Possible Higher Spending Paths for Veterans' Benefits

The Department of Veterans Affairs (VA) administers programs to aid former members of the armed forces and their families. By far the largest share of its budget is spent on two programs, one that pays compensation to veterans who have service-connected disabilities and one that provides medical care to veterans. VA’s spending (adjusted to remove the effects of inflation) has grown rapidly—from $64 billion, or 2.6 percent of all federal spending, in 2000 to $180 billion, or 4.4 percent of spending, in 2017. (CBO estimates that spending was $187 billion in 2018; however, CBO’s analysis focused on 2017, because it lacked information required to provide a detailed analysis of VA’s 2018 spending.) That large increase has prompted concerns about the long-run affordability of VA benefits, particularly if their cost continues to increase at the same rate as in recent years.

To help policymakers assess the risks associated with increased costs, CBO has projected VA’s spending through 2028 under three different scenarios—a version of CBO’s baseline (modified to reflect the effects on mandatory spending of recent legislation) and two alternative scenarios involving more rapid growth. CBO’s baseline budget projections are based on an assumption that current laws will generally remain in place. Under the rules for constructing the baseline, CBO assumes that VA’s spending for disability compensation will increase as needed to comply with laws governing the program and that appropriations for VA’s medical care will increase at the rate of inflation in the general economy. In the other two scenarios, CBO relaxes the constraints governing the baseline. Instead, CBO extends VA’s current policies for medical care, thereby assuming increases in discretionary appropriations that are greater than the rate of inflation; and in one of the scenarios, projects growth in both per-beneficiary medical care and disability compensation on the basis of VA’s experience from 2008 to 2017. CBO also incorporates into those two scenarios the effects of recent legislation on discretionary spending.

In the modified baseline, VA’s spending increases by nearly 20 percent (in 2018 dollars) from 2017 to 2028. Under the two higher-growth scenarios, VA’s spending is projected to increase by about 33 percent or by just over 50 percent over that period. It could be higher or lower under other scenarios.

How Much Does VA Spend on Care for Veterans?

Of the $180 billion VA spent in 2017, the department paid disability compensation of $73 billion to 4.5 million veterans with service-connected disabilities. VA spent a little less, $69 billion, on medical care for more than 6 million veteran patients and medical research. Substantially less, $14 billion, was spent on the next largest set of programs, which provide education and vocational rehabilitation benefits for about 1 million veterans and their dependents, and the remainder paid for other programs and administrative costs.

Between 1970 and 2017, VA’s spending grew significantly faster than economywide inflation, even as the number of veterans waned. Growth was fastest in the years after 2000, averaging more than 6 percent annually above the rate of inflation. As a result, VA’s spending nearly tripled between 2000 and 2017.

How Will the Recent Legislation Expanding Access to Medical Services Affect VA’s Spending?

In June 2018, lawmakers enacted the VA MISSION Act, which among other things increases veterans’ access to VA’s medical services and expands support to veterans’ families. The law will affect discretionary and mandatory spending. CBO estimates that implementing the law will cost $46.5 billion (or $43.1 billion in 2018 dollars) through 2023 in discretionary spending, assuming that the Congress appropriates the necessary amounts each year. One provision expands veterans’ access to medical care at non-VA medical providers and facilities. That new community care program will cost $21.4 billion ($19.9 billion in 2018 dollars) in discretionary funding over the next five years, CBO estimates.

The law also provided $5.2 billion in mandatory funding for the Veterans Choice Program, a separate community care program enacted in 2014 and set to expire after all of its funds have been used. (CBO’s cost estimate for the VA MISSION Act, H.R. 5674, which was enacted as S. 2372, provides details about the law’s provisions and projected spending required to implement them.)

How Might VA’s Spending Grow Over the Next Decade?

The scenarios CBO analyzes in this report capture some possible trajectories for VA’s future spending—CBO’s modified baseline and two alternative scenarios involving more rapid growth (see figure below). VA’s spending could also be less than projected in the modified baseline; however, because of Congressional concern about budgetary risks, this report focuses on developments that could result in higher spending paths.

Although the growth in VA’s total spending would exceed the rate of inflation under all three scenarios, the growth in total spending would still be slower than VA has experienced in recent years—in part because the number of beneficiaries for the largest programs is projected to stay about the same or rise more slowly than in the past.

Scenario 1. The first scenario is CBO’s baseline projection, which the agency constructs using rules specified in law, modified to incorporate the mandatory funding provided in the VA MISSION Act. For discretionary programs—such as those for most of VA’s medical spending—the baseline projects that future appropriations will equal the most recent appropriation, increasing only at the rate of inflation in the general economy. For mandatory spending—which includes disability compensation— CBO’s baseline projects that funding will be adequate to make all payments required by current laws. Therefore, to estimate mandatory spending, CBO uses detailed information on the eligibility and benefits established by those laws, the projected size of the veteran population, and other factors. For this scenario, CBO modified its most recently published baseline (from April 2018) to incorporate the mandatory funding for 2018 that was provided in the MISSION Act but did not incorporate its estimates of the discretionary costs of the law because the Congress did not provide any discretionary appropriations in the law.

Under Scenario 1, VA’s total spending would grow by 19 percent, from $180 billion in 2017 to $215 billion in 2028 (in 2018 dollars). The estimated average annual rate of growth of 1.6 percent over the 2017–2028 period would be substantially slower than the 5.5 percent rate that VA experienced between 2010 and 2017.

Scenario 2. The baseline’s assumption that medical care appropriations would not grow faster than inflation does not accord with historical experience, suggesting a second scenario. Scenario 2 follows Scenario 1 except that VA’s medical spending rises on the basis of current policies governing its programs and services (such as eligibility for care). To that end, CBO uses detailed enrollment information, the projected per-capita growth in medical costs in the general economy, and other data to project the costs of providing medical care to veterans. Scenario 2 also incorporates the discretionary spending that CBO projects will be needed under the VA Mission Act from 2019 to 2023, as provided in CBO’s cost estimate for that legislation, and extends those estimates through 2028.

Under Scenario 2, VA’s spending would grow by about one-third, from $180 billion in 2017 to $238 billion in 2028, an average annual increase of 2.6 percent above the rate of inflation. That rate is roughly 60 percent higher than that for Scenario 1 but a little less than half the rate of growth that VA experienced between 2010 and 2017.

Scenario 3. Because policies for the disability compensation and medical care programs have not remained constant over the past several years, CBO considered a third scenario. Under Scenario 3, spending per beneficiary for disability compensation and medical care would grow at rates that reflect VA’s experience over the past 10 years: growth that incorporates, in part, VA’s spending arising from government actions, changes in the economy, and world events. In effect, Scenario 3 reflects a path in which lawmakers, VA, or the courts take new actions— or changes occur in the health insurance market or the economy—that boost VA’s spending and cause it to rise at the same rate as has occurred over the past 10 years. Any of those changes could occur in combination with others. For disability compensation, that historical rate of growth in spending per beneficiary is applied to each year of the projection period. For medical care, Scenario 3 is the same as Scenario 2 while the MISSION Act is being implemented (over the 2019–2023 period); for years after 2023, CBO applied the historical rate of increase in spending per beneficiary.

Under Scenario 3, spending would grow by just over 50 percent, from $180 billion in 2017 to $272 billion by 2028 (in 2018 dollars). That increase would represent an average annual rate of growth of 3.8 percent, which is nearly 2.5 times the average annual rate of growth in Scenario 1—yet it is about 30 percent lower than the annual growth that VA experienced from 2010 to 2017.