Post on 21-Jul-2018
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Business Executives for National Security Modernizing Military Compensation Series
Summary of Findings, Perspectives, and Recommendations
• Setting the Context for the BENS Modernizing Military
Compensation Series
• Providing an Enduring Retirement Benefit
• Value Based Practices for Military Health Care
• The Commissary Benefit and Evaluating the Need for
Reform
• Review of Key Points and Recommendations
Overview
3
Our Purpose Bringing private sector insight to military
compensation reform
“Our greatest challenge in this most dangerous world is strengthening the U.S. military in a weak economy whose foundation rests on the quicksand of deficit spending”
MajGen Arnold Punaro, USMC (ret.)
“A striking bipartisan consensus exists today across the think tank community on the need...for a comprehensive evaluation and modernization of the military compensation system.”
Defense Reform Consensus
“If we don’t make some tough choices here along the way, … then we’ll have a military that is heavily compensated, but probably a force that is not capable and not ready.”
Chuck Hagel, Secretary of Defense
As concern for military personnel cost and debate around compensation reform heightens, BENS believes there are private sector perspectives that are valuable to the discussion and business practices available that would improve the system.
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A ten-member Task Force was formed and asked to provide perspective and recommendations that would help policymakers address key areas of military compensation. The Task Force focused on three areas where they believe they could provide the most value: Retirement Health Care Commissaries
Basic Pay , $52.0
Other Pay & Allowances, $7.8 Housing
Allowance, $19.4 Subsistence Food Allowance, $4.1
Health Care , $33.6
Commissary, $1.4
Retirement, $16.8
Retirement Health Care, $8.3
FY14 DOD Compensation Budget
(in billions of dollars)
$144
Our Approach Bringing private sector insight to military
compensation reform
Note: Full explanation of calculation and sources to be available in forthcoming report.
• Setting the Context for the BENS Modernizing Military
Compensation Series
• Providing an Enduring Retirement Benefit
• Value Based Practices for Military Health Care
• The Commissary Benefit and Evaluating the Need for
Reform
• Review of Key Points and Recommendations
Overview
6
Providing an Enduring Retirement Benefit
Initial Findings
Modeling for the Defense Business Board raises cause for concern. There is continued growth in total government cost and liability.
Graph by: Defense Business Board
7
0
20
40
60
80
100
120
Year
19
89
19
94
199
9
20
04
20
09
20
14
20
19
20
24
20
29
20
34
20
39
20
44
20
49
20
54
20
59
Bill
ion
s ($
)
Normal Cost Contributions from DoD and Unfunded Liability from Treasury
DoD,Normal Costs
Treasury,Unfunded Liability
Providing an Enduring Retirement Benefit
Initial Findings
While growing cost should be a concern, projections on liability may be speculative. The hundreds of billions of dollars of unfunded liability is a cumulative amount to be paid to retirees over the next 50 years, not all at once. Moreover, Treasury’s liability which resulted from the implementation of accrual accounting in 1985 will dissipate in 2025.
Data: Department of Defense Office of the Actuary (2010)
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42,000,000
44,000,000
46,000,000
48,000,000
50,000,000
52,000,000
54,000,000
56,000,000
58,000,000
10,000,000
11,000,000
12,000,000
13,000,000
14,000,000
15,000,000
16,000,000
17,000,000
18,000,000
19,000,000
20,000,000
2004 2006 2008 2010 2012 2014
Acc
rual
Co
st
Retirement Accrual & Basic Pay
Basic Pay
Retirement Accrual.....
Providing an Enduring Retirement Benefit
Initial Findings
Significant increases in basic pay over the past ten years directly correlates with increased cost of retirement. As basic pay cost begins to flatten or reduce due to expected reductions in force and limited increases to service member salaries, retirement cost is also expected to flatten.
Basic P
ay Co
st
Data: Department of Defense
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Providing an Enduring Retirement Benefit
Initial Findings
Retirement benefits have little effect on initial enlistment, but the current defined benefit plan is a driving incentive for reenlistment – particularly for those reenlisting after 10 years of service.* However, it is unclear if a reduced benefit would significantly hurt retention. More study is needed to determine if other benefits, potentially those less costly to the Department like cash rather than in-kind compensation, could be used as an equivalent or improved retention and force shaping tool.
* 11th Quadrennial Review of Military Compensation – Supporting Research Papers (2012)
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Providing an Enduring Retirement Benefit
Initial Findings
Current system requires vesting and is inflexible: • More than 80% of all who serve do not
receive a retirement benefit – which includes many of those who served in combat for the past decade
• Military leaders cannot utilize the benefit to shape the force as needed – Services may not necessarily want more traditional, 20 plus consecutive year career troops. Rather, they may prefer highly specialized members, i.e. cyber, to move between the civilian and military career in order to stay relevant in the latest technologies and information. The current 20-year vesting provides little flexibility for rewarding/incentivizing those increasingly sought after individuals.
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Retirement Plan
Potential
for Annual
Accrual
Savings
Percent of all Service
Members Who
Become Eligible
Flexibility Burden of
Risk
Full
Payout
Age
Current Defined Benefit
Plan w/ 20 year cliff
vesting
0% 19% Government
Immediate
upon
retirement
Defined Benefit Plan w/
20 year cliff vesting, but
recipient does not
receive payments till
Social Security age
Unknown Less than 19% Government 62
BENS Defined
Contribution Plan w/ a
22% government
contribution for service
members who become
vested at 3 or 5 years
Est. 30%
80% - 100%
Dependent on Vesting
Year
Service
Member 62
Defined Contribution-
Benefit Hybrid offered
by Department of
Defense in 2014
Est. 5% – 15% 100% Shared 59½ - 62
Providing an Enduring Retirement Benefit
Comparison of Reform Proposals
All proposals grandfather current service members and retirees
Sources: DoD – Office of the Actuary, Army Times Note: Modeling of the proposed BENS contribution plan done by Capital Group
Eligibility
• Open for all Service Members (current Service Members remain on current military retirement system)
• Higher payout for Service Members with >20 years of service
Benefit
• Govt contribution of 10% of military annual base pay for all vested Service members – transferable upon release
• 40% of “high three” base pay for life for 20+ year retiree
Vesting
•3 years
Payout Age
•59 ½ - 62
Proposed Hybrid Model - BENS
Eligibility
• Service Members with >20 years of service
Benefit
• 50% of “high three” base pay for life
Payout Age
• Based on current Social Security retirement age (Reduced benefits would be available at ages equal to Social Security early retirement)
Proposed Defined Benefit Plan - BENS
Eligibility • Open for all Service Members
(current Service Members remain on current military retirement system)
Benefit • Govt contribution of 22 % of
military annual base pay for all vested Service members – transferable upon release
• Can increase for longer service personnel
Vesting •3 or 5 years Service Member Tax Free Contribution Limit •Equal to IRS standard •$50,000 when member is in
designated combat zone Payout Age •Based on current Social Security
retirement age
Proposed Defined Contribution Plan - BENS
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Providing an Enduring Retirement Benefit
Comparison of Reform Proposals BENS Considered
All proposals grandfather current service members and retirees
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Providing an Enduring Retirement Benefit
Initial Perspectives & Recommendations
The current system, while not as unsustainable as some perceive, should be reformed
Portability and, particularly, flexibility should be important drivers of
change Studies should be conducted to determine how reforms would
improve or hinder recruitment and retention before implementation While transitioning to a defined-contribution plan would be ideal from
a cost point-of-view, BENS recommends a hybrid defined benefit-contribution model that provides flexibility for force shaping while recognizing the likely importance of a defined benefit for retention
• Setting the Context for the BENS Modernizing Military
Compensation Series
• Providing an Enduring Retirement Benefit
• Value Based Practices for Military Health Care
• The Commissary Benefit and Evaluating the Need for
Reform
• Review of Key Points and Recommendations
Overview
15
Value Based Practices for Military Health Care
Recommendation
DoD should require that their four regional contractors implement and/or further expand efforts to assure the provision appropriate care through the reduction of the observed variations in clinical patient care.
• Promote use of best clinical and delivery system practices in accordance with broadly-defined evidenced based medicine and proven concepts in health care delivery.
• Implement pre- and post-service efforts to assure care is provided in conformance with well-recognized professional appropriateness guidelines.
• Require monthly maintenance drugs be filled at MTFs or by mail-order
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Value Based Practices for Military Health Care
Need for Intervention
It is generally accepted that health care is improved by providers’ adherence to evidence-based clinical protocols that encourage use of effective diagnostics and treatments. Such Protocols: • Discourages providers from performing
tests and rendering services that do not correlate with better outcomes for patients.
• Results in better clinical outcomes and a reduction in costly services that are not medically necessary.
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There is a 7-fold difference in the rate of back surgery in Medicare members between the lowest, Honolulu (1.5 per 1000) and the highest, Casper, WY (10.1 per 1000); the US average is 4.7 per 1000
Source: Dartmouth Atlas
Value Based Practices for Military Health Care
Need for Intervention – Substantial variation throughout the nation
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Source: Dartmouth Atlas
There is a 5-fold difference in the rate of total knee replacements between the lowest, Honolulu (3.4 per 1000) and the highest, Idaho Falls, ID (15.8 per 1000); the US average was 9.0 per 1000
Value Based Practices for Military Health Care
Need for Intervention – Substantial variation throughout the nation
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Value Based Practices for Military Health Care
Need for Intervention – Eliminating clinical variation could yield significant savings for TRICARE
For TRICARE, even common clinical situations such as pregnancy/newborn care (132,479 cases in FY2013) and outpatient musculoskeletal conditions such as sprains, pain, arthritis, etc. (11.8 million
encounters in FY 2013) offer substantial savings from introduction of changes in practice patterns to accord with evidence-based best practices.
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Value Based Practices for Military Health Care
Evidence-based Protocols Promote the Most Appropriate Care
Evidence-based protocols have been developed by clinical specialty societies as well as health plans, TPAs and care management companies. These identify commonly overused procedures and provide guidance for appropriate utilization. The guidance often stresses conservative treatments for cases where providers typically use more complex, costly interventions, such as:
• Advanced antibiotics should not be used when community data show proven basic antibiotics may be effective (American Academy of Pediatrics)
• Annual or periodic cardiac stress imaging in asymptomatic
patients and prophylactic placement of artery stent in a vessel which is not shown to be significantly narrowed are not appropriate (American College of Cardiology)
• Needle removal of fluid from a knee for treatment of
osteoarthritis is not warranted (American Academy of Orthopedic Surgeons)
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Value Based Practices for Military Health Care
Evidence-based Protocols Promote the Most Appropriate Care Cont.
By promoting conservative treatment when appropriate in the first
instance, evidence-based approaches can reduce spend while increasing quality and assuring the best possible patient outcomes. For example, according to peer-reviewed literature: • Patients with acute back pain are typically subjected to a wide
range of treatments often involving some interventional procedure or other technological approach. These have not been shown to improve outcomes and, in the worst case, can lead to unneeded surgery and worsening the patient’s clinical outlook.
• For cardiology, the ACC/AHA have published an extensive series of
appropriateness criteria for cardiac interventions and treatments. These have been used to study actual practice and substantial overuse and incorrect use of procedures and medications have been identified.
• In obstetrics it is generally accepted that C-sections should not be
performed solely at maternal request. This still occurs and leads to increased risks, potentially less satisfactory outcomes and more costs.
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Value Based Practices for Military Health Care
Examples of Savings from Adherence to Evidence-based Protocols
Studies have quantified significant cost savings when there is adherence to evidence-based best clinical practices. For example: Orthopedics. Reduced use of knee arthroscopy for osteoporosis per latest guidelines led to a savings of $82-138 M in Florida alone (Howard, D et al; Health
Affairs 31 (2012))
Cardiology. Reduced percutaneous coronary interventions (PCI) under ACC/AHA guidelines would have eliminated more than 75,000 potentially inappropriate procedures in 2010 for a savings of at least $ 10 B, net of appropriate, alternative treatments. (Chan P et all; JAMA 306 (2011))
Obstetrics. Adherence to evidence-based best practice would reduce elective induced labor, unplanned cesarean sections and NICU admissions, saving $50 M/yr. in Utah alone, which would yield $3.5 B/yr. in savings across U.S. (James, B. and Savitz, L.; Health Affairs 30 (2010))
General Medicine. Increased use of proven preventive services would have saved the US at least $3.7 B in 2006 (Maclosek M et al; Health Affairs 29 (2010))
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Value Based Practices for Military Health Care
Utilization Management Effectively Increases Protocol Compliance
• Require prior authorizations based on sound clinical criteria to eliminate excessive services that lack clinical appropriateness
• Consider reimbursement methods that create positive incentives for the provision of appropriate care.
Variations in the content of clinical care are best addressed through evidence-based care-management
• Highly effective initiatives manage diagnostic imaging; elective surgical/interventional procedures that have high variation such as orthopedics, spine surgery, and cardiology/cardiac surgery; pain management; post-hospital care and rehabilitation.
The most effective programs use skilled like-specialty professionals to determine conformance with evidence-based protocols and proper billing practices
• Optimizes the benefits achieved
• Minimizes additional administrative burdens for the providers
• Targeting technologies developed for commercial programs can be readily adapted as comparable efforts for TRICARE
Targeting of programs (predictive modeling to focus efforts on high-yield clinical activities and claims) is crucial for program efficiency
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Value Based Practices for Military Health Care
Highly Effective Post-service Pre-payment Audits Enhance Cost-containment Efforts
Utilization management efforts are most effective when accompanied by additional measures to address provider
pushback aimed at retaining excessive income levels
Retrospective (post-service) clinical reviews identify and stop non-conforming treatment patterns that Utilization Management does not identify
• If pre-service authorizations are not obtained, retrospective reviews can prevent payments for services which, based on evidence-based clinical protocols, were not medically necessary
• Also help to identify the effectiveness of utilization-management vendors
Targeted post-service pre-payment claims audits stop providers’ aggressive billing practices
• Targeting crucial for cost-effective results
• Verify that the services in a provider’s claim were in fact documented as having been performed
• Avoid payments of aggressive or fraudulent claims that overstate the services actually rendered to the patient.
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Value Based Practices for Military Health Care
Increase Purchasing of Monthly Maintenance Rx at MTF or by Mail-Order
$5 billion of the $7 billion in MHS pharmacy costs were for prescription
medication for beneficiaries over the age of 65 that are Medicare eligible
with chronic conditions requiring monthly maintenance medications.
Retail Pharmacy
MTF Mail-Order Percent Savings
Name Brand $130 $44 $67 66% - MTF 48% - Mail
Generic $20 $11 $9 45% - MTF 55% - Mail
Average Cost of 30-day Prescription
Source: Evaluation of the TRICARE Program: Access, Cost, and Quality (FY2013)
• Setting the Context for the BENS Modernizing Military
Compensation Series
• Providing an Enduring Retirement Benefit
• Value Based Practices for Military Health Care
• The Commissary Benefit and Evaluating the Need for
Reform
• Review of Key Points and Recommendations
Overview
27
The Commissary Benefit and Evaluating the Need for Reform
Findings
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
$ Billions
Cost of Commissary Subsidy
Though only representing less than 1% of the total military compensation budget, cost of the commissary benefit has steadily risen over the last ten years not withstanding efficiency initiatives, with the subsidy now costing the Department $1.4 billion.
Data: Department of Defense
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The Commissary Benefit and Evaluating the Need for Reform
Findings
48%
26%
7%
8%
4% 7%
63%
21%
3%
5%
2% 6%
Active Duty Compensation
Basic Pay
Housing Allowance
Subsistence Food Allowance
Health Care
Commissary
Estimated Tax Advantage
However, the commissary benefit appears to have strong value. The benefit makes up a larger percentage of all service members total direct compensation despite representing less than 1% of the Department’s compensation budget. Defense Commissary Agency estimates a 2:1 return on investment. Moreover, initial survey results from CSBA indicate service members from all ranks and age groups value these stores more than they cost to provide. Though other studies produced conflicting results.
Note: Does not include deferred retirement benefit (pension & TFL) nor other benefits received through separate budget accounts, e.g., the Veterans Administration. Full explanation of calculation and sources to be available in forthcoming report.
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Proposal Potential for
Savings Considerations
Keep the Subsidy $0
• Highly valued benefit for many
• Viewed as ‘keeping faith’
• Commissaries provide jobs for military families
Coupon Approach – Allow
commissaries to close and
encourage area stores to offer
discounted prices to military families
Est. $1 B annually
• Some argue managing grocery stores is
inefficient and outside the core competency of
the Department
• Government will not be able to ensure level of
discount
Voucher Approach – Eliminate the
commissary subsidy while providing
a $500 increase in annual
subsistence and incorporating
commissaries into the Military
Exchange System
Est. $10 billion over 10 years
• Retains the readiness and convenience of on-
base grocery stores
• Provides direct compensation which could be
more efficient and valuable to more service
members and retirees
Surcharge Approach – Reduce the
discount offered at commissaries
and/or increase the surcharge
Est. $800 M - $1 B annually
• Reduces the need for a subsidy
• Reduction in savings on food stuff could
discourage patrons from shopping at
commissaries, reducing expected savings to
overall budgets
The Commissary Benefit and Evaluating the Need for Reform
Comparison of Reform Proposals
Sources: Defense Business Board, Congressional Budget Office, Air Force Times
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The Commissary Benefit and Evaluating the Need for Reform
Recommendations
A survey to determine the value of the commissary benefit along with other facets of military compensation should be conducted to ensure policymakers are creating an optimized benefits system
Metrics derived from the survey results should drive the appropriate
reform of the commissary system/benefit
• Setting the Context for the BENS Modernizing Military
Compensation Series
• Providing an Enduring Retirement Benefit
• Value Based Practices for Military Health Care
• The Commissary Benefit and Evaluating the Need for
Reform
• Review of Key Points and Recommendations
Overview
32
Review of Key Points
Retirement • While concern over unfunded liability may not be necessary, retirement costs
have grown significantly -- largely driven by increased service member salaries • Retirement benefits may have little affect on initial enlistment, but a generous
retirement plan could drive reenlistment • The current defined benefit plan is inflexible and requires vesting
Health Care • Unless the Department’s total annual budget grows at the same rate of
expected growth in military health care costs, a greater portion of the total annual budget will underwrite health care rather than other priorities
• The Department has tremendous purchasing power and can use it to control rising costs and ensure health care recipients receive the best quality of care for the resources allocated
• Certain health care practices adopted in the private sector can be utilized in the military health care system to help address cost and quality issues
Commissaries • Cost of the commissary benefit has steadily risen for over a decade • While costing $1.4 billion, the commissary benefit saves service members,
retirees, and their families $3 billion
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Retirement Reform the system Portability and, particularly, flexibility should be main drivers of change Conduct studies to determine how reforms would improve or hinder
recruitment and retention before implementation A hybrid defined benefit-contribution plan is a more ideal retirement model
Health Care Eliminate clinical variation through best practices Utilize in-stream compliance audits Require monthly maintenance drugs be filled at MTFs or by mail-order
Commissaries Conduct a survey to ensure policymakers are creating an optimized benefits
system Allow metrics derived from the survey results to drive the appropriate reform
to the commissary system/benefit
Review of Recommendations
BENS Military Compensation & Benefits Modernization Task Force
Reginald Brack Theodore Carter TIME, Inc. City of Jacksonville
Major General Mario Montero, USA (ret.) Brigadier General Robert Osterthaler, USAF (ret.)
Booz Allen Hamilton Engineering Services SES Government Solutions
Richard Rosenberg Dr. Paula Shaw Dr. Roger Shedlin
Bank of America Skylar Group OrthoNet, LLC
Nigel Sutton Blaine Sweatt John R. Thomas AeroVironment, Inc. Ivanhoe Design, Inc. MedSynergies
Analysis Assistance by: Virginia Gibson, Grant Thornton Keiko McKibben, The Capital Group Mark Ritter, Grant Thornton Josie Sullivan, The Capital Group 34
Contact: James Whitaker jwhitaker@bens.org