommendation with a call for
            improvements in servicemember financial literacy programs,
            arguing once servicemembers understand the value of saving for
            retirement, especially with an employer match, there would be
            great incentive to participate. However, the reality is
            military families have experienced a series of cuts to their
            purchasing power in recent years, with higher out-of-pocket
            costs for housing and health care and pay raises that do not
            keep pace with inflation. TSP contributions will take another
            bite out of their disposable income. How many families will
            simply feel they cannot afford to save for retirement?
             Higher risk for servicemembers and families: We are
            also concerned about the risk associated with a defined
            contribution plan, which we feel the Commission did not
            adequately address. Like all market-based funds, TSP accounts
            carry the risk of investment losses. In addition, a high rate
            of inflation would effectively diminish the value of TSP
            savings. Under this plan, the TSP would represent a significant
            share of retirement savings for a person who spends 20 or more
            years in the military, so the proposal imposes greater risk on
            those who stay for a full career. If there is a downturn in the
            market, retirees face losing a large share of their retirement
            savings. While some of that risk could be offset by a robust
            financial literacy program, risk is an intrinsic element of any
            defined contribution system.
             Reduced income for working age retirees: Our most
            pressing concern is the financial well-being of future working
            age retirees, who would face a significantly reduced income
            under this plan relative to the current one. According to the
            Commission, future retirees' pensions would be 20 percent less
            than provided under the current system. While the loss would be
            offset by the increased value of the TSP, servicemembers would
            not be able to begin drawing from that until they reached age
            59\1/2\. How much of a burden will this reduced income place on
            future working-age retirees? We also wonder what will happen to
            the Survivor Benefit Plan under this scenario. Will prospective
            retirees and their spouses feel they cannot afford to
            participate in SBP if their retirement income is reduced? Will
            Survivor Benefit Plan premiums and benefits be adjusted given
            the smaller retirement amounts and the availability of the
            Thrift Savings Plan as an asset for the survivor?

        As more servicemembers leave the military due to downsizing, our
    Association has increasingly focused on the issues families face as
    they transition to civilian life. In 2014, we surveyed military spouses
    who recently transitioned or were preparing to do so soon. What we have
    heard is that separating or retiring from the military is a difficult
    transition for many military families, often accompanied by significant
    financial hardship.

             ``Fortunately, we have been cautious about our
            spending and were financially prepared to live on retired pay
            if necessary which proved to be true.''
             ``Save every penny you can. Get out of debt before you
            separate. Brace yourself--it is harder than you can imagine. We
            are out of debt and have some savings, but my husband has been
            job hunting for 7 months.''
             ``I feel after 15 years in a career, he is starting
            from scratch and at the bottom of the barrel in the civilian
            workforce. I'm scared we'll be trying to support a family on
            minimum wage because nobody knows how to use an 0369 (military
            specialty designation) in the real world'' \6\
    ---------------------------------------------------------------------------
        \6\ Source: NMFA Transition Survey, May 2014

        The prevailing view of the working-age retiree who moves seamlessly
    into civilian employment is frequently far from reality. Rather, it is
    not uncommon for working-age retirees to face a lengthy period of
    unemployment or underemployment, especially if their military skills do
    not translate directly into a civilian career. We are concerned that a
    reduced retirement annuity will add to the financial stress families
    commonly face during this transition.
        The Commission's approach to this problem, offering servicemembers
    the option of a lump sum payout in exchange for a reduced retirement
    annuity, is not an acceptable solution for the long-term well-being of
    the family. While the Commission does not detail the amount of the
    proposed payout or the how much would be cut from the annuity, similar
    proposals in the past have been detrimental to servicemembers,
    providing much less total retirement compensation. This is especially
    true if the amount of the lump sum offered does not increase with
    inflation. Military retirees should not have to face a long-term
    financial disadvantage in order to address a short-term financial
    shortfall.
        A 2014 RAND report, Toward Meaningful Military Compensation Reform,
    offered a proposal that would partially offset the reduced benefits for
    working-age retirees in the MCRMC plan. In its report, RAND suggests
    implementing a transition pay for servicemembers leaving after 20 or
    more years of service. Including a transition payment for retiring
    servicemembers would address two of our concerns by helping families
    through the financial challenges associated with transition and by
    offsetting some of the income lost by working-age retirees under a
    reduced defined benefit plan. In our view, this proposal merits further
    study for all transitioning servicemembers receiving an honorable
    discharge.
        We also note that the Commission does not address medical retirees
    in its proposal on retirement. How would these most vulnerable military
    families cope with a reduced annuity?
        We recognize the majority of servicemembers currently leave the
    service with no employer-provided retirement benefit and we commend the
    Commission for attempting to remedy this inequity while preserving most
    of the defined benefit plan. While we would prefer the annuity remain
    at its current level, we acknowledge that may not be feasible while
    also providing an employer match to the TSP. While we support the
    proposal in principle, we are concerned about the shift of risk and
    responsibility to servicemembers and their families and about the
    impact on the financial well-being of working-age and medical retirees.
    We believe there are steps Congress and DOD could take to mitigate
    these drawbacks--such as including a transition pay for
    servicemembers--that would allow us to more wholeheartedly support the
    proposal.
        Recommendation 3: Promote servicemembers' financial literacy by
    implementing a more robust financial and health benefit training
    program.
           more training is necessary to make good financial choices
        We support the proposal to implement a more robust financial and
    health benefit training program. However, we question how some of the
    recommendations will truly improve financial literacy and must
    emphasize the importance of extending these training programs to the
    entire military family, particularly the spouse.
        The MCRMC concluded that existing financial literacy training
    programs do not adequately educate servicemembers. Yet, it maintains
    investing money in growing existing programs, with only slight changes,
    would better educate servicemembers. We think it is important to note
    in many areas, servicemembers are already miles ahead of their civilian
    counterparts in financial knowledge and management practices.
        According to a survey done by FINRA Investor Education Foundation
    in 2012, 80 percent of servicemembers believe they are good at dealing
    with day-to-day financial matters.\7\ When compared to their civilian
    counterparts in age and demographic, servicemembers were more likely to
    have an auto loan, carry a credit card balance, have a student loan,
    and a mortgage, but they were also less likely to use non-bank
    borrowing and have unpaid medical bills. Servicemembers spent less than
    their income and had less difficulty covering their expenses than their
    civilian counterparts. They are more likely to save or have a
    retirement account. However, they were more likely to be underwater in
    their mortgage or have declared bankruptcy. These statistics bear more
    reflection and require adaptations in financial literacy programs that
    are specific to their military lifestyle challenges, like understanding
    the risk of investments in real estate when unable to homestead in one
    place.
    ---------------------------------------------------------------------------
        \7\ http://www.usfinancialcapability.org/downloads/NFCS--2012--
    Report--Military--Findings.pdf, page 28.
    ---------------------------------------------------------------------------
        It is absolutely critical changes in financial literacy focus on
    educating the entire military family. Spouses are often left in charge
    of the big financial decisions as they are more consistently present on
    the home front. Financial wellness and health care are often not
    executed by the servicemember. Mismanagement can result in far more
    devastating repercussions than a loss of security clearance: we have
    seen surprising use of food banks by military families; financial
    issues are a leading culprit in divorce and military suicide events;
    and unsurprisingly, morale is dropping after 14 years of war. The
    Commission's proposal must be considered in the light of how it can be
    applied to the entire family unit to best serve its purpose.
        In considering improvements to financial literacy and health
    benefit training programs, opportunities to reach family members must
    embrace the lack of mandate the command and service have over family
    members. Dependent spouses or family members cannot be forced or tasked
    into education. Programs must be interesting, relevant, accessible, and
    innovative to reach our youngest families and entice them to
    participate. Provisions should be made to ensure attending or accessing
    good financial literacy counseling and education resources does not
    cost families money and can be performed at times convenient to them.
    We think the online budget planner is a good example of the great
    potential in this recommendation.
        The MCRMC recommends several financial education ideas that are
    already in effect. For example, each Service provides financial
    management training to the servicemember at various stages in their
    career. They also provide financial counseling for servicemembers and
    their families through a designated staff member at every installation.
    However, in some locations, this person may be shared among various
    installations or not be committed to financial literacy as a full-time
    responsibility. The MCRMC's proposal for more resources dedicated to
    financial education could expand availability of training personnel and
    programs.
        The MCRMC's proposal recommends:

        1.  Increasing the frequency of and strengthening financial
    literacy content
        2.  Enhancing financial literacy content
        3.  Hiring firms to provide financial literacy training
        4.  Messaging from leadership
        5.  Mandatory annual Defense Manpower Data Center (DMDC) surveys
        6.  Strengthening partnerships with Federal and nonprofit
    organizations
        7.  Provide an online budget planner for servicemembers
        8.  Restructure the LES to reflect compensation changes proposed by
    the MCRMC

        The Department of Defense (DOD) already provides financial
    counseling through Military OneSource confidential counseling number.
    Military OneSource counseling is also the most accessible tool
    currently available for spouses. DOD engages in a massive campaign
    called Military Saves to promote savings in cooperation with the
    Consumer Federation of America that includes memorandum and video
    messages from the Joint Chiefs and Enlisted Leaders encouraging
    servicemembers to pledge to save. The DOD meets quarterly with Federal
    and nonprofit organizations at the Defense Financial Readiness
    Roundtable to discuss programs and plans for reaching military families
    with financial literacy tools provided outside of DOD.
        In 2003, DOD formally launched a financial readiness campaign to
    deal with financial habits that put members' readiness at risk,
    including financial management awareness, savings and protection
    against predatory practices. Since then, items 1, 2, 4, and 6 on the
    MCRMC list have been implemented. DMDC has surveyed servicemembers
    about financial issues as recently as December 2013. With only items 3,
    7, and 8 as new recommendations by the Commission, we feel this
    proposal leaves too many specifics to chance, especially with so many
    other moving parts in the health care and retirement proposals.
        We would be remiss if we omitted the other financial challenges
    faced by military families. Between 2000 and 2012, Congress approved
    pay raises that exceeded the statutory requirement and set the standard
    that the Basic Allowance for Housing (BAH) would completely cover
    average housing expenses at each rank. For the past 3 years, however,
    DOD has proposed pay raises lower than the Employment Cost Index
    standard required in statute. DOD has also proposed a reduction in the
    BAH. The cumulative effect of these changes will severely impact the
    purchasing power of servicemembers and their families. Financial
    literacy to promote financial readiness will be more important to help
    military families' dollars stretch further.
        The MCRMC is proposing a massive overhaul of the health care system
    that would give servicemembers the choices they have been craving, but
    could also result in out-of-pocket expenses for large families or those
    with extensive health care needs. They are also proposing a retirement
    system that would ask our younger and least equipped servicemembers to
    carry a bigger burden in saving without giving them the extra tools to
    do so. According to a 2013 DMDC survey, approximately 10 percent of
    responding servicemembers found it difficult or very difficult to cover
    expenses and pay all bills.\8\ These 10 percent demonstrate that there
    is still a target number of servicemembers who will not just benefit,
    but desperately need a different kind of financial management
    education.
    ---------------------------------------------------------------------------
        \8\ Defense Manpower and Date Center, 2013 QuickCompass of
    Financial Issues, Question 73, pg. 138
    ---------------------------------------------------------------------------
        We support the MCRMC's recommendation to promote better financial
    literacy for servicemembers' through a more robust financial and health
    training program and feel that it is absolutely critical for the
    success of their other recommendations. We must emphasize that
    implementation must include family members. We would also like to see
    more information or study on how these proposals benefit the majority
    of servicemembers who are already financially savvy, but challenged by
    other financial challenges of military service.
        Recommendation 9: Protect both access to and savings at Department
    of Defense commissaries and Exchanges by consolidating these activities
    into a single defense resale organization.
              the savings are the reason we shop at the commissary
        We thank the Commission for affirming the commissary savings
    military families have told us they value must be protected and also
    affirming that DOD dollars should help to support the savings level. We
    also understand efficiencies can help make more solid a benefit the DOD
    continues to find expendable. However, we believe the implementation of
    the Commission's recommendation may remove many protections that
    sustain the existence of the commissary and exchanges. We don't believe
    there is enough data or context on the practical aspects of
    consolidation to support this proposal as written and feel it requires
    further study.

             Currently, commissaries sell items at cost with a 5
            percent surcharge that funds infrastructure investments.
            Operational costs are paid with appropriations. The exchanges
            sell items for profit, cover most of their operational costs
            with those profits, and provide the remainder to support
            Morale, Welfare, and Recreation (MWR) programs. The MCRMC
            proposes a new system that combines the exchange and the
            commissary systems into a new Defense Resale Agency (DeRA) and
            forces the surcharge and profit margins to fully fund the
            operational costs of both systems. The exchanges have already
            been yielding smaller and smaller profit margins. How many
            efficiencies will be needed in a combined system to cover costs
            AND provide the MWR support at desired levels?
             The recommendation states ``MWR programs should
            continue to be funded from DeRA profits.'' What if there is a
            shortfall?
             DOD currently operates three exchange systems (NEXCOM,
            MCX, AAFES). Previous attempts to consolidate the exchanges
            into a single entity have failed due to logistical challenges
            and Service objections. How and why will it work this time?
             More than 60 percent of the employees working at the
            commissary and exchanges are military affiliated. Nearly 30
            percent are military spouses. We do not know how these changes
            would affect their status. Civilian employees at the commissary
            would likely be converted to Non-Appropriated Fund (NAF)
            status, possibly reducing their pay and forcing a change in
            their benefits as they switch to a new system. What logistical
            challenges in merging employees from two distinct pay and
            benefit structures must be resolved and at what cost? How will
            the financial security of long-time commissary employees be
            protected?
             Consolidation may also remove the appropriated funds
            that cover second destination transportation costs for shipping
            commissary goods overseas. The new DeRA would be responsible
            for generating revenue to cover operating costs and second
            destination transportation at a cost of more than $340 million.
            Again, what if they can't? What's the protection for families
            who depend on overseas commissaries?

        It remains unclear to us what will happen if the new blended system
    cannot cover operating costs. What are the second- and third-order
    effects on families around the world for providing healthy and familiar
    foods and goods? How will potential reductions in MWR revenues affect
    the morale of our military families at home or servicemembers away from
    home?
        As in our health care discussion, we must acknowledge that
    commissaries are under tremendous financial pressures and the
    appropriation that supports their operations--and by extension the
    savings military families need--is a constant target for budget-
    cutters. We are open to discussions on how to strengthen the resale
    entities in a way that protects customer savings and MWR revenues. We
    have concerns that restructuring the commissary and exchanges into a
    single entity could diminish each of these benefits. But, we hope this
    recommendation and the additional commissary study Congress mandated in
    the NDAA for Fiscal Year 2015 will provide a starting point for action
    on ways to strengthen the benefits and protect the military families
    who depend on them.
                                 the way ahead
        The National Military Family Association commends the Commission
    for its thoughtful consideration of many issues important to military
    family quality of life, as well as its comprehensive approach to
    military compensation. We are intrigued by the innovative
    recommendations regarding health care and retirement. We hope our
    questions will help inform a much-needed discussion, not just about the
    proposals, but also about current benefits and ultimately what will be
    best for servicemembers and their families and the readiness of the
    force. We need more information on the impact of consolidating aspects
    of the military resale system on the savings military families
    experience at the commissary before embracing this recommendation. We
    especially thank the Commission for its recommendations regarding
    special needs military families, child care, nutritional support and
    military children in public schools. Their recommendations, if enacted,
    would address concerns that we often hear from military families and
    greatly enhance many families' well-being. While we cannot support the
    Commission's recommendations regarding the Survivor Benefit Plan or the
    Post 9-11 GI Bill, we do appreciate the efforts to preserve benefits
    important to servicemembers and their families.
        We ask Members of Congress to consider these recommendations
    thoughtfully as they respond to the budgetary challenges our Nation
    faces. We encourage Congress and DOD to seek solutions to the many
    issues raised by the MCRMC report and would welcome the opportunity to
    share additional input from the military families we serve. We must not
    delay the conversation on how to provide the best for our
    servicemembers and the families who stand behind them! This report
    gives us a starting point.
        Our Nation will continue to call on servicemembers to address
    emerging threats and sustain peace around the world. Any change to the
    system of military compensation will have far reaching consequences and
    must recognize the unique challenges of military life. The government
    should ensure military families have the tools to remain ready and to
    support the readiness of their servicemembers. Compensation and
    benefits for servicemembers should reflect the singular service of
    military members and honor that service with a commensurate system of
    financial and medical support into retirement for them, their families
    and for their survivors.

     STATEMENT OF VADM NORBERT R. RYAN, JR., USN (RET.), PRESIDENT
     AND CHIEF EXECUTIVE OFFICER, MILITARY OFFICERS ASSOCIATION OF
                                AMERICA

        Admiral Ryan. Chairman Graham, Senator Gillibrand, Senator
    Tillis, and Senator McCain, thank you for this opportunity on
    behalf of our 390,000 members.
        This afternoon, I'd like to make just five brief points:
        First, the Military Officers Association of America (MOAA)
    sincerely appreciates the work that the Commission did. These
    are very professional, dedicated Americans that have done
    quality work. The proposed change to the healthcare system is
    welcome. It's a welcome shot across the bow and should serve as
    a forcing function, I believe, for Congress to work with DOD
    and Secretary Carter to push through with the essential and
    much needed reforms necessary to optimize the system. I believe
    the one thing we all agree on is that the status quo is not
    acceptable.
        Second, it's obvious that the Commission, Congress, MOAA,
    and my colleagues here at the table all seek the same
    objective: a healthcare delivery system that is far more
    integrated, efficient, effective, and sustainable than the
    current system.
        Third, where MOAA respectfully differs with the Commission
    is, we believe the problems that TRICARE has can be addressed
    in a systematic manner without resorting to its elimination.
    MOAA has consistently stated that the largest barrier to a
    truly efficient and highly reliable healthcare organization is
    the current three-service system. In the 1980s, Congress
    demanded, over the strong objection of Pentagon leadership,
    that the Services fight wars jointly. It is now time for
    Congress to insist that the Services do the same thing
    immediately in the medical-care area. Study after study has
    concluded that a unified medical command that has a single
    budget authority over the three military systems will yield
    significant cost savings and efficiencies that will make the
    military system one we can be proud of.
        Fourth, MOAA's recent electronic survey of 7,500
    beneficiaries, 1,500 of which were enlisted, 400 spouses,
    indicates that, even with its problems--even with its problems,
    8 out of 10 prefer TRICARE to a health plan similar to what
    Federal civilians use. If Congress contemplates moving to a
    healthcare plan similar to the Commission's recommendation, it
    needs to take the time necessary to ensure all stakeholders
    understand the second- and third-order effects.
        Finally, MOAA believes that, out of the Commission's 15
    recommendations, the two that propose dramatic changes to both
    military retirement compensation and military care programs
    could have a serious impact on career retention required in the
    All-Volunteer Force. Both recommendations produce a negative
    effect on the pocketbook of patriotic Americans for whom the
    government needs to serve for--needs to draw to a 20-year
    career.
        So, it isn't necessarily as much the money, but I would
    like to put up a chart on this, because, Senator Graham, as you
    pointed out, people would sign up for this retirement benefit
    when they came in because, as Senator McCain has said, it would
    be prospective. But, what we're concerned about is the
    combination if we implemented a retirement system that was
    prospective and we also integrated that with the healthcare
    system that the Commission reports, the question is, would
    there still be a sufficient draw for those young men and women
    who are coming in, in the future, that they would feel it's
    worth going from 10 years to 20 years? We think there's
    considerable risk with this. All you have to do is multiply
    that 20 by 20 and you would see, it's about 128,000 less in
    benefit. So, the question is, would that be sufficient to get
    people to stay in for a career, let alone more than one tour?
        If Congress--and because that's basically a 27-percent cut,
    as you see--if Congress and the administration decide to adopt
    these two very financially impactful recommendations from the
    Commission, MOAA believes the risk to the quality of the All-
    Volunteer Force would be significant because of--the incentive
    to stay for a career would be in doubt.
        Again, thank you for this opportunity, and thank you all
    for your continued leadership.
        [The prepared statement of Admiral Ryan follows:]
       Prepared Statement by The Military Officers Association of America
        Chairman Graham and Ranking Member Gillibrand, members of the
    committee, on behalf of the 390,000 members of the Military Officers
    Association of America (MOAA), we welcome this opportunity to submit
    testimony for the record, regarding our views concerning the Military
    Compensation and Retirement Modernization Commission's (MCRMC) report
    and recommendations regarding military health benefits.
        MOAA sincerely appreciates the hard work and detailed analysis that
    went into the Military Compensation and Retirement Modernization
    Commission's report. The commissioners and professional staff should be
    commended for their extensive effort. Their product provides the
    country with an instrument that we can use as a catalyst to begin
    important thoughtful discussions, analyses, and debates on vital issues
    that directly affect our service men and women, retirees, their
    families, and their ability to insure our national security. We look
    forward to working closely with the Congress and in particular this
    committee, your staff, the Pentagon, and the administration on these
    critical concerns and recommendations regarding military compensation,
    benefits and the retirement system.
        The Commission and MOAA both seek the same objective. However, we
    urge caution concerning any major changes to the military's health care
    system (MHS) that could potentially have a negative impact on the
    military medical readiness of our medical personnel, as well as on the
    entire All-Volunteer Force and their families. Several of the health
    care proposed recommendations represent nothing short of a seismic
    change, and have not been modeled and studied within the complex and
    dynamic realities of the military health care system.
        Some defense leaders and others have stated, and continue to state,
    that the military's health care costs absorb a disproportionate 10
    percent, non-war share of the Department of Defense (DOD) budget, and
    that this spending trajectory must change. These assertions should be
    viewed in proper context in that healthcare costs comprise 23 percent
    of the Nation's budget; 22 percent of the average State budget; 16
    percent of household discretionary spending; and are 16 percent of the
    U.S. gross domestic product--so a 10 percent share of DOD's budget is
    not too bad a deal. Additionally, not usually highlighted are the
    improvements to the benefit and the extended benefit coverages for
    Reserve and Guard components which Congress rightfully mandated during
    the past decade. The facts also show that DOD healthcare costs have
    been relatively flat over the past 3 years because of changes Congress
    already has put in place.
        The current and future national security situation will require
    that we maintain a balance of investment in equipment, training,
    operational capabilities, as well as personnel requirements which have
    been the cornerstone of the success of our All-Volunteer Force. There
    are finite resources for these competing demands and we strongly agree
    that the military's health care system needs to evolve beyond what it
    is today, into a modern high performing integrated system, delivering
    quality, accessible care, safely and effectively to its beneficiaries--
    while simultaneously meeting international health crises and national
    disasters, while at the same time honing its readiness capabilities. No
    other health care entity in the country is charged with these dual, yet
    mutually inter-dependent, mandates.
        Our Nation's health care industry is undergoing rapid change, and
    it is within this context that the military health care system finds
    itself at a major inflection point. It must sustain the advances and
    skills learned from the past 14 years of combat experience and it
    cannot compromise on its readiness platforms. Thus, any reforms must
    support the goal of sustaining an operationally ready force with a
    ready medical force. How to most effectively accomplish this without
    negatively impacting retention and readiness is the crux of the issue.
         military health care and the importance of the tricare program
        The MCRMC recommends the TRICARE program be eliminated and replaced
    with a Federal Employee Health Benefits Program (FEHBP)-like substitute
    health plan. It is worthwhile to understand the importance of the
    current program that it is purported to replace.
        There have been, and continue to be, many studies on the
    organization, coordination, and the increasing costs of the military
    health system, as well as its effectiveness addressing particular
    health challenges. Despite the stress that has been placed on the
    military's health system and the TRICARE program, because of war--its
    performance has withstood the test of time and in some ways, is
    stronger and more resilient now than it has ever been.
        The TRICARE program was established in 1995 having evolved from the
    Civilian Health and Medical Program of the Uniformed Services
    (CHAMPUS). Today, it provides care to over 9 million servicemembers and
    families, retirees, and survivors, through a range of benefits from
    TRICARE Young Adult to TRICARE for Life.
        TRICARE, by its very nature, was designed to support military
    medical readiness as well as to ensure the delivery of a defined
    benefit. It accomplishes this by sustaining the operational capability
    for military treatment facilities through an augmented network of
    health care services provided by three managed care support
    contractors, who ensure the continuous delivery of the benefit.
        The heart of military medical readiness is found in the direct care
    system, of which military treatment facilities provide the core
    platform for training. The provision of care in these facilities is
    vital to the ongoing training of physicians, nurses, corpsmen, medics,
    and other ancillary and administrative personnel. Managed care support
    contracts allow for nationwide flexibility in support of a ready
    deployable force. This model has proven successful but expensive, as
    evidenced by large budget increases for civilian purchased care.
        Managing and maintaining a health care budget in excess of $50
    billion a year is complicated and intricate. It is precisely because of
    the challenges presented in managing such a large program that the
    system has become somewhat, over time, both self-defeating and sub-
    optimal. For instance, reducing the Prime Service Areas (PSA) around
    the MTFs saves money in the budget, but reduces the number of
    beneficiaries utilizing the MTF which creates even more excess
    capacity. The overall result of this sub-optimization of the direct
    care system has directly resulted in both the increased use of
    purchased care in civilian networks, and a shrinking patient base.
        Despite its current challenges and short-comings, MOAA believes
    TRICARE is not currently in a ``death spiral'' as some have said, and
    it is not broken--but there are areas that definitely need urgent
    focused attention and reform. The recent 2014 MHS Review identified key
    shortcomings and areas for improvement in the domains of access,
    quality, and patient safety--with some steps already underway. This
    past summer, MOAA's own survey on MHS access, quality and safety
    corroborated much of the same, especially regarding access to care
    issues. In short, we will not accept the status quo and we must all
    must continue to hold the Department accountable for aggressively
    correcting these areas.
        TRICARE has come to a unique moment in its history, and is
    presented with an opportunity for a thoughtful redesign of the program.
    This should be done with the goals of ensuring that the TRICARE benefit
    remains robust and medical readiness is strengthened while keeping
    beneficiary care and access in the forefront.
                              the mcrmc proposals
        The MCRMC has advanced four over-arching proposals that represent
    significant changes to the MHS. We are generally in support of two of
    them but have significant concerns regarding the other two.
        We applaud the Commission for addressing issues experienced by
    military families with special needs. We generally agree with the
    recommendations and the intent to improve support for these
    beneficiaries by aligning services offered under the Extended Care
    Health Option (ECHO program) to those of State Medicare waiver
    programs. We believe that Guard and Reserve families are particularly
    vulnerable during transitional periods and should have an extension of
    support. It is imperative that the benefit must include members of all
    seven of the uniformed services.
        We also support dramatically improving collaboration between the
    DOD and VA and there exist some excellent examples, such as the joint
    DOD/VA health care facility in North Chicago. For years MOAA has
    advocated for legislative authority to grant the existing Joint
    Executive Committee additional authority and responsibility to enforce
    collaboration. Many of the issues impeding progress range from a common
    electronic medical record to joint facility and acquisition planning
    can be accomplished in a transparent manner. Similarly, the issue of a
    transitional formulary for servicemembers leaving the DOD and enrolling
    into the VA system should be immediately corrected.
        We have significant concerns regarding the Commission's proposals
    to create a new Joint Readiness Command (J-10), tasked with overseeing
    new standards for essential medical capabilities and establishing
    military treatment facilities as preferred network providers within
    civilian communities. MOAA for years has supported the concept of a
    unified medical command that has a single budget authority over the
    three military systems. The time is right for this to come to fruition
    now, starting with the large multi-service market areas. A single
    budget authority to include human resources and infrastructure
    oversight and control, will yield huge cost savings and efficiencies
    that we can only now dream about. Throughout the years, numerous
    studies have recommended the consolidation of medical budget oversight
    and execution and this can be done while maintaining the readiness
    responsibilities of the Surgeons General under title 10. However, the
    MCRMC proposal does not include this MOAA-supported recommendation.
        Associated with that recommendation, is the proposal to increase
    beneficiary health care choice by dismantling the current TRICARE
    three-option program and moving active-duty family members, retirees
    under age 65 and Reserve component members into a commercial premium-
    based insurance model, similar to the Federal Employee Health Benefit
    Program (FEHBP).
    proposal to eliminate the tricare program and replace it with a federal
                 employees health benefits program-like system
        Offering military families and retirees under age 65 choices in a
    FEHBP--like program is one of the centerpieces of the MCRMC's health
    care proposals. It is in response to reported access, referral,
    contracting, and bureaucratic problems that beneficiaries experience
    under TRICARE Prime. Observations made by the commission regarding many
    of these issues are right on the mark.
        TRICARE Prime is by design an HMO model of care, costing
    beneficiaries less and inherently providing less choice. TRICARE
    Standard provides a wider range of choice and is more popular. The
    commission's main concerns involve issues with the TRICARE Prime; a
    fair question to ask is whether it takes such a radical change to
    address those problems.
        The new FEHBP-like program, called TRICARE Choice, would offer
    beneficiaries an array of plan options to choose from based upon their
    location. MTFs would be offered as one of the providers in the plan. It
    is envisioned that DOD would have the authority to adjust MTF billing
    for civilian reimbursements and co-payments for insurers as needed to
    meet the MTF's readiness requirements.
    Concerns
        This proposal is a dramatic change in the entire philosophy of
    delivering military health care coverage and if it is seriously
    entertained, should be subject to much more scrutiny to ensure it meets
    beneficiary needs without changing the fundamental benefit value or
    leading to unintended consequences.
        TRICARE is designed to support military readiness--to include
    military family readiness. FEHBP serves a very different purpose and
    does not factor in readiness. For example, how would DOD's new
    investment in an electronic medical record be used in a FEHBP-like
    benefit design?
        Instead of fixing existing issues and investment in fixing these,
    the Commission's answer is to eliminate the entire program and have
    beneficiaries, particularly retirees not on Medicare, pay substantially
    more under the premise of receiving more ''bang for their buck.''
        The unintended consequences to military medical readiness could be
    great. Using MTFs as network providers, competing for business in the
    civilian market was not thoroughly examined in the Commission's
    report--this represents an unacceptable level of risk. Especially since
    the MTFs exist for readiness or a unique mission. The use of TRICARE as
    a back-up to absorb care during periods of readiness has largely been a
    success--for example, during large scale deployments of medical staff
    on the hospital ships in both war-time and humanitarian scenarios.
        The Commission also presumes the Defense Department, in working
    with FEHBP insurers, would be afforded the right to set provider
    payments and beneficiary copayments for MTFs versus other providers,
    and adjust those as necessary to direct patient flow to MTFs. MOAA
    remains dubious that a broad range of insurers would be comfortable
    with extending such authority to one provider, however preferred.
        Military families would have to receive extensive education when
    selecting health plans. Overwhelming choice may be just that -
    overwhelming and confusing, especially in the face of the existing
    stressors military families face. Educating beneficiaries on their
    TRICARE benefits has been a challenge since the program's inception.
    Under the MCRMC concept, we are skeptical that DOD could effectively
    educate beneficiaries on an even greater array of plans.
        Under FEHBP, an open season for plan changes occurs once a year. If
    a military family member experienced a new diagnosis or health status
    change, he or she may want to change plan coverages. This would be
    especially problematic with mental health issues. There are already
    shortages of mental health providers in many States with our largest
    military bases, regardless of network.
        Premiums, copays, unique plan features, and the determination of
    medical necessity would vary by location and plan design. This would be
    a dramatic and unwelcome departure from what has been a program with a
    uniform benefit. Military families today can only plan as far as their
    next set of orders. They have come to rely on the uniform nature of the
    health benefit administered by TRICARE, no matter where they are
    stationed in the world.
        For example, Applied Behavior Analysis (ABA) is a therapy
    increasingly sought by military families for autistic dependents on the
    autism spectrum. Within the FEHBP, the therapy is not a covered benefit
    and it is offered by only 20 plans in a handful of States.
        Another area not fully addressed by the Commission is pharmacy
    coverage. The Commission proposes that the TRICARE pharmacy program
    remain unchanged. But virtually all of the FEHBP plans include
    different levels of pharmacy coverage, and practical experience is that
    the TRICARE pharmacy program is virtually unusable if other coverage
    exists. MOAA believes this would entrap military families between
    significantly higher costs for civilian coverage or extraordinary
    bureaucratic problems if they seek to use TRICARE pharmacy programs.
        The needs of a military family today can be dramatically changed by
    the demands of service. Unlike the TRICARE managed care support
    contractors, it is not clear that commercial plans under an FEHBP-like
    scenario would be sensitive to or responsive to a military family's
    unique needs. ``Ready to Serve'' the title of MOAA and United
    Healthcare Foundation's recent survey on civilian providers, conducted
    by RAND and released in December 2014, shows that civilian mental
    health providers are not equipped with the necessary knowledge or
    cultural sensitivity required in the care of military and veterans
    populations.
        Putting this major military health benefit under the administration
    of the Office of Personnel Management (OPM) appears to be a significant
    step toward treating military beneficiaries like Federal civilians for
    health care purposes. Military beneficiaries incur unique and
    extraordinary sacrifices unlike the service conditions of any civilian,
    and their health benefits have been intended to be significantly better
    than civilian programs.
        MOAA's recent survey of over 7,000 respondents revealed that 4 out
    of 5 prefer TRICARE over an FEHBP-like system for retirees and
    families, and 9 out of 10 do not feel confident that OPM would be able
    to understand and accommodate the unique needs of military families.
    The respondents include active duty, active duty family members,
    retirees, military spouses, and survivors of all the uniformed
    services.
        An additional concern of MOAA centers on the potential premium
    working-age retirees will pay. It is not clear how the commission
    determined premium cost shares for beneficiaries. A 20-percent premium
    cost share for retirees is substantially too high, regardless of any
    phase-in period. A cost structure this high devalues the in-kind
    premiums servicemembers contributed through decades of arduous service
    and sacrifice acknowledged in previous cost-share settings.
        The fundamental issue is that recognition of decades of service and
    sacrifice in uniform should be formally recognized in any cost
    determination. A 20 percent cost share is not far off from the 28
    percent cost share for Federal civilians using FEHBP. Comparison with
    civilian or corporate cash fees is inappropriate. Military retirement
    and medical benefits are the primary offset for enduring decades of
    arduous service conditions. Career retirees pre-pay huge ``upfront''
    health care premiums through 20 to 30 years or more of service and
    sacrifice.
                proposal to establish a joint readiness command
        MOAA has long been on record in support of a joint or unified
    medical command to ensure interservice consistency of policy,
    consolidated budget authority, appropriate determinations for medical
    staffing, training, procurement efficiencies, and more.
        Unfortunately, the creation of another layer of bureaucracy does
    not address the root of the MHS's problems. The largest barrier to a
    truly efficient and highly reliable healthcare organization is the
    current three service system organization. This arrangement is directly
    responsible for extensive costs through the duplication of technology
    services, medical equipment, lack of common procedures and processes,
    especially in the much touted multi-service market areas. Literally
    millions are wasted each year due to the inefficiencies of this type of
    structure.
        An example is the military's integrated referral and management
    center which serves the multiple clinics and hospitals in the National
    Capital Area. It is charged with making specialty referrals and
    appointments for the geographical market area. However, they only end
    up making approximately 20 percent of the total appointments, due to
    the fact that there is no unified policy and process in appointing
    beneficiaries into all of the military clinics and hospitals. The
    hospitals and clinics still report to three different service commands
    under three or more different sets of orders and varying budgets. This
    wastes millions in missed referrals going into the private sector.
        There have been measures made at integration. The creation of the
    Defense Health Agency is a step in the right direction and has proven
    it can get things done--but its budgetary successes
        have mainly been borne on the backs of the beneficiaries by higher
    pharmacy fees, mandatory mail order and rising premiums and co-
    payments. The MCRMC health care proposals represent a ``shot across the
    bow'' and should serve as a catalyst for the DOD to quickly push
    through with these long needed structural reforms under the direction
    of Congress.
    Concerns
        This new command structure does not provide a unified budget
    authority, but rather, participation in the budget process with the
    service and others. One of the key's to an efficient joint organization
    is budget accountability and direct oversight.
        The proposed rate setting authority charged to coerce beneficiaries
    into using MTFs and to induce private insurers to use the facility is
    risky and managerially cumbersome. Even if potential insurers would
    allow one provider system to exert such powers. It is unclear if this
    could increase the potential to put MTF needs in more direct opposition
    to dependent/retiree/survivor beneficiary desires.
        Historically, MTFs have wanted older beneficiaries for trauma,
    surgical procedures and other needs, but has not had the capacity to
    enroll beneficiaries for routine and specialty care.
        Placing a new bureaucratic structure over the existing one seems
    redundant, especially if it fails to address the principle problems of
    diffuse budget and oversight authority for DOD-wide medical programs.
    The functions overseeing readiness already exist in the Service
    Surgeons General and Joint Staff Surgeon. Service consolidation can and
    should take place without introducing another costly layer.
         tricare has its faults but can be improved with congressional
                                   leadership
        Problems in TRICARE like rising costs, barriers to access, and lack
    of customer service in certain areas, can be addressed in a systematic
    manner without resorting to its elimination. The elimination of TRICARE
    would be akin to ``throwing out the baby with the bath water'' and does
    not get to the root of the problems. The recent MHS Review produced a
    baseline starting point.
        The time is ripe to institute change. The development of a new set
    of TRICARE contracts, set to start in 2017, is about to commence
    bidding. The Request for Proposal (RFP) seeks industry bidders and
    additional input has gone out. Now would be an opportune time to
    institute innovative ideas from industry.
        The Department of Health and Human Services' Centers for Medicare
    and Medicaid (CMS) have instituted reforms calling for more payments to
    providers that place the value of health care over volume. There needs
    to be more focus on value based reforms which reward innovation
        and quality outcomes. DOD and TRICARE should maintain alignment
    with Health and Human Services and set goals to institute these same
    types of payment reforms into the new contracts. For example, a program
    to bench-mark that is already under TRICARE, the U.S. Family Health
    Plan, uses capitated financing to effectively manage its defined
    beneficiary population.
        A great deal of the cost increases have come from the current fee-
    for-service payment structure that TRICARE uses to pay its providers as
    this facilitates increased use of services. DOD must recognize that it
    is simply not possible to maintain a traditional fee-for-service
    discount purchasing strategy to keep costs down and improve access for
    beneficiaries.
        The discounted fee-for-service strategies from the past have also
    not been effective in creating provider networks that meet the needs of
    TRICARE beneficiaries in an economical and customer satisfying way. The
    Commission acknowledged this feedback from beneficiaries in their
    report.
        A value-based model will require new ways of thinking and risk-
    sharing. Under new contracts, managed support contractors and MTFs
    should be incentivized to align and integrate, with risk shared by each
    for the success of the whole.
        These payment innovations can and should be tried in a pilot
    program, using one or more of the enhanced multi-service markets as a
    testing ground. Experimenting with innovative public/private
    partnerships, including the VA, should be done to increase training
    case-mix and critical skills maintenance. This can be done now, without
    change to the whole system.
        One area where the Commission proposal to use an FEHBP-like program
    could be productive is for Guard and Reserve members and their
    families. We have long sought to bridge the health care continuity gap
    between and during periods of activation. As Guard and Reserve family
    members are not usually subject to frequent relocations and typically
    prefer to keep their employer coverage, the FEHBP-like concept would be
    more fitting for this population, including providing these families an
    option for an allowance to cover their civilian employer coverage
    during periods of deployment.
        By effective rationalization of the current military health care
    infrastructure, great savings can be gained with resulting better
    quality of care for beneficiaries. It simply does not make sense to
    keep open facilities with minimal inpatient occupancy.
        For the continuous development of the future MHS and TRICARE, DOD
    would benefit from frequent dialog with leaders in the health care
    industry. A regularly scheduled forum could be modeled after the
    existing Defense Health Board (DHB), focused on industry best-practices
    from all sectors. A forum like this could also leverage ideas from the
    Commission and beneficiary engagement.
        Lastly, targeted investment should be made in technologies and
    people to support established joint processes and procedures that will
    generate real return on investment.
                                    summary
        The MCRMC has made 15 recommendations--2 of which propose dramatic
    changes to both military retirement and health care programs that
    could, in MOAA's opinion, seriously impact on career retention required
    in the All-Volunteer Force. Both recommendations produce a negative
    effect on the pocket book of those whom the government needs to serve
    for a career of 20 years or greater. For example, the combined effects
    of the MCRMC's health care and retirement change, if fully implemented
    today, on a retired E-7's annual retirement value is over $6,400 or a
    loss of 27 percent until they can draw from their Thrift Savings Plan
    at age 59\1/2\.

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Therefore, a complete overhaul of a health plan and the system
    serving 9.6 million military retiree and family beneficiaries deserves
    thoughtful and careful consideration, with Congress ensuring that
    legislation and implementation reflects intent. Congress should take
    all needed time to make deliberate decisions about this proposed
    wholesale change, ensuring that both Congress and stakeholders
    understand the second- and third-order effects.
        Some of the findings in the MCRMC report align with concerns raised
    by MOAA, and deserve to be addressed now, pending deeper consideration
    of the broader issues. The number one action Congress should take
    immediately is to demand that DOD without delay, reform under a truly
    unified military health care system--and not just the servicemember's
    share of it. Without unified budget and oversight delivery of current
    multi-service, multi-contractor programs, TRICARE as we know it will
    remain parochially administered and sub-optimized.
        Servicemembers, whether in garrison, down range, or anywhere in the
    world, should not have to worry if they have selected the appropriate
    health care coverage for their families. Radical change of core
    retention programs always carries significant risk of unintended
    negative retention effects. That risk is exponentially magnified when
    the changes include significantly higher costs for already-stressed
    beneficiaries.
        The key is to ensure that program changes entail real improvements,
    both for readiness and the beneficiaries, and avoid the kinds of
    changes that merely create a new set of problems for both.

    STATEMENT OF THOMAS J. SNEE, NATIONAL EXECUTIVE DIRECTOR, FLEET
                          RESERVE ASSOCIATION

        Mr. Snee. Senator Graham, Ranking Member Gillibrand,
    Senator Tillis, Senator McCain--Senator McCain, it's good to
    see you. A few years ago, we worked on the reemployment rates
    of our veterans a few years ago, and I'm glad that we're still
    producing that and keep going. So, again, I thank you--and
    other members of the subcommittee, my name is Tom Snee, and I'm
    the National Executive Director for the Fleet Reserve
    Association (FRA) of 60,000-plus enlisted serving in the U.S.
    Navy, Marine Corps, and Coast Guard. I want to thank you today
    for the opportunity to express the views of our Association on
    the Commission's recommendations related to healthcare, a
    valued concern throughout. We also want to thank the Commission
    for reaching out to the FRA to seek our input on these complex
    and challenging issues during their deliberations.
        Before commenting on the Commission's healthcare
    recommendations, FRA still notes with concern the impact of
    sequestration that is felt outside, not only towards national
    security, but to pay and allowances. Please remove DOD from
    sequestration.
        It should be also noted, on aside, that, in the total force
    manning of over 75 percent enlisted mannings, that there were
    no representation of enlisted on the Commission staff.
        Recommendation number 6 of the Military Compensation and
    Retirement Modernization Commission is the most wide-ranging
    recommendation that calls on the Congress to replace the
    current healthcare arrangement with a new system that provides
    beneficiaries with choices offered by commercial insurance
    companies. The Commission found that TRICARE is no longer
    fiscally sustainable. FRA believes that such vast and dramatic
    change to the healthcare benefits should require additional
    reviews. It is recognized that the beneficiaries would be
    offered a variety of cost choices in their geographic areas of
    medical service providers, ranging from the array of copays and
    premiums. The critical factor is the making of these choices as
    having a well-informed service and family members in the
    decisionmaking process of these plans. This is the cause-and-
    effect attribute to recommendation number 3, the need for a
    well-structured and reenergized financial literacy program
    providing an understanding of health insurance and accompanying
    care.
        Again, recommendation number 6 calls for the realignment of
    costs for beneficiaries, which has a major concern with our
    members under the age of 65. The Association believes that,
    over time, this could devalue the current 20-plus-year career
    of military service that retirees can expect as reduction in
    healthcare premiums. The question we need to ask is, Are we
    advocating a culture of early departure over a viable career
    with a potential negative impact on manning requirements either
    through recruiting or retention models? FRA advocates that
    other options to make TRICARE a more cost-effective measure
    would be implemented before raising costs--higher costs to
    TRICARE beneficiaries.
        It has been noted that higher costs will be ensure a better
    access in care response. We ask, Will this be a measured
    contractual guarantee of the future? FRA shares the concern
    about the timely access and waiting time for care. The Naval
    Medical Research Center has reported TRICARE benefit
    beneficiaries in some locations are experiencing half of the
    referrals for purchased care network that waited longer than
    the 28-day standard. Even in locations with the highest access
    to care, only 16 percent of referrals maintain the 28-day
    standard. FRA recommends a measurable pilot program in specific
    geographic locations currently not served by TRICARE Prime that
    might be a demonstration if the plan is effective in meeting
    the needs of the beneficiaries.
        FRA supports the recommendation number 8, and strongly
    encourages, again, a quicker collaborative joint action between
    DOD and the Department of Veteran Affairs on the joint
    electronic health record system to provide a seamless
    transition for our members once they leave DOD into the VA
    system.
        Limited time does not permit me to go into more detail, but
    our written testimony does provide further details.
        Mr. Chairman and the committee, I thank you very much for
    our opportunity to express our views. Thank you.
        [The prepared statement of Mr. Snee follows:]
              Prepared Statement by The Fleet Reserve Association
                                    the fra
        The Fleet Reserve Association (FRA) celebrated 90 years of service
    last November 11, and is the oldest and largest enlisted organization
    serving Active Duty, Reserves, retired and veterans of the Navy, Marine
    Corps, and Coast Guard. FRA is congressionally chartered, recognized by
    the Department of Veterans Affairs (VA) as an accrediting Veteran
    Service Organization (VSO) for claim representation, and is entrusted
    to serve all veterans who seek its help. In 2007, FRA was selected for
    full membership on the National Veterans' Day Committee.
        FRA was established in 1924 and its name was derived from the
    Navy's and Marine Corps program for personnel transferring to the Fleet
    Reserve or Fleet Marine Corps Reserve after 20 or more years of active
    duty, but less than 30 years for retirement purposes. During the
    required period of service in the Fleet Reserve, assigned personnel
    earn retainer pay and are subject to recall by the Navy.
        FRA's mission is to act as the premier ``watch dog'' group in
    maintaining and improving the quality of life for Sea Service personnel
    and their families. FRA is a leading advocate on Capitol Hill for
    enlisted active duty, Reserve, retired and veterans of the Sea
    Services. The Association also sponsors a National Americanism Essay
    Program and other recognition and relief programs. In addition, the FRA
    Education Foundation oversees the Association's scholarship program
    that presents awards totaling nearly $123,000 to deserving students
    each year.
        The Association is also a founding member of The Military Coalition
    (TMC), a 32-member consortium of military and veteran's organizations.
    FRA hosts most TMC meetings and members of its staff serve in a number
    of TMC leadership roles.
        For 9 decades, dedication to its members has resulted in
    legislation enhancing quality of life programs for Sea Services
    personnel, other members of the uniformed services plus their families
    and survivors, while protecting their rights and privileges. CHAMPUS,
    (now TRICARE Standard) was an initiative of FRA, as was the Uniformed
    Services Survivor Benefit Plan. More recently, FRA led the way in
    reforming the REDUX Retirement Plan, obtaining targeted pay increases
    for mid-level enlisted personnel, and sea pay for junior enlisted
    sailors. FRA also played a leading role in advocating recently enacted
    predatory lending protections and absentee voting reform for
    servicemembers and their dependents.
        FRA's motto is: ``Loyalty, Protection, and Service.''
                 certification of non-receipt of federal funds
        Pursuant to the requirements of House Rule XI, the Fleet Reserve
    Association has not received any Federal grant or contract during the
    current fiscal year or either of the 2 previous fiscal years.
                                  introduction
        Mr. Chairman, FRA salutes you, the ranking member and all members
    of the subcommittee, and your staff for the strong and unwavering
    support of programs essential to Active Duty, Reserve component, and
    retired members of the uniformed services, their families, and
    survivors. The subcommittee's work has greatly enhanced support for our
    wounded warriors and significantly improved military pay, and other
    benefits and enhanced other personnel, retirement and survivor
    programs. This support is critical in maintaining readiness and is
    invaluable to our uniformed services engaged throughout the world
    fighting to stop terrorism generated by Islamic extremism, sustaining
    other operational requirements and fulfilling commitments to those who
    have served in the past. The Association wants to thank the
    Subcommittee for the opportunity to express its views on the
    Commission's recommendations related to health care.
                                   background
        The National Defense Authorization Act for Fiscal Year 2013 (H.R.
    4310-P.L. 112-239) establishes the Military Compensation and Retirement
    Modernization Commission (MCRMC), but limits its recommendations from
    being a BRAC-like endorsement, as originally proposed, in its review of
    the current compensation and military retirement system. FRA believes
    it's important that this distinguished Subcommittee and its House
    counterpart maintain oversight over commission recommendations. While
    FRA supports many of the Commission's recommendations, it was noted
    that no enlisted personnel were appointed to serve on the Commission.
    More than 75 percent of the current active force is enlisted and
    therefore should have representation on this Commission.
        The commission was instructed not to alter the current retirement
    system for those already serving, retired or in the process of
    retiring. Along with a review of military compensation, the president
    asked that the commission look at the ``interrelationship of the
    military's current promotion system.''
        The driving-force for creating the MCRMC has been the myth that
    ``personnel costs are eating us alive'' and that personnel costs are
    ``unsustainable.''
        Of historical note, in 1986 Congress passed, over the objection of
    then Secretary of Defense Casper Wienberger, major retirement changes,
    known as ``Redux,'' that significantly reduced retirement compensation
    for those joining the military after 1986. FRA led efforts to repeal
    the act in 1999 after the military experienced retention and
    recruitment problems. The Association continues to monitor the take
    rate for personnel choosing to remain on the High-3 program, or the
    Redux program at 15 years of service.
        The Commission believes that it can make drastic changes to pay,
    retirement, and other benefits and assumes it will have no impact on
    retention, recruitment, and readiness. Past experiences with
    substantial benefit changes indicate otherwise. Rhetoric about
    ``unsustainable'' personnel costs since 2000 is misleading.
    Improvements since 2000 to personnel programs were needed to offset pay
    and benefit cutbacks of the late 1980s and the 1990s that undermined
    retention and recruitment.
        FRA wants to thank the members of the Commission and their staff
    for allowing FRA to have input while the report was being written. The
    Commission met with 97 other advocacy and visited 55 military
    installations, received more than 150,000 survey responses from active
    duty and retirees. In addition, the Commission held eight Town Hall
    meetings to further understand the complexity of the military
    compensation and retirement systems.
                          defense out of sequestration
        Before commenting on MCRMC health care recommendations, FRA wants
    to note with growing concern the impact of sequestration. Budget cuts
    mandated by the Budget Control Act of 2011 pose a threat to national
    security and will substantially impact member pay and benefits. These
    automatic cuts, known as Sequestration, require that 50 percent come
    from Defense, even though Defense only makes up 17 percent of the
    Federal budget. These cuts were intended to be so punitive that
    Congress and the administration would be forced to work together to
    find reasonable alternatives. Unfortunately, this has not occurred and
    Congress along with the White House have been unable to come to a long
    term agreement on the budget without sequestration cuts. Unless current
    law is changed, the DOD will have to cut an additional $38 billion in
    fiscal year 2016 and some $269 billion over the following 5 fiscal
    years.
        The DOD budget was already scheduled to be cut by $487 billion over
    a 10-year period before the enactment of sequestration, which will cut
    an additional $500 billion in the defense spending if fully
    implemented. The Bipartisan Budget Act of 2013 mitigated the spending
    cuts for fiscal year 2014 and 2015. However, the original sequestration
    cuts for fiscal year 2016 thru 2021 remain in effect--continuing to
    place national security at risk.
        Secretary of Defense Chuck Hagel has warned that future
    sequestration budget cuts will create a ``hollow force.'' The Services
    have already canceled deployment of ships, slashed flying hours,
    renegotiated critical procurement contracts, temporarily furloughed
    civilian employees, and are in the process of reducing force structure,
    giving America the smallest military force since before World War II.
    If sequestration is not ended, additional force reductions will likely
    go deeper and training and modernization levels will be further
    impacted.
                               mcrmc final report
        The report makes 15 major recommendations intended to improve the
    cost-effectiveness of quality benefits for those who currently serve,
    have served and will serve in the future. Five of the 15
    recommendations (#3, 5, 6, 7, and 8) pertain to health care and will be
    the main focus of this testimony.
        FRA strongly supports recommendation 3 that promotes financial
    literacy and believes it should include educational information on
    health care in conjunction with recommendation 6, which will provide
    beneficiaries with choices offered by commercial insurance companies.
    Any enhanced program should also include the spouses.
        The Association was in the forefront of supporting the enactment of
    the Military Lenders Act (MLA) in 2006 and supported the creation of
    the Office of Military Liaison within the Consumer Financial Protection
    Bureau (CFPB) when the Bureau's enabling legislation was enacted in
    2010. FRA continues its work to ensure Active Duty personnel are
    protected from predatory lenders, and urges this subcommittee to ensure
    that the MLA is effectively administered. The Association applauds
    recent efforts by the Consumer Finance Protection Bureau (CFPB) to
    regulate predatory lenders through enforcement of the MLA. FRA supports
    a more robust Personal Financial Management (PFM) training that should
    include education on health insurance. Furthermore such an invigorated
    plan should include training for the spouse.
        FRA supports recommendation 5, but is unsure if this can be
    effectively implemented. The intent of this recommendation is to ensure
    medical combat readiness. FRA supports the establishment of a Joint
    Medical Command to reduce duplication of services for each Service
    branch and ensure inter-service consistency of policy and budget
    oversight.
        Recommendation 6 impacts current Active Duty, the Reserve
    component, and retirees under age 65, which calls on Congress to
    replace the current health care arrangement with a new system that
    provides beneficiaries with choices offered by commercial insurance
    companies. The Commission found that TRICARE is no longer fiscally
    sustainable. At this time FRA does not support or oppose this
    recommendation; but believes that such vast and dramatic change to the
    health care benefit requires additional review.
        Beneficiaries would be switched to a plan similar to the Federal
    Employee Health Benefit Program (FEHBP), except that military treatment
    facilities would be included in the network. Like the FEHBP
    beneficiaries could choose from a selection of commercial insurance
    plans. The plan would be administered by the Office of Personnel
    Management (OPM) rather than the Department of Defense (DOD).
    Beneficiaries would be required to pay 20 percent of all health care
    costs. Beneficiary family members would not be covered under the plan
    and would be provided a Basic Allowance for Health Care (BAHC) to cover
    the cost of premiums and deductibles for an average health care plan.
    Reserve component (RC) members who are mobilized would also receive a
    BAHC in lieu of TRICARE coverage.
        Although there are similarities between the BAHC and the base
    allowance for housing, the big difference between the two is that
    housing costs are predictable but health care costs are not.
        Shifting costs to retirees under age 65 is a serious concern for
    FRA. The Association believes that this shift devalues 20 or more years
    of arduous military service that earned the retiree an offset in
    healthcare premiums during retirement. FRA advocates that other options
    to make TRICARE more cost-efficient should be implemented first as
    alternatives to shifting costs to TRICARE beneficiaries.
        FRA is also concerned about the timely access to care. The MCRMC
    report notes that TRICARE Prime beneficiaries in some locations that
    half the referrals for purchased care network waited longer than the
    28-day standard for purchased care network. Even in locations with the
    highest access to care, 16 percent of referrals still do not get
    appointments within the 28-day standard. Perhaps a pilot program in a
    limited geographic location not currently served by TRICARE Prime could
    demonstrate the efficiency of the plan.
        The Association supports recommendation 7 that seeks to improve
    support for servicemembers with special dependents. These improvements
    to the Extended Care Health Option include expanded respite care hours,
    and consumer directed care. FRA wants to make sure that U.S. Coast
    Guard personnel are also covered by this program. FRA represents the
    Sea Services and wants to ensure that the Coast Guard benefits have
    parity with DOD benefits.
        FRA welcomes recommendation 8 that attempts to improve
    collaboration between DOD and the Department of Veterans Affairs (VA).
    FRA supports a joint electronic health record that will help ensure a
    seamless transition from DOD to VA for wounded warriors, and
    establishment and operation of the Wounded Warriors Resource Center as
    a single point of contact for servicemembers, their family members, and
    primary care givers. The Association is concerned about shifting of
    departmental oversight from the Senior Oversight Committee comprised of
    the DOD and VA secretaries per provisions of the National Defense
    Authorization Act for Fiscal Year 2009, to the more lower echelon Joint
    Executive Council. This change is perceived by many as diminishing the
    importance of improving significant challenges faced by
    servicemembers--particularly wounded warriors and their families--in
    transitioning from DOD to the VA. The recommendation to provide
    additional authority to the Joint Executive Committee is a step in the
    right direction.
        Under a broader improved collaboration it should be noted that
    Medicare is not authorized to reimburse VA hospitals for care provided
    to Medicare eligible veterans. This results in veterans being forced to
    decide between receiving medical care through the VA, or using Medicare
    at a non-VA facility and foregoing the personalized care of a VA
    hospital. The majority of veterans pay into Medicare for most of their
    lives, yet the law prohibits them from benefitting from this via care
    at VA facilities later in life.
                                   conclusion
        FRA is grateful for the opportunity to provide comments on these
    recommendations to this distinguished subcommittee.

     STATEMENT OF MAJOR GENERAL GUS L. HARGETT, JR., ARNG (RET.),
       PRESIDENT, NATIONAL GUARD ASSOCIATION OF THE UNITED STATES

        General Hargett. Mr. Chairman, Senator Gillibrand, Senator
    Tillis, Senator McCain, thank you for the opportunity to
    testify today on the healthcare recommendation made by the
    MCRMC in their final report.
        National guardsmen nationwide applaud the MCRMC for
    providing some innovative ideas and a real starting point to
    deliver a reform of the military retirement and healthcare
    systems. Maintaining medical readiness, including dental
    readiness, allows the National Guard to remain a truly
    operational force for the Army and Air Force.
        The MCRMC recommends that changes and alternatives to
    TRICARE are in order, citing problems with access to care,
    number and location of providers, cumbersome referral and
    authorization process, limited provider networks, and member
    preferences for greater choice. All these problems exist today
    in the National Guard, and I can assure you, because I have
    been there and done that.
        The MCRMC recommends giving servicemembers the option of
    selecting from the more than 250 Federal healthcare plans
    available under the Federal Employee Health Benefit Program.
    This program would be called TRICARE Choice. I believe that
    expanded choices for health insurance will be well-received by
    all National Guardsmen.
        One of our top priorities has always been to see that every
    member of the National Guard and their families are able to
    afford healthcare. But, NGAUS remains concerned with the actual
    cost of these plans. Although the research work of the
    Commission is broad and important, that we see the actual
    numbers and the cost of each program and it be given to each
    servicemember under these 250 plans. NGAUS would recommend the
    subcommittee bring in actuaries to do cost-benefit analysis of
    each of the programs. These questions need to be answered
    before members and retirees of the Guard would feel secure in
    supporting the change in TRICARE as it now stands.
        Another issue of access to healthcare benefits involves the
    men and women of the Guard who are military technicians. Our
    technician force is made up of people who run our armories, our
    wings, on a daily basis. They do not have the same privileges
    under the current law, nor were changes in access and
    affordability addressed by the Commission. These men and women
    who serve under Title 32 or Title 5 should also be able to take
    advantage of a new modernized healthcare program. I ask that
    the subcommittee examine the healthcare benefits now available
    to our technicians.
        One access issue involves the Guard and Reserve retirees
    under age 60, gray area of retirees, who would continue to have
    access to healthcare benefits, but at full premium. This does
    not compare fairly to the Commission's recommendation that
    would allow Active Duty retirees to maintain continuity of
    coverage at only 20-percent premium cost-share. In all
    fairness, providing a premium cost subsidy to gray-area
    retirees to assist them in maintaining continuity of health
    needs to be included in the report and any legislation passed
    to incorporate the Commission's health access recommendation.
        Any recommendation of the Commission, although not directly
    healthcare related, does not--although not directly healthcare
    related, is to the mental health and welfare of the families of
    the members of the Guard. This recommendation concerns military
    children. The Commission noted that children experience unique
    stress associated with parental deployments and that these
    stresses can adversely affect academic performance, and
    recommends that children of Active Duty servicemembers be
    identified in nationwide reporting of student performance.
    Although not mentioned, children of the National Guard and
    Reserves should be identified, and their issues addressed, and
    NGAUS asks the subcommittee to include them.
        We support the changes to protect the viability of the
    total force. That cannot be done under the current system and
    under the constraints of sequester.
        Mr. Chairman, as always, we thank you for the opportunity
    to testify before the Commission and stand ready to present--to
    assist, as required.
        [The prepared statement of General Hargett follows:]
            Prepared Statement by Major General Gus Hargett, (Ret.)
        Senator Graham, Senator Gillibrand and other distinguished members
    of the subcommittee: On behalf of the entire membership of the National
    Guard Association of the United States, I thank you for the opportunity
    to testify today on the health care recommendations made by the
    Military Compensation and Retirement Modernization Commission in their
    final report.
        First, I would like to go on the record and thank the Commission
    for its hard work. National Guardsmen nationwide applaud the Commission
    for providing some innovative ideas and a starting point to deliberate
    reform of the military's retirement and health-care systems. We believe
    its final report is a great way to reduce personnel costs while
    preserving the viability of the All-Volunteer Force.
        Maintaining medical readiness, including dental readiness, allows
    the National Guard to be truly an operational reserve of the Army and
    Air Force. NGAUS supports any change in health care benefits that allow
    the National Guard to be ready to serve this nation at home and abroad.
        The Commission recommends that changes and alternatives to TRICARE
    are in order citing problems with access to care, number, and location
    of providers, cumbersome referral and authorization process, limited
    provider networks and members preference for a greater choice. The
    Commission found that National Guard members are faced with difficult
    choices during mobilization and demobilization and that these
    transitions can be costly for Guard families and disruptive to health
    care coverage, especially for servicemembers who are mobilized in
    support of a mission that is not a contingency operation. All these
    problems do exist for the National Guard. Because guardsman are not
    living on bases, but in their communities across the country, access to
    care on the current TRICARE Reserve Select program, can be extremely
    difficult.
        Another issue with the current health insurance program looms large
    for the Guard. When a member of the Guard is mobilized, his/or her
    health insurance changes. When it changes to the limited provider
    network of TRICARE, a member and his/her family usually have to change
    doctors. Changing back and forth on insurance is very disruptive to
    health care coverage, usually during the time most stressful to a
    member and their family. Issues of timely enrollment and issues when
    returning to civilian health insurance challenge all activated
    Guardsmen and women.
        As I understand it, the Commission recommends giving servicemembers
    the option of selecting from the more than 250 health insurance plans
    available under the Federal Employees Health Benefits Program (FEHBP).
    This program would be called TRICARE Choice. Of the 250, at least 11
    plans cover every area in the country. The Department of Defense would
    sponsor and approve the levels of care of these commercial health
    insurance plans and servicemembers and their families would not be
    subject to the same rates as other Federal employees within FEHPB. The
    thought is that more physicians are available in FEHBP networks and
    that it is more likely Guard families' civilian job health insurance
    physicians are one in the same. I believe that expanded choices for
    health insurance will be well-received by the National Guard for these
    reasons.
        DOD would also fund part of the Guard member's existing health
    insurance plan instead of requiring transition to a DOD-sponsored
    commercial programs. For example, Guard members who are mobilized would
    receive a new Basic Allowance for Health Care to apply toward a DOD
    plan or to cover the employees share of their existing health care
    plans. I believe many members of the Guard will take advantage of this
    option.
        These recommendations should increase access and choice for the
    entire Reserve component, but NGAUS remains concerned with the actual
    costs of these FEHPB plans. Right now, not every member of the Guard
    can afford health care, and along with maintaining military readiness,
    one of our top priorities is to see every member of the Guard and their
    families are able to afford health insurance. Although the research
    work of the Commission is broad, it's important we see the actual
    monthly costs of the each program to a servicemember for the 250 plans
    that would be available under FEHBP. NGAUS would recommend the
    subcommittee bring in actuaries to do a cost-benefit analysis of each
    of the programs. Choice and the size of the provider networks should
    bring costs down, but these questions need to be answered before
    members and retirees of the Guard would feel secure in supporting the
    elimination of TRICARE as it now stands.
        Another issue of access to health care benefits involves the men
    and women of the Guard who are military technicians. Our technician
    force is made up of the people who run our armories and wings
        on a daily basis. They do not have the same privileges under
    current law nor were changes to their access and affordability
    addressed by the Commission. Although I understand the Commission could
    not address every situation, these men and women who serve under Title
    32 or Title 5, should also be able to take advantage of a new
    modernized health care program and I ask that the subcommittee examine
    the lack of health care benefits now available to our technician force,
    and work with the other Committee of jurisdiction to address these
    vital concerns.
        Another recommendation of the Commission, although not directly
    health care related, does relate to the mental health and welfare of
    the families of members of the Guard. This recommendation concerns
    military children. The Commission noted that children experience unique
    stresses associated with parental deployments, and that these stresses
    can adversely affect academic performance and recommends that children
    of Active-Duty servicemembers be identified in nationwide reporting of
    student performance. Although not mentioned, children of the National
    Guard and Reserve should also be identified and their issues addressed.
        Again, I thank the members of this Subcommittee for the opportunity
    to provide input into what I hope will be the start of modernization of
    our compensation and retirement systems in the military. NGAUS supports
    any changes that promote the viability of the force. It's time now for
    all of us associated with the military to work with Congress to finish
    the job. NGAUS stands ready to provide the subcommittee with any help
    it needs.

        Senator Graham. Thank you all.
        Senator McCain, would you like to go first?
        Senator McCain. No, thank you, Mr. Chairman.
        Senator Graham. Okay. Let's sort of get right into it,
    here.
        Do you all agree that the 5-percent number has to change?
    Does anybody expect, if you kept the current system and you
    didn't change it at all, that we'd have to adjust premiums
    upward over time?
        Admiral Ryan. Mr. Chairman, we work with you all to
    increase the premiums and then have them at a cost-of-living
    rate, so they're already planned to continue to go up. What we
    don't have a lot of visibility on is, frankly, where the 5
    percent came from.
        Senator Graham. Okay. Well, the bottom line is, I think we
    need to get over that hurdle that something has to give, here,
    on that side. The question is--you're going to have to pay more
    or the system's going to collapse over time, and I want to make
    sure that you're getting more value for your money.
        As to the provider network, it seems to me that they're
    been hitting--they've been hit hard, in terms of trying to keep
    TRICARE afloat. The only explanation I can give for the fact
    that there's so many less people participating in TRICARE
    versus these other programs is the reimbursement rate. Does
    that make sense?
        Admiral Ryan. Mr. Chairman, one thing I would say is that
    we, at MOAA, certainly agree that we can't continue with the
    fee for service. We have to do, I think, what the Department of
    Health and Human Services (HHS) is doing. I think we have to do
    what the U.S. Family Health Plan is doing, with capitated
    financing or paying for the value of healthcare rather than the
    number or volume of procedures that you take. That has--this
    policy that Admiral Giambastiani talked about, that has us into
    this spiral that we're into. I think if DOD would come under a
    single unified command and go to what HHS and others are going
    to, with a different way of financing healthcare, paying for
    the quality, you would get these networks to start opening back
    up again.
        Senator Graham. Anybody want to take a shot at that?
        General Hargett. Mr. Chairman, when I was the adjutant
    general of Tennessee and we had the rural communities, as they
    were discussed earlier, that were underserved, I actually had
    to write letters to healthcare professionals in communities
    where we were not served at all, and just ask them to sign up
    for TRICARE. What I constantly heard from everyone is that,
    ``We're--we just can't take the reduced benefit and see the
    number of people that are required under the current system.''
        Ms. Raezer. Yeah, Mr. Chairman, I would agree. I think
    what--one of our concerns about TRICARE is, TRICARE is not fast
    enough to look at changes in how healthcare is financed,
    incentivized, where some commercial plans have had to do that.
    There have been things happening, as----
        Senator Graham. That's what General Chiarelli was saying.
        Ms. Raezer. Yes, exactly. Some of it comes down to a
    choice. Do you want DOD to take this task on, or do you want to
    look for solutions among the private sector in--that's----
        Senator Graham. Okay. That's the ultimate issue. Let's take
    a poll. Starting with you. What do you think is the best thing
    for the Congress to do? Try to take the current system and do
    what the Admiral is talking about, or look at the private
    sector?
        Ms. Raezer. I think Congress needs more time to do both.
    What we would recommend is maybe put a hold on the next TRICARE
    contract procurement until you can ask questions of DOD. How--
    what's the best way to address some of these issues?
        Senator Graham. Here's my bias. If I were trying to run a
    healthcare company, the last people I'd pick would be the----
        Ms. Raezer. Well----
        Senator Graham.--DOD.
        Ms. Raezer.--I----
        Senator Graham. They're good at blowing things up.
        Ms. Raezer. So I think you need--there have been questions
    raised about--that the details in the Commission's report. So,
    we need more details as----
        Senator Graham. All right. Admiral----
        Ms. Raezer. But----
        Senator Graham.--what's your bias?
        Admiral Ryan. I obviously have biases, but I was surprised
    by our polling, that, with the challenges that the plan has
    currently, that eight out of ten, across the spectrum, prefer
    to TRICARE. So, I would say Plan A ought to be: You ought to do
    what you did in the 1980s and tell DOD they don't have a
    choice, they have to go to a unified health plan----
        Senator Graham. I gotcha.
        Admiral Ryan.--with one person. Then you could fall back on
    Plan B if it doesn't work. But, I think----
        Senator Graham. Yeah.
        Admiral Ryan.--you could get the financing the way you want
    it, you could make it a uniform benefit, which is what Senator
    Gillibrand is concerned about, and we are. Some of the things,
    like the applied therapy for autistic children, they're not
    covered in FEHBP, and only about 20 of the programs in all the
    States----
        Senator Graham. Yeah.
        Admiral Ryan.--even cover it. So, a uniform plan is a
    pretty good benefit.
        Senator Graham. Yeah. Okay.
        Mr. Snee?
        Mr. Snee. Mr. Chairman, the Fleet Reserve, as I mentioned
    in my statement, of a pilot program, could probably be of the
    best to reevaluate over a period of time. Of course, I wouldn't
    come right out and say, but----
        Senator Graham. I gotcha.
        Mr. Snee.--maybe I'm just saying--but, one of--the other
    thing is, maybe combine the medical commands.
        Senator Graham. Yeah.
        Mr. Snee. Another thing is the--incentivize to encourage
    retirees to use the MTF, so there's a little bit more of that
    level from the--especially of----
        Senator Graham. That's not going to work very good under
    sequestration.
        Mr. Snee. Well, I understand, sir.
        Senator Graham. Yeah.
        General?
        Mr. Snee. It's just an idea. The----
        Senator Graham. Yeah, I know. I know.
        Mr. Snee.--other thing is, we can send additional
    information in writing, sir.
        Senator Graham. I gotcha.
        General?
        General Hargett. Mr. Chairman, I think if we continue to do
    the same thing with the same systems, we will get the same
    result. I think we have to look at change. I think it's up to
    this subcommittee and the Congress to figure out how to do that
    change. We're open to help with the change.
        Senator Graham. Senator Gillibrand.
        Senator Gillibrand. Thank you, all of you, for the--your
    testimony. It's very helpful.
        The Commission's report describes significant beneficiary
    dissatisfaction with the current TRICARE health benefit. So,
    I--it's interesting, Admiral, that you said eight out of ten
    preferred TRICARE, which was pretty alarming--shocking to me,
    actually.
        So, Ms. Raezer, the National Military Family Association is
    an important voice for our military families. How would you
    describe the military family assessment of TRICARE? Did you
    guys do polling similar to what the Admiral did?
        Ms. Raezer. We have not surveyed the way MOAA did, but we
    did--have gone out to families, did a lot of gathering of input
    as we were working through the military health system review
    and to provide input to DOD for that. We could get a lot of
    feedback from families.
        There is a--families are used to TRICARE. They will say,
    ``I'll accept the hassle of TRICARE because of the cost.''
    They're dealing with a lot of things, and accepting of a lot of
    things that they shouldn't have to accept.
        Senator Gillibrand. So, just to follow up on that, one of
    the concerns we were having is that--obviously, military
    families move frequently, and they have limited options under
    TRICARE. But, at the same time, TRICARE covers a wide range of
    medical needs, regardless of where they move. Do you think that
    this new model of care will provide the same level or greater
    access to quality of care that exists now? Have you assessed
    that?
        Ms. Raezer. I think there are options, but a lot of how
    families will actually access is--is going to be dependent on
    what kind of information they get. It's a lot easier to give
    information on TRICARE and how it does or doesn't work in
    certain places. When you have more choices, families are going
    to need more education, ``When do I pick a national plan''----
        Senator Gillibrand. Right.
        Ms. Raezer.--``versus a local plan?'' for example.
        Senator Gillibrand. Are you concerned about how military
    families will be able to transfer medical records maintained by
    a private provider when the family is required to move to a new
    location? Is that something you've assessed?
        Ms. Raezer. That's already a problem. If I go to a
    civilian--if my TRICARE prime doc at a military hospital sends
    me to a civilian specialist, if I don't carry that record back
    to that civilian's--to that primary doctor, the--or vice versa,
    if I'm going from a military specialist back to a civilian
    primary care manager, I'm the one carrying the record. So----
        Senator Gillibrand. So, we might have to require portable
    records, which is obviously a huge problem from going to----
        Ms. Raezer. Yeah.
        Senator Gillibrand.--Active Duty to veteran service,
    anyway.
        Admiral, in your polling, did you poll both Active Duty
    military families and retirees?
        Admiral Ryan. Yes, Senator, we did.
        Senator Gillibrand. Was there a difference in their
    assessments?
        Admiral Ryan. There was a slight difference. We had--about
    10 percent of the folks were Active Duty, because we're--we
    have 90,000 Active Duty and we have 300,000 that are in some
    stage of second careers or third careers.
        It was interesting, of the 400 spouses that responded, they
    were at 85 percent, they preferred TRICARE to an FEHB program.
    Overall, it was 80 percent. For the Active Duty, there was a
    slight split. Below 35, it was about 73 percent. Above 35, it
    was about 78 percent that preferred TRICARE to the FEHB. So, it
    was fairly consistent----
        Senator Gillibrand. Interesting.
        Admiral Ryan.--across all.
        Senator Gillibrand. Mr. Snee and General Hargett, did you
    have any feedback from your members?
        General Hargett. Yes, ma'am. The most people that we heard
    from--and bear in mind, our people are in rural communities,
    they don't have access to the Fort Braggs and the Fort
    Campbells--most of them were favorable to change----
        Senator Gillibrand. Okay.
        General Hargett.--because of the lack of access and----
        Senator Gillibrand. Because of the challenge with access,
    yeah----
        General Hargett. Yes, ma'am.
        Senator Gillibrand.--very much so.
        General Hargett. Yes, ma'am.
        Senator Gillibrand. I see that in New York State all the
    time.
        General Hargett. Yes, ma'am.
        Senator Gillibrand. Mr. Snee?
        Mr. Snee. Yes, ma'am. We surveyed 80 percent of ours--
    membership, as well. As you said, it is well with--in the
    Tennessee area of considering the Active Duty folks is where
    they're going to be, especially with our recruiters and our
    reservists in this type of thing. But, with--they want to keep
    TRICARE.
        Senator Gillibrand. One of the things that I hear a lot
    from our veterans is that the mental health services that are
    needed really aren't there, that, in fact, for a female who is
    suffering from post-traumatic stress disorder, she may avoid
    the VA, because they don't have specialists who understand her
    concerns or what she's going through, or various stigma
    associated with going through existing structures. Do--have you
    done any assessment if this would perhaps help, the access to
    mental health services, being able to go general providers,
    where there are specialists and expertise, and have a wider
    choice might benefit some of our retirees and veteran
    population? But--I don't know, so I'd like to know if you've
    had any analysis on that.
        Admiral Ryan. Senator Gillibrand, that's a great question.
    I was surprised. We chartered a study on mental health--
    civilian mental health workers and--were they culturally
    sensitive to the military, where they could be effective? RAND
    did the study for us, and we can make that available to you,
    but we were very surprised that the majority--I want to say
    close to 90 percent--did not have the cultural sensitivity to
    be effective in their counseling----
        Senator Gillibrand. In the military----
        Admiral Ryan.--of military families and children, as well
    as the veterans. That study, we did in 2014. We briefed up
    there on the Hill, but we haven't gotten it out as much as we
    want to.
        Some States are more effective at helping with that.
    Joining forces has helped with doctors. But, overall, the RAND
    study was pretty dramatic in the fact that they didn't have the
    cultural sensitivity and awareness that they needed to be
    effective.
        Ms. Raezer. But, Senator, there's also an issue with just
    the--the network issue. We hear from too many Active Duty
    families who are trying to get behavioral healthcare for a
    child, and they've gone through the list in the--that--in the
    network, and continue to hear, ``No, we're not taking any new
    patients. We're not taking TRICARE patients. No, we're long--no
    longer in the network.'' So, there are access issues right now.
    We think the sensitivity, there are ways to--that should be
    done to make that better for all providers. But, for a lot of
    our families, it starts with access. They can't get the care.
        Senator Graham. One quick question and I'll turn it over to
    Senator Tillis, here.
        When people say they prefer TRICARE to a more commercial
    system, how do they know, if they've never been in it?
        Senator Gillibrand. Yeah, that's the unknown, you're right.
        Senator Graham. Yeah.
        So, Senator Tillis, go ahead.
        Senator Tillis. Actually, just--I was channeling my first
    question through the chairman.
        But, because the question that I had--and it went back to
    maybe some of the surveys or polling, just--I'd be very
    interested in taking a look at the methodology and how the
    questions were asked, because the--it's one thing to say--first
    off, I was astonished by the numbers, in the 70s. I thought,
    generally speaking, people don't like their health plan, for
    just general reasons. So getting anywhere beyond the 60s would
    be surprising to me, in terms of the user experience. But if
    you look at--if you couch some of the questions--and I think--
    and is it--am I pronouncing it right? Ms. ``Razor''?
        Ms. Raezer. Yes.
        Senator Tillis. If you couch the question by saying--if I'm
    in Fayetteville, and I go from having 15 providers who are
    willing to participate in the TRICARE plan, and 138--and I will
    guarantee you, knowing North Carolina relatively well, I know
    about the quality of the providers at the other end of the
    spectrum--would they potentially answer that question
    differently?
        This is more with an eye towards the value for the money.
    You look at behavioral health, the number of people that may
    opt out of being in a provider network now simply because the
    reimbursement rates do not make it viable in the face of a
    number of other people seeking the care that may be able to be
    with that insurer that has a higher reimbursement rate.
        So, how do we get--I mean, do you all feel like that, in
    spite of all that I just said there, that, generally speaking,
    your members are satisfied with TRICARE as it exists today?
        Ms. Raezer. I know there are military families who are very
    satisfied with TRICARE because they're basically healthy and
    they're willing, in many cases, to wait for a little bit of
    access in a military hospital because they're not paying
    anything out of pocket. But, anecdotally--and I think a good
    question for DOD is--how many families are switching from Prime
    to Standard? Why do you think--because Standard, they pay more,
    but they have more choice.
        Senator Tillis. Right.
        Ms. Raezer. I know a lot of our families who get frustrated
    in doing some of the bureaucratic goat ropes will say, ``I'm
    going to manage my own care. I'm going to go to Standard.'' I
    think there's--families are looking at the cost. They're afraid
    of change. There's been so much change. There's a lot of
    anxiety, and so, ``Well, we know what to expect with TRICARE
    right now, so we're not sure we want to take that leap into
    something different.''
        Senator Tillis. I always love my insurance when I'm not
    using it.
        But, what about the rest of the people on the panel, on the
    same question, about your members?
        Admiral Ryan. It's a great question, and this was more than
    just our members. We had over 1,500 noncommissioned officers
    answer, 400 spouses. Some of them didn't say whether they were
    noncommissioned officer spouses or officer spouses. But, we got
    a cross-section. We were really trying to find out just how
    people felt. Because the way the Commission asked the question,
    I think, was fair, but it's--who was--who doesn't want more
    access? Who doesn't want it to be more timely? We know there
    are problems with that, as Ms. Raezer has said. So, we were
    surprised by the response, that, despite the challenges--and
    that's why we're leaning toward Plan A, demand that they go to
    a optimized system of one unified person in charge, where you
    can hold them accountable for getting a uniform plan, with
    better type of financing, where there's risk between the
    contractor and the military, and it--whether it's capitation or
    value, and go that way, rather than throw the baby out with the
    bath water.
        Senator Tillis. I was glad to hear your points on
    capitation strategies earlier. I agree with it.
        Mr. Snee?
        Mr. Snee. Yes, sir. From the culture of change, if you
    will, from the dependents as to where do we go, we move from
    one place to another under permanent change-of-station orders.
    What's going to happen where we get to our next duty station?
    Is it going to be available? I made mention of recruiters. Of
    course, not to take away from my colleague here, the Major
    General, and the reservists, as to, okay, so where do we go
    from here, and where can we have the change? Are we going to
    have something that we know we can use? If you have that
    pressure put on the family, especially the spouses, as, ``Okay,
    where do we go?'' Nothing the--from North Carolina, even here
    in Virginia, but let's go out to Wyoming, let's go out to some
    of those other areas. As long as you have that MTF umbrella in
    those referral services outside, that's okay. But, once you get
    out of that, you're talking about a culture of change of ``What
    if?''
        Thank you.
        Senator Tillis. General Hargett?
        General Hargett. Yes, sir, Senator.
        I'm probably one of those guys that retired from Active
    Duty and I didn't know what I didn't know. I used TRICARE, and
    I used the Fort Campbell and Fort Hood and all those places
    forever. So, I was actually pretty happy with it. But, once you
    go out and retire, you find that it's far different when you
    start looking at access.
        As a matter of fact, I'll follow onto what she said--when I
    retired, and I started figuring out my access, I actually went
    to MOAA and bought a supplement, where I could switch over to
    Standard and paid, what, I don't know, Norb, $130 every quarter
    to be able to have access to a larger network. So I think
    sometimes that we kind of get caught into what is it we're used
    to, what we're comfortable with. When you asked the question
    about change, people fear change.
        Senator Tillis. Mr. Chairman, if I may, just one thing.
        I would like to underscore what Senator Gillibrand said
    about medical information, chart data. We did a lot of work in
    North Carolina trying to make sure comprehensive information
    follows the patient. That's one of the dangers. If you have an
    expanded provider network, and you don't have that
    transportability of information, you may have a more qualified
    provider, but they're acting on less information. I think
    that's a very important part.
        The other thing related to support for spouses. I think one
    of the panelists mentioned just one of the treatments on
    autism. If we're talking about--this is something that we
    actually took action on as I was Speaker in North Carolina--
    when you're talking about the impact that that has on the
    family, particularly of deployed personnel, it's not only
    transformational for the child that may be in the program, but
    for that parent who's taking care of the family while their
    loved one's deployed. I think that's an area that we need to
    look at, as well.
        Ms. Raezer. I would agree, Senator. I think that's where
    the Commission's recommendation to make sure that the plans are
    addressing the unique needs of military families, that's so
    important, and looking at things that TRICARE has--DOD has
    already deemed as essential, with your help, like the ABA
    therapy, they need to be included in these plans as
    requirements. We need to look at things like mobility and how
    to help families as they move. So--but, that, we believe, is
    doable, with a conversation. We all have our lists of what
    happens. Right now, things are falling through the cracks, in
    some cases. So, this is an opportunity to talk about how to
    make things better.
        Senator Graham. Go ahead, Senator Gillibrand.
        Senator Gillibrand. Yeah.
        Following along this concern, I think one thing we can work
    on, to whatever end we have, a--minimum requirements. I mean,
    part of the debate on healthcare reform was the fact that it
    would be great if you could go to any State at any time and
    have hundreds of plans at your fingertips, that you could buy
    whatever you wanted. But, the reason why that was a debatable
    issue is because some States had minimum standards. So, New
    York State, for example, said, ``You have to cover mammograms.
    You cannot not cover mammograms, because we know that if you
    don't have any money, you're not going to spend that 20 bucks,
    you're saying to say, `I'm going to risk it another year. I can
    wait another year. I don't have that 20 bucks right now.' ''
    Because that was the copay for a mammogram in that fact
    pattern.
        So, maybe one thing we should work on is, What are the
    minimum standards for the marketplace that we would have?
    Because obviously you're going to have a lot of new customers.
    If we do something like this, you have an enormous number of
    new potential customers, so we say, to be eligible to get these
    customers, you have to have minimal standards. Maybe that
    creates a marketplace. I don't know. But, to the extent you can
    think through that, or if you have thoughts on that, please
    advise us. But, I'm going to ask the panel to perhaps brief
    that issue--the Commission.
        Senator Graham. That's actually a--here's the big dilemma.
    One, we have to do something with the current system, because
    it's just unsustainable. Admiral Ryan, we've been wrestling
    this alligator 4 or 5 years. I just have lost, sort of, faith
    that we can take the current construct, the single-payer system
    that you're envisioning, and make it as efficient as a
    competitive model. But, having said that, the minimum standards
    is probably a good idea to look at. You just don't want to have
    too much so that it loses the whole advantage of being able to
    get more people to participate.
        So--and here's the honest answer. It seems to me that the
    person who's going to pay the most is the retiree, no matter
    what you do. The family members are pretty well held harmless
    with the new system, maybe a little more out of pocket. The
    National Guard guys may pay some more, but they're definitely
    going to get a bigger choice. It's the retiree that we need to
    really watch, here, and be fair to.
        So, you have reservists who live in rural areas that feel
    like they would benefit from choice. You have families that are
    accompanying Active Duty members that we want to take care of
    for recruitment purposes. So, I think probably the more choice,
    the better, for them. Then you have the retiree population, who
    has done their service to the country, and you want to be fair
    to them. You have a unsustainable system as it exists today.
        So, what I want to do is--this pilot project? I don't
    really know what the right answer is, other than: Change is
    coming. I just really appreciate the input that you've given
    us.
        Admiral, I promise you, whatever we do, we will listen to
    what you have to say. Probably going to come out differently,
    at least I will, on the idea of a single-payer system, but I
    want to make sure that any cost increased borne by the retiree
    community is something I can look them in the eye and say,
    ``That's justified, and you're getting more for your money.''
    If I can't do that, I won't do it. Because I am going to ask
    people to pay a little bit more. There's just no way around
    that. If I can't say, ``You're getting something better for
    your money,'' I'm not going to do it. It's not about just
    saving money, it's about improving quality of healthcare.
        Thank you all. To be continued.
        [Whereupon, at 4:28 p.m., the subcommittee adjourned.]

        [Questions for the record with answers supplied follow:]
              Questions Submitted by Senator Kirsten E. Gillibrand
                                   healthcare
        1. Senator Gillibrand. Commissioners, the commission has
    recommended the Department of Defense (DOD) implement a system similar
    to the healthcare benefits available to civilian employees. Often the
    services available in those plans may differ greatly from location to
    location. Military families move every 2 to 3 years on average. How
    does the commission account for the availability of care in different
    locations under the different plans?
        Mr. Maldon. For Active component (AC) members, their ability to
    obtain care, regardless of duty station, would improve under TRICARE
    Choice. First, TRICARE's low reimbursement rates cause less
    participation among providers. This situation can be aggravated in
    higher-cost markets where TRICARE reimbursement rates are particularly
    uncompetitive, deterring provider participation. Health care markets,
    including their supply of doctors and the rates for procedures, vary
    substantially by geographic location. Commercial health insurance
    carriers specialize in organizing networks and delivering health care
    suited to local markets. A selection of commercial insurance plans
    under TRICARE Choice is more likely than TRICARE to reflect the
    conditions of the local health care market, including a network that
    best incorporates available doctors. AC family members getting care at
    Military Treatment Facilities (MTFs) can experience a loss of
    continuity of care mainly because of unavailability of appointments
    with the same primary care provider. Under TRICARE Choice, the
    insurance plan would be required to build a robust network of civilian
    providers allowing the beneficiaries to choose a provider who has
    availability and can provide continuous care.
        Continuity of care for Reserve component (RC) members would improve
    as well under the TRICARE Choice system. RC members and their families
    face a lack of continuity of care when RC members transition to and
    from active duty and are moved on and off of TRICARE. This situation is
    particularly difficult when the servicemember is activated and if the
    family's existing health care providers do not accept TRICARE. When the
    RC member is not supporting a contingency operation during activation,
    TRICARE coverage ends abruptly upon demobilization, resulting in a
    break in coverage until coverage can resume under the civilian health
    insurance plan. Under TRICARE Choice, when the RC member is mobilized,
    the RC families would have the choice to retain their existing
    (civilian) health insurance or move to a TRICARE Choice plan. In either
    scenario continuity of care is improved. It is more likely the RC
    families' current physicians would participate in TRICARE Choice plans
    with traditional commercial insurance networks than the current TRICARE
    network.
        Within TRICARE Choice, national plans would be offered; therefore,
    military families that choose national plans would not have to change
    plans, which would facilitate having the same level of health care when
    moving within the United States. Additionally, the Commission's
    proposed legislation would mandate that health benefit plans under
    TRICARE Choice include the health care benefits provided under TRICARE
    and Federal Employee Health Benefit Program (FEHBP) currently, as well
    as the essential health benefits established under the Patient
    Protection and Affordable Care Act. The national plans and inclusion of
    standard benefits will ensure like coverage in all locations.

        2. Senator Gillibrand. Commissioners, do you recommend a required
    standard of care that will be available under all plans?
        Mr. Maldon. Under the Commission's recommendation, a selection of
    plans would be offered that broadly represents what is available in the
    commercial market without unnecessary restrictions, meets or exceeds a
    baseline of health plan quality, and continuously advances with the
    health care industry. Specifically, the Commission's proposed
    legislation includes that all health benefits plans under TRICARE
    Choice meet a baseline of quality measured in criteria such as an ample
    number of health care providers, ease of access to services, and
    inclusion of the latest medical treatments and technologies The
    Commission's proposed legislation would mandate that health benefit
    plans under TRICARE Choice include the health care benefits provided
    under TRICARE and FEHBP currently, as well as the essential health
    benefits established under the Patient Protection and Affordable Care
    Act. The recommendation further states that the Office of Personnel
    Management (OPM) would administer the health care program. OPM would be
    able to leverage its experience in managing the FEHBP, and other large-
    scale health benefits programs, to achieve the best health care
    benefits with the greatest amount of flexibility possible. OPM has
    established criteria for deeming health plans acceptable for FEHBP, and
    would have similar standards for evaluating plans for inclusion in
    TRICARE Choice. Additionally, DOD would be required to submit
    recommendations and data to OPM to ensure the program meets the unique
    needs of the DOD beneficiary population.

        3. Senator Gillibrand. Commissioners, will it be more or less
    difficult for these family members to receive continuous healthcare as
    they move from duty station to duty station with inconsistent civilian
    healthcare services available at different locations?
        Mr. Maldon. For Active component (AC) members, their ability to
    obtain care, regardless of duty station, would improve under TRICARE
    Choice. First, TRICARE's low reimbursement rates cause less
    participation among providers. This situation can be aggravated in
    higher-cost markets where TRICARE reimbursement rates are particularly
    uncompetitive, deterring provider participation. Health care markets,
    including their supply of doctors and the rates for procedures, vary
    substantially by geographic location. Commercial health insurance
    carriers specialize in organizing networks and delivering health care
    suited to local markets. A selection of commercial insurance plans
    under TRICARE Choice is more likely than TRICARE to reflect the
    conditions of the local health care market, including a network that
    best incorporates available doctors. AC family members getting care at
    MTFs can experience a loss of continuity of care mainly because of
    unavailability of appointments with the same primary care provider.
    Under TRICARE Choice, the insurance plan would be required to build a
    robust network of civilian providers allowing the beneficiaries to
    choose a provider who has availability and can provide continuous care.
        Continuity of care for Reserve component (RC) members would improve
    as well under the TRICARE Choice system. RC members and their families
    face a lack of continuity of care when RC members transition to and
    from active duty and are moved on and off of TRICARE. This situation is
    particularly difficult when the servicemember is activated and if the
    family's existing health care providers do not accept TRICARE. When the
    RC member is not supporting a contingency operation during activation,
    TRICARE coverage ends abruptly upon demobilization, resulting in a
    break in coverage until coverage can resume under the civilian health
    insurance plan. Under TRICARE Choice, when the RC member is mobilized,
    the RC families would have the choice to retain their existing
    (civilian) health insurance or move to a TRICARE Choice plan. In either
    scenario continuity of care is improved. It is more likely the RC
    families' current physicians would participate in TRICARE Choice plans
    with traditional commercial insurance networks than the current TRICARE
    network.
        Within TRICARE Choice, national plans would be offered; therefore,
    military families that choose national plans would not have to change
    plans, which would facilitate having the same level of health care when
    moving within the United States. Additionally, the Commission's
    proposed legislation would mandate that health benefit plans under
    TRICARE Choice include the health care benefits provided under TRICARE
    and FEHBP currently, as well as the essential health benefits
    established under the Patient Protection and Affordable Care Act. The
    national plans and inclusion of standard benefits will ensure like
    coverage in all locations.

        4. Senator Gillibrand. Commissioners, how can the military provide
    continuity of care for military family members who choose to receive
    their healthcare using a commercial insurance plan? Will their medical
    records now be maintained by their commercial healthcare provider and
    not by the military?
        Mr. Maldon. Under TRICARE Standard and Extra, military family
    members elect to receive all of their health care from civilian health
    care providers, and their medical records are maintained by the health
    care provider of their choice. Under TRICARE Choice, continuity of care
    would come, in part, from providing beneficiaries with the opportunity
    to select from among civilian providers who are tied to the communities
    they serve, and therefore, are less likely to move and leave the
    network. Beneficiaries' medical records would be maintained by the
    providers, and because of electronic medical records and electronic
    health care records requirements under the Patient Protection and
    Affordable Care Act, records could be shared among providers in
    different geographic areas (as appropriate, subject to the Health
    Insurance Portability and Accountability Act requirements). As it is
    today, obtaining documentation from private healthcare providers and
    providing documentation for military health records update, if needed,
    is ultimately the military family members' responsibility.

        5. Senator Gillibrand. Commissioners, if family members elect not
    to receive their healthcare in military facilities, and their health
    records are maintained by their private healthcare providers, how will
    the military conduct medical screenings necessary to ensure that
    appropriate medical services are available at new duty stations,
    particularly overseas locations, as is currently done pursuant to the
    Exceptional Family Member Program?
        Mr. Maldon. Under TRICARE Standard and Extra military family
    members can elect to receive all of their health care from civilian
    health care providers, and their chosen health care provider maintains
    their medical records. Obtaining documentation from private healthcare
    providers and providing documentation for military health records
    updates is ultimately the military family members' responsibility. Any
    screening necessary, but not previously conducted, can be accomplished
    either at a Military Treatment Facility or by a private health care
    provider.

        6. Senator Gillibrand. Commissioners, the commission recommends a
    Basic Allowance for Health Care (BAHC) to help Active-Duty military
    families pay the cost of TRICARE Choice. As we know, medical expenses
    are typically not spread out evenly throughout the year, and in many
    instances are not predictable. This is particularly significant for
    junior enlisted military personnel at the lower end of the pay scale.
    How will the BAHC be disbursed to military families to meet unexpected
    medical costs?
        Mr. Maldon. The portion of the BAHC used to pay the insurance plan
    premium for Active component families would appear as an allotment on
    the servicemember's Leave and Earnings Statement. This portion of BAHC
    would be paid directly into the OPM trust fund for payment to the
    insurance plan selected. If the servicemember indicates a non-TRICARE
    Choice plan in the Defense Enrollment Eligibility Reporting System, the
    Defense Finance and Accounting Services would make payment directly to
    that insurance carrier. The portion of the BAHC to be used for active
    duty families' out-of-pocket costs (copayments, coinsurance, and
    deductibles) would be paid to active-duty servicemembers as a cash
    payment in their direct deposit.
        To help servicemembers plan for unexpected medical costs, health
    care issues would be addressed in financial literacy training sessions
    provided for in the Commission's recommendations. In cases when a
    family member experiences extraordinary medical expenses due to
    catastrophic or chronic health care needs, a fund would be available to
    address the gap between BAHC and the catastrophic cap for the
    beneficiaries' insurance plan.

                         military treatment facilities
        7. Senator Gillibrand. Commissioners, the commission recommends
    further downsizing the capacity of MTF; how do you foresee dealing with
    MTFs in more remote areas and would those be at risk under the
    commission's proposal?
        Mr. Maldon. The Commission supports strengthening MTFs. The
    Commission did not recommend downsizing the capacity of or closing
    MTFs, rather it recommended reorienting them to focus on training
    military medical personnel for the readiness mission. The Commission
    has in fact recommended changes that would increase the viability of
    MTFs. For example, the Commission proposed eliminating MTF catchment
    areas to allow beneficiaries who currently live outside catchment areas
    to seek health care at MTFs, incentivizing beneficiaries to use MTFs
    through lower copayments than civilian providers, encouraging insurance
    carriers to send workload to MTFs by offering lower reimbursement rates
    for medical procedures, and providing MTFs the authority to treat
    veterans and civilians with cases that are needed for Essential Medical
    Capability skill maintenance.

        8. Senator Gillibrand. Commissioners, the commission recommends
    opening MTFs to people who do not get their care through DOD as needed
    to meet trauma, surgical and other professional requirements for the
    health providers. What impact do you foresee this recommendation having
    on servicemembers and their families as they seek care at the MTFs?
        Mr. Maldon. The Commission recommended opening MTFs to veterans and
    civilians with the case mix needed to meet Essential Medical
    Capabilities (EMC) and not for all care. This change was recommended to
    strengthen the MTFs as training platforms, while preserving the access
    of beneficiary groups to the MTFs. The Code of Federal Regulations
    (CFR) currently specifies the priority level assigned to categories of
    DOD beneficiaries with space-available access to MTFs. Veterans and
    civilians would be added to the groups within the CFR at a level below
    the existing priority groups. Veterans and civilians seeking medical
    treatment of the same type as DOD beneficiaries would not displace DOD
    beneficiaries in the existing priority groups. In the cases that
    involve EMC-related medical procedures, EMCs would be included as a
    factor in the prioritization. Servicemembers or their family members
    with EMC-related cases would have priority over veterans who will, in
    turn, have priority over civilians.

                         tricare and medicaid and echo
        9. Senator Gillibrand. Commissioners, the commission correctly
    noted that military families who are eligible for Medicaid services
    have to reapply for Medicaid benefits every time they move to a new
    State, and many encounter waiting lists that are longer than their
    assignments. To address this, the commission recommended that the ECHO
    benefit be expanded to provide benefits similar to the Medicaid
    benefit. Will the expanded ECHO benefit vary by State so that it
    matches the individual State's Medicaid benefit, or would it be a
    standard benefit for all military families?
        Mr. Maldon. The Commission recommends a consistent set of expanded
    Extended Care Health Option (ECHO) services regardless of duty station.
    Because Medicaid waiver services are determined at a State level and
    can vary from State to State, this means that the services offered
    through ECHO will not exactly match the services offered in every
    State. The proposed implementation plan includes an analysis of
    Medicaid waiver services across all States to identify the common
    services to be added to ECHO.

        10. Senator Gillibrand. Commissioners, would ECHO continue to
    provide this benefit once the military family satisfies the waiting
    list requirements? Will the military families be able to choose
    Medicaid or ECHO or could they receive benefits from both?
        Mr. Maldon. Under the Commission's recommendation for the ECHO
    program, military families may continue to receive ECHO benefits even
    after they satisfy waiting list requirements for State Medicaid waiver
    services, just as they can today. In addition, because the Secretary of
    Defense has determined that services through Medicaid are not
    considered available and adequate for the purpose of ECHO, military
    families may receive benefits from both programs simultaneously.

                  department of veterans affairs collaboration
        11. Senator Gillibrand. Commissioners, if the Reserves are
    transitioned to TRICARE Choice, then how will DOD/VA interface with
    private providers to make sure military records are up to date and
    accurate?
        Mr. Maldon. Military records are the servicemembers' and their
    Personnel Commands' combined responsibility. Currently, servicemembers
    go through their command's personnel office to update their records and
    periodically review them for accuracy.
        Obtaining documentation from private health care providers and
    providing documentation for military health records update, similarly,
    is ultimately the servicemembers' responsibility. DOD and VA interface
    with civilian providers today for updating medical information in
    military health records, and there would be no difference under TRICARE
    Choice.
        The Commission recommended that the DOD and the VA electronic
    health records meet the national standards for electronic health
    records. The Commission also recommended that DOD require the private
    providers in TRICARE Choice network to adhere to the national
    standards. Assuming such compliance, exchanging electronic health
    information would be seamless.

                                     [all]