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The Military Compensation and Retirement Modernization Commission is urging President Barack Obama to endorse and Congress to enact sweeping changes to military health insurance and retirement options to empower service members to make choices that would drive down compensation costs.

The panels final report makes 15 recommendations that, if fully implemented, would cut personnel spending for the Departments of Defense and Veterans Affairs by $12 billion a year. The most surprising idea is to replace the triple-option TRICARE program for military families and working-age retirees with a selection of commercial health insurance plans.

On retirement, current force members could stay under their High-3 plan. But the commission forecasts 40 percent of them, if given a chance, would replace that plan, offering no benefits before 20 years service, with a blended plan that lowers annuities for careerists, but offers some retirement savings to the 83 percent of service members who leave short of 20 years.

Sweeping changes may be in store for military retirement and health insurance options. (Courtesy of Tom Philpott)

That menu of health insurance offerings to the military would be similar to the Federal Employees Health Benefits Insurance Program for civilians. Indeed, the Office of Personnel Management, which administers FEHBP, would also run the military plans. But rather than saddle active-duty families with the same costs paid by civilians roughly 28 percent as premiums they would receive a new, two-part Basic Allowance for Health Care to cover at least most of their new health insurance costs.

One part would be paid to the selected insurance plan directly and cover member premiums for an average-priced plan. Part two of BAHC, to cover co-pays and deductibles, would go to members to use as they choose. The intent of those dollars is to incentivize military families to be careful consumers of health care. Today they are not, the report says. TRICARE Prime users, for example, make 55 percent more outpatient visits than do civilians enrolled in HMOs who have to cover co-pays out of pocket.

Participating insurance plans would have to include military treatment facilities in their provider networks. Patients and plans would be enticed to use on-base care with offers of reduced co-pays and fee reimbursements, particularly for complex medical cases that keep wartime skills sharp.

TRICARE administrative costs are excessive, the report says, and yet too many beneficiaries dont get timely or quality care. Also, TRICARE provider networks have coverage gaps because contractors set physician fees too low. Relying on commercial insurance would improve access, speed referrals for specialty care, save millions of dollars in administrative costs and leave beneficiaries more satisfied, the commission predicts.

The commission would leave unchanged TRICARE for Life, the golden supplement to Medicare that elderly retirees have prized for a dozen years.

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Health care, retirement changes looming