Potential Costs of Veterans’ Health Care
The Department of Veterans Affairs (VA) provides health care at little or
no charge to more than 5 million veterans annually. Medical services are
provided through the inpatient and outpatient facilities run by the Veterans
Health Administration. Those services include routine health assessments,
readjustment counseling, surgery, hospitalization, and nursing home care.
The Congressional Budget Office
(CBO) projects that the future costs for VA to treat enrolled veterans will be
substantially higher (in inflation-adjusted dollars) than recent appropriations
for that purpose, partly because more veterans are likely to seek care in the
VA system but mostly because health care costs per enrolled veteran are
projected to increase faster than the overall price level. Under two scenarios
that CBO examined, the total real resources (in 2010 dollars) necessary to
provide health care services to all veterans who seek treatment at VA would
range from $69 billion to $85 billion in 2020, representing cumulative
increases of roughly 45 percent to 75 percent since 2010.
Although veterans from recent
conflicts will represent a fast-growing share of enrollments in VA health care
over the next decade, the share of VA’s resources devoted to the care of those
veterans is projected to remain small through 2020, in part because they are
younger and healthier than other veterans served by VA.
Background
To provide health care services,
VA depends on discretionary funding that the Congress provides in annual
appropriation acts. Although eligibility for VA health care is based primarily
on veterans’ military service, VA may, and does, adjust enrollment according to
the resources available to it.
The Veterans’ Health Care
Eligibility Reform Act of 1996 (Public Law 104-262, 110 Stat. 3177) mandated
that VA deliver services to veterans who have service-connected conditions, to
veterans unable to pay for necessary medical care, and to specific groups of
veterans, such as former prisoners of war. The legislation permitted VA to
offer services to all other veterans to the extent that resources and
facilities were available; it also required VA to develop and implement an
enrollment system to facilitate the management and delivery of health care services.
VA’s enrollment system includes
eight categories that determine veterans’ eligibility and priority for access
to health care. The highest priority is given to veterans who have
service-connected disabilities (priority groups 1 through 3, or P1 through P3);
the lowest priority is given to higher-income veterans who have no compensable
service-connected disabilities, that is, no conditions that are disabling
to the degree that VA provides compensation (P8).
The number of veterans treated by
VA climbed rapidly following the enactment of the 1996 law, increasing from 2.9
million in fiscal year 1995 to 4.5 million in 2003. By 2003, VA no longer had
the capacity to adequately serve all current enrollees, prompting the Secretary
of Veterans Affairs to suspend further enrollment of some higher-income
veterans (those in P8); VA eased that restriction in 2009 to allow
some of those veterans to enroll. (Enrolled veterans typically have more than
one source of health care available to them and choose to use VA for only a
small portion of their health care, relying on other sources such as Medicare,
employer-sponsored insurance, or the Department of Defense’s TRICARE program.)
Current Resources
A total of $44 billion was
appropriated to VA for 2009 to provide medical services to veterans and to
conduct medical research. That amount was increased by 8 percent, to $48 billion,
for 2010. VA has requested an appropriation of $52 billion, an additional
8 percent, for 2011. The average annual increase was more than 9 percent
from 2004 through 2009.
One group of veterans—those who
have deployed or will deploy to overseas contingency operations (OCO), which
include Operation Iraqi Freedom, Operation New Dawn, and Operation Enduring
Freedom in Afghanistan and related activities—are of particular interest as
policymakers and others attempt to determine the extent of the war-related
medical conditions of those veterans and the resources required to treat them.
Those veterans accounted for only about 6 percent of all patients in 2009
and 3 percent of the total dollars obligated for veterans’ health care in
that year. Of the $43 billion obligated in 2009, VA estimates that it
obligated $1.5 billion to care for OCO veterans. VA further estimates that
those obligations will rise to $2.0 billion in 2010, $2.6 billion in
2011, and $3.3 billion in 2012.
Projecting Future Costs
This CBO report examines
prospective demands on VA and projects the resources the agency would need to
provide medical care to all enrolled veterans during the next 10 years,
2011–2020. (The report does not attempt to predict appropriations for VA.)
Although the focus of this report is on the resources VA would need to treat
all enrolled veterans, CBO has also separately projected the portion of those
resources that would be needed to treat the veterans of the ongoing overseas
contingency operations.
The recent increases in VA’s
medical budget have reflected factors that will probably affect future resource
requirements. First, as is true for all U.S. health care, VA’s medical
expenditures per enrollee have grown more rapidly than has the overall price
level. Second, the ongoing deployments to combat operations in Iraq and
Afghanistan have increased the number of veterans seeking care from VA. Third,
VA has been easing restrictions on enrolling higher-income veterans (those in
P8), in part because of concerns expressed by policymakers and others who
believe that restrictions on enrollment have caused some veterans to be denied
benefits that they deserve.
To account for some possible
policy changes and for uncertainty about the number of veterans who will be
enrolled and the growth of medical expenditures per enrollee, CBO presents two
scenarios to capture some of the range of possible outcomes. The scenarios
differ in their assumptions about the number of enrollees in the VA health care
system and the costs of providing medical services. CBO also assumes that there
will be no major changes in VA’s policies (except for a possible change in
eligibility criteria) and that the enrollment of non-OCO veterans (except for
higher-income veterans) and the percentage of total health care that veterans
receive from VA as opposed to other sources, referred to as their "reliance on
VA," follow current trends.
Scenario 1. The first scenario was crafted
using assumptions about enrollment and medical expenditures per enrollee 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 are
those in effect at the beginning of 2010. Those policies include the easing of
enrollment restrictions that began in 2009 for veterans in priority group 8 who
have no compensable service-connected disabilities and whose income is 10
percent or less above VA’s income thresholds.
- The number of troops deployed to overseas contingency
operations, which currently include the military operations in Iraq and
Afghanistan and related activities, drops to 30,000 by 2013 and remains at that
number throughout the 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 crafted 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 that
scenario are as follows:
- VA changes its eligibility rules to allow veterans who have no
compensable service-connected disabilities and whose income is 30 percent or
less above VA’s income thresholds to enroll. Other than that change, all
policies relating to eligibility, cost sharing, and other factors are those in
effect at the beginning of 2010.
- 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—a rate that exceeds the average rate experienced by VA from
2003 through 2007, before significant numbers of veterans from the ongoing
conflicts had enrolled.
Potential Costs to Treat All VA Enrollees
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 resources required to treat all enrolled veterans
would be about $69 billion in 2020, nearly 45 percent higher than the
$48 billion that has been provided for 2010.
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 resources required to treat all
enrolled veterans would reach nearly $85 billion in 2020, or 22 percent
more than under Scenario 1 and about 75 percent more than the amount
provided for 2010.
What factors explain the
difference of roughly $15 billion in the potential costs of the two scenarios
in 2020? 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. Extending eligibility to additional higher-income
veterans who have no compensable service-connected disabilities would add just
$1 billion to the costs under Scenario 1; because those new enrollees are drawn
from a group that historically has cost less to treat than most other veterans,
the additional resources VA would require would be relatively small. The higher
troop levels for contingency operations under Scenario 2 would also add $1
billion; the increase in the number of enrollees would be small—only about
3 percent—and they too would use fewer resources than the average
enrollee.
The projections for both scenarios
exceed the baseline projections that CBO constructs in accordance with the
provisions set forth in the (now expired) Balanced Budget and Emergency Deficit
Control Act of 1985. The baseline projections reflect the assumption that
appropriations increase at the same rate as the employment cost index for the
wage and salary component of VA’s budget and at the same rate as the gross
domestic product price index for all other components.
In making its projections, CBO did
not explicitly account for recently enacted health care legislation—in
particular, the Patient Protection and Affordable Care Act (P.L. 111-148) and
the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152).
Although there is considerable uncertainty regarding how the new legislation
will be implemented, CBO conducted a preliminary analysis of how it might
affect VA’s resource requirements. That analysis indicates that the new laws
may either increase or decrease the number of enrollees—and therefore VA’s
resource requirements—but in either case probably by only a small amount. On
the one hand, the costs of obtaining health insurance will be lower for some
veterans in the latter part of the coming decade, leading some of them to seek
less care from VA than they would have without the recent legislation. On the
other hand, to avoid financial penalties that may be assessed on people who do
not have a required level of health insurance, some veterans who would
otherwise neither enroll in VA’s program nor obtain other insurance might
choose to enroll with VA. Neither of those effects is likely to be large enough
to significantly affect the projections in this report.
Potential Costs to Treat Veterans of Overseas Contingency Operations
As part of its projections for the
resources needed to treat all enrolled veterans, CBO separately estimated the
portion of resources that would be required to treat veterans of overseas
contingency operations. 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 resources (in 2010
dollars) required to treat 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. Because OCO veterans are typically younger and
healthier than the average VA enrollee, they are less expensive to treat.
Accordingly, the resources devoted to OCO veterans would be a small share of
outlays, consuming 8 percent and 10 percent of VA’s resources for health care
services in 2020 under Scenario 1 and Scenario 2, respectively. As the OCO
veterans age, however, CBO expects that their costs will be similar to those of
other older veterans who use VA’s health care services.
Long-Term Implications of the 2013 Future Years Defense Program
VHA spent about $2 billion in fiscal year 2010 to provide medical care to all recent combat veterans.
Those amounts do not include initial care provided by the Department of Defense (DoD) or care by other providers outside of VHA. For comparison, VHA estimates that the average cost of care in 2011 for veterans of all eras will be $9,100.