The fire alarms are screaming but nobody is listening. That is one way to describe a Pentagon fiscal predicament that, for a change, has nothing to do with the soaring price tags of weapon systems.
The all-volunteer military force has become so expensive that, compared to a decade ago, the Pentagon is paying twice as much for the same number of people. The trends are scary, and getting worse, warns Arnold L. Punaro, a retired Marine Corps major general who serves on a Pentagon advisory panel. Runaway personnel and retiree benefits costs, he says, are pushing the Defense Department toward a financial precipice.
Air Force Gen. Donald Hoffman recently compared the cost of military personnel to a Pac-Man that is gobbling up the rest of the defense budget.
Personnel and health expenses today consume half of the defense budget and will continue to chew up a greater share of the pie. Punaro says the result will be a “hollow force” that will enjoy a wealth of entitlements but will be untrained and ill-equipped to fight wars.
It may be startling to Americans, most of whom embrace the notion that military service should be appropriately rewarded with pay and benefits, that most personnel spending does not go to the active-duty force. The Defense Department supports pension and health care costs for a population of 3.3 million active duty members and 5.5 million retirees.
“We’re on a path to make the Defense Department a benefits company that may occasionally kill a terrorist,” Punaro says.
Of all the programs that are driving the Pentagon to bankruptcy, he says, one that is ripe for reform is military retirement. Paying benefits based on longevity and grade is an anachronism, says Punaro. The system is rooted in World War II, when troops were drafted, received meager pay, and the government sought to encourage them to stick around for 20 years and collect generous benefits. Now, service members are rewarded for leaving at the peak of their careers when they are most productive. In addition, life expectancy has increased significantly since the system was put in place. Providing paychecks and benefits over 60 years to serve for 20 is not a sustainable option, Punaro says.
Former Defense Secretary Thomas S. Gates, who chaired the commission that launched the all-volunteer force in 1970, foresaw today’s fiscal predicament. He suggested an end to cliff vesting at 20 years of service, he recommended tossing the up-or-out promotion system that jettisons many highly skilled officers and rewards longevity. “None of those changes were ever made,” says Punaro. Gates predicted the fiscal train wreck and “we are there.”
The latest actuarial calculations reveal that every year of increased longevity in the military retiree population jacks up the Pentagon’s tab by $10 billion. Punaro says that recently departed Secretary Robert Gates had to cough up $20 billion from the $100 billion worth of cuts he made to the Pentagon’s budget to replenish the retirement accrual fund. The extra money was needed because, since the previous accrual estimate, the retiree population on average is living two years longer.
While retirement reform so far has been relegated to the too-hard-to-deal-with box, some changes are in the offing for military health care. Costs have climbed from $19 billion in 2001 to $52.5 billion for 2012. The major drivers are the rapid expansion of participants — about 9 million today — in “Tricare for life” that covers retirees, and the unrestrained medical inflation that plagues the nation’s health care system overall.
Congress is expected to sign off on a Tricare premium increase of about 13 percent — the first time premiums have risen since the program was founded in 1995. Retirees who currently pay an annual fee of $460 for a family health plan would have to pay $520.
Norb Ryan Jr., president of the Military Officers Association of America, says retirees for the most part are willing to pay their fair share. But he says he resents the demagoguery heard these days about retired service members receiving overly generous benefits. Military service cannot be measured in dollar and cents alone, he says. The Pentagon leadership, rather than concentrate on shifting more of the cost to the retiree community, also should tackle the rising cost of health care by consolidating its inefficient bureaucracies and promoting “outcome” based health care, which rewards doctors for healthy patients rather than for procedures.
Punaro says military entitlement reform is likely to remain a third rail in any budget debate for the foreseeable future. But anyone who is concerned about the future of U.S. military strength should be pushing for action, he says. The alternative may be drastic cuts to the size of the active-duty force. “I think we are on a path now to a much smaller active-duty military if they don’t change the trend lines,” he says. Token reductions of a few thousand troops would hardly make a dent in the problem.
The situation is analogous to what has happened on the weapons side. Former Lockheed CEO Norman Augustine made headlines 20 years ago when he said that, by 2054, the entire defense budget will purchase just one aircraft. “We are headed there on the personnel side,” Punaro says. The nation eventually may only be able to afford one soldier, one sailor, one airman and one marine. Obviously, that’s an exaggeration, says Punaro, but it helps illuminate the nature of the problem.