Sigh ... I was ignoring political threads but the title caught my eye and this hits too close to home not to comment.
[MENTION=19675]Dannyalcatraz[/MENTION] has the right of it for the most part ... the sticking point being that the majority of military benefits are not expressly in the contract. Pull up a DD Form 4 and check the language -- the contract only states that benefits will be provided "according to law and regulation."
Regulations are set by DoD and service and can be changed at whim, laws adjusted according to the desires of the legislature -- and none of those changes violate the contract, as there is no baseline condition in the contract to compare to. Our military and civilian leaders and legislators generally try to do the right thing and "grandfather" people in when policies change (the multiple retirement systems is a good example) but that doesn't always happen and hasn't in the case of military and retiree health care. Yeah, supposedly we were promised free health care -- point to where that promise was made? We can't, unfortunately.
Personally I'd be a huge fan of having more explicit service contracts that spell out much more exactly what our benefits are at the point of entry into service so they'd (in theory) be more enforceable in the event of change, but I don't see that ever happening -- Congress likes the flexibility of dictating how the military is to be treated (even when they want to treat us well). And in any event it's not like servicemembers can generally sue the government for service-incurred faults or changes (Feres Doctrine, writ large, though IANAL).
Whether military retirees and service members deserve it is left as an exercise to the reader. At 22 years of active service and counting, I'm too biased to offer a balanced opinion other than to pose a question: what's the value of protection to the protected, when the protector is willing to grant the protected a writ of unlimited liability, to be cashed at will, in return for some future (and often, unrealized) benefit?