In a speech on May 8th, Sec. Def. Gates vowed to cut $15B from the Pentagon's annual $550B budget. He is, in my opinion, acknowledging the obvious: the long term economic outlook for the US, regardless of your political affiliation, doesn't support the current level of defense spending even if kept at the current level of GDP. It's not that difficult to grasp that we spend far more than any other country or many combinations of countries, even if some countries (China) disguise portions of their military budget. Rest assured, there are plenty who find Sec. Gates' statements irrational and advocate a significantly higher budget based in part on long-term defense spending to GDP ratios. Maintaining a set ratio is not a credible argument, after all the measure of effective defense spending is DoD's ability to protect national interests. Few will agree that increased defense spending somehow guarantees an improvement in the ability to project power or protect interests, especially in relation to near competitors. In any event, within the medium term (3-7 years), members of Congress who currently defend the necessity of the unwanted C-17 will have to weigh choices forced on us by long-term debt and yearly budget deficits. The cold calculus of voting makes choices between school lunches, social security checks, or toys for generals much easier to decide.
The proper size of defense spending is clearly a subject with no easy answer, however, I believe it should be smaller because DoD is an inefficient user of what it has. Giving an alcoholic an extra case of Jack Daniels won't fix their underlying problem. Gates' comments about the increasing costs of health care are well timed due to a recent sport induced medical surgery. After receiving the first bill, I priced the difference between Tricare (DoD's health care plan for non-Active duty personnel) and other common health care plans. Tricare Reserve charges a monthly premium of $50 (regardless of sex or age), has a 15% cost share, $150 deductible, and caps yearly medical expenditures at $1000 (known as a catastrophic cap). This is significantly better than any other private medical insurance. A Blue Cross/Blue Shield plan with the most comparable coverage costs a 28 yr old male non-smoker from Texas $302 a month, requires a $250 deductible, 15% cost share, and a $3000 catastrophic cap. If that pricing difference tells you anything, it's that DoD must be paying a significant amount of money every year to make up the difference between premiums and medical expenditures for non-Active duty Tricare members. In my case alone, assuming a small profit margin of 5% for a private insurance company (go here and look for "health care plans"), the same level of risk is being priced at a $2850 yearly premium to Tricare by a private sector company. This premium difference is for a 28 yr old male only and Tricare charges all ages/sexes the same amount. That same Blue Cross plan would cost $540 a month for a 38 yr old female; without a doubt, the average Tricare patient is much older and not 100% male. Let's just assume that if there are conservatively 5-7M non-Active duty individuals who DoD insures through Tricare, the yearly cost of undercharging participants is somewhere between $14-39B. The IRS publishes the number of people who actually pay taxes in the US, in 2007 there were roughly 96M filers who paid an income tax of any amount. In 2006, according to the CBO, individuals accounted for 43% of tax revenue directly. All that to tell you this: subsidizing health care for DoD non-Active dependents directly costs the average individual taxpayer $60-168 yearly. The alternative would be to significantly raise Tricare premiums, at least to a more reasonable discount (like 50%) of private insurance plan rates. While no one likes increased bills, subsidizing health care in this manner does not seem efficient. Perhaps it would be smarter to raise the premium and provide need based subsidies, that it would at least be more equitable.
As a side note, this is also an example of why you don't want the Government to run a national health care plan but should prefer instead more regulated co-op like market participants. The rates that people should be charged aren't subjective, some nerdy actuary sits in a room far from sunlight, pours over statistical models and determines the probability of an individual with a specific age, height/weight, gender, and permissible lifestyle choices becoming sick. Alas, sticker shock ensues and your Congressman sticks his running-for-reelection finger in the air and declares the resulting cost far too high. A year later, risk remains the same, you pay a smaller premium that garners your vote and allows you to continue those unhealthy habits , and the "rich guy's" taxes go up to pay for the resulting mis-pricing of risk. In 10 years, everyone's taxes go up because the politician can't keep his hand out of the cookie jar of votes.
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