Health Costs Squeezing DoD Budgets

As the body politic passionately debates the rising costs of healthcare and what to do about it, the country’s largest employer is already feeling the pain. Even though the Obama administration is spending record amounts on defense, DOD’s budget is being squeezed by rising healthcare costs that will increasingly crowd out funding for weapons systems, according to number crunching by the Center for Strategic and Budgetary Assessments.

As the body politic passionately debates the rising costs of healthcare and what to do about it, the country’s largest employer is already feeling the pain. Even though the Obama administration is spending record amounts on defense, DOD’s budget is being squeezed by rising healthcare costs that will increasingly crowd out funding for weapons systems, according to number crunching done by the Center for Strategic and Budgetary Assessments.

While some contend the Obama administration intends to gut the defense budget, the numbers show a different story. At $538 billion, the 2010 base budget, not including war costs, exceeds spending at the peak of the Reagan buildup in 2010 dollars. The administration’s projected four year defense plan, “puts the president on pace to spend more on defense, in real dollars, than any other president has in one term of office since World War II,” says CSBA in an analysis of the 2010 defense budget.

So what’s the problem? Skyrocketing personnel costs, and its one that’s not going away either. Despite the profligacy of the Obama administration’s defense spending plans, the crunch caused by rising personnel costs only gets worse as total end strength increases.

Already, personnel costs are the fastest growing part of the DOD budget, CSBA says, and are rising at a 5.6 percent annual rate, driven largely by healthcare bills. Healthcare currently accounts for $47 billion of military spending and CSBA projects annual increases of between 5 and 7 percent. At that rate, health care costs will nearly double every ten years.

The dramatic increases in healthcare spending are driven by more troops, active and reserve, and their families, choosing the government healthcare option: TRICARE. Over the past several years, Congress has increased TRICARE benefits while refusing to raise the program’s fees; as with other federal government healthcare programs, TRICARE is largely untouchable.

Bottom line, according to CSBA, rising personnel costs will limit future spending choices. With soaring federal deficits projected as far as the eye can see, big increases in defense spending are not going to happen. At best, defense spending will increase modestly in future years. Certainly not enough to keep pace with rising healthcare costs. That means planners will have little choice but to pare back spending on weapons systems.