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they are partners in the moffett nathanson research firm. mr. moffett, let's begin with you. what's the impact, what's your initial reaction to what cbs, hbo have announced and then add onto that netflix and apple, etc., and all these different services. what's the impact on the overall television industry? >> guest: well, those are two separate categories really. the new ones, hbo and cbs, my guess is the impact will be actually somewhat limited. on the other hand, the impact of some of the ones that are already here like netflix has

already been very profound. and i think what we're seeing here is a real change in the viewing habits of millennials, that they're simply watching tv in a very different way than my generation watched tv, and you're starting to see all the media companies embrace that and recognize that they can't sort of circle the wagons and just try to protect the existing ecosystem anymore, they have to actually reach out to that set of consumers. the advertisers want to reach that set of consumers, the media companies want to, they're not reaching them today with the traditional product. >> host: michael nathanson, your reaction. [laughter] >> guest: craig and i work together, so my reaction is it's a really complicated question that you gave us. there's so much change going on, and i think '14 will go down as a year, probably the biggest change in our careers.

we had craig's side two huge mergers announced that changes the distribution side of the business, and then you've had advertising -- [inaudible] and as this change is happening, we've had our companies, you mentioned hbo, cbs, sony and dish launching products that are targeted for over-the-top distribution to try to reach customers who were outside of the core bundle. it's been a year, and i know with a half hour, you literally need a half hour to go through the step-by-step changes in this business. craig and i agree that we think the changes to the pay tv universe is probably not as meaningful as the change in consumption patterns in advertising. >> host: so when you hear the terms cord cutters andless moonves, i think, has used the term cord netters, is that our future? >> guest: there's three categories really.

there's cord cutters, netters and shavers. and truth be told, probably, the cord shaving is the biggest impact of all because it's stripping ours out of the traditional system and taking advertising dollars with it. they're now looking for a new home. but the cord netters is an -- cord nevers category is a much bigger category. cord cutters get lots of attention, and everybody likes to write about it and talk about it, but it's pretty small. what you're really seeing though is these millennial customers that for years the media companies said are inevitably going to join the traditional ecosystem as soon as they come to a life change. so online content, youtube and what have you, but just wait until they have children, and they'll be back to the fold. for the first time, the media

companies are starting to acknowledge that that may be wrong and those millennials who are the so-called cord nevers may stay cord nevers, and to reach them, you're going to have to do something more than just wait for them to arrive. >> guest: there are nine million people that have broadband and don't pay for tv, and that nine million is heavily, heavily skewed to 18-34-year-olds. and as they become homeowners and move out of their parents' houses and graduate college, that population grows. the way we describe it, it looks like the magazine industry long term. there's a constant decline of willing customers to pay for the big bundle. it's slow and steady, but there's a decline, and the next generation has to be given products to get them back into what may not be a big bundle, maybe a little slice of a bundle.

>> host: joining our conversation is lydia beyoud with bloomberg bna. >> thank you. so the communications commission is expected to vote soon on an expanded definition of the traditional multichannel video programming distributers that would include certain types of online video streaming services. what is your take on how a change definition. >> guest: the new classification, what that reclassification really does is it gives those companies that are delivering video over the top access to the so-called program access rules. and that means that they have fair access to programming that is owned by vertically

integrated distributers. the list is comcast, comcast and comcast. there are a handful of companies that own regional sports networks outside of that, but it's really comcast. and comcast was already bound by rules something like that as part of the consent decree associated with the nbc merger. and so truth be told, it's not a

there's individual shows bundled togetha network. individual networks are bundled together into a media conglomerate, say disney, viacom or fox, and then those media conglomerates are bundled together into the package that's sold to the end user. where you're seeing unbundling is not at that middle level. where your seeing it is actually that last level. you're seeing increasingly the disney bundle being disaggregated from the fox bundle or the cbs bundle or the

time warner bundle, and you're starting to let customers buy individual packages. that's something that really started with the negotiation between dish network and disney, and you see it gaining a little momentum. the other point i would make though, and i think it's probably the more important one, and that is if you add together a bunch of a la carte channels and then say could i replicate the existing bundle by creating a bunch of a la carte channels, the answer is almost certainly no. it just wouldn't be an economically sensible thing to do. i think that misses the point. the problem we're trying to solve here is not how can i recreate the same bundle i already have and deliver it a different way because that problem has actually been solved pretty well already. the problem you're trying to solve is, is there a way to create a much lower cost alternative or lower income americans or americans that simply don't want to pay that

much for tv because they're not that engaged. and the answer is i'm not going to, if i'm that customer, going to aggregate every conceivable a la carte command l and rebuild the menu i already have because that's not a program that needs to be solved. >> guest: if i could go further, our firm had a conference on the west coast, and some of the presenters talked about what millennials want are ten channels for $10 or twenty channels for $20. that's the ideal. that's not going to happen the way the world's constructed today. the other end of the spectrum, we had presenters talk about when they tried to build a next generation virtual mso, their research said they needed to build a 50 channel for $50 bundle to take in all the choice that people seem to want. so it was really interesting. there's a set of customers who just want a la carte ten for ten, but what's workable from my

company's world and the research of the potential economics is something that looks like a big bundle that's delivered over the top. i'm really not sure how innovative that product is relative to what craig was saying is the current choice right now. >> host: so, gentlemen, do you see other telecommunications companies, espn, etc., doing what hbo and cbs are attempting to do, and if that model works, what happens to the traditional cable industry? >> guest: there's a bigger thing than what hbo's doing to what espn could do. hbo is an a la carte channel. you have to choose to get hbo. when they look at the world, they think there are people that for whatever reason, it's not marketed to them correctly, they don't pay for pay tv, that are opting not to take that channel. hbo thinks they can add subscribers without damaging the economics of the current

business. espn's got a complete he different -- completely different question which is they're already in 90-95 million households getting upwards of $i a month. why would you ever $6 a month, why would you ever want to change that model if you don't have to? at some point, and maybe this is a very long point, there needs to be a conversation. and espn has already announced plans to work with this dish on this personal streaming service. to work through a program of a channel that can go over the top. they're thinking about those choices, but when they pull the plug to do it, it will be when the economics make the most sense. and today versus hbo, it doesn't make sense for espn to try to go other the top. >> now, mike, is there any sort of regulatory action that the fcc could take that could hamper growth in this sector? [laughter] >> guest: you ask craig and i that question. a lot of actions --

[inaudible] one thing that's not contemplated would be anything that looks at the bundling issue and looks at the economics of bundling and forces more choice. something they could do to slow down the growth of the business is reevaluate the re trans laws because the last few years have changed a value, so that could change our business. craig's talked about what happened on the distribution side. those are my two big things that could change the slope of the curving here. >> guest: yeah. with respect to bundling, the thing to watch is probably not so much regulatory as it is the slowly percolating viacom/cablevision case. it's an interesting one and has a long fuse to it, but it's worth watching to see whether something really disruptive comes out of the ruling out of that case eventually. short of that, i think breaking the bundle is a very hard thing to do because the fcc doesn't

have the statutory authority to do it. the key questions for, on the distribution side of the business where i spend my time, so the comcasts of the world, the at&ts and verizons of the to world and also, obviously, directv and dish, the questions there are really about how broadband is treated, and i think your viewers or have probably spent enough time talking about title ii that we won't go into it here. but that set of issues, i think, dwarfs all the others on the distribution side of the business. for the moment. >> all right. um, actually, you brought up, you mentioned title ii, and i was going to go there, so how, you know, we're not sure what action the fcc is going to take, but how would title ii broadband reclassification possibly impact online video streaming, this larger sector?

what are your thoughts right now? and how are investors reacting to the regulatory uncertainty that's in the market now? >> guest: you know, lydia, it's interesting that investors, i think, have largely shrugged off the risk of title ii reclassification. the distribution stocks fell fairly sharply when it was first, when president obama first made the statement asking for title ii and then has since recovered more or less everything that they have lost. and i don't think that is a case of investors thinking that the chairman and his fellow democrats on the commission will find a title i based compromise. instead, i think it's because the investment community has decided that they can live with the risks of title ii. personally, i'm a bit more cautious than that. i think that the risks to the business of title ii as an investor are more significant

because i think the questions around forbearance are a bit more complicated than they've been made out to be. and there will be this period of regulatory uncertainty. but as it relates to what we're talking about today which is online video, the questions there are really at the center of the network and on the interconnection side of the network. and fundamentally, what is at stake here is not a series of high-minded questions of first amendment rights and antiblocking and that sort of thing so much as it is a set of very simple commercial questions about will transport be free, or will transport be a paid service. and today you've got a sort of hybrid model where most peering is done for free. some peering is now done on a paid basis. that is the peering meaning the ingest by the end user isp. so where comcast takes that

traffic into their network, most of the time they're not charging to take that network -- that traffic onto their network. sometimes they are. and i think what is really at stake in the fcc and in the policy arena in general is how do we want that market to evolve? is that going to evolve into a largely paid market, and if so, is it going to be expensive or is it going to be cheap, or will it remain a largely free market where the customer is the payee -- or the payor? i think it's fair to say that there's still a lot of uncertainty not just in policy circles, but everywhere as to how that market will ultimately evolve. >> host: gentlemen, another policy issue is that fred upton has announced that he would like to revisit the telecommunications act. how big of a disruption could that be? >> guest: if it happens, it could be -- i don't know if disruption is the right word.

it would be a very big deal. it could be a very positive thing if it finally provided some real clarity, and, you know, remember, when the '96 act was written, the internet was barely mentioned because it was not really a particularly big deal. the '96 act by and large focused on the wire line phone business. and so i think there's lots of good reasons why it would make sense to revisit the '96 act. notwithstanding upton's comments though, i tend to be relatively pessimistic about whether we'll actually see a rewrite in the next couple of years. and the problem is you can start with an issue that is already a very partisan and complicated issue like net neutrality, but you have to start to layer onto it all of the adjacent issues

around peering, around privacy, around cybersecurity, around telemedicine, and you eventually -- you start to accrue the copyright and so many issues onto here that it eventually becomes something like rewriting the laws for a third of the economy. that's not something that tends to happen quickly. once you get down into the details, it starts to slow way, way down, and count me as somewhat skeptical that we're going to see a rewrite anytime soon. >> host: lydia beyoud. >> craig, you brought up the two big mergers that are currently under review by the fcc right now. and as well as the consent decree condition on the comcast deal with nbc that could affect program access in on line video space. are there any conditions that you might be watching for that could be placed on either

comcast or at&t in these current mergers that could affect the space? >> guest: there certainly are some. i would, you know, i think one of the real questions is to return to the interconnection market. will there be conditions around interconnection for comcast? the doj, i think, is -- i suspect -- struggling more with the questions of the creation of vertical market power because of comcast's high market share among end users. they're probably struggling more with that question than any other question. and it's quite possible that they could feel like, they could feel that a remedy could simply be an arbitration process for paid interconnection agreements are subject to arbitration, and that may satisfy any potential concerns about anticompetitive behavior or may not. they may decide those issues are so large that they're insurmountable.

but i think that's going to be the fulcrum issue, and so we'll look for what are the conditions there. i think you're likely to see conditions around the regional sports networks. you might actually see state-level conditions from the state of california about the dodgers and the lakers in particular and trying to solve that longstanding issue that time warner cable has had with the state of california and with the city. so there are some specific issues. generally speaking, though, i think the chairman has said repeatedly that his goal is to not regulate through merger conditions, but instead to regulate through regulation, and by and large we seems to be sticking to that promise. so i don't think that there will be any conditions on this deal that are really dramatic, and it's not because they aren't dramatic changes going on, but it's because the chairman seems to be very intent on making sure that those changes apply to everyone and not just to the one or two companies that are coming through the commission with

transactions at any given time. >> host: michael nathanson, have google and apple tv been disrupters, or have they had an impact on how we view tv yet? >> guest: i think they have. i think people had in the beginning a lot more hope that google and apple would be even more disruptive, but roku, apple, google, the ability to get -- toshiba, samsung, the ability to get your video delivered through your wi-fi to a smart tv has allowed businesses like netflix, hulu, amazon prime to grow. and it's so much more rewarding to watch television programs on tv than a laptop or an ipad that by connecting your tv set to your internet, you know, connection, you're able to open up a whole new, you know, choice of programming. so, yeah, they've been very, very impactful. i think going forward smart tvs in particular, when prices for smart tvs come down, the

ability to actually use your smart tv to get on the web and get video on the web going to move even more consumers to fragment their viewing across a wider, you know, wide array of choices. so, yes, probably not as disruptive as people first imagined. they thought they'd be buying programming, buying super bowl rights, but they've caused change through the technology to how we consume media. >> you said earlier that 2014 has been a major year of change for you, but i'm curious what issues you're watching for in 2015 that will interest the market. >> guest: okay. so for media we worry about people focus, we'll be continuing to look at advertising. 2014 for an election/olympic year has been surprisingly weak for advertising. so next year without those nice stimuli, what's going to happen to television --

[inaudible] so we're all concerned about that. second is ratings and measurements. i'm sure all your consumers are watching television, watching video in a way that's very different than they did five years ago. the measurement of television has to change, has to change more quickly, so we're going to see how nielsen and maybe some of their competitors move to capture viewing away from the television set. so viewing is, measurement of viewing is going to be critical. and third's going to be as we talked about, hbo and sony and cbs and dish, will there be any more rollouts of over-the-top services, does showtime join the fray, can netflix keep growing. so just along the line of fragmentation of pay tv choicesful we'll watch that as well -- choices. we'll watch that as well. so those are our big themes for next year. >> guest: and by the way, i would add to that there is still the looming question of consolidation on the media side of the business, and there have been questions in 2014 about will the comcast merger with twc

trigger a set of mergers on the other side of the negotiating table among the content companies, and we're going to be once again looking to see whether that happens in content. and in the distribution world where i spend my time, assuming that the comcast/twc deal does close -- and i think, we've put something like an 80 percent probability on approval -- it's certainly not a slam dunk that it closes, but if it closes, then i think you're going to see another round of consolidation on the cable side of the world where charter, i think, starts to follow through with additional transactions in the wake of its portion of the merger that's on the table today. you might actually start to see some of the smaller cable operators start to do roll-ups of the very small cable operators not so much to grow their own scale, but actually, oddly enough, to make them a

more attractive target eventually to be acquired by charter. and so i think you will start to see the pieces on the chessboard move in distribution once the comcast/twc transaction is settled one way or the other, that it will actually free up a log jam, and you'll see a whole series of additional dominoes fall in consolidation on the distribution side of the business. >> guest: following consolidation, we actually had a deal announced or we had a planned takeover by fox of time warner. that deal did not go through, but to craig's point, right away this was a hope or plan to get bigger on the content side. it'll be interesting to see how it happens in '15. that deal, obviously, did not get done. but, yeah, when you see consolidation on distribution, my side consolidates, i don't think there's the same urge of large companies to buy smaller

companies. the question will be, will the smaller companies get together? how will they, who's going to lead that consolidation of content? but we did have a deal that tried to get, you know, finished, we just can't get it done this year. >> host: and unfortunately, gentlemen, we are out of time. craig moffett, michael nathanson up in new york, moffett nathanson research, and lydia beyoud of bloomberg bna, thank you all. >> host: a familiar face to c-span and booktv viewers, ralph nader. another book out this year, "unstoppable." >> guest: yes. >> host: what's the theme, mr. nader? >> guest: it's a theme that is representing in the subtitle, the emerging left-right alliance to dismantle the corporate state. and that means there's a lot of areas of agreement between left and right that are never publicized because the powers that be like to divide and rule where the left-right disagree. so i have 24 areas of agreement. for example, there's growing

agreement on minimum wage. comes in at 80% to restore it all over the country. civil liberties, they want to amend the patriot act and the huge invasion of privacy and dragnet snooping by the nsa. military budget waste and corruption. they want the pentagon to be accountable. there's no audit of the pentagon's budget. we have prison reform, we have reevaluating the war on drugs, but the big one is left-right alliance against crony capitalism. , against washington like this, wall street bailouts. there's a huge left-right alliance. a huge diversion of public budgets from the use that they should be put to rebuild america's public works, for example. >> host: who's somebody on the right that you work with? >> guest: work with grover norquist. he doesn't like corporate

welfare. he calls it crony capitalism. we work with wright groups, even ron paul. very, very critical of the patriot act which is coming up for renewal next year. you know, they'd be able to search your home and not tell you for 72 hours. the government can get your library records, and if the librarian tells you that they got a security letter from the fbi, the library could be criminally prosecuted. this is not america. >> host: ralph nader's most recent book is called "unstoppable." what's next on the agenda as far as books go? >> guest: well, we have a book on my unanswered letters to president george w. bush and president barack obama. i want to revive the practice of letter writing with government officials as a form of communication. that used to be much more fertile many decades ago. >> host: as always, mr. nader, we appreciate your time. >> guest: thank you, peter.

>> c-span, created by america's cable companies 35 years ago and brought to you as a public service by your local cable or satellite provider. >> tonight on booktv in prime time, former obama administration officials talk about their books. former cia director and defense secretary leon panetta on his book, "worthy fights." former defense secretary robert gates talks about his book, "duty." and former treasury secretary, timothy geithner, talks about his book, "stress test." it all begins at 8:30 p.m. eastern on c-span2. >> now, dr. jonathan woodson, assistant secretary of defense for health affairs, outlines the complexities and challenges of caring for the nation's military personnel. he spoke during a brookings institution discussion on how to improve the military health system.

alice rivlin, former omb director, and former undersecretary of defense robert hale also took part in this event. it's just over two hours. >> good morning, everyone. welcome to brookings. merry christmas, happy hanukkah, happy holidays, i'm mike o'hanlon. we are privileged today to have an all-star cast on the important subject of military health care reform. we are going to hear from assistant secretary of defense for health affairs, dr. jonathan woodson, first. he is responsible for the $50 billion plus enterprise that takes care of almost ten million people, including dod active duty personnel, their families, retirees. took care of more than 50,000 wounded on the battlefield, and that is a very large player in our national health care system. and for that reason after we've heard from dr. woodson, we're going to assemble a panel of distinguished scholars who range

across not only the military domain, but also the broader health care and economics domain in our country as well. and i'll have the privilege of moderating that panel and introduce those participants a little bit later on. but for now, i'd like to give dr. woodson the floor. let me say just a brief additional word about him. he is a physician, one of the country's best vascular surgeons. he has experience as a soldier in the military himself, deployed several times in the nation's wars. he, as i say, is now a businessman par excellence because he's running an organization or set of organizations, many organizations with a combined annual expenditure of well in excess of $50 billion which is now more than 10% of the base budget of the department of defense. so remarkable set of responsibilities no matter how you look at it, and dr. woodson, thanks for being here today. without further ado, the floor is yours. please join me in welcoming him.

[applause] >> well, thank you very much for that kind introduction and it is, indeed, a privilege and honor for me to be here today, particularly with such a distinguished panel and old colleagues and friends like bob hale. so i want to thank the brookings institute and mike o'hanlon for inviting me to talk about what i really deal with every day and i think is important, timely to not only the national scene, national defense and security strategy, but health care in general. you know, i typically speak to forums and audiences that are more dod and medical-centric, to it's really -- so it's really great for me to talk to an audience and get feedback from an audience that has a broader perspective on national security and health care. so i'm going to try and set the

table a little bit here about the military health system in order to tee up the discussion that will follow about the reforms that are underway and needed down the road. so the military health system, first of all, fills a number of roles and responsibility in sport of the national -- support of the national security and defense strategies. and to properly assess its value, we need to understand these roles particularly in the emerging global health engagement environment. being able to meet all of its missions, most importantly to deploy anywhere on the globe at a moment's notice, it's important to state that this is not a pick-up game in that you need to have a well-honed and organized system to support that national security and military strategy. and it's important to realize also that the most important role is to be a key enabler of the war fighter as exemplified

by this iconic figure on this photograph. we need to keep this individual healthy in all dimensions, mind, body and spirit. we need to be able to repair him or her when ill or injured. we need to remove rocks from this individual's rucksack by caring for the families and making sure that they don't have the worry about the family when deployed. so to paraphrase gretzky, we need to learn to skate to where the puck will be as we make reforms going forward. we have opportunities to increase the value of our system to policymakers, beneficiaries and to the country at large, but only in the context of understanding the larger roles and capabilities of the military health system. it's an evolving system of health, health care and medical force generation born historically from independent

medical systems which were generated decades ago when medical care was much simpler in the way -- and the way we thought about medical care was less involved, costly and technological. so the military health system is in a transformative position, but we need to position ourselves to be stronger, better and more relevant to the future. essential to preparing for the future is an understanding of the volatile, uncertain, complex and ambiguous environments that define the national security scene and health care in america. i think many of you have heard that term, uncertain, complex and ambiguous before. the mhs is not immune to the changing requirements in these other domains. and so the you accept the edward demming principle or philosophy, what we need to do as we skate to where the puck will be is

design the system to get the outcomes that we want when measured against all of the missions and functions we are asked to perform. so this slide talks to the mhs roles, functions and missions. this really is the military health system. it is part of the fighting force, and its principal mission is to insure that our forces are medically ready to go to the fight. and it's also important to understand that one of its main missions is to generate the medical providers, that medical force to go and be key enablers. apart from its deployment mission, however, the military health system is a microcosm of american medicine. we operate some 54-plus hospitals, well over 300 clinics. we have about 150,000 medical personnel.

we operate a health plan which really is a defined benefit masquerading as an insurance product. and that's really important to understand, that what we do is defined by congress, not what a corporate structure defines as a benefit in sort of a profit motive system. we're a public health system responsible for not only prevention of disease, but broad responsibilities of those that would normally be seen in state and local governments. and remember that historically the major reason soldiers were taken out of the fight were because of disease and nonbattle injuries, so this is really important. it goes back to the core of our history, why we exist. we're a medical and education training system producing over 26,000 medical enlisted graduates every year in a number of medical specialties, so radiology technicians, pharmacy

technicians, etc., etc. and, of course, the combat medic which is so important to saving lives on the battlefield. we have 217 graduate medical education programs in which we produce physicians with advanced capabilities. we have advanced nursing programs which produce nurses with advanced capability. and one of the important issues, getting back to our connection with american society, is if anyone thought that we could outsource this and produce, generate the medical force we needed, you need to just understand a couple of things that are changing in the american medical education scene. is today as we speak -- so today as we speak there are a bunch of senior medical students who are scurrying around the country looking for residency programs to do advanced training. it turns out today because of a lot of factors, there probably are are going to be about a thousand fewer positions available to train in than there

are going to be american medical graduates. what i'm suggesting to you is that the ability of the american public to generate the medical force that we need may not be there. and so we need to maintain a base for generating the medical force -- the doctors, the nurses, etc. -- that are going to be the key enablers, again, for folks going in harm's way. we also operate one of the most advanced medical and research and development programs in the country which is tied to our mission. and this is becoming increasingly important as the expectation of american leaders and the american public and the warrior is that we will close the gap on medical knowledge where it doesn't exist and traumatic brain injury is such an example. we have been challenged over the last decade to rapidly close the gap in terms of neurosciences to improve the outcomes from traumatic brain injury and other problems such as post-traumatic stress disorder. but infectious disease, mental

health and other issues are also predominant, and so we must maintain this r&d capability. and if you look at what is happened recently in the ebola region, one of the reasons we came to d. of defense is because -- department of defense is because we had been doing work in these emerging infectious diseases and how to prevent these issues from spreading and mitigate the effects. so these are the pieces of the military health system, again, totaling more than $50 billion a year. and they need to work together in order to be available to support the national security defense and military strategies, and unraveling a piece of this without considering its effect produces a real vulnerability for this country. just last year, you know, as the combat operations in afghanistan were winding down, we thought we were going to get this sort of brief period of sort of respite from kinetic activities, and

then ukraine, isil, etc., etc. breaks out, ebola comes, and it reframes all of the issues about the military health system in terms of its need to be ready. so the military health system is an important and indispensable part of the national security effort. but whether or not it continues in the same form relates to the issue of what are the expectations for military medicine because they're higher than ever before. our american leaders and public expect comprehensive, coordinated care for servicemen and women who are ill or injured. and as has been noted before, closure of gaps where knowledge doesn't exist. we've seen its effect relative to the ebola crisis, and for those of you who are not familiar with this, this is really a seminal event not only because we brought expertise to

this issue, but heretofore ngos, nongovernmental organizations like doctors without a border would hold the military and military medicine at an extraordinary long arm's length because they didn't want to be tainted by what we do. but they saw this catastrophe unfolding, and they were the first ones who called and said you need to get the american military here to help out, and they spoke about us having battalions of individuals who had special capabilities to deploy in austere environments and assist with these issues. so there are new expectations from all dimensions of both leadership and society and around the world about what we can do. another piece of information you need to be aware of that particularly since about 2008 with the global economic crisis, many countries -- including our allies, have decreased their spending on military, on their

militaries. but what they really have decreased their spending on are their military medical systems. so we interface around the world and one of the common refrains is how can we come and partner with you for training, for preparedness, for deployment, for humanitarian operations or kinetic operations. we are looked at the full spectrum of military medical system upon which others can plug and play. so the american military health system is not a turnkey kind of operation where you can turn it off and expect it to be ready. you need to be supporting all of these integrated operations and preparations for missions. from a value perspective, one of our core expectations is that -- from our commanders, our combat commanders, service members and family is that we will save lives on the battlefield.

and by that measure we have been successful. we've achieved the lowest lethality rate in the history of warfare, the lowest nonbattle injury rates in the history of warfare. so that if an individual is injured today on the battlefield and is brought to a combat support hospital, they probably have about a 98% chance of survival. now, the slide on the right indicates that despite what we call the injury severity score which is an index of how severely injured the individual is -- and they are desperately injured as a result of ieds -- it indicates that the chance of survival, the case of fatality rate, the fatality rate has declined. so more severely injured, fewer deaths. and this has occurred as a result of many, many integrated issues. it's a result of the practice of

clinically complex health care in our hospitals and clinic which then transfer those skills to the combat zone, an emphasis on public health and prevention as i noted before. the research and development system which invested in issues of research and hemorrhage control also body armor and disciplined study of what works in terms of trauma assistance. that is where medical care meets those systems and talking care, evacuating patients -- taking care, evacuating patients. this has led also to other benefits, a reduced medical footprint, logistical trail, higher survival. social impacts are that we now marry the injured soldier up with the family sooner which has a real important set of positive social consequences for the healing environment and for family dynamics. and all of this has been supported, of course, by increased training and technical

competency of the medic on the field. 19, 21-year-olds who are doing amazing things because of the education that they receive at the medical education and training center, a joint operation in san antonio. we are taking these lessons, of course, from the battlefield and transferring them to trauma centers around the united states. physicians who led trauma care now have in the military have taken care of events such as the awful events of congresswoman gifford. when the boston bombing occurred, they called us for advice, and now there are victims of the boston bombing being treated at walter reed. in the picture on the left, you see a wounded warrior, a quadruple amputee, talking to a boston bombing victim. and the transfer of not only medical knowledge, but motivation has been incredible.

our military adaptive sports program, we have redefined the issue of ability versus disability. soldiers, wounded warriors are now fully engaged in life and even in competitive sports; diving, surfing, skiing, whatever. there's a new attitude and expectations that we will make the service member whole not only in mind, body and spirit, but a commitment to the family unit and financial stability. one in five amputees stay on active duty can. many have returned to the combat zone. we have separated ourselves philosophically from a decades-old way of thinking particularly when we had a force that was conscripts. wherein if a soldier became ill or injured, they expected to separate from the service and society expected them to separate from the service.

nowadays we have a professional volunteer force in which when they become ill or injured, their expectation is that we will retain them as long as possible to demonstrate their ability to continue to serve, and that's a commitment that we make to both them and they expect of us. and so the whole issue of the dynamics of what we have to field and be ready for in rehabilitation has changed. it's not automatic that they'll go to the veterans administration and receive that care. and finally, we have to make this commitment for decades. so the issue is that we know that the wars will have a tale relative to the medical system that, for example, an amputee to walk on a prosthetic device, it takes 20-60% more energy depending on whether it's below the knee, above the knee, single amputee or bilateral amputee. and if we don't commit to their health over decades and let's

say they gain weight, they smoke, you will see the quality and the quantity of their life are diminish so that they accrue more diabetes and more cardiovascular disease if we don't protect them for decades. so it's a commitment to them for decades. so you can see that this is a complicated system. the slide on the right there is a graphic or an advertisement from the american association of orthopedic surgeons. it's not a military advertisement, but it clearly suggests that what we do in the military system has value for the american medical system. so hopefully, i've highlighted some of the values of the military health system as it brings to the war fighter and to the nation. but we are in a period of transition now. operation enduring freedom really has closed. isaf has stood down. operation iraqi freedom has

ended a few years ago, but there's still kinetic activities going on. in the ab tense of war -- absence of war, there may be a tendency to say what do we need this complex system for? and so it's important to understand what, in fact, is occurring in the national security environment, the national health environment and the fiscal environment to understand what reforms need to be made and how we can continue to be of value. i'm not going to go through the national security environment because all of you probably know that better. again, uncertain things are popping up all over and, again, we're a key enabler. sometimes we're the tip of the spear as an enabler, but as this issue of global health engagement becomes a new instrument of national power, sometimes we're going to be at the tip of the peer. and hopefully, build capacity as a nation that may stabilize nations and actually prevent kinetic wars. in the national health

environment, there are a whole bunch of changes as well. so we have more specialization, more technology, rising costs -- although admittedly have moderated in recent years. beneficiaries expect more choice, the baby boomers are getting older and need more care. there's an absolute or relative doctor shortage for some of the reasons i talked about before. and so there's an eroding provider base, more competition. the aca is out there. more will be insured, more will wallet -- can will have access to -- will want, will have access to care. there's more issue with chronic disease, diabetes, obesity. and more care has shifted to outpatient care, and less relies on in-patient care. this has led us to develop the quadruple aim in the military health system which looks at better health care, better

health, i should say; that is, prevention. better care, that's what we do when you've got established disease and lower costs. but most importantly, addressing the issue of readiness. how do we keep the force medically fit and provide that medical force of providers. if you look at that, basically, if we can produce better health, better care at lower cost and produce the readiness that's necessary, that's our value statement, and that's where we've got -- what we've got to work toward. that's skating to where the puck will be. this slide here, i think bob hale would recognize, and we have talked about this in the past. but this represents sort of the growth by percentage of the defense health program as a percentage of the, of the dod budget, baseline budget. the important point here is that

if you had projected this slide a few years ago, you would have seen a much more steep rise in the cost. so there are some things that we have been doing to reduce the cost and put us in position to be competitive and add value in the future. previous government agencies predicted that by 2017, in fact, we would be at a about a budget of $61 billion and escalating up from there. we're not going to meet that because we have taken certain management strategies such as pharmacy reforms, outpatient prospective payment systems. admittedly, health care inflation has moderated. we till track a little bit -- we still track a little bit above what the national average is, and there are no bets that it will remain as low as it's been over the last few years. but at the same time, of course, because we have tricare and, again, the it's a defined

benefit, benefits have been added. so we have tricare for life, we have had congress decrease caps. we don't have the ability to raise premiums or co-pays unless congress agrees. we've added tricare reserve select to the system, ask as a result -- and as a result the beneficiary contribution has shrunk down to 9.3%. collectively, we've got to decide where we want this to be. we want the service members do deserve a robust benefit and at lower cost because of their service. i but this is a collective decision we all need to make as to where that should be. i throw this shrewd up here, and -- slide up here, and don't worry too much about the numbers, they probably are a little out of date. this was designed mainly as a

visual graphic. to show you how our budget is divided up, it's dwoided up into -- divided up into budget area groups. and the issue is that if you use the willie sutton principle of where the money is, you'll see that we spend a lot many private sector care, about 70% of the dollars that go to patient care, and in the direct care system. and so it's important to insure that the two are optimized. we use -- the dollars we investment in the direct care system which are going to be fixed costs, the direct care system is optimally use rised. -- utilized. but the key though is to focus on those tiny little dots which are to the right of the screen which talk about management activities because in some sense you say, well, you're not going the get much efficiency by

reforms there, but that's not true. the important issue is to modernize our management with an enterprise focus because it's the management that drives the changes and the optimization in those two big bubbles on the left side of the screen. and those really are the takeaways, and that's where we're going. so as i begin to um up here -- to sum up here, i want to leave you with some strategic imperatives and directions we're heading in. first of all, about two years ago i put out my guidance in terms of where we were going, and i organized them around six lines of effort. and this coordinated very well with the secretary's priorities as well. the first was to modernize the management with an enterprise focus, and we've begun to discuss that a little bit already. one of the key changes made was to establish a dependence health agency which is responsible for designing and providing common

business processes and clinical processes which produce those economies of scale. and i am proud to say that we, through our first year even though the defense health agency is not at full operating capability, projected originally a modest savings of about $80 million, and we have e clipsed that, probably will -- i know we will. it's $248 million in savings. ..

needed in the 21st century which are rapidly changing. we could spend the whole day talking about what this represents but it is getting away from the notion which line leadership often thinks about which is if you got a building that says hospital on it, they think that's a capability but it's not in the 21st century. we have to talk about real medical capabilities to drive the medical outcomes and what are needed across a whole spectrum of issues. part of our capability is developing new leadership that can really operate and make decisions in this dynamic world. fielding new capabilities like the electronic health record that is at least a generation three or four with decision

capability and can tie to other business systems that will enable leaders, commanders and clinical providers to make more decisions, correct decisions, easier and reduce their, make their work more efficient. we need to invest and expand our strategic partners and it is really important to identify the strategic partners whether or not it is academic medical centers. the federal partners like the veterans administration and understanding what we need to do with the va. between the va and us we have about 211 hospitals in various stages of aging. at average cost of replacing a hospital about half a billion dollars, the question is, what efficiencies can we drive there and actually meet the mandate or even solve other issues as it relates to clinical training and the like? we need to assess the balance

much our medical force so we have an active force of providers, we have reserve force of providers and we have sillian personnel. well we know that with increased growth of subspecialization we can't keep on active duty and efficiently a lot of specialists. we have to look into new ways of tapping into the reserve component. one of the things i point out to people when they listen to me, when i was in academic practice when i went to nih i could sign a contract with the nih if i wanted to do research 40% of the time, they would pay 40% of my salary to the institution. well, if we need individuals to serve on active duty the question is whether or not we need to redesign some of the cold war reserve policies so that we develop contracts with subspecialists and we say, they're ours 40% of the time. it makes for harmony in terms of

the family dynamics because everybody knows what mom or dad is doing, how they're spending their career. makes for harmony with employers and we get a professional force that will be available for us. we need to think innovatively about our workforce. we need to modernize the tricare program. this is not just about fees. this is about decreasing administrative burden and making sure it provides a robust benefit, that the beneficiaries desire, to get what they deserve, but, at lower costs. and lastly, again it is about defining the mhs's role, competencies and requirements in global health engagement which is becoming much, much more important. so to finish off here, the mhs is clearly an important asset in the national security military and defense strategy and is a resource for the nation but it

is at an inflection point. its value, it will be determined by how well we organize to do our missions against the costs both financial and otherwise that all of our leaders and stakeholders see us consuming. and remember, again, the failure to do that, competes with the line to train, man, equip and modernize the force but we're managing through it. the future is bright for the military health system. it will require collaboration but it will have to prevent simplistic algorithms that stakeholders might suggest that don't integrate all of the anythings -- missions that we're required and we're graded against. so i'm pleased to be here and i want to thank again the organizers for having me to sort of set the table and i look

forward to the discussion and i think we might have time for one or two questions. so i'm happy to entertain those questions at this time? yes? >> hi, my name is a christie kaufman, executive director of the foundation and 12-year army wife as well. one of the things that i my think might be missing in terms of priorities is really having a deep understanding of the population that we're serving after 13 years of war. military health advisory teams that were deployed in theater to really understand particularly behavioral healthwise what was going on. i got the sense when i was an army wife, a lot of stuff we were doing is reactive and could have saved a lot of money and done a better job if we understood the population we were serving. so i'm wondering if there is a way to fit that into our strategy on our plan of having a deep understanding of the impact of how many people are still in

the military have served, particularly multiple deploys and how that affects the health of the force? >> great question. thank you for asking it and i think you're right but let me provide a little context. i think today as we sit here or stand here today, we have a number of studies such as the army star study and a lot of other studies, deeply exploring the population to get a better farring. but to the heart of your question, if you go back a decade as to where we were, one of our failings was to just accept that we're the american medical system and the public was at in terms of mental health. this gets to what i was talking about before, about expectations we just can't accept we have a mental health system in general, in american medicine that is disarray, disconnected, poorly-coordinated, and expect that is what will serve

servicemen and women optimally. so we play catch-up. there is no doubt about it and we're still playing catch-up. what happened is, that problems were recognized by our national leadership, by military leadership, by the medical community, that we were not producing optimal systems and optimal outcome. so there was a lot of money that was thrown at it in a crisis mentality and a lot of programs that were established and we are just sorting through those and putting metrics against those to decide which are effective, which are not, even as we understand better the populations that we need to serve not only now but on into the future. so you're right, we had to play catch-up but it was partly because of where the entire american, medical and mental health system was at. parenthetically i would say there have been a number of recent studies that have come out from iom and other

organizations evaluating our system based upon our request. turns out there are still some very critical elements in those studies but when you ask the people who are experts about this, well, what do you do in your system? say, wait a minute, you have to understand we'll adopt what you're doing because you're ahead of what we do in the private sector in mental health systems and coordination. i think we see elements of that every day in the press as these celebrated cases of violence, et cetera, come out. so, much more work to do. we did play catch-up. we are trying to sort some of this out. yes? >> i'm dr. caroline hoffman. i'm a general internist. i worked at fort belvoir as a physician at bethesda naval hospital for five. i was wondering if you could say more about the va.

seems, many soldiers can't stay with the military. they have to transition to civilian life and it seems to me that the connection between the military, the active duty military and the va was terrible, symbolized by the fact that we had two incompatable electronic record systems and that apparently they have given up trying to harmonize, their generation of something else, after billions of dollars and 10 years at least? >> well, i won't get into exactly a number. i will accept wholeheartedly the spirit of your question and i will answer it in a couple of different ways. first of all, we all need to appreciate again historical context. the military health system and the va system initially had different missions and the whole idea was, after the second world war and the wars before now, if you got ill or injured, you were going to move on to the va. so that degree of coordination,

particularly at a time when health care was simpler, more simple, it served its purpose. fast forward to the twenty-first century and that's neither acceptable or desired because of the complexity of care. so we have committed in fact to harmonizing and working on that transition and i could chaired the health executive committee with the undersecretary of the va to work across some broad areas. so information technology, clinical programs, business operations and again i could stand up here for hours talking about what we've dealt with over the last couple of years. but i want to address your issue about these enabling systems like this electronic health record. first of all, i think it was a little bit naive by everyone to

think that just because we built a single system it would talk to each other. you go to kaiser, whatever, you look at all of their hospital the, particularly their early experience, just because they insert ad software program at one hospital didn't mean it talked to the other. it turned out because there is something called data standards that you have to deal with, right? that is really heart of it. if i were to ask everyone in this audience to hold up their cell phone we would see variety of cell phones, iphones, galaxy, samsungs, blackberry, et cetera, et cetera, but you all could text each other and email each other and phone call, phone each other, send each other documents and manipulate the documents because there are data standards. within electronic health record and what was really a nascent business system called a electronic health record, remember was originally designed as archiving system. so if i encounter ad patient i

would record their history, not a computing system, what would happen you would see one system they would call a water bottle a water bottle and another system call it a goblet around another system call it plastic vessel to hold fluid or something and you couldn't talk to each other. what am i saying? we've gone a long way to dealing with the inneroperability of data. so we particularly last year have made great strides harmonizing between the va and the military health system this issue of data transfer, inneroperability and we expect to make more strides even as we modernize our system. complex issue but i appreciate the spirit of your question and it needs to be solved and we're working on that. other questions? i think we're out of time. so thank you so much for listening to me today.

[applause] >> thank you, dr. woodson. i will invite the panel to come up now. we'll move straight into it. we're good you can stay a little bit and thank you so much for the remarks. >> thank you. well, again, secretary woodson, thank you very much for those remarks. i will be brief introducing our distinguished panelists so we get right to it. let me say a brief word about each. we have extraordinary panel. a lot of good friend and former bosses of mine. a bit of cbo alumni gathering.

only henry aaron has not worked out of this crew. alice rivlin actually created it. i will get to her in a moment. immediately to my rye, bob heal, along with jack my direct boss at cbo. he made up for that part of his career by doing amazing thing thereafter even though he had to supervise me for a while. he was comptroller of air force in 1990s for much of the clinton administration. he was about a year ago comptroller for entire department of defense. in between he did various other jobs including a running the snags comptroller association. i learn ad great deal of defense strategy for bob. this year he is probably glad going into christmas season not being scrooge again. he is the guy had to handle sequestration. made him feel like work load like grins dog trying to pull all the presents to the top of the mountain. got through it remarkably. i think it's a huge credit to bob and many others in the

military that dod kept functioning through this incredibly difficult period and a lot of other accomplishments as well. he will put this issue in broader complex reform and department of defense overall budget challenge. carla murray is phd economist from university of illinois. she also worked at the pentagon but she is now at the congressional budget office and she has written recent options papers and studies on defense health care that have talked about the ways in which among other things, some of the costs might be shifted a bit more within reason to the actual members of the military and their families. as many of you know, this is a very generous system in terms of the cost sharing and i think, most of us would agree with that philosophy it should be generous. co-payments and other costs and premiums should be much lower than the national average but they are extraordinarily low at a time when dod is feeling

budget crunch one of the questions it has to face, can it be afford to be quite that generous. so this is an issue we'll talk about as well. as i mentioned alice rivlin, in addition to founded congressional budget office and brookings comes to 100th anniversary soon and i would nominate her as greatest scholar in history. weigh she was founding director of cbo and office of management and budget in the clinton administration. vice chairman of the fed. after all that she tried to help d.c. fix its finances. then last year when our engle berg center on health care reform at brookings needed a new director she volunteered for that job. i'm not sure volunteer is the right word but we'll leave it at that in the holiday spirit and done a great deal of work on health care over her career as well. henry aaron, is simply one of the greatest health care economies in the country and has been at this for a long time in our economics studies program. he is affiliated with a number of other organizations around the country that work on matters of health care and institute of

medicine, american academy of arts & sciences and number of other organizations. i look through his resume' recently and realized that we should probably make greater use of him in the foreign policy program because i think his master's degree was actually in russian studies. that may help for some. aspects of our health care system i suppose. finally jack mayor, executive vice president at booz allen hamilton. we've been glad to have jack part of our brookings efforts over the years as well just as bob and others kindly helped us previously too. jack runs the military health care program at booz allen hamilton. also had a distinguished career on issues from energy policy to homeland security. he too was at the congressional budget office. he is a west point grad and former army officer. bob heal is former navy officer i said before. we have great experience on all these issues. i realized i went on a little bit but i thought they they

deserved some praise and you deserved to hear their credentials as we approach this topic. bob, put military health care in the broader dod budget perspective. >> thank you for chance to be here. military health system needs to do, i want to talk about more from budgetary perspective. the first point i want to make there have been significant changes in military health care that actually slowed the growth in health care spending significantly. just a few examples. five years ago the administration allowed the department of defense to use va drug pricing schedule, significantly reducing its costs. 9 congress allowed the use of medicare rates for small hospitals and outpatients. dod has implemented the defense health agency as john said. congress mandate ad five-year test program making mandatory use of mail-order pharmacy which again cut costs significantly and some benefit reductions or

increases in fees i should say in tricare by 15% increase in indexing at least partially of those fees and significant changes in copays for pharmaceuticals. bottom line, 3 to $4 billion of savings a year which will go on into perpetuity unless they need to be reversed and actually reversed the growth in health care costs. they have declined over last three or four years in dod which helped the department absorb some tough budget times. but budget restraints will continue. more needs to be done. i will finish up this answer with two things, two areas where i think the department needs to head in terms of further changes in military health care. one, john alluded to already, which is some changes in the fees and copays in the tricare program. this needs to be looked at in the context of overall military compensation because it is a important part of the benefits and two years ago the joint chiefs with john woodson and

many others participating, led an overall look at compensation. that suggested changes like holding down pay raises, some of which have been adapted or adopted. but it also proposed some significant increases in copays and fees in the tricare program, taking health care that right now is entirely free and imposing modest copays and fees. this proposed last february to the congress. congress did not act on it. did not allow it to go into effect and i hope the department will resubmit proposals in some form and i hope congress will go for word them. save a couple billion dollars a year. so that is not insignificant. the other thing the department needs to do is tough one, streamline military facilities there. is significant under utilization of those facilities. efforts have been made to do that but frank lit military services tended to resist in part because they don't, they're not convinced they will keep the

savings. dod budgets for health care centrally services feel if they agree to the changes which are tough in their view. they may not get those savings for modernization and training. one of the things dod may need to do is changing the way it budgets for health care. giving money back to the services but require that they centrally manage and run the activities, require pay for them on fee-for-service basis using structure called working capital funds pretty common in dod. maybe that would change incentives and make it easier to streamline these facilities so some of that will have to happen. in the budget context there have been some important successes. we need to recognize that. i hope to see more of that in the press but there is more to do with regard to changes in benefit structure which did. od proposed and i think some streamlining of health care. with that i will stop and after my colleagues have a say we can

have further discussion. >> before we go on to carla, let me ask you one more question and this is obviously a fraught question to give a short answer to but how would you describe the overall state of military compensation today? you alluded to the recent review that was done. we talk about potential cost shifting towards more the families and personnel how should we think about the backdrop to this whole issue? >> wealth dod has got to maintain a, a strong compensation program to attract and retain the people it needs and i think we would all probably agree a generous one to recognize the service of men and women in uniform which has been very taxing and continues to be. at the same time i think the department has recognized its senior military leaders, recognized they need to slow the growth in compensation costs to free up money within constrained budget for training and modernization. some of that has occurred. pay raises being large dollar amount. changes in commissaries and housing allowances. i think there is more to be

done. you're right, we need to look at health care in that context. there have been modest changes in benefits there. probably some more needs to occur as part of overall compensation overall slowing growth in military compensation. >> i will do one more follow-up and segue to carla because if there were going to be a big reform, because what you and dr. woodson and others promoted have been significant as you say but sort of within the existing system to a large extent. fair to say, you can correct my premise in a second if you wish. if there were to be broader reform in any element of military compensation policy you do you think it could conceivably or should conceivably be in health care oar retirement system? you cam out in debate looking at all these questions in detail. >> i think you need to look at all of it. i think there has been significant reform. i don't know it is fundamental. it certainly not changed structure of military compensation.

in the environment we're in i'm not sure that is realistic. it needs to look at all the elements, health care, compensation, pay itself and other benefit. not just focus on one because all of them are important to the militariry members but also important to the efforts to slow the growth and free up money for training. >> carla, you've written about options that might save in the ballpark i do the math reading your studies, save eight to 10 billion a year within military health care itself but not reducing cost but shifting costs to beneficiaries especially military retirees, who are not in the va system, not injured but in generally reasonably good health and may have other jobs. obviously that is a complex issue and complex group of people with a lot of shalings. i'm not suggesting everything is easy for them. could you explain a little more about your options, the logic behind them and how much more they might save beyond what dod

has been requesting in recent years. >> thank you, mike. when i think of these sorts of questions i think it is useful to think about what the drivers of health care costs have been. you saw dr. woodson's chart earlier. by my calculations spending on dod health care since 2000 has more than doubled in real terms. it increased by 130% over and above inflation and the general economist. i think it is worth spending a minute talking about what has led, what is driving increase and what might be driving increases in the future. in addition i think it is also useful when we think about options to kind of think about the sorts of, relative magnitude of the sorts of options. so you can assess really where you want to put your efforts. so for example, you know, what sort of options are going to give you savings in the millions of dollars per year perhaps versus options that might give you savings more in the billions

of dollars a year. so in a report that we published in january we kind of took that approach and we looked at what the drivers of military health care costs have been since 2000. and you know, one thing it's not was the cost of the wars. so dod spending on contingency-related medical care peaked in at about $3 billion. and i think it has come off since then. that is on a $50 billion program. so that has not been, definitely important work being done, definitely resources needed to be devoted to medical care of course to support the war but it was not a primary driver of that 130% if you will. instead we felt that one driver has been the increase in new benefits and expansion of benefits by the congress since

2000. tricare for life is one of those it is, wraparound, medicare wraparound coverage for those retirees eligible for medicare that is over the age of 65 and it has been a popular program of as of 2014, 2.1 million people have enrolled in tricare for life. this program essentially reduces the out-of-pocket costs for military retirees and their families almost to zero. there are some small cost but basically medicare pays and then medicare part b pays and tricare picks up remainder of those costs, most of them. so that has been a driver and other expansions of benefits as well. a second driver we felt is the financial incentives to use tricare. so that the out-of-pocket costs are for active duty members for their families and also for

military retirees is significantly below what other options are for civilians, either you there the private insurance market or through employment based insurance. these financial incentives, for example, a military retiree can purchase care in tricare prime, which is the health maintenance organization type plan offered by tricare and they can purchase that with an enrollment fee of about $550 per year for their family and there are copays as they use the system. that's below what most civilians face in the civilian market. so this creates an incentive, has two incentives. first of all it encourages people to join the system. you saw that as civilian health care costs were rising dramatically, enrollment fees for tricare were constant

basically. so you saw people joining the system. and that financial incentive is continuing so far. in addition you also see people use more health services. those who are in tricare tend to use 50% more health care services than people using civilian hmo plans of comparable age. so you see more people joining and those people who join tend to use the system more. for those reasons then we went ahead looked at some different options might be. we looked at things suggested on civilian sector. . .

along the line of creating the defense authorization trying to reduce some duplication. those sorts of options may be worthwhile from a budgetary effect, the effective is relatively small. we estimated savings in the range of several tens of millions of dollars a year to maybe $150 million a year. so then you turn and you say, okay, going back not what we thought was the primary drivers of health care costs and supposed we look at options that would change that cost-sharing relationship. in other words, again keeping the cost for service members

and/or the service members of families the same, low, but increasing share of costs borne by military retirees and their families. and we found that you're able to save more like billions of dollars her year compared to some of these other options were you're talking in the millions of dollars per year. so we could see because of judgment, increasing the share of costs paid for by military retirees and their families addresses both the primary drivers of health care costs and has the potential to generate savings in the billions of dollars per year. there are other considerations, of course and they will be discussed here. >> thank you. that's very, very helpful. i was coming like attorney with to be questions for both you and henry. first of all just taking all this in, how does it strike you from your broader perspective in the health care reform debate?

secondly our expense with obamacare, the affordable care outcome of the recent developments on the ceiling health care from coming to the operating loss of them into opportunity in your choices for the department of defense. well, let me start out i think dr. woodson outlined it beautifully some of the special missions of military health care, and nobody i think we want active duty military to have less than optimal care and follow-up. and there are some special needs for search capabilities that we don't know the future is going to bring. but as he also suggested i'm struck by the commonality between the problems, the challenges we face in the civilian, and to several systems as the military is several

systems. the va is somewhere in between. but there's this paradox that everybody faces. increasingly effective medical care call existing with a lot of inefficiency and lack of course nation. we talked about the electronic health records. that's also true in the civilian sector. they don't talk to each other very well. and other evidences of duplication and overuse of care. now on the civilian side, people are tackling this in two ways. one is too tried to get more organized competition among health plans so consumers can make more intelligence choices come and providers or health

plans to make more intelligent choice about what to offer and had reduced their premiums and still offer good care. and that's one after. and the other is changing incentives, both for providers and bundling payments for all episodes of care so that if you aren't using lots of different uncoordinated services, you can think about what does suspicion really need. and also the incentive to carla other two patients to manage day care more efficiently. so there's a lot of commonality and i have if you want to be addressing these problems together. it has the other two challenges that face both systems our american lifestyle not very healthy, and the aging of the population which certain shows up in the va system and retirees

system. here's one thought about how we might be addressing all of these things together. it's a little radical, but should we be thinking about how the military, some of the military systems might transition their people to the aca exchanges, and especially in sparsely populated parts of the country where one of the problems with the affordable care act exchanges are there's just not enough people who live there. military faces that problem as well. tricare as an option for sparsely populated places. maybe we should come together. maybe we should be thinking about whether we can give both military personnel and their

families and veterans choices on the aca exchanges with the appropriate subsidies. and that would benefit everybody because it makes a bigger pool. >> thank you. just by the way i want to make sure i understand, you would consider that for military personnel who are currently being provide health care through the dod as well as perhaps some veterans who are being provided health care through the va? >> and the other thought would be, and we go the other way, are there underutilized military facilities that civilians could then opt to use a plan, which use them. >> before going to henry let me give one quick data point, and there are many people who know this issue much better than i, but those were generalists of course we're talking primarily today about the department of defense military health program which is the $53 billion annual

operation that dr. woodson overseas. the department of veterans affairs we refer to several times but it's a separate organization with a separate budget, and the overall veterans affairs budget is now about $170 billion a year, three times the military health care. much of that is direct payment, either in the form of disabilities, g.i. bill, et cetera, but i believe roughly half of the veterans affairs budget is actually the veterans affairs medical program, which is separate from all the increasingly related to and interlinked with, we hope, dod. i just want to make sure everybody understood that basic set a bureaucratic and budgetary facts. not now, henry, over to you for your perspective on what you've been hearing and where you think we should go. >> what i'm going to say is i think in many ways going to reinforce what alice just said. there are three distinct groups here who are i think related and under consideration. there are the active duty military that are the former active duty military, which uses

a veterans, and there are the family members associated with those two groups. the case for a special supply of services system is particularly strong, it seems to me, for the active duty military. for the families of the active duty military, the case of having a dedicated supply system is, it seems to me, very much weaker, and that suggests a possible appeal of the option that alice just mentioned, which is to help families of active duty military have fared, well-financed access to the general health care system. now, and in particular it seems to me that one should step back and perhaps look at this from the other side.

we now have a health care system in which, if your income is less than four times the official poverty threshold, which for a family of four is now in the vicinity of $90,000 a year, scaled down for smaller families, of course, you were eligible for subsidies, refundable tax credits, and assistance with co-sharing on a sliding scale that starts with -- cost-sharing -- that starts with essentially complete coverage of what's called a silver health plan, and that is the premium that is charged or a health care plan that covers 70% of the covered health care services on an actuarial basis. plans can provide the coverage in different ways. many people also want more

generous coverage or the receiver through employer-sponsored plans. if you buy three health exchange, you can buy plans that cover up to 90% of the cost of coverage, which leaves relatively small amounts of, for deductibles. there may not be any, for cost-sharing, only for certain services. it's very generous coverage. perhaps not as generous as tricare it is now described as being, but close. so the question i have is whether it wouldn't be desirable as part of the national health care system for the base level -- to provide for the base level of coverage to be a general responsibility, not of the department of defense, but of the overall health care system

that is serving the rest of the population. now, for special reasons as part of compensation, the department of defense may want to provide more generous coverage than this silver health care package. they may want something approaching or even surpassing latin am coverage. if that's the case that is the responsibility of the defense department as an extra recruitment will benefit that is provided to attract the kind of soldiers we want to have. and if that is the case, then the defense department would have to consider, and i think it would be a close question, as to whether the most effective way to attract the kind of force we want to have is to spend money on a particularly generous health care plan, higher cash

payments, or some other form of compensation. they would have to judge what was the best way to attract the force that the defense department needs. but my fundamental point here is, this is a nation that has embarked on achieving a degree of, close to universal, and relatively uniform access to the health care system. that's a national obligation. it is not come in my view, a defense department obligation. it isn't clear to me why the basic costs of tricare for non-active duty personnel really is a defense department responsibility. >> thank you very much. and that sets up a lot of the questions, jack, i do you want to get at including the additional one of whether this overall system strikes you as

relatively inefficient or in need of fundamental reform. but above and beyond the issues of who the beneficiary is, but the packages are, how generous those packages are, is the system itself in need of fundamental reform, and anything else you'd like to address, please. >> thank you, michael. i appreciate introduction as part of the group of scholars but, unfortunately, i can't claim that malvo because they come from this much more from the perspective of being a management consultant influenced by my experience as both a consumer and past and military health care, and as a businessman. i appreciate dr. woodson's comments about thinking individually about the workforce. the exception i would take with it is that i think the workforce is only one component of the system. and, indeed, if we're going to change the military health system to be something better in the future, then we need to be thinking of that other system

and thinking individually about all parts of this. i agree with henry that i think there are multiple populations when you think about this. you have the active duty population that i have never heard anybody think that you should have anything other than the best health care possible. and i think the civilian population benefits from that, certainly from the history and burn centers and what we are seeing now with prosthetics and traumatic brain injury. nobody does that better than the military, and we all benefit from things like that. that the second population is the dependent population. and, indeed, what a think about this from a management perspective and as a businessman, you have to be thinking about the benefits that you are willing to be able to have for everyone. not everybody in the military is able to take advantage of the benefit of having full medical care covered for a dependence.

indeed, many of the people in the military are independent. and as the military been of the program is going to be fair, then you would think that you'd have a baseline that everybody is covered at one level, and then those who decide that they're going to have dependents, they're sharing and the costs with the dependent care in the future, much like is done in any other business that we see. it is rare that a business provide free health care for all of its employees and all of the dependence of its employees. and then the third population that henry talked about is that population that has retired from the military and their dependents. only about 10% of people who were in the military retire from the military. all right, so we're not talking about huge numbers with military experience. those people, a majority of them, go on for other careers, do other things and have the opportunity to be able to enjoy

health care, either through the aca or through other employers. and, indeed, having a program where they can go in and get free health care and do it as often as they want, seems to be a burden that the american people shouldn't have to bear. i think the bidding of the studies done to let people know that as soon as you provide a free good for people, it will be used more. i think carla referenced that with a tricare costs. so we know that. and one of the ways in the country we're looking at getting health care costs under control is putting more of the burden or the cost of health care onto individuals. and people are sharing more in the expenses of that and, indeed, in the co-pays and in the deductibles that they have to pay.

part of what the military is doing right now is looking at how they improve the lifestyle and the way people in the military think about their own health. i think that this is important, and the programs dr. woodson has established, there in their infancy right now, get at some of the education. but i think it can't be just done by people who are responsible for health care because so much of what occurs in the military is influenced by leadership and command. we all know that smoking is bad. we all know that it has tremendous impact on the lives of people, and it costs a lot to the military health care system. we all know that obesity is bad, and it drives up the cost of all health care systems. and yet in the military we still subsidize the sale of cigarettes

in the exchange system so that it's far below what some would pay if they went into a wal-mart or something like that to be able to buy it. i don't think you can keep everyone from smoking in the military but you shouldn't certainly subsidize. i think the same thing in terms of the way the health habits of people. people in the military have weight standards that they have to maintain, which is a great thing in order to be able to do, but that isn't always maintained a healthy eating habits that we know serves them. so it needs to be a commend the kids involved in this in order to be able to do it in the future. innovation in health system i think is an important thing. >> thank you very much. we are going to go to you now. i think we will take two questions at a time because my guess is that once we get a question we will probably work with it for a while a. i think in interest of getting a few of your comments on the table to go straight to you, and to at a time. so the gentleman here in the

fourth row, please come and then also here in the second row. >> good morning. i guess i'm always concerned when i hear some of the comments through the panel and appreciate your thoughts and expertise this morning, but when you're looking at the challenges that dod is facing in the budget clearly as a retired professional our boss understands what's going on with the. why are there never any comments made about the real problem with acquisition reform out there? there's a well-publicized, a well researched study by the gao, 500 billion in cost overruns which could really easily almost pay for the sequestration burden. why is that never addressed your? and was the focus of the bill seems to go on as i would call l it the low-hangin low hanging fe were kind of go directly at the personal side of it here, kind of bothered me on that part. the second part of the question

is, the same time we're reducing that, the uniformed leadership has already put a letter up on the hill that's been well-publicized and articles where the uniformed leadership in particular has asked for protections on their pay and compensation. why at the same time they want to reduce it for the rank-and-file of the military, which kind of bothers me in terms of the disingenuous piece therefore leadership. so i'm kind of tension about how you address those things that are going on here, either of those two points. i have seen we have not talked about either of those, particularly acquisition reform component. >> as we go to the second question, let me take my sword over the top of the isf leader to speak about military health reform so that's why we're not talked with acquisition. the rest of your points and questions are certainly worth addressing. sir, over to you. >> distinguished speakers configured for being here today. i am a war college fellow at georgetown, and i'm health

services officer often giunta distinguished honor of moving reserve forces to and from active duty, based on the nation's needs. and i can tell you from my perspective that's one of our most difficult challenges with health care system is moving reserve is in and out of the systems. for lack of a better word, very much like a patch quilt system built from the top down. very, very difficult. it's wrote with congressional and individual complaints that again takes a lot of our time to deal with. so i wanted to ask you from your different perspectives, or responsibilities, if you're reform will include reconsidering how the reservists access the system. maybe come up with a fresh point of view and build it from the individual up, because we know that in the future in dod reform

the reservists have to be part of the solution. i mean, using the reserve component is going to save us money ultimately, so if we could redesign the program where they get access to the system a little easier, perhaps have benefits of correlate with her social security number as they are, as they are entitled or authorized to go into active duty, something like that approach perhaps. >> will reform eventually include a redesigning the program for reservists to access the system, a little easier? >> also maybe i can add ineffective secretary which in a chance if there's something you still need be said of the poll, or maybe you want to begin. i don't know what is better for you. here's a microphone. >> thank you for that question. one thing i was trying to allude to in my comments was just that. we need to re-examine a lot of

cold war policies that don't allow us to t.a.p. into easily the skill rich pool of the reserve is. i'm a reservist, and i also was again the assistant surgeon general responsible for mobilizations i would go to projector platforms all the time and i would hear from reservists are i love the work. they are true patriots, don't hesitate to be called up, but hated the transition from inactive to active duty. so one of the things i was alluding to and i use that example of buying point for ft is decreed these comprehensive study just for selected groups of reservist so that you could bring them on off easily. it helps them and then we could manage benefits better, just to start the discussion. >> bob? >> well, going to the gentleman's question about other

issues and acknowledging as mike has said that this panel focused on health care, there have been a variety of proposals that you're probably familiar with by the department, and i can speak as a department official now but as a formal one that tries to look for ways to hold down costs, everything from looking for ways to make do with fewer civilian employees, it affected health care but also affected many other activities, and cutting back on contract payments, contract court to look for lower priorities. strategic sourcing, gather together purchases and make use of departments buying power. acquisition reform was certainly part of that. you would be for my with a better buying power initiatives that have been going on for a number of years. there are some fundamental constraints of their entrance of the departments desire to continue to, field weapons are technically superior and a limited amount of competition that we have, that's clear to

the best way to hold down costs. but there were a number of initiatives taken there, i think the fact we are focusing on health care today shouldn't be taken to mean that's the only thing that dod is looking at. they're looking at a variety of issues, to include acquisition reform. >> other thoughts on the panel is to any of these questions? outlets, please. >> well, i think there are a number of concessions that would've been alluded to come including the last one of what happens to reservists when they go on active duty and come back, and that's clearly just one or in the transition between dod and va is another one. and within the civilian sector of people moving from medicaid onto the exchanges as a change of their income for the job sector to. i think the general point is we've got to figure out how to have a common set of identifiers

so that if you move from one system to another, your record mess with you and they know who you are and what's happened to you, and all of that, is clearly an imperative. and if we can think about all of these things as a national health system, as henry said, we may be able to make some progress, and maybe with a system that really moves people in and out of their different statuses with ease. >> henry. >> concerned with expressed about the fact that higher co-sharing and restricting the medical benefit would fall disproportionately on a relatively lowly paid to members of the military, at least that's what i interpreted it. the health benefits is a big part of the compensation of a sergeant. its nose a big part of the compensation of the colonel.

so if you are raising the cost of health care, aren't you disadvantaging the more lowly paid? i don't think that has to be the case at all. there are lots of ways to go about doing this. you can have an income related premium that's the essence of the way health reform works. you can have additional compensation in other forms that is part of the package of changes in health benefits. so the issue of what the distribution of compensation is across the different ranks is something one can decide separately from the question of how much of the cost of health care should be shouldered personally by people in the military, or their families. i think i'm with you on the distribution side of things, but i think it's a problem that

could be dealt with. >> just had to do. the proposal department last year did have lower co-pays, for example, for i think e. fives, the fourth and below. so there was an attempt to do just what you said, henry. it was great concern akin to military to take care of the more junior enlisted. >> other questions? we will take two more. jason and the woman in the fifth row. >> federal executive fellow here at the brookings, active duty coast guard officer, really enjoyed the discussion. and i will be one to say that i agree that there's opportunities for reform and total compensation and some of the ideas are worth considering. i guess my question is in the context of the overall federal budget, politically can we ever get there? should be ever get there? without a broader discussion on the other drivers for the rest of the population that's

impacting the cost of the budget i get similar to the acquisitions question, but some of the same challenges exist with other entitlement programs. and if you like it will be very difficult to get to the military piece politically without the appearance of balancing the budget on the back of the veteran without at the same time addressing medicare, medicaid rising entitlements, and how do we look at that going forward? thank you. ..