Sen. Levin Sends Letter to Deficit Committee on Defense Budget

Friday, October 14, 2011

WASHINGTON – Senate Armed Services Committee Chairman Carl Levin, D-Mich., sent the following letter to the Joint Select Committee regarding the Department of Defense budget:

October 14, 2011

The Honorable Patty Murray
Co-Chairman
Joint Select Committee on Deficit Reduction
United States Congress
Washington, DC 20510

The Honorable Jeb Hensarling
Co-Chairman
Joint Select Committee on Deficit Reduction
United States Congress
Washington, DC 20515

Dear Patty and Jeb:

In accordance with the Budget Control Act of 2011, I am forwarding my recommendations to reduce the deficit consistent with the goals of the Joint Select Committee.  As you know, as a result of the Budget Control Act, the Department of Defense (DOD) will reduce its budget by an estimated $450 billion over the next 10 years; this is apart from any sequestration which could trigger as much as an additional $600 billion in DOD cuts, which I agree with Secretary Panetta would be disastrous.  In light of the programmatic challenges DOD faces in achieving this initial $450 billion in savings in the midst of multiple wars, and the detrimental effect additional cuts could have for our national security, I am unable to recommend further discretionary cuts to DOD's budget as part of the Joint Select Committee’s deficit reduction proposal, particularly prior to the completion of the strategy-driven review currently being conducted by DOD.

On the matter of mandatory programs, I note that the Administration is proposing a commission to develop recommendations for reforming the current military retirement system and to revise the TRICARE health benefit.  I support the President’s proposals, and recommend them to the Joint Select Committee with some modification.

I suggest that the scope of the commission be expanded to encompass all aspects of military compensation, including the current system of basic pay, allowances (including the housing allowance), special and incentive pays, and health care, as well as the tax treatment of the various components of military pay.  I agree with the President’s statement, echoed by both Secretary Gates and Secretary Panetta, that in order to avoid breaking faith with the force, any changes to military retirement should grandfather current service members.  There must be sufficient study and discussion of the issues involved to ensure that military retirement and compensation reforms serve to enhance the viability of the All-Volunteer Force in the 21st century.  I believe a commission dedicated to a comprehensive study of military compensation, including significant input from the Department of Defense, the military services, and veterans’ organizations can best address the twin goals of strengthening the All-Volunteer Force for a new generation while arresting the substantial growth in personnel costs that has occurred over the past 10 years.

The President also proposed a new annual fee of $200 for TRICARE for Life (TFL) beneficiaries beginning in 2012, rising to $295 in 2013, and increasing annually thereafter by the rate of increase in health care costs for TFL beneficiaries.  I recommend the Joint Select Committee support the President’s proposal, except I suggest that any future increases in the TFL fee be tied to the same benchmark index used to make annual increases in TRICARE Prime enrollment fees.  Both the House-passed and Senate Armed Service Committee-reported versions of the National Defense Authorization Act for Fiscal Year 2012 tie this increase to the rate of increase in the cost of living allowance applied to military retired pay.  Whichever benchmark is ultimately agreed upon, annual fee increases for retirees over the age of 65 should be the same as annual fee increases for working-age retirees.

The President’s second TRICARE-related proposal would change retail pharmacy copayments from a dollar figure to a percentage of the cost of the prescription.   I have recently learned from DOD, however, that instituting such a percentage copayment structure at retail pharmacies is not feasible due to the application of Federal Ceiling Price (FCP) cost caps.  Under this price structure, the true cost of a retail prescription is not known until after FCP rebates are received by DOD, making it impractical to calculate and collect a percentage copayment from beneficiaries at the point of sale in a retail pharmacy.  I have asked DOD for assistance in developing an alternative proposal that would achieve similar savings.  I will submit this proposal to you as soon as it is available.

The President has also proposed applying the same copayment to preferred and non-preferred brand name drugs.  The TRICARE pharmacy benefit currently distinguishes between them to give preference to brands that the pharmaceutical manufacturers agree to sell at an additional discount.  Under the current TRICARE pharmacy program, out-of-pocket beneficiary copayment rates are less for preferred brands than for non-preferred brands to incentivize beneficiaries to choose preferred brands, which in turn encourages manufacturers to offer DOD additional discounts.  The President’s proposal would compromise the Department’s negotiating leverage with pharmaceutical manufacturers.  These discounts are important to reducing the cost to DOD.  For these reasons, I recommend that the Joint Select Committee reject the President’s proposal to make the copayment rate for non-preferred brands identical to preferred brands.

I look forward to working with you to ensure that even as the nation addresses its fiscal challenges, America’s military remains the finest in the world.

Sincerely,

Carl Levin
Chairman