President Bush and Congressional Republicans in October shook hands over a 10-year, $22.1 billion deal that sharply pares back a ban on “concurrent receipt” of both military retired pay and tax-free disability compensation for injuries or illnesses traced to operational activities.

Up to 200,000 disabled retirees, including National Guard and Reserve annuitants, will see their monthly incomes rise—many by hundreds or even thousands of dollars. The deal affects those with 20 or more years of service.

Republican leaders announced the agreement Oct. 16. Backers expected enactment as part of the 2004 defense authorization.

Traditionally, a military retiree could draw tax-free disability compensation from the Department of Veterans Affairs, but that compensation had to be deducted, dollar for dollar, from the individual’s retired pay—no “concurrent receipt.”

The new plan benefits those with either combat-related disabilities or the most severe noncombat injuries or illnesses. These veterans no longer will see retired pay reduced by amounts they receive in disability compensation.

Principi had continued to push alternative plans.

Three New Categories

The deal divides 550,000 disabled military retirees with 20 or more years of service into three categories and boosts the monthly income of two of them.

Combat-related disabled—Retirees with combat- or operations-related disabilities, regardless of severity, become eligible Jan. 1 for Combat-Related Special Compensation. CRSC, an income replacement program begun last June, no longer would be limited to retirees with combat-related disabilities rated at least 60 percent.

Seriously disabled—The federal government would restore retired pay reductions to retirees with disabilities rated at 50 percent or higher. The restoration would unfold over 10 years. Plans call for first installments, on Jan. 1, to be: $750 a month for 100 percent disabled, $500 for 90 percent, $350 for 80 percent, $250 for 70 percent, $125 for 60 percent, and $100 for 50 percent.

Other disabled—Left out are retirees whose disabilities are rated less than 50 percent and are not related to military operations. They will continue to see retired pay reduced by an amount equal to the amount of tax-free VA disability pay.

Rep. Lane Evans of Illinois, ranking Democrat on the House Committee on Veterans’ Affairs, urged veterans’ groups to reject the deal because not all disabled retirees will benefit. “This is no victory for veterans,” he said.

For financial reasons, the Bush Administration has opposed a move to full concurrent receipt. However, White House budget officials proposed allowing a phase-in of full CR for 700,000 disabled retirees but only if Congress would agree to dramatically narrow the eligibility of future veterans for disability pay. Veterans’ organizations quickly condemned the plan as a sellout of future veterans.

Another plan—floated by VA Secretary Anthony J. Principi in a September Senate hearing—was simply to expand eligibility for Combat-Related Special Compensation.
Principi suggested lowering the approval threshold from the original disability rating of 60 percent to an unspecified level. By mid-October, however, House leaders were near the broader agreement with the Administration.

Clarifying CRSC

In negotiating the 2004 defense bill, lawmakers faced pressure to clarify two sticky issues regarding payment levels in the Combat-Related Special Compensation plan.
Pentagon lawyers and policy officials had gone back and forth for months on the proper way to calculate CRSC payments for two groups:

• Individuals with disabilities so serious the VA deems them “unemployable.”
• Veterans with wounds so severe they qualify for the VA’s Special Monthly Compensation.

Retirees can be rated unemployable to gain higher compensation, even if their multiple disabilities don’t add up to 100 percent disabled.

CRSC policy officials thought it proper to allow higher CRSC reimbursements for “unemployability” only if that threshold were reached through combat-related disabilities alone. If a finding of unemployability rested in part on noncombat-related injuries or illnesses, CRSC would not be raised to the higher unemployability rating.

A similar policy was proposed for Special Monthly Compensation. SMC is payable on top of regular VA compensation when disabilities are disfiguring or profoundly affect a veteran’s daily life. Defense officials drafted regulations that would allow CRSC to reverse a drop in retired pay caused by SMC but only if the disabilities were combat related.

For example, if the retiree lost a hand to enemy fire, any reduction in retired pay from receipt of SMC would be payable as Combat-Related Special Compensation. If the hand were lost to a home repair accident, however, the drop in retired pay would not be restored.

With more than 900 applications on hold by mid-September, DOD advised the services to make interim CRSC awards but to decide issues of unemployability and SMC when Congress or Pentagon lawyers provide more guidance.

About Hospital Food

For years, Rep. C.W. “Bill” Young (R-Fla.) and his wife, Beverly, have visited sick or injured service members at Walter Reed Army Medical Center and nearby National Naval Medical Center Bethesda, both in the Washington, D.C., area. During a recent visit, the Youngs learned something disturbing from a Marine reservist, SSgt. William L. Murwin.

After spending 26 days in the hospital recovering from grenade wounds in Iraq, Murwin was billed $210.60 for hospital meals. That is a daily rate of $8.10, which matches his subsistence allowance, but Young said that’s still not fair. Hospital food should be free to service members injured in combat or in training, he said.

Young paid Murwin’s food bill, and, by early October, the House had adopted language from his bill (H.R. 2998) to exempt war wounded from having to pay for hospital meals.

DOD Medical Costs Rise

A Congressional Budget Office study on rising defense medical costs may chill enthusiasm on Capitol Hill next year for opening Tricare to drilling reservists or for broadening health care options for military retirees under age 65.

Spending on military medical care, after adjusting for inflation, nearly doubled in the last 15 years, CBO said. Service medical budgets, expressed in 2003 dollars, totaled $14.6 billion in 1988. This year they reached $27.2 billion.

Because the number of active duty personnel fell 38 percent over the same period, CBO said, “medical spending per active duty service member nearly tripled, rising from $6,600 [a year] to $19,600.”

Fifteen years ago, military medical spending was equal to about a quarter of all cash compensation going to active duty forces. Today, medical costs are equivalent to more than one-half of active duty pay and allowances.

CBO traces 56 percent of the cost growth to rising health care costs nationally, the result of greater use of technology, greater reliance on health services by Americans generally, and overall medical inflation.

Another 23 percent of the cost growth is blamed on the rising proportion of retirees and dependents among a beneficiary population of more than eight million. For each active duty service member in 1988, the military had three nonactive beneficiaries. Now, for each active duty member, there are almost five nonactive beneficiaries. Most of them are retirees or their spouses—a population that “consumes” more health care, CBO said.

Eighteen percent of cost growth results from a shift to accrual budgeting for military health care in 2002. That means that defense budgets now include future health care obligations of the current force. The accounting change didn’t impact benefits but did boost health care budgets.

Most of the remaining three percent of cost growth stems from improved benefits such as the Tricare Senior Pharmacy program in 2001 and Tricare for Life program in 2002.

The CBO study declared that, even with no further benefit improvements, military medical costs by 2020 still will climb to between $29,000 and $38,000 per year, per service member.

Reserve Health Care

Sen. Tom Daschle (D-S.D.) and Sen. Lindsey O. Graham (R-S.C.) announced plans to try to amend the Bush Administration’s $87 billion Iraq supplemental funding request to open Tricare to drilling National Guard and Reserve members.

With US national security more reliant than ever on reserve component forces, Daschle and Graham said it was time to offer them enrollment in Tricare at reasonable rates.

Reserve personnel become eligible for Tricare when they are mobilized. They lose eligibility 30 days after deactivation. An estimated 20 percent of drilling reservists have no health care coverage.

The Daschle–Graham amendment would make drilling Guard and Reserve members without employer-sponsored health insurance eligible for the same health care benefits as are available to active duty personnel, with identical co-payments and deductibles. But reservists also would pay an annual premium.

Eligible reservists who decline coverage still would receive help paying civilian health care premiums during mobilization.

Daschle said reservists deserve full-time medical coverage. Tens of thousands of them, he said, are serving in Iraq and many more protect airports and military bases.
The Bush Administration has opposed the change. Defense Secretary Donald H. Rumsfeld estimated the annual cost at more than $5 billion.

Passage of a reserve health care program this year remained unlikely, but, at a minimum, Congress was expected to ask the Pentagon for a formal study of reserve health care options and to recommend its own plan.

Tax Equity Issue

As Fiscal 2003 came to a close, House and Senate tax committees continued to drag their feet in reaching a final agreement on a bill that would restore tax equity to military homeowners and expand tax breaks to drilling reservists and National Guard personnel.

Both the House and Senate passed a military tax fairness bill by June. But Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, and Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee, virtually have ignored the bills since. Thomas’s decision to toss the military tax provisions into a broader child tax-credit bill slowed the action on tax equity for service members.

Grassley sent Thomas a letter in July proposing rules for a conference committee to iron out differences in the two bills. Thomas had not responded, however, and Grassley hadn’t pressed him on the issue as the fiscal year drew to a close.