Budget Options
December 8, 2016

Discretionary Spending Health Option 16

Function 700 - Veterans' Benefits and Services

End Enrollment in VA Medical Care for Veterans in Priority Groups 7 and 8

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Discretionary Spending                        
  Budget authority 0 -5.4 -5.5 -5.7 -5.9 -6.0 -6.2 -6.4 -6.6 -6.8 -22.5 -54.6
  Outlays 0 -4.8 -5.4 -5.6 -5.8 -6.0 -6.2 -6.4 -6.6 -6.8 -21.7 -53.5
Change in Mandatory Outlays 0 2.5 2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2 10.3 25.2

This option would take effect in October 2017.

Discretionary savings accrue to the Department of Veterans Affairs; increases in mandatory outlays are projected for the Medicare and Medicaid programs and federal spending on subsidies to purchase insurance through the health insurance marketplaces established under the Affordable Care Act.

Veterans who seek medical care from the Veterans Health Administration (VHA) are assigned to one of eight priority groups on the basis of disability status and income, among other factors. For example, enrollees in priority groups 1, 2, and 3 have compensable service-connected disabilities, their income is not considered, and their care is mostly free. Veterans in priority group 7 have no service-connected disabilities, and their annual income is above a national income threshold set by VHA but below a (generally higher) geographic threshold. Those in priority group 8 have no service-connected disabilities, and their income is above both the national and the geographic thresholds. In 2015, about 2 million veterans were assigned to priority groups 7 and 8.

Although veterans in priority groups 7 and 8 pay no enrollment fees, they are charged copayments and VHA can bill their private insurance plans for reimbursement. Together, the copayments and insurance cover about 17 percent of VHA’s costs of care for that group. In 2015, VHA incurred $5.2 billion in net costs for those patients, or about 9 percent of the department’s total spending for medical care (excluding spending from the medical care collections fund, which collects or recovers funds from first- or third-party payers to help pay for veterans’ medical care). When priority groups were established in 1996, the Secretary of the Department of Veterans Affairs was given the authority to decide which groups VHA could serve each year. By 2003, VHA could no longer adequately serve everyone, and the department cut off enrollment in priority group 8, although anyone already enrolled could remain. The rules changed again in 2009 to reopen certain new enrollments in that group.

Starting in fiscal year 2018, this option would close priority groups 7 and 8: No new enrollments would be accepted, and current enrollments would be canceled. The action would curtail spending for veterans who have no service-connected disabilities and whose incomes are above the national threshold. Discretionary outlays would be reduced, on net, by $54 billion from 2018 through 2026, the Congressional Budget Office estimates. Because this option would increase use of other federal health care programs, mandatory spending would rise by $25 billion for Medicare, Medicaid, and federal subsidies provided through the health insurance marketplaces established under the Affordable Care Act.

An advantage of this option is that VHA could focus on the veterans with the greatest service-connected medical needs and the fewest financial resources. In 2015, nearly 90 percent of enrollees in priority groups 7 and 8 had other health care coverage, mostly through Medicare or private health insurance. As a result, the vast majority of veterans who would lose access to VHA would have other sources of coverage, including the health insurance marketplaces.

A disadvantage of the option is that veterans in priority groups 7 and 8 who have come to rely on VHA, even in part, might find their health care disrupted. Some veterans—particularly those with income just above the thresholds—might find it difficult to locate other affordable care.