Issue No. 1

Feb. 1, 1998

After four days of intense deliberations and plowing through dozens of papers and proposals, the Air Force Retiree Council confirmed at its annual meeting last October that medical care is still, by a big margin, the main issue of interest to military retirees, regardless of their age or place of residence.

The council’s chairman, former Chief Master Sergeant of the Air Force James M. McCoy, met in November with Gen. Michael E. Ryan, Air Force Chief of Staff, to report on the three health care subjects that led the list.

Medicare Subvention. At present, retirees at age 65 are forced into Medicare. They are not eligible for treatment in military medical facilities. Under a test program called “Tricare Senior,” Medicare will reimburse military hospitals for the care of military retirees. The term for this process is subvention. The Department of Defense believes it can deliver better health care to the retirees at lower cost than is the case with the present Medicare/Medigap insurance combinations. The Retiree Council supports the Tricare Senior test program enthusiastically.

FEHBP-65. The council believes that retirees 65 and over, especially those who do not live near enough to a military medical facility to be helped by subvention, should have the option of enrolling in the Federal Employees Health Benefits Program. They could then drop their Medicare supplemental insurance, which typically costs more and covers less than FEHBP.

National Mail Order Pharmacy Program. Started in October 1997, this program allows participants to order enough medications for a month or more for a modest co-payment. However, retirees age 65 and over are not eligible. The council wants to see the program opened for retirees of all ages in all locations.

Two nonmedical issues the council had been watching–the possibility that Cost of Living Allowance adjustments to retired pay might be reduced or delayed and proposals to cut back or shut down commissary stores–have been favorably resolved for this year at least. Both COLAs and commissaries are fully funded through 1998.

The Retiree Council was formed in 1972 to give the Air Force Chief of Staff advice and information about concerns of retirees. The council has 18 members, 15 of them representing retirees in specific areas and three of them serving at large. Until 1996, all of the chairmen had been retired general officers. McCoy, CMSAF from 1979­81, and later president and chairman of the board of the Air Force Association, is the first enlisted person to hold the position.

The Promise Comes Unstuck

For many years, retirees obtained health care routinely at military hospitals. There were plenty of hospitals in those days, and the retired population was a fraction of the size of the active duty force. Seeing retirees on a space-available basis was not much of a problem. New recruits were promised that, if they served a full career, they could count on free medical care for life.

However, the promise came unstuck in the 1990s. In the force drawdown that followed the end of the Cold War, military bases began closing all over the country, and military hospitals closed along with them. Today, McCoy says, no more than 32 percent of Air Force retirees live within the catchment area (40-mile radius) of a military treatment facility.

Furthermore, in 1995, the number of retirees overtook and surpassed the number of persons serving on active duty. The retiree total currently stands at 1.9 million. (The Air Force has more retirees–673,000–than any other service.) The retired population will peak at 2.25 million about 10 years from now, McCoy says.

Confronted with statements from old recruiting brochures and other evidence, the government no longer denies that the promise of medical care for life was made, but says there is no way it can now deliver. McCoy agrees that the promise was broken, but believes, as a practical matter, retirees will be better served by concentrating their efforts on improving the program that remains.

The military medical system now consists essentially of three options under the Tricare program. Tricare Prime covers active duty members and their families and retirees who live near bases. (The Pentagon is attempting to provide this same coverage for active duty members and their families who do not reside near a base.) It uses a combination of military hospitals and providers in the civilian community. Tricare Standard (formerly CHAMPUS, the Civilian Health and Medical Program of the Uniformed Services) and Tricare Extra (a preferred provider option) use private providers (under Extra the providers must be in the Tricare network). Under the last two options, the beneficiaries share in the cost.

Reviews are mixed for Tricare. It works well in some areas, while horror stories abound in other areas as retirees struggle with providers and insurance carriers who seem confused about how the program is supposed to work.

Retirees 65 and over are not eligible for Tricare. They must rely on Medicare and whatever additional coverage is provided by supplemental insurance they purchase. McCoy says the needs of these older retirees should get special attention “because their options are not very many. They’ve got Medicare and Medigap and that’s it. So let’s give them some more options. If they can be served under subvention, fine. If they want to look at FEHBP, fine. Expand the Mail Order Pharmacy Program to include more people.”

Expanding the Options

The council would like to see subvention move beyond the Tricare Senior test status and be implemented as soon as possible, McCoy says. However, subvention will not help the 67 percent of Air Force retirees who live outside the military hospital catchment areas. Many of them would be best served by access to FEHBP.

Earlier proposals had sought to open FEHBP for all military retirees. The Administration and the Department of Defense strongly opposed that on the grounds of cost, and legislative efforts to overcome the resistance sputtered. Now, the Air Force Retiree Council, along with veterans groups and others, is focusing on the proposal to provide FEHBP for retirees 65 and over. Legislation for an FEHBP65 test program is working in both the US Senate and House of Representatives.

According to research by the Military Coalition, the Department of Defense is the nation’s only large employer that ends retiree participation in its health plan when they become eligible for Medicare. Also, federal employees covered by FEHBP can stay in their program after they turn 65.

“We feel we have a pretty solid argument for FEHBP-65, and the surgeon generals [of the services] agree with us,” McCoy says. “We’re the only–and I hate to use the term, but we have now used it–government employees who do not have a seamless health care system. When you turn 65, you go to Medicare, Medicare supplements, Medigaps, and so on.”

The council supports legislative relief for some retirees who declined the optional Medicare Part B, which covers outpatient care, when they became Medicare eligible at 65. These are individuals who were living near a military hospital at the time and thus saw no reason to sign up for Part B coverage and the premiums it entailed. The nearby base and hospital have since closed, but the retirees cannot enroll in Part B now without paying a large penalty. The Retiree Council believes that people who lost reasonable access to a military hospital as the result of base closure should have a chance to enter Medicare Part B without penalty.

The Department of Defense National Mail Order Pharmacy Program began operating in October, offering service to all active duty members and Tricare Prime participants. Only a few over-64 retirees, such as some who live in the vicinity of a military hospital shut down in the base closures, are eligible.

A key feature of the program is the availability of up to a 90-day supply of non-narcotic medications and up to a 30-day supply of narcotic medications. Also, the inventory of medications offered is broader than most military facility pharmacies. For eligible retirees, the co-payment is $8 per prescription.

“We feel that the DoD National Mail Order Pharmacy Program should be expanded to cover all retirees, regardless of place of residency,” McCoy says.

A dental health insurance program for retirees, also new, began Feb. 1. The premiums vary by geographic location and number of people covered, but the average for two persons will be $23.80 a month. There is a $50 deductible before reimbursements begin. The co-payment for patients is 20 to 40 percent, and the benefit is capped at $1,000 a year. There is no co-payment for preventive and diagnostic care. Special work, such as crowns and bridges, is not covered.

McCoy agrees that the program is of limited value to most people, but says that “at least it’s a foot in the door.”

COLA and Commissaries

Retirees tend to be watchful and suspicious about Cost of Living Allowances because the government has a history of making arbitrary reductions. In times past, for example, the annual COLAs for military retirees were delayed far beyond the reductions imposed on other federal annuitants.

Also worrisome is the continuing campaign by a group of budget cutters who argue that the Consumer Price Index overstates actual inflation and that the Labor Department should recompute it by a different formula. This would mean lower annual COLA adjustments to all federal benefits, including military retired pay. Also, proposals are floated perennially on Capitol Hill for COLA offsets based on retirement income means testing. For this year, though, COLA is fully funded.

There was a boomlet of concern in October when the Congressional Budget Office published a report outlining an option to end federal subsidies to commissaries and give active duty people cash allowances to offset their losses. No provision was included for compensation for retirees.

Commissaries are the nation’s 10th largest supermarket chain. They sell products at about five percent above wholesale. To operate, they require an annual subsidy which CBO estimates at $2 billion a year. Most of that figure, though, was CBO’s guess at state and local taxes not paid rather than any direct federal payout.

CBO said the commissaries are no longer needed to make up for the lack of commercial retail alternatives around military installations. Furthermore, CBO said, commissaries are not cost effective as an alternative to cash compensation, which has been the more recent justification for them.

Much money could be saved and local tax revenues generated by terminating the subsidy and paying active duty families compensation in cash, the report said. The key to the proposal, of course, was that it left out any offset for retirees. In 1993, retirees accounted for 54 percent of commissary sales in the US. With active duty force levels falling and the retired population rising, the retiree percentage of commissary sales is still on the increase.

As with COLA, though, the proposal was not adopted and commissaries are fully funded for 1998.

(Military exchanges, which constitute the nation’s 12th largest general retail chain, are a different matter. Their average markup is about 20 percent. They not only cover their own costs but also provide a profit that goes to morale, welfare, and recreation activities.)

Survivor Benefits

The Air Force Retiree Council paid particular attention at the annual meeting to the circumstances of surviving spouses. The total of them is at least 255,000, of which 74,000 are Air Force surviving spouses, McCoy says. The actual total is higher because of “forgotten widows” whose whereabouts are not known to the government. The Retiree Council would welcome information about any forgotten widow.

In his report to the Chief of Staff, McCoy says that many retirees are concerned about the Survivor Benefit Plan and that the council supported legislative actions that would improve it. When SBP began in 1972, the intent was to have a government subsidy pay 40 percent of the cost. Assumptions about program costs turned out to be wrong, though, and premiums from participants were soon covering more of the expense than had been intended. In view of that, Congress lowered the premiums some years ago. At present, however, the federal subsidy covers only about 26 percent of the cost. Another adjustment to the premium is due.

This year’s defense bill made two changes to the Survivor Benefit Plan. It created an escape clause that would allow people who signed up for the program when they retired to get out of it, if they wished, between the second and third anniversaries of their retirement. The defense bill also authorized a minimum annuity of $165 a month for forgotten widows whose husbands retired from service and died before they had an opportunity to enroll in the Survivor Benefit Plan when it was initially offered in the 1970s.

A Senate proposal, which did not make the final cut for inclusion in the defense bill, would have created a “paid up” feature, under which a retiree would owe no more premiums after he or she had paid into the program for 30 years or until age 70, whichever came later.

The Retiree Council called on the Defense Finance and Accounting Service, which had representatives present at the meeting, to be sure that SBP annuities were computed in the way most favorable to the survivor.

The basic survivor annuity is 55 percent of the amount the retiree received before he or she died. When the survivor reaches age 62, the amount is reduced to 35 percent with Social Security offsetting the difference. Prior to the adoption of this “two tier” computation system, the survivor’s annuity was reduced, dollar for dollar, by the amount received as a Social Security benefit. In 1986, Congress cut the direct tie and essentially set 35 percent as a floor for the SBP annuity.

In some cases, survivors of retirees who performed most of their military service prior to 1957 when Social Security was first applied to military earnings may do better under the original formula. If so, they are entitled to that under the law, and the Retiree Council asked for extra attention to ensure that these surviving spouses are not shortchanged.