Under the old VHA/BAQ system, members were surveyed annually to determine how much they were paying for housing costs. However, many members chose to live in substandard quarters, which means the surveys showed they were paying less, which affected the rates authorized. Under the BAH system, the Department of Defense surveys housing costs in military areas to determine rates.
Like the old BAQ and VHA, BAH distinguishes between with-dependents and without-dependents, but not the number of dependents. BAH rates are computed as whole dollar amounts, rounding to the nearest dollar.
A primary reason for the new BAH allowance was the awareness that the old VHA/BAQ housing allowance system was unable to keep up with housing costs, and members were being forced to pay larger out-of-pocket costs than originally intended. With BAH, increases are indexed to housing cost growth instead of the pay raise, thus protecting members from any further erosion of housing benefits over time.
The new BAH is designed to be inherently fair because the typical service member of a given grade and dependency status, arriving at a new duty station, will have the same monthly out-of-pocket dollar amount regardless of the location. For example if the out-of-pocket cost for a typical E-5 with dependents is, say, $100, the typical (median) E-5 with dependents can expect to pay $100 out-of-pocket for housing if assigned to Miami, New York, San Diego, Fort Hood, Camp Lejeune, Minot, ND, in fact at all duty locations in the U.S.. Once the member arrives, rate protection applies, and the member will receive any published increase, but no decrease in housing allowances. For members at a given duty station when new BAH rates take effect, rate protection guarantees that typical out-of-pocket may be less, but never more, than when they arrived. (Note: As of January 1, 2005, BAH is calculated for zero out-of-pocket expense).
So much for the typical member—what about individuals? For a given individual, the actual out-of-pocket expense may be greater or lower than the typical, based on the actual choice of housing. For example, if a member chooses a bigger or more expensive residence than the median, that person will have larger out-of-pocket expenses. The opposite is true for an individual who chooses to occupy a smaller or less expensive residence. Only for the median member, do we say out of pocket expense is the same for a given pay grade and dependency status any location in the United States.