Potential Costs of Veterans' Health Care

October 7, 2010

The Department of Veterans Affairs (VA) provides health care at little or no charge to more than 5 million veterans annually. VA is operating its medical care system and associated research program with a budget of $48 billion for 2010, a rise of 8 percent in nominal terms (without adjusting for inflation) from 2009. That budget grew at an average nominal rate exceeding 9 percent annually between 2004 and 2009. Unlike programs like Medicare and Medicaid, VA’s health care program receives its funding through the annual appropriation process. VA’s health care budget will face continued pressure over the next few years: Additional veterans are likely to seek care from VA, and cost increases in medical care are expected to continue to outpace cost increases for other goods and services.

In a report mandated in the Consolidated Appropriations Act, 2008, CBO examines, under two different scenarios discussed below, prospective demands on VA’s health care system and the potential budgetary implications of meeting veterans’ health care needs over the 2011–2020 period. CBO projects that the future costs for VA to treat enrolled veterans will be substantially higher than recent appropriations for that purpose. CBO finds that the cost (in 2010 dollars) of providing health care services to all veterans who would seek treatment at VA facilities would range from $69 billion to $85 billion in 2020, representing a cumulative increase of roughly 45 percent to 75 percent over the funding provided in 2010. The projections for both scenarios exceed CBO’s baseline projections for such health care spending, which assume that future appropriations are equal to the most recent appropriation with adjustments for inflation.

One group of veterans—those who have deployed or will deploy to overseas contingency operations (OCO), including those in Iraq and Afghanistan—will represent a growing share of enrollments in VA’s health care system over the next decade. However, the share of VA’s resources devoted to the care of those veterans is likely to remain small through 2020, in part because they are typically younger and healthier than the average VA enrollee.

Scenarios

To account for possible policy changes, uncertainty about the number of veterans who will be enrolled, and growth of medical expenditures per enrollee, CBO analyzed two scenarios to capture some of the range of possible outcomes. The scenarios differ in their assumptions about the number of enrollees in VA’s health care system and the costs of providing medical services.

Scenario 1. Scenario 1 was crafted under assumptions that generate lower resource requirements than Scenario 2. The assumptions about factors affecting enrollment include the following:

  • VA’s eligibility, cost-sharing, and other policies at the beginning of 2010 remain in effect through the projection period. Those policies include the easing of enrollment restrictions that began in 2009 for certain veterans who have no compensable service-connected disabilities and whose income is no more than 10 percent above VA’s income thresholds.
  • The number of troops deployed to overseas contingency operations drops to 30,000 by 2013 and remains at that number throughout the next decade.
  • VA’s medical expenditures per enrollee for each priority group grow in nominal terms at slightly more than 5 percent per year, about the same rate as that anticipated in the general population over the decade.

Scenario 2. CBO developed the second scenario to illustrate potential policy changes and other outcomes that may result in higher resource needs for VA’s health care services. The assumptions for this scenario are as follows:

  • VA changes its eligibility rules to allow veterans who have no compensable service-connected disabilities and whose income is no more than 30 percent above VA’s income thresholds to enroll.
  • The number of troops deployed to overseas contingency operations declines more slowly than in Scenario 1, dropping to 60,000 by 2015 and remaining at that number through the rest of the decade.
  • VA’s medical expenditures per enrollee for each priority group grow initially at the rate VA assumed in preparing the Administration’s 2011 budget request that was transmitted in February 2010 and, in subsequent years, at an annual rate that is about 30 percent higher than that anticipated in the general population.

Potential Future Costs

Under Scenario 1, CBO estimates that total enrollment would grow from 8.0 million in 2009 to more than 8.8 million by 2016—an increase of about 10 percent—but would edge down to 8.7 million in 2020. The costs of treating all enrolled veterans would be about $69 billion (in 2010 dollars) in 2020.

Under Scenario 2, enrollment would be 620,000 higher in 2020 than in Scenario 1, with 340,000 new enrollees resulting from VA’s further relaxation of the restrictions on enrollment and 280,000 from the higher troop deployments. The costs of treating all enrolled veterans would reach nearly $85 billion in 2020, or 22 percent more than under Scenario 1. The disparity between the growth rates of medical expenditures per enrollee in the two scenarios accounts for the lion’s share of the difference—$13 billion.

CBO also estimated the portion of VA’s costs that would be incurred to treat veterans of OCO. CBO estimates that between the time hostilities began and the end of 2020, VA would enroll a total of 1.4 million or 1.7 million OCO veterans under Scenarios 1 and 2, respectively. The annual costs (in 2010 dollars) of treating OCO veterans would increase from an estimated $2.0 billion in 2010 to $5.4 billion in 2020 under Scenario 1 and to $8.3 billion under Scenario 2. In either case, the cost to treat OCO veterans accounts for 10 percent or less of VA’s costs in 2020.

This study was prepared by Heidi Golding of CBO’s National Security Division.