Key lawmakers took note of the fact that Pentagon officials in January ordered a team of consultants to study the use of “variable pricing” in the military’s grocery stores.

Rep. John McHugh (R-N.Y.), chairman of the subcommittee that oversees military stores, said he was worried that DOD officials might raise store prices and use resulting income to cut the Pentagon’s $1.2 billion subsidy to commissary operations.

Commissary items are sold at cost plus a five percent surcharge. The surcharge dollars are used to renovate and replace aging stores. Under variable pricing, items could be sold either above or below cost.

“The clear danger of variable pricing is that, [if] you charge less [in some areas], you’re inclined in other areas to charge more,” said McHugh. “If what you’re trying to do is find justification to cut appropriations to commissaries, you use it as a means to increase revenues.”

Dove Consulting Group, Inc., of Boston, and Willard Bishop Consulting, Ltd., of Barrington, Ill., received a contract to conduct the Variable Pricing Feasibility Study in just seven weeks. A final report was due to the Defense Commissary Agency by Feb. 27. McHugh said the study could cost more than $500,000.

Defense officials acknowledge trying to lower the $1.2 billion subsidy. But they also contend that variable pricing could create a better commissary benefit by giving managers greater flexibility.

The goal, they said in a statement, is “to provide average savings to commissary customers of 30 percent over similar items sold by commercial grocers, regardless of the location of the commissary where they shop.”

The Bush Administration is the first to adopt a 30 percent savings goal for commissary shoppers. Skeptics note the current average savings is 32 percent. So, using variable pricing, DOD could convert savings in excess of 30 percent into store profits, which would reduce the taxpayer spending on stores.

Latest on Retiree Drug Costs

President Bush’s 2005 defense budget request on Feb. 2 arrived on Capitol Hill minus an Office of Management and Budget proposal to end free prescriptions for retirees on base and to raise retiree co-payments for drugs purchased off base.

The OMB proposal would have raised prescription fees for military retirees, their spouses, and their survivors on Oct. 1, 2004. It included a first-ever requirement for co-payments on retiree prescriptions filled on base.

Sent to the Pentagon Dec. 16 as a “draft Program Budget Decision” for Fiscal 2005, the OMB plan called for raising co-payments under the Tricare mail order and Tricare retail pharmacy benefit from $9 up to $20 for name-brand drugs and from $3 up to $10 for generic drugs. The $20 or $10 fees also would have been charged to retirees using military pharmacies.

Defense officials got OMB to pull the plan from the 2005 budget, but DOD agreed to consider the ideas. At least part of the plan could appear again in the 2006 budget request.

OMB documents said higher co-pays “could generate significant revenues,” ranging from $728.3 million in Fiscal 2005 up to $954.7 million in Fiscal 2009, with a five-year defense budget reduction of $4.2 billion.

Service associations roundly criticized the proposal.

“This was one of those ideas that got a little bit ahead of rational-thinking people and is back in the box,” said a senior Pentagon official.

Defense officials still plan to adopt a “uniform formulary” for all DOD pharmacy programs. It will broaden the list of drugs stocked at base pharmacies and available by mail, but also will impose a new three-tier co-payment scheme to curb growth in the Tricare retail benefit.

Eye on the New Commission

Key members of Congress are watching carefully to see who President Bush appoints to the new Veterans’ Disability Benefits Commission.

The 13-member commission is being set up to make a broad review of DOD and VA disability benefits. The appointment of such a panel was part of the deal reached between Congress and the White House last year. The Bush Administration got the panel in exchange for agreeing to a partial lifting of the legal ban on “concurrent receipt” of disability compensation and military retirement pay for seriously disabled retirees.

Rep. Ted Strickland (D-Ohio), a key member of the House Veterans’ Affairs Committee, says he is worried that the President will name “lapdogs” who will recommend cuts in benefits.

The commission must hold its first meeting within 30 days of the naming of all commissioners. The speaker of the House, House minority leader, Senate majority leader, and Senate minority leader each control two appointments. President Bush will make the remaining five appointments.

The law requires that a majority of commissioners must have received either the Medal of Honor, Distinguished Service Cross, Navy Cross, Air Force Cross, or Silver Star. Fifteen months after its first meeting, the commission must send to the President and Congress a comprehensive study on revising disability and death benefits for veterans and their survivors.

Senate Minority Leader Tom Daschle (D-S.D.) has named the first two commissioners—former Nevada Gov. Mike O’Callaghan and Rick Surratt, deputy legislative director of the Disabled American Veterans. A veteran of the Korean War, O’Callaghan received the Purple Heart, Bronze Star, and Silver Star. Surratt was wounded in combat in Vietnam.

Keep the Promise Bill

As the 108th Congress reconvened, the “Keep Our Promises to America’s Military Retirees Act” (H.R. 3474) had nearly 150 co-sponsors.

The bill would allow older military retirees to waive Medicare Part B premiums, enroll (if they can afford it) in the Federal Employees Health Benefits Program (FEHBP), and benefit from Tricare network pharmacy rates, even if they don’t have access to participating commercial pharmacies.

Retired Air Force Col. George “Bud” Day, a Medal of Honor recipient and practicing lawyer, said he intended to lobby Congress hard through the spring to pass H.R. 3474 and won’t accept hand-wringing by lawmakers over rising budget deficits.

“When it comes to spending, none of them pay attention to that,” Day said.
Day said he expected his friend and fellow former Vietnam prisoner of war, Sen. John McCain (R-Ariz.), along with Sen. Tim Johnson (D-S.D.), to introduce a companion bill in the Senate. Day promised to travel from his Florida home to Capitol Hill at least one week every month this spring “to make sure guys who vocalize support put their pencil on the paper, too.”

The bill’s key feature would be the waiver of Medicare Part B premiums, now set at $66 a month, for retirees who first entered service before Dec. 7, 1956. That is the effective date of a law that, for the first time and despite recruiter promises, limited retiree health care access to military hospitals based on the availability of space and staff.

Last year, retirees from the World War II and Korean War eras lost their seven-year-long lawsuit against the government to reimburse them for broken promises of free lifetime health care. Day led the legal action and along with others formed a class act group to wage the battle.

Retired Air Force Col. George “Bud” Day vows to keep pressure on lawmakers.

The Other “Concurrent Receipt”

Did Congress last December vote to allow “concurrent receipt” for certain surviving spouses of military retirees? If so, the move would make them eligible to draw dependency and indemnity compensation (DIC) from the VA and military Survivor Benefit Plan (SBP) compensation from DOD.

As of late January, the spouses couldn’t be sure.

Members and staff of the House Veterans’ Affairs Committee said they inserted a provision in the Veterans Benefits Act of 2003 that would open both benefits to a retiree’s surviving spouse who remarried at age 57 or later.

However, DOD lawyers read the provision differently, said a Pentagon source. The Pentagon concluded that the provision only restores DIC payments to surviving spouses who remarried at 57 or older, but it doesn’t allow them to draw that pay without a dollar-for-dollar offset in SBP.

At stake in how the law is interpreted is an average of $9,204 in annual survivor benefits for these “DIC 57” spouses, the committee said.

Rep. Henry Brown Jr. (R-S.C.) said the committee intended to take a symbolic first step toward ending the DIC-triggered offset in SBP that impacts about 48,000 dual-eligible surviving spouses.

Military retirees buy SBP coverage so their surviving spouses will continue to draw a portion of their retired pay when they’re gone. The spouse of any veteran also can be eligible for DIC if the veteran or retiree died from a service-related injury or illness. Minimum DIC is $967 a month. But spouses of military retirees see their SBP reduced dollar for dollar by DIC.

Surviving spouses who remarry lose their DIC entitlement. But Section 101 of the new benefit package (Public Law 108-183) now allows surviving spouses who remarry at 57 or older to retain DIC. Those remarried at 57 or older before the law took effect Dec. 16, 2003, have a year to reapply for DIC. (They should do so using VA Form 21-686c). More than 12,000 surviving spouses fall into that category, but officials estimate that fewer than 15 percent will know to apply.

The controversy is with paragraph B of Section 101, which says individuals made eligible for DIC under the provision, by reason of their “status as the surviving spouse of a veteran,” should see no reduction in other federal benefits as a result of this provision. As of late January, however, the committee and DOD officials had not discussed their difference of opinion.

SBP Reforms

Responding to President Bush’s State of the Union Address Jan. 20, House Minority Leader Nancy Pelosi (D-Calif.) said the Democratic Party supports reform of the military Survivor Benefit Plan, a priority for service associations in 2004.

The goal of SBP reform is to end a sharp drop in benefits that surviving spouses see at age 62, when most become eligible for Social Security. SBP annuities set at 55 percent of the covered retired pay amount suddenly fall to as low as 35 percent.