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Growth in Medical Spending by the Department of Defense 1 (September 2003)

handle is hein.congrec/cbo8622 and id is 1 raw text is: A series of issue summari.es from the Congressional Budget Office SEPTEMBER 9, 2003 Growth in Medical Spending by the Department of Defense The Department of Defense (DoD) faces a growing burden in providing peacetime health care for military personnel, retirees, and their dependents and survivors-who all together number over 8 million. Adjusted for the overall rate of inflation in the U.S. economy, the department's annual spending on medical care almost doubled from 1988 to 2003, rising from $14.6 billion to $27.2 billion. Furthermore, because DoD cut the size of the active-duty force by 38 percent over that same period, medical spend- ing per active-duty service member nearly tripled, rising from $6,600 to $19,600.1 Medical spending rose from one- quarter to more than one-half of the level of cash comp- ensation (defined as basic pay, the housing allowance, and the subsistence allowance), and it is likely to continue to increase. DoD views many of its medical costs as unavoidable. The department argues that it must operate its own in-house system of health care providers and military medical treat- ment facilities to ensure that U.S. forces will have reliable, high-quality medical care in time of war. Moreover, DoD believes that in peacetime, it needs that in-house system, together with care purchased from the private sector, to provide the health care benefits necessary to attract and retain high-quality active-duty and reserve forces. CBO's analysis addresses some of the questions raised by the trends in spending growth. What factors explain the historical growth in DoD's medical costs? If policies do not change, what levels of spending might be seen in the future? What are the implications of current trends in military medical costs for the total costs of military per- 1. These figures are calculated as medical spending on all beneficiaries divided by the number of active-duty service members. sonnel? How might various policy changes work either to suppress or accelerate growth in DoD's medical spending? Factors Underlying Past Growth Over half (56 percent) of the total growth in spending per active-duty service member from 1988 to 2003 can be attributed to national changes in health care costs gen- erally-owing to greater use of technology, changes in the utilization ofhealth care services, and higher medical prices (see Figure 1). That growth reflects a trend that could con- tinue. Another 41 percent of the observed growth can be attributed to events that are unlikely to recur. One was a shift in the mix ofDoD's beneficiary population: the num- ber of active-duty service members and their dependents fell substantially during the military drawdown after the Cold War while the number of retirees and their depen- dents grew-pushing up spending per active-duty service member. Another unique event was the introduction of accrual budgeting for the medical benefits of military retirees and their dependents who were eligible for Medi- care. That accounting change (aimed at better capturing the full cost of labor) did not affect benefits but did raise DoD's budgets. The remaining 3 percent of growth in spending derived from other changes within DoD's medical system. Al- though small, that figure derives from the net effect of several more substantial offsetting factors, including reduced access to care at military medical treatment facili- ties in the 1990s, improved efficiencywith the introduction of the TRICARE program, and new medical benefits provided since 2000. The most significant of those new benefits was the TRICARE For Life plan for Medicare- eligible retirees introduced in fiscal year 2002. CBO estimates that that program added $3.0 billion to military health care spending in 2003.

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