[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

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                                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

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         Printed for the use of the Committee on Armed Services
         
         
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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.
      
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    The intensity of preferences for retirees was provided in Figure 14 
on page 88.
      
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    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.
      
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    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.
      
    
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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.
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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.
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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.
      
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    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.
      
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    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.
      
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    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.
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                - 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]