By Janine Davidson and Jesse Sloman
This week marks the much-awaited release of the Military Compensation and Retirement Modernization Commission’s (MCRMC) final report. This independent panel was established in 2013 “to conduct a review of the military compensation and retirement systems and to make recommendations to modernize such systems.” Proponents and opponents of future changes are preparing themselves for a bitter legislative and bureaucratic fight as soon as the report hits the street.
The battle lines have been drawn between senior Department of Defense (DoD) officials on one side, who argue that the current compensation system is fiscally unsustainable, and military advocacy organizations on the other, who contend that the Pentagon is trying to “balance the budget on the backs of the troops.” At times the two groups have directly contradicted each others’ facts.
Outgoing Defense Secretary Chuck Hagel unequivocally stated in a speech at the National Defense University in April 2013 that “over a 10- 20-year period, we’re not going to be able to sustain the current personnel costs and retirement benefits. There will be no money in the budget for anything else;” while Norbert R. Ryan Jr. a retired vice admiral and current president of the Military Officers Association of America (MOAA), wrote last December that “the numbers show that military pay and benefits are far from being unsustainable and are essential to retaining a capable, dedicated force.” How can policy makers and the American public reconcile these divergent perspectives?
While most Americans can agree that our military members deserve wages and benefits equal to their sacrifices, the question of how much of what type of compensation is “fair” or “enough,” weighed against other budget priorities, is a matter of opinion. To help readers make sense of this debate, we set out to simply provide some facts.
After weeks examining surveys, reports, testimonies, and budgets—and crunching some numbers ourselves—we found that the data are not always clear; depending on what one counts as part of the overall compensation package, the assessments can vary wildly. Still, despite these discrepancies and differences in degree here and there across the data, we have come to seven major conclusions.
First an visual overview of how compensation is allocated:
Seven Takeaways:
1. Compensation comes in many forms: there is no consensus over exactly which elements make up “military compensation.” Some analysts focus only on pay, some include in-kind benefits—such as childcare—and some look outside of the DoD budget and include other costs incurred by the U.S. Government, such as payments towards military retirement pay from the Treasury Department and the various non-retiree veterans benefits paid for by the Veterans Administration’s separate $164 billion budget. The Commission’s Interim Report, published last June, has a detailed breakdown of the various categories of pay and benefits received by most military members during their careers and after their service.
2. By all accounts, personnel costs have grown significantly: Compensation has remained steady at approximately one-third of the overall DoD budget since the early 1980s; in FY14 the DoD spent $182 billion on pay and benefits out of an overall total budget of $581 billion. However, the total size of the force is about 40 percent smaller today, having shrunk from 2.1 million active duty members in 1988 to 1.3 million in 2014. Thus compensation per service member has clearly gone up. Estimates vary dramatically on how much it has risen, depending on what one includes in the compensation basket and what range of years is covered, but all of the analysts we reviewed found significant cost growth.
3. Military members are well compensated compared to the civilian population. Much of the growth in benefits over the last decade was designed to close the gap with the civilian workforce following years of below-average pay increases in the 1980s and 1990s. However, after a decade of post-9/11 pay raises, enhanced housing options, and other reforms aimed at improving the quality of life for military members and their families, this gap has closed. Military compensation now compares very favorably to that of civilians, and indeed significantly exceeds the norm based on most measures. Analysis by both the Congressional Budget Office (CBO) and the DoD’s Eleventh Quadrennial Review of Military Compensation (QRMC) shows that, on average, both enlisted personnel and officers are better compensated than 80 to 90 percent of their non-military peers
4. Health care has been one of the biggest drivers of cost growth in the DoD budget. Between 2000 and 2012, the military health care budget grew by 130 percent in real terms. Retirees and their families account for a significant part of this growth compared to active duty service members, as policy changes in the last decade have incentivized more retirees to choose military health plans over other options. In 2002, 43 percent of working-age retirees chose to use private health insurance. By 2013, that number had dropped to just 17 percent
5. And health care is a really good deal for military members, retirees, and their families. Service members don’t pay any premiums for health care and very few copays; according to the DoD, the average military family in 2013 paid $93.00 per year for health care compared to $5,463.00 for the average civilian family. Retirees on the other hand are required to pay annual enrollment fees in addition to other costs. These fees have remained essentially flat since the mid-1990s while the cost of acquiring civilian medical care has more than doubled during that time period. In 2002, DoD calculated that private health insurance premiums were roughly three times higher than the equivalent annual fees retirees paid to enroll in the military’s TRICARE health care network. By 2013, that gap had grown to over seven times. As TRICARE fees have decreased relative to private sector averages, more working-age retirees have opted to join the TRICARE system and TRICARE beneficiaries now consume a higher volume of health care than the national average. These trends have combined to increase health care’s share of the DoD budget from 6 percent in 2000 to 10 percent in 2012, and CBO projects that figure could rise to 12 percent by 2022.
6. Housing costs have also grown significantly, accounting for a larger portion of the defense budget. Housing costs per service member grew 59 percent from 2000 to 2014. This increase is due not only to rising housing costs (rents and sales) across all markets, but also as a result of policy changes that raised housing allowances from 80 to 85 percent of computed market housing costs to 99 percent today. As a share of the overall DoD budget, housing allowances have grown from roughly 2 percent in 1998 to 4 percent in 2014.
7. Veterans’ costs, though not part of the DoD budget, have risen dramatically in the last two decades. Benefits provided to veterans through the VA are commonly excluded from examinations of military compensation because they are outside the DoD budget. However, by focusing solely on DoD pay and benefits provided, many of the debates about service member compensation paint an incomplete picture of the total cost of military personnel to the U.S. Government. The VA budget, which is approximately $164 billion in 2015, has increased by over 150 percent in real terms between 1998 and 2014. The primary drivers of this growth are the wars in Iraq and Afghanistan, the aging of the existing veteran population—Vietnam-era veterans are now consuming more medical services and receiving greater disability payments than they did when they were younger—and policy changes that have expanded veterans’ access to additional VA services and benefits.
Veterans Or Retirees? A Note on Terminology: There are distinct differences in compensation between the average veteran and a military retiree. Retirees are veterans who have served on active duty for 20 years or more. While non-retiree veterans are eligible for many benefits through the VA, only retirees receive DoD benefits such as retiree pay (pension) and low-cost health care through TRICARE. Eligibility for retiree compensation is determined via an all-or-nothing cliff-vesting model: any length of service under 20 years, whether it be for 1 year or for 19 years, is considered insufficient to qualify a military member for retiree benefits. Roughly 17 percent of the force remains in uniform long enough to retire.
Want to get smarter on military compensation? Here are links to some of the best reports dealing with this issue:
- “Rebalancing Military Compensation: An Evidence-Based Approach” by Todd Harrison, Center for Strategic and Budgetary Assessments (Jul 2012)
- “Costs of Military Pay and Benefits in the Defense Budget,” Congressional Budget Office (Nov 2012)
- “Eliminating Major Gaps in DoD Data on the Fully-Burdened and Life-Cycle Cost of Military Personnel,” Reserve Forces Policy Board (Jan 2013)
- “Interim Report,” Military Compensation and Retirement Modernization Commission (Jun 2014)
- “Keeping Faith: Charting a Sustainable Path for Military Compensation” by Maren Leed and Brittany Gregerson, Center for Strategic and International Studies (Oct 2011)
- “Military Compensation and Retirement Modernization: A Primer” by Philip Carter and Katherine Kidder, Center for a New American Security (Jan 2015)
- “Military Medical Care: Questions and Answers” by Don J. Jansen, Congressional Research Service (Jan 2014)
- “Trends in Military Compensation: A Chartbook,” American Enterprise Institute and the Bipartisan Policy Center (Jul 2014)
Jesse Sloman is a research associate at the Council on Foreign Relations and a member of the Truman National Security Project’s Defense Council. He served on active duty in the Marine Corps from 2009 to 2013.
