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The Potential Cost of Meeting
Demand for Veterans' Health Care
  March 2005  


Cover Graphic


Notes

Unless otherwise indicated, all years referred to in this paper are fiscal years.

Numbers in the text and tables may not add up to totals because of rounding.

All dollar amounts are expressed in 2005 dollars (having been converted, when necessary, using the GDP price deflator).

All of the cover photographs were provided courtesy of the Department of Veterans Affairs. The photograph in the upper left-hand corner is by Gary Dale. The other photographs are by Ira Wexler.





                
Preface

In recent years, increasing numbers of veterans have turned to the Department of Veterans Affairs (VA) for medical care, responding in part to an easing of eligibility rules in the mid-1990s that opened up the system to veterans who previously had only limited access to VA health care. Although VA medical budgets increased by 40 percent in real (inflation-adjusted) terms from 1999 to 2004, waiting lists and budget constraints led VA in January 2003 to restrict access to the system for higher-income veterans without service-connected disabilities. As the number of veterans seeking care continues to increase each year, it is unclear whether that change alone will relieve the pressures on VA medical facilities.

This Congressional Budget Office (CBO) paper, which was requested by former Senator Don Nickles in his capacity as Chairman of the Senate Budget Committee, examines the potential budgetary implications of meeting veterans' rising demand for medical care. In keeping with CBO's mandate to provide objective, nonpartisan analysis, this paper makes no recommendations.

The paper was prepared by Allison Percy and R. Derek Trunkey of CBO's National Security Division under the supervision of J. Michael Gilmore and Matthew S. Goldberg. David Auerbach and Stuart Hagen helped to develop the analysis in Scenario 3. Thomas Bradley, Arlene Holen, Carla Tighe Murray, Lyle Nelson, Sam Papenfuss, Elizabeth Robinson, and Jo Ann Vines provided thoughtful comments on a draft of the paper, as did external reviewers Gail R. Wilensky of Project Hope and Kent Simonis of Simonis Management Consulting. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.) The authors wish to thank VA for providing data used in the analysis.

Christine Bogusz edited the paper, and Loretta Lettner proofread it. Cindy Cleveland produced drafts of the manuscript, Daniel Frisk checked the manuscript for factual accuracy, and Maureen Costantino prepared the paper for publication and designed the cover. Lenny Skutnik printed copies of the paper, and Annette Kalicki and Simone Thomas prepared the electronic version for CBO's Web site.

Douglas Holtz-Eakin
Director
March 2005




CONTENTS
 
Summary
 
Introduction
 
Background
      VA's Eligibility Requirements
      Recent Trends and Policy Changes
      Outpatient Clinics
 
Methodology of This Analysis
 
Projection Results
      Results for Scenario 1
      Results for Scenario 2
      Results for Scenario 3
 
Sensitivity Analysis of Increased Enrollment Rates
  Sensitivity Analysis for Scenario 1
      Sensitivity Analysis for Scenario 2
      Sensitivity Analysis for Scenario 3
 
Comparing the Scenarios to CBO's Baseline Projections
 
Conclusion

Tables
   
1.  VA's Health Care Enrollees, by Priority Group, 1999 to 2004
2.  VA's Community-Based Outpatient Clinics
3.  Percentage of Veterans with Other Sources of Health Insurance Coverage, by Priority Group
4. Summary of Projection Results Under CBO's Three Scenarios
5. Comparison of Out-of-Pocket Costs for Enrollees in Selected Health Plans in Calendar Year 2005
6. Summary of Sensitivity Analysis with Increased Enrollment Under CBO's Three Scenarios
7. Funds Needed to Meet Projected VA Medical Demand Under the Various Scenarios Presented in This Paper
   
Figures
   
1.  The Total Population of Veterans, 1990 to 2004
2.  VA's Medical Budget, 1990 to 2004
3.  Estimated Percentage of Veterans Enrolled for Medical Care from VA, by Priority Group, 2004
4. Veterans' Rates of Reliance on VA Care, by Priority Group, 2002
5. Relative Cost of VA Enrollees, by Priority Group, 2002
6. Veterans' Shares of Total VA Medical Enrollment and Costs, by Priority Group, 2004
7. Estimated Percentage of the Total Population of Veterans in Each Priority Group, 2004
8. Projected Resource Needs Under Different Assumptions of Growth in Heath Care Costs for Scenario 1
9. Projected Demand for VA Medical Resources Under Scenario 1, Allocated by Priority Group, Compared with CBO's Baseline Budget Projections, 2005 to 2025
10. Projected Demand for VA Medical Resources Under CBO's Three Scenarios, 2005 to 2025
11. Summary of the Projections for 2025, by Scenario and Priority Group
   
Boxes
   
1.  VA's Health Care Priority Groups
2.  Interactions Between Sources of Health Care Coverage
3.  Elements of the Congressional Budget Office's Cost Projection
4.  Modeling the Effects of Policy Changes on Enrollment and Costs
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