During a previous blog, I wrote about cost growth crowding out defense capability. This blog focuses on options for making defense more affordable by presenting options to reduce costs in the defense budget’s three largest cost drivers. The Congressional Budget Office (CBO) projects that operations and maintenance cost growth will grow faster than the rate of inflation despite the department’s reductions in active duty personnel. The three largest O&M cost drivers (in order) are: health care, civilian workforce, and weapon system sustainment.
Cost growth in health care for military personnel, families and retirees is the fastest-growing element of the DoD budget, according to a recent study published by The Hamilton Project. The swollen civilian workforce employed by the Pentagon has grown so much that the Air Force’s civilian workforce is just 1,400 people shy of matching the entire Air Force National Guard and Reserve combined. Weapon system cost growth has averaged 46-percent according to a RAND study and there has been no improvement in this area over the last three decades. Solutions Health care, as the most rapid growing area of the DoD budget, is projected to double within the next two decades. The least expensive Tri-Care plan charges no premium while the most expensive plan charges $40 per month for a family. In contrast, private sector plans typically cost ten times that much. One option to lower the DoD health care burden is to increase co-payments charged for prescription drugs provided by Tri-Care, which would save $1.3 billion, on average, each year. Indeed, higher co-payments have proven to cause insured members to think twice before doctor’s visits, undergoing treatments, and taking prescription drugs. The Pentagon’s civilian workforce has been virtually untouched since defense budgets starting getting slashed four years ago. In fact, CBO calculations show the rising cost of civilian pay accounts for two-thirds of projected growth in operations and maintenance spending from FY2013 – FY 2021. In addition to “rightsizing” the large DoD civilian bureaucracy, The Hamilton Project demonstrated that holding civilian pay rates at their 2013 levels during 2014, 2015, and 2016 would save the department $7 billion, on average, each year between fiscal years 2014 and 2022. Alternatively, limiting pay raises to the rate of GDP inflation for four years would avert an average of $4.6 billion annually each year between 2014 and 2022. While technology certainly improves over the years and the cost of new technology invariably rises, one aspect of military acquisition programs that warrants special attention is the cost estimates that form the basis of program budgets. DoD program managers have repeatedly been the recipients of unreasonably optimistic cost estimates that have not been adequately assessed for their reasonableness and completeness. In fact, RAND published that poor cost estimation is the largest contributor to the error category as a source of weapon system cost growth. Comprehensive cost estimating techniques to produce more realistic estimates are in order. Further, conducting a detailed cost analysis of a program’s cost performance must be performed to help reverse the detrimental trends in cost growth on DoD acquisition programs. Conclusion Long-term cost savings in the DoD budget can only be achieved through tackling the real “