Veterans' programs face close budget scrutiny. But attempts to make major changes could arouse the ire of many of the 28 million US vets

Military veterans -- all 28 million of them -- comprise one of the largest and most powerful special-interest groups in the United States today. Given the size, complexity, and number of federal veterans' programs, this is not surprising.

The Veterans Administration is second only to the Defense Department itself in number of civilian employees. The VA spends more than $26 billion a year and runs the largest medical-care system in the country. Military retirement for 1.4 million vets costs more than $16 billion a year -- ``more than the entire defense budget of the People's Republic of China,'' as two officers acknowledged in a newspaper column defending the costly system.

Is there fat in these programs?

As with the Pentagon itself, the question involves much more than economics and finance. National security and service to one's country -- including individual and family sacrifice -- are invoked by defenders and acknowledged by critics.

Yet, there is growing realization that the costs and benefits of such service are changing, and that financial savings may have to be found as a result.

In a rather remarkable outburst last week, Sen. Alan K. Simpson (R) of Wyoming typified the frustration that accompanies growing awareness about the cost of veterans' benefits.

``I'm a veteran, a lifetime member of the VFW,'' he told reporters over breakfast. ``But how did we get the image that somehow the veterans are the disadvantaged in our society? Where do we get that stuff? I don't remember joining up because I thought I'd get the GI Bill or insurance.''

The fact that Senator Simpson chairs the Senate Veterans' Affairs Committee and has been a consistent supporter of increased defense spending made his comments all the more significant.

In general, military veterans -- and especially their organizations -- have strongly supported President Reagan. Yet the Reagan administration has given signs that it now wants to reduce some veterans' benefits.

The administration reportedly wants to cut $1.7 billion from the federal costs of the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) over the next five years. This would affect active-duty armed forces personnel as well as military retirees and their families, who are reimbursed by the federal government for private health care.

Among other things, the administration proposes to change this program so that retirees would pay the first $100 of CHAMPUS-covered care rather than the current $50. Their dependents would pay $200. Hospitals could not charge the CHAMPUS program more than they do medicare patients. And if veterans also are covered by private insurers, such insurers would have to pay for treatment in military hospitals and other facilities.

The administration also is considering a means test establishing financial need for medical treatment of veterans under age 65 who are not elegible for medicaid (that is, are not poor) or whose disabilities are not service connected.

Collecting from private insurers would save Uncle Sam $1.4 billion over the next five years, estimates the President's Private Sector Survey on Cost Control, the commission headed by businessman J. Peter Grace. Millions of dollars a year could also be saved, the Congressional Budget Office (CBO) has suggested, by shifting some patients from VA hospitals to hospital-based home care and also by placing more veterans in community nursing homes.

Reflecting World War II service, the number of veterans over age 65 will have doubled between 1980 and '90 to about 7.2 million and include about 60 percent of all American men in that age group. Though the total number of veterans has been decining, those over 65 will continue to grow to 9 million by the year 2000.

``These population trends have important ramifications for the federal budget,'' reports the CBO. ``The demand for VA health-care services is likely to grow dramatically. If use rates remain the same and if funding for VA medical care keeps pace overall with requests for care -- as it has in the past -- VA medical care costs could double in real terms over the next decade.''

For this reason, would-be budget cutters are likely to look sharply -- if gingerly -- for signs of fat in the program.

A veterans issue that carries perhaps even more political baggage is military retirement. So far, the administration -- especially Defense Secretary Caspar W. Weinberger -- has resisted mightily any suggestions of fundamental reform.

White House officials and Pentagon civilians have agreed to slow the rate of increase in military pensions by delaying cost-of-living increases. But many experts say much more needs to be done.

Today, those in uniform may retire after 20 years' service and continue receiving one-half their base pay, which is about one-third of total pay and other compensation. With service up to 30 years, they receive as much as 75 percent of base pay.

The typical military career person retires at about age 40 and takes another full-time job. By the age of usual civilian retirement (65), he or she may be receiving social security payments and a private pension, as well as military retirement benefits.

An analysis by the National Journal showed that 61 percent of all military retirement payments are received by the wealthiest one-fifth of US households and that 83 percent of such payments go to the wealthiest two-fifths.

As Rep. Les Aspin (D) of Wisconsin, chairman of the House Armed Services Committee, has said: ``Military retirement is paid neither to the indigent nor, in most cases, to the retired.''

Defenders of the present system argue that it is deferred compensation for frequent family uprootings and other hardships, including, for some, combat; and that it is a management tool to ensure that a relatively youthful and vigorous armed forces is maintained.

But the military services are changing -- jobs are becoming more sophisticated and complex -- such that an individual's experience and intelligence count more than brawn.

``Let's be honest,'' retired Army Col. John B. Keeley, who commanded a battalion in Vietnam, wrote in Armed Forces Journal. ``How can the military defend a retirement system which washes out almost all of its talented and experienced personnel before their 50th birthday?''

There have been several recent suggestions as to how the military retirement system -- which is projected to rise in annual cost to about $20 billion (not counting inflation) by the year 2000 -- could be changed to save money. Reducing annual cost-of-living adjustments (COLAs) from 100 percent of the consumer price index to one-half that amount would save $2.7 billion between 1985 and '89, according to the CBO. Annual savings from such a move would climb to nearly $6 billion over the next 35 years.

The Grace Commission recommended much more drastic measures: That men and women in uniform be given vested interest in retirement benefits after 12 years' service, but that retirement pay (in this case, from 30 percent of final basic pay for 12 years' service to 75 percent pay for 30 years' service) be deferred until age 65. Veterans could begin receiving retirement payments at age 55, as recommended by the commission, but these would be reduced proportionate to the number of months remaining until ``full career'' age (30 years from induction).

The Grace Commission also suggested that an ``earned income offset'' be applied to military pensions, as it now is to social security payments.

According to a CBO analysis of the Grace proposals, savings from these moves would grow from about $1 billion a year in 1990 to $14 billion annually by the year 2020. Speaking of possible impact on the size and quality of the armed forces, the CBO also cautioned that ``this plan, which constitutes the greatest departure from the current system, thus poses the greatest risk of unanticipated effects.''

In any case, as the CBO reported last year, there is broad agreement that ``the military retirement system is substantially more generous than the best private-sector pension plans,'' and that changes may be called for.

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