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Pay and benefits decisions: Our predictions

Retired pay, drug co-pays hang in balance as Congress tries to wrap up defense bill

Dec. 10, 2012 - 07:25AM   |   Last Updated: Dec. 10, 2012 - 07:25AM  |  
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How to reform retired pay and prescription drug co-pays are the two biggest pay and benefits questions to be hammered out by House and Senate negotiators as they work on the 2013 defense policy bill.

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How to reform retired pay and prescription drug co-pays are the two biggest pay and benefits questions to be hammered out by House and Senate negotiators as they work on the 2013 defense policy bill.

Informal negotiations have been underway since August but picked up steam after the Senate passed its version of the 2013 defense authorization bill Dec. 5. The House passed its version in May and has been waiting for senators to catch up so a final compromise bill can be written.

Sen. Carl Levin, D-Mich., the Senate Armed Services Committee chairman and the Senate's chief negotiator with the House, said he expected a final bill to be ready by year's end, which would be just in time to prevent potential disruption in bonuses and special and incentive pays. Authority to approve new agreements for those pays expires Dec. 31.

But the biggest hurdles on personnel issues don't involve pay, according to congressional aides working out differences but rather policy issues, such as whether to support a Senate measure allowing government-funded abortions in cases of rape and incest, and whether to back House-passed provisions to protect anti-gay speech in the ranks and to bar same-sex marriages on military bases.

"These will be the big sticking points, not pay and benefits," said a Senate aide who asked not to be identified.

On most major pay and benefits initiatives, the House and Senate bills agree, leaving only details such as effective dates to be worked out. Here is a rundown of key differences, with predictions on the outcome of negotiations:

Basic pay

The House bill includes a 1.7 percent boost in basic pay for active-duty members and drill pay for National Guard and reserve troops. The Senate bill does not, but that doesn't matter because the 1.7 percent increase is automatic unless Congress orders something different.

The increase follows a federal pay formula that calls for an all-ranks hike matching private-sector wage growth as measured by the Labor Department's Employment Cost Index.

Prediction: Sure thing.

Housing allowance

Neither bill interferes with a Jan. 1 adjustment in basic allowance for housing rates to reflect changes in local rental housing prices. Rates have not been announced, but the Bureau of Labor Statistics reports that rent has increased an average of 2.8 percent in the past 12 months.

In January, the Defense Department estimated BAH raises in 2013 would increase by an average of 4.2 percent.

Other BAH changes are possible. The House and Senate bills both have similar provisions to prevent mobilized National Guard members from BAH cuts when they transfer to status as full-time Guard members in support of state Guard duty rather than federal duty.

The House bill also includes a provision that would prevent combined BAH payments from dropping for dual-service couples when one is on sea duty.

The Senate bill includes a provision that would extend through Sept. 30, 2015, the ability of the Defense Department to adjust BAH rates more than once a year if there is an emergency, such as a natural disaster. The waiver authority, created after Hurricane Katrina, is now set to expire Sept. 30, 2013.

Prediction: BAH rate increases are a sure thing, and so is a revision of some kind in BAH rates for Guard members transferring between active state and federal status. Other changes might be left out of the final bill.

Subsistence allowance

Neither the House nor Senate bills has provisions to change the basic allowance for subsistence, which increases Jan. 1 each year to reflect changes in food costs. Food prices increased an average of 1.7 percent in the past 12 months, according to the Bureau of Labor Statistics, but the BAS increase could be a different amount, based on an Agriculture Department food cost index. In January, the Defense Department estimated the 2013 BAS would increase 3.4 percent.

Prediction: Sure thing.


Active and reserve recruiting and retention bonuses, as well as special and incentive pays, which expire Dec. 31, would be extended another year under both the House and Senate bills.

Additionally, both bills include a Pentagon request to double officer affiliation bonuses in the Selected Reserve, setting a maximum payment of $20,000 that is expected to apply to only a handful of officers.

Also in both bills is an increase in maximum incentive bonuses for reserve members who convert to a new military occupational specialty because of personnel shortages to match the $4,000 available to active-duty members, which could apply to about 1,000 reservists a year.

Prediction: A sure thing, but a delay in passing the final bill and getting it signed into law could temporarily prevent approval of new bonus and retention pay requests after Dec. 31. Continued payments of previously approved bonuses and incentives will not be affected.

Tricare fee hikes

When it comes to health care, it's important to note what's not in the bills: Neither includes a Pentagon-backed plan to significantly raise enrollment fees and deductibles for working-age retirees, including income-based enrollment fees for Tricare Prime and Tricare for Life.

That leaves in place a cap imposed last year on Tricare fees that prohibits increases greater than the annual cost-of-living adjustment in military retired pay, usually no more than a few percentage points each year.

As such, Tricare fee hikes next year could be no more than 1.7 percent, the amount of the 2013 retiree COLA.

Prediction: There is no chance lawmakers will reverse course to allow the Pentagon fee hikes, but it could be a short-lived victory. Raising out-of-pocket expenses for Tricare beneficiaries is certain to be discussed as an option in future governmentwide deficit-reduction efforts.

Pharmacy co-pays

The Pentagon has asked Congress to approve big increases in co-pays for brand-name drug prescriptions filled at retail pharmacies, while keeping prices low for generic and mail-order prescriptions.

By remaining silent on the issue, the Senate bill would allow the Pentagon changes to take effect. But the House proposes lower fees and also would cap future drug co-pay increases at no more than the annual retiree COLA.

Under the Pentagon plan, brand-name prescriptions filled at retail pharmacies, which now cost $12, would increase to $26 in October, and continue to increase about $2 a year through 2021. A 90-day supply of brand-name drugs via mail order that now costs $9 also would jump to $26 in October and to $43 by 2021.

Generic prescriptions would remain $5 at retail pharmacies and free through mail order.

DoD proposes even bigger price hikes for so-called nonformulary drugs that are not on its list of preferred medications.

Nonformularies might not be available through retail pharmacies; case-by-case decisions would be made about specific drugs. Via mail order, the current $25 co-pay for nonformulary drugs would jump to $51 in October and $85 by 2021, under the Pentagon plan.

The House bill would set lower co-pays and then cap future increases, beginning in 2014, at no more than annual retiree COLA. Generic drugs would remain $5 from retail pharmacies and free by mail order; brand-name drugs would be $17 retail and $14 by mail order; and nonformulary drugs would be $44 retail and $43 by mail order.

Prediction: Too close to call, but tight budgets favor the Pentagon position.

Other Rx drug provisions

The Senate bill includes a provision that would allow but not require some over-the-counter drugs to be provided at government expense to beneficiaries if they are clinically effective and more cost-effective than prescription drugs.

Also in the Senate bill is a prescription drug "take-back" program for controlled substances. DoD, working with the Justice Department, would determine the locations where troops and family members could drop off unused prescriptions.

No similar provisions are in the House bill.

Prediction: Approval is likely but not guaranteed.

Tricare Prime auto-enrollment

The House bill includes a Pentagon-requested provision for automatic enrollment in Tricare Prime, the managed care option that requires an enrollment fee, for family members of enlisted troops in paygrades E-5 and above. DoD says making Tricare Prime the default coverage will save $8.64 per enrollment and simply reflects the fact that about 90 percent of active-duty families choose this option. The Senate bill does not include the proposal.

Prediction: A 50-50 proposition.

Compensation and retirement commission

The Senate bill would create an independent commission to study and recommend changes in military retired pay and other compensation, a proposal similar to but expanded from a DoD request to create a panel to propose changes only in retirement benefits.

The commission would work off of an outline to be provided by Pentagon officials and make recommendations that Congress would have to accept or reject as a package, without modification.

The House bill includes no similar provision.

Prediction: No chance.


Both bills include a Pentagon request to make National Guard and reserve members eligible for the Career Intermission Pilot Program, which grants a penalty-free sabbatical of one to three years for personal or professional reasons.

Participants also would be allowed to keep earned leave balances. Only the Navy has been using the program, and only the Navy intends to expand the program to include reservists.

The expansion does not change the Dec. 31, 2015, termination date for the test program and does not increase the cap on 40 officers and 20 enlisted members who may enter the program each year.

Prediction: A sure thing.

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