(Bloomberg) — Congressional debate over the annual defense policy measure often centers on hot-button issues such as the future of the military prison at Guantanamo Bay, the fate of huge weapons systems and whether to lift budget caps.
This year, a dispute over a bread-and-butter matter — how to pay for the rising cost of prescription drugs — may be most vexing of all for lawmakers who are trying to close a deal on the bill, H.R. 1735, that would authorize more than $620 billion in defense-related spending.
At issue are benefits for the estimated 9.6 million users of the Pentagon's Tricare health system and resulting profits for retail drugstores including those run by CVS Health Corp. (NYSE:CVS), Walgreens Boots Alliance Inc. (NYSE:WAB) and Rite Aid Corp. (NYSE:RAC).
Senate negotiators are supporting an Obama administration plan to increase co-payments for military retirees and families over 10 years, while House conferees oppose passing on so much of that cost to veterans.
Military health benefit costs are "eating us alive," said Senate Armed Services Committee Chairman John McCain. The Arizona Republican supports increasing co-pays to address additional costs, which he said isn't the most popular stand.
"Whenever you try to address them you are subjected to attacks," McCain said at a Chamber of Commerce event in July.
Resistance to increasing the cost to military personnel has been led by Rep. Randy Forbes, the chairman of the House Armed Services Seapower and Projection Forces Subcommittee.
'Nickel-and-diming' families
"Our troops and their families are facing a great deal uncertainty right now with reductions in force and major changes to the military retirement system," Forbes said in an e-mail on Wednesday. "We need to get our fiscal house in order and free up the resources we need for national defense, but we are not going to do that by nickel-and-diming our military families on things like pharmacy co-pays."
The Republican lawmaker's southeastern Virginia district is home to a large number of military personnel.
Supporters of increasing co-payments say the need was underscored when the Defense Health Agency, which administers Tricare, wrote Congress on July 16 asking lawmakers to shift $900 million in funds to help fill a $2 billion shortfall this year.
Amid continuing increases in the cost of prescription drugs, the budget hole was created in part by a surge in the use of compound medicines. Reimbursements for the specially formulated drugs rose to $1.7 billion in the first half of this year from $23 million in 2010, according the health agency. In May, the Pentagon issued new pre-approval requirements meant to slow the use of compound drugs, such as pain creams sold by small companies outside military bases.
Veto threat
Not that medical benefits are the only hurdle as House and Senate conferees seek to negotiate a final version of the bill. The White House has threatened a veto because it would circumvent spending caps under the Budget Control Act, Public Law 112-25, by dipping into war funds that don't count against the limit. President Barack Obama is trying to pressure congressional Republicans to lift both domestic and defense budget caps.
But lawmakers won't be able even to send a bill to the president unless they resolve disagreements over health benefits.
Active-duty troops don't have to make co-payments regardless of how they order prescription drugs.
Otherwise, members of the military, their families and military retirees can obtain drugs through Tricare for free by going to military-run pharmacies including those on bases and at military hospitals. Co-pays apply when they use retail drugstores or when they order brand-name drugs, rather than generic versions, through a national mail-order program run for the military by Express Scripts Holding Co. (Nasdaq:ESRX).
Family, retirees
Until this year, family members and retirees, who make up more than half of all Tricare users, were charged co-pays of $5 when buying generic drugs at retail pharmacies and $17 when buying brand-name drugs there.
