Rising personnel costs threaten military, experts say

A consensus is building among current and former military leaders and defense industry executives that rising military personnel costs threaten the viability of the all-volunteer force.

In July, two separate advisory groups reached the same general conclusions regarding what needs to be done to sustain the force. In the nearer term, they say, one step that must be taken is to make military retirees pay more out of pocket for their health care benefit.

“Unless retirees contribute more for their TRICARE insurance, medical costs will not be brought under control and the national defense they served, and for which they fought and sacrificed, will be harmed,” says the final report of the Quadrennial Defense Review Independent Panel.

The panel is co-chaired by former Defense Secretary William J. Perry from the Clinton administration and Stephen J. Hadley, who was national security adviser through President George W. Bush’s second term.

Longer term, and for the future force, panelists say, work must begin on designing new retirement, compensation and promotion systems to replace inefficient and rigid systems adopted after World War II. The situation is so critical that the Hadley-Perry panel asks Congress to establish a new National Commission on Military Personnel to lead the reform effort.

Arnold Punaro, a defense industry executive and retired Marine Corps Reserve major general, chairs a task force for the Defense Business Board that will deliver its final report to Defense Secretary Robert Gates in October.

Task force “initial observations” for cutting defense costs through best business practices, briefed to the board July 22, reinforces the notion that personnel accounts must be brought under control by modernizing retirement, pay, health benefits and the “up-or-out” promotion systems.

Both studies deal with a far wider range of initiatives to restructure forces and streamline organizations. The Hadley-Perry report can be read online at www.usip.org/files/qdr/qdrreport.pdf and task force observations are at dbb.defense.gov/meetings.html

What both conclude on the need to control health costs and modernize compensation systems, Punaro said, is consistent with findings of the 10th Quadrennial Review of Military Compensation and the 2006 Defense Advisory Commission on Military Compensation. But now, with Defense Secretary Gates’ leadership and a new awareness among military leaders to the burden of mounting personnel costs, there’s a fresh groundswell for change, he said.

“I’ve heard a four-star military leader comment that DoD is turning into a benefits company that will occasionally kill a terrorist,” Punaro said in a phone interview Tuesday. The remark plays off a popular critique of General Motors before its recent bailout, that union contracts had transformed it into a health care company that occasionally built a car.

Both the business board task force and the Hadley-Perry panel agree that the force must be protected from the changes to retirement, pay or promotion policies needed to create a more efficient future force.

“Updating military compensation and redesigning some benefits does not necessitate cuts in pay or benefits for current service members,” said the Hadley-Perry report.

“These are areas where any adjustment you make will take decades to change,” Punaro said. “With something like military retirement, you are not going to break faith with people who joined expecting a certain benefit, even though only 20 percent stay long enough to earn a retirement.”

But rapid expansion of military entitlements has become part of “the nation’s mandatory spending problems,” the task force found.

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