Higher Tricare Fees Loom
A senior defense official confirmed Pentagon plans to raise Tricare fees for military retirees under age 65.
William Winkenwerder Jr., assistant secretary of defense for health affairs, delivered the news during a Jan. 11 meeting with members of The Military Coalition, a consortium of veterans and service groups, including the Air Force Association.
The coalition is attempting to block any Tricare changes that would impose more costs on retirees.
Winkenwerder said the government must impose the higher fees to save a “great” benefit.
Defense Department plans called for raising Tricare Prime enrollment fees and Tricare Standard deductibles sharply over Fiscal 2007 and 2008 for working-age military retirees and their families. (See “Action in Congress: Tricare Hikes?,” February, p. 33.) This affects about three million beneficiaries.
Tricare fees for retirees have not been raised since they were set in 1995.
The draft Tricare proposals projected savings of $12 billion over five years and $32 billion through Fiscal 2015, by requiring retirees to pay a higher rate of medical costs and encouraging more of them to use employer-provided health insurance.
Why the Tricare Boost
In promoting the hike in Tricare fees, defense officials argue that soaring military medical costs, accelerated by recent benefits gains (particularly for service elderly) are squeezing other military budgets.
Winkenwerder told the military association representatives that Tricare never was intended to relieve state and local government or private sector employers of the responsibility of providing health benefits to military retirees they hire.
House Democratic leader Rep. Nancy Pelosi (Calif.) and six colleagues attacked the Administration’s Tricare fee plan in a Jan. 25 letter to President Bush.
“Not only is this premium increase unfair to the military retirees who have given 20 to 30 years of service and sacrifice, it will not help maintain our military strength,” they wrote. The Democrats urged Bush not to “shift additional costs upon veterans or military retirees.”
Defense officials have complained that civilian employers are offering retired military workers incentives to use Tricare instead of company insurance. (See “Action in Congress: Rising Health Care Costs … And Ways to Curb Them,” December 2005, p. 24.)
Bryan Whitman, a department spokesman, said DOD health care spending, left unchecked, could reach $64 billion by 2015. That would represent 12 percent of total defense spending. In Fiscal 1995, he said, health care represented only five percent of the defense budget.
Winkenwerder told the service associations that the percentage of Tricare-eligible retirees and family members reliant on military health care has climbed from 66 percent in 2002 to 78 percent in 2006. It will reach 87 percent by 2011 unless Tricare fees and deductibles are raised.
2006 TMC Agenda
Besides battling to block Tricare fee increases, The Military Coalition vows to press Congress to pass new initiatives. TMC legislative priorities for budget year 2007 include:
- Further expansion of Tricare benefits offered to drilling Guard and Reserve personnel.
- Lowering retirement age for the Reserve Components from 60 to 55.
- Easing transition problems associated with rebasing from overseas.
- Upgrading “seamless” health care coverage for active duty, National Guard, and Reserve members shifting to VA medical care.
- Ensuring a broad Tricare pharmacy formulary.
- Winning authority for pretax payment of health, dental, and long-term care premiums.
- Providing full funding for veterans enrolled in the VA health care system.
- Eliminating the Dependency and Indemnity Compensation (DIC) offset to the military’s Survivor Benefit Plan.
- Resuming DIC payments for qualifying widows who remarry after age 55.
- Moving up the effective date (now Oct. 1, 2008) of the 30-year paid-up rule for SBP premiums.
- Allowing full concurrent receipt of military retired pay and VA disability compensation by disabled retirees.
- Allowing concurrent receipt for medical retirees with less than 20 years of service.
- Raising relocation reimbursements to cover members’ costs for government-directed moves.
- Reforming the government travel credit card program to reduce risk-shifting to members.
More 2006 Defense Act
President Bush signed the 2006 National Defense Authorization Act on Jan. 6, 2006, setting into law several dozen initiatives to improve military pay, benefits, and quality of life.
Here are some of the important, but low-profile, initiatives enacted into law:
- Household Weight Allowances—Senior enlisted personnel can ship more household goods at government expense when moving between assignments. Pay grades E-8 and E-9 saw the authorized weight allowance jump by 1,000 pounds and E-7s by 500 pounds.
- Hardship Duty Pay—The ceiling on hardship duty pay rose from $300 a month to $750. Defense officials indicated they could begin paying hardship pay to service personnel being deployed frequently to Iraq, Afghanistan, or other duty overseas. Payments of $225 a month for three months would be the average, according to the Congressional Budget Office.
- Wounded Pay—Service members wounded in combat and evacuated from the theater for medical treatment will receive a special $430 a month payment. This would last until they no longer are hospitalized or they begin to receive traumatic injury insurance of up to $100,000.
- Reserve Housing Allowances—Reservists on active duty more than 30 days will receive the same basic allowance for housing as regular active duty personnel. Reservists called up on orders lasting less than 140 days and tied to a contingency operation get a partial housing allowance.
Combat-zone tax exclusions, along with recent changes to the Earned Income Tax Credit (EITC) and child tax credits, are wiping out the income tax liability for thousands of military members and are replacing tax bills for many individuals with refundable cash credits, say IRS officials.
The tax breaks are available even to officers in grades as high as colonel, so long as they have served lengthy combat tours overseas. Federal tax officials see this as a loophole in the tax law. This qualifies the troops for thousands of dollars in tax credits.
In Iraq and Afghanistan, enlisted troops and warrant officers are exempt from income tax on their military pay. Most commissioned-officer pay also is tax free, but the exclusion is capped. For tax year 2005, only the first $6,529 a month of basic pay or other service compensation is tax-exempt.
Earned Income Tax Credit
Combat-zone tax breaks become even more valuable when combined with the Earned Income Tax Credit and the Child Tax Credit. Here’s how:
For tax year 2005, EITC provides a refundable tax credit of up to $4,400. For 2005, adjusted gross income must be less than $37,262 for families with two or more qualifying children, and less than $33,030 for families with one qualifying child.
For 2003, when the war in Iraq began, many low-income military families actually saw their tax credit decline because combat service left them with little or no taxable income. Many officers suddenly qualified for EITC for the same reason: Combat tours had sharply lowered their taxable income. (See “Action in Congress: Combat-Zone Tax Relief,” November 2004, p. 23.)
Higher income personnel continue to exclude combat-zone pay when calculating the tax credit. Lower paid members now include combat-zone pay in their EITC calculations.
Defense officials urged Congress in 2004 to restore EITC levels for enlisted serving in combat zones, but to end “windfall” credits for higher-paid personnel. Lawmakers ignored only the second request, and the more expansive eligibility rules for EITC are set through tax year 2006.
Child Tax Credits
Troops also can qualify for the Child Tax Credit, of up to $1,000 per child up to age 16. For a family with two children, the child tax credits can knock $2,000 off their tax bill.
If families have modest incomes but little or no tax liability because of combat tours, Congress approved the Additional Child Tax Credit. This allows families to convert the unused portion of the Child Tax Credit into a cash refund.
Military members serving in combat areas do not have to file 2005 tax returns by the usual April 15, 2006, deadline. All IRS tax actions are suspended while members are in a war zone.
After the service members leave the war zone, they have at least six months to file their tax returns.
Even that deadline, however, is extended by the number of days a member served in a combat zone between Jan. 1 to April 15, the normal US income tax-filing period.