**MEMORANDUM MATHEMATICA**

Policy Research, Inc.

600 Maryland Ave. S.W., Suite 550

Washington, DC 20024-2512

Telephone (202) 484-9220

Fax (202) 863-1763

www.mathematica-mpr.com

**TO:** Allen Berkowitz and Stephen Meskin

**FROM:** Jonathan Jacobson **DATE:** 9/25/2003

8986-012

**SUBJECT**: Conceptual Framework for Simulating from 4/1/2000 to

9/30/2002 and Beyond for VAM3 (DRAFT, version 2.0)

> In this memo, I outline a framework for creating the 4/1/2000 and
> 9/30/2002 baseline database for the 2003 Veterans Actuarial Model
> (VAM3). This memo builds on an earlier (8/12/2003) memo on simulated
> Health Care Priority Status (HCP) for VAM3.
>
> I first review the definitions of the classification variables and
> certain key attribution variables that will be included in the model
> database. Next, I discuss the datasets that would need to be created
> before creating this database. I then present a sequence of steps by
> which to construct the 4/1/2000 baseline for VAM3. The fourth part of
> the memo describes the steps for moving from 4/1/2000 to 9/30/2002,
> and a fifth section discusses moving from 9/30/2002 forward in VAM3
> simulations.
>
> **1. Variable Definitions**
>
> The model database will include the following *classification
> variables*, which will define distinct cells of veterans in the model
> database:

-   SOURCE = source of data (Census or DMDC)

-   DATE = date of projection (4/1/2000 -- 9/30/2102)

-   AGE = age of veteran (16-120)

-   GENDER = gender of veteran (Male or Female)

-   PERSVC13 = period of service (13 categories, consistent with VAM2)

-   PERSVC2 = flag for post-Vietnam veterans

-   LIVING = living/deceased status

-   RACE = race/ethnicity (1 = Hispanic of any race, 2 = Non-Hispanic
    but multiple race, 3 = White and non-Hispanic, 4 = Black and
    non-Hispanic, 5 = American Indian or Aleut or Eskimo, 6 = Asian or
    Pacific Islander, 7 = Other)

-   CP_STAT = compensation / pension status, having one of 8 values:

    -   0 = SC_70+ = receiving compensation (but not pension) with
        70-100 percent degree of service-connected disability

    -   1 = SC_50_60 = receiving compensation (but not pension) with
        50-60 percent degree of service-connected disability

    -   2 = SC_30_40 = receiving compensation (but not pension) with
        30-40 percent degree of service-connected disability

    -   3 = SC_10_20 = receiving compensation (but not pension) with
        10-20 percent degree of service-connected disability

    -   4 = MISC_P1_P4 = not receiving compensation or pension but
        identified in VA data as in health care priority groups 1-4

    -   5 = PEN = receiving VA pension benefits

    -   6 = SC_00 = receiving compensation (but not pension) with 0
        percent degree of service-connected disability

    -   7 = OTHER

> CP_STAT will be used with the other classification variables to
> identify the proportion of veterans in one of 9 health care priority
> rankings:

-   HCP_1A = 100 percent of veterans with CP_STAT = SC_70+, and a
    percentage (varying by classification variables) of veterans with
    CP_STAT = MISC_P1_P4, PEN, and OTHER

-   HCP_1B = 100 percent of veterans with CP_STAT = SC_50_60, and a
    percentage (varying by classification variables) of veterans with
    CP_STAT = MISC_P1_P4, PEN, and OTHER

-   HCP_2 = 100 percent of veterans with CP_STAT = SC_30_40, and a
    percentage (varying by classification variables) of veterans with
    CP_STAT = MISC_P1_P4, PEN, and OTHER

-   HCP_3 = 100 percent of veterans with CP_STAT = SC_10_20, and a
    percentage (varying by classification variables) of veterans with
    CP_STAT = MISC_P1_P4, PEN, SC_00, and OTHER

-   HCP_4 = a percentage (varying by classification variables) of
    veterans with CP_STAT = MISC_P1_P4, PEN, SC_00, and OTHER

-   HCP_5 = a percentage (varying by classification variables and the
    state income distribution) of veterans with CP_STAT = PEN, SC_00,
    and OTHER

-   HCP_6 = a percentage (varying by classification variables and the
    state income distribution) of veterans with CP_STAT = SC_00 and
    OTHER

-   HCP_7 = a percentage (varying by classification variables and the
    state income distribution) of veterans with CP_STAT = OTHER

-   HCP_8 = a percentage (varying by classification variables and the
    state income distribution) of veterans with CP_STAT = OTHER

> The HCP\_\* variables are examples of *attribution variables* that
> will be created using parameter files applied to unique cells of
> veterans in the model database. Other attribution variables will
> include

-   BRANCH_w (percentage in each branch of service, where w = 1 to 6)

-   RETIREE (percentage retired)

-   OFFICER (percentage officer)

-   MARSTAT (percentage married)

-   DEGR_xx (degree of disability indicators, where xx = 00, 10, 20,
    ..., 90, 100)

-   STATE_yy (proportion of veterans in state yy, yy takes on 54
    distinct values)

-   INCOME_i (proportion of veterans that fall below the means test
    threshold, or between the means test threshold and the HUD
    geographic index, or above the HUD geographic index threshold, where
    i = L, M, or H)

-   INC_yy_i (proportion of veterans in state yy that fall below the
    means test threshold, or between the means test threshold and the
    HUD geographic index, or above the HUD geographic index threshold,
    where i = L, M, or H)

> **2. Precursor Datasets to the Model Database**
>
> As prerequisites to creating the 4/1/2000 model database, it will be
> necessary to create the following datasets: (i) an extract from Census
> 2000 data, (ii) an extract from
>
> TABLE 1
>
> Variables to Include in Precursor Datasets to 4/1/2000 Model Database

+--------------+-----------------+--------+---------------+----------+
| *Variable*   | *Definition*    | *      | *Merged DMDC  | *Other*  |
|              |                 | Census | / C & P*      |          |
|              |                 | 2000*  |               | *C & P*  |
+--------------+-----------------+--------+---------------+----------+
| GENDER       | Gender (M, F)   | X      | X             | X        |
+--------------+-----------------+--------+---------------+----------+
| AGE          | Single year age | X      | X             | X        |
|              | (16-120)        |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| PERSVC13     | Period of       | X      | X             | (impute) |
|              | service (13     |        |               |          |
|              | values)         |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| PERSVC2      | Flag for        | X      | X             | X        |
|              | post-Vietnam    |        |               |          |
|              | service         |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| RACE_x       | \% in race x    | X      | \--           | \--      |
|              |                 |        |               |          |
|              | (7 categories)  |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| STATE_yy     | \% in state yy  | X      | \--           | X^1^     |
+--------------+-----------------+--------+---------------+----------+
| Rx_STyy      | \% in race x    | X      | \--           | \--      |
|              | and state yy    |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| Rx_STyyi     | \% in race x,   | X      | \--           | \--      |
|              | state yy, and   |        |               |          |
|              | income category |        |               |          |
|              | i (L,M,H)       |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| CPSTAT_z     | \% in C & P     | \--    | X             | X        |
|              | category z      |        |               |          |
|              |                 |        |               |          |
|              | (8 categories)  |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| STyy_CPz     | \% in state yy  | \--    | (C&P          | X^1^     |
|              | and             |        | recipients    |          |
|              |                 |        | only^1^)      |          |
|              | C & P category  |        |               |          |
|              | z               |        |               |          |
+--------------+-----------------+--------+---------------+----------+
| VETERANS     | \# of veterans  | X      | X             | X        |
|              | by GENDER, AGE, |        |               |          |
|              | PERSVC13,       |        |               |          |
|              | PERSVC2         |        |               |          |
+--------------+-----------------+--------+---------------+----------+

> ^1^Refers to state to which the benefit is sent, assumed (for now) to
> be the state of residence
>
> DMDC data, including information on veterans from both the Active Duty
> Loss File and the Reserve File, to which data from the C & P mini
> master frozen file has been merged; and (iii) an extract from the C &
> P mini master frozen file consisting of veterans who do not merge to
> DMDC data. The key variables included in each of these files are
> listed in Table 1.
>
> The **Census 2000 dataset** will need to contain the number of
> veterans (VETERANS) for unique cells defined by GENDER, AGE, PERSVC13,
> and PERSVC2. Within each of these cells, we will calculate the
> proportion of veterans in each race (RACE_x for x = 1 to 7), in each
> state (STATE_yy for 54 values of yy), and in the interaction of state
> and race (Rx_STyy), and race with state and income status (Rx_STyyi).
> Low-income status will be determined by the VA means test threshold,
> and high-income status by income in excess of the HUD geographic
> index, with medium-income veterans falling in between these two
> thresholds.
>
> The distributions involving state will be obtained from a separate
> Census extract than the other variables, and this state-level extract
> will distinguish only 5-year age groups and not single year age
> (although it will also vary by GENDER, PERSVC13, PERSVC2, and RACE).
> Consequently, when integrating the two Census extracts into a single
> Census 2000 dataset, we will need to apply the same state
> distributions to veterans of different ages within the same 5-year age
> group.
>
> Because some overseas veterans are not counted in the Census, VETERANS
> will need to be increased to account for the number of overseas
> veterans, and the distribution of veterans by race, state, and income
> will need to reflect this bump-up.
>
> The **merged DMDC / C & P dataset** will contain, for veterans serving
> after the end of the Vietnam War (as indicated by PERSVC2), the number
> of veterans (VETERANS) for unique cells defined by GENDER, AGE,
> PERSVC13, and CP_STAT. The dataset will be restricted to veterans with
> post-Vietnam service (PERSVC2). While state of residence is unknown
> for DMDC veterans not receiving comp or pen benefits, it will be known
> for those in the C & P file, and hence the distribution of veterans by
> CP_STAT and by CP_STAT and state (STyy_CPz for state yy and CP_STAT z
> \< 7) will be known. We proposed that race information available in
> the DMDC not be used because it lacks multiple race categories and
> occasionally Hispanic status and therefore does not correspond with
> the Census-based definition of RACE.
>
> The **Other C & P dataset** will contain, for veterans receiving
> compensation or pension benefits but not in the DMDC file, the number
> of veterans for unique cells defined by GENDER, AGE, STATE_yy, and
> CP_STAT. PERSVC is weakly and incompletely measured in the C & P data,
> so PERSVC13 will be imputed using equations estimated from the 2001
> National Survey of Veterans (NSV) will be applied to cells having the
> same GENDER, AGE, and CP_STAT. The new parameter file accomplishing
> this will be called **CPPERSVC** and will include coefficients for
> different values of GENDER, AGE, and CP_STAT. A lack of post-Vietnam
> service (PERSVC2) will be assumed for these veterans on the basis of
> the underlying C & P observations not merging with the DMDC data. Both
> CP_STAT and CP_STATyy_z will be known for veterans in this dataset.
>
> **3. Steps for Creating the 4/1/2000 Baseline Database**

a.  After creating the Census 2000 dataset, we will integrate this
    dataset with the merged DMDC / C&P dataset for cells with the same
    values of GENDER, AGE, PERSVC13, and PERSVC2. The value of VETERANS
    in the DMDC / C&P data will be preferred over the value in the
    Census 2000 data, but the Census 2000 value of VETERANS for each
    cell (overlapping and non-overlapping) will be saved as CENSVET.
    Overlapping cells will have SOURCE set equal to "DMDC", whereas
    non-overlapping cells will have SOURCE set equal to "Census."

b.  Having merged the Census 2000 and DMDC / C&P data, we will be able
    to calculate, for veterans with SOURCE = DMDC, STyy_CP7 (that is,
    the proportion of veterans in state yy and with CP_STAT = "OTHER")
    as STATE_yy -- sum(STyy_CPz, over z = 0 to 6) for each state yy.

c.  For veterans in the merged Census/DMDC dataset and with SOURCE =
    Census, CPSTAT_z and STyy_CPz will be unknown at this point. We will
    calculate these by identifying values of STATE_yy CPSTAT_z,
    STyy_CPz, and VETERANS from corresponding cell in the Other C&P
    dataset, which variables we will rename to be N7_yy, N7_CP_z,
    N7_yy_z, and N7_VETS for each cell defined by GENDER, AGE, PERSVC13,
    PERSVC2. For each cell in the Census/DMDC data with SOURCE = Census,
    we will set

    i.  VETERANS = max(VETERANS, N7_VETS)

    ii. CPSTAT_z = N7_CP_z \* N7_VETS / VETERANS for z \< 7, and
        CPSTAT_z = (VETERANS -- N7_VETS) / VETERANS for z = 7

    iii. STyy_CPz = N7_yy_z \* N7_VETS / VETERANS for z \< 7, and
         STyy_CPz = STATE_yy -- sum(STyy_CPz, over z = 0 to 6) for z =
         7, for each state yy

d.  We will use a new parameter file, **CPSHARE**, containing values of
    coefficients estimated from the NSV, to predict, by GENDER, AGE,
    PERSVC13, and RACE, the proportions of different racial/ethnic
    groups falling into specific CP_STAT categories. *These proportions
    will be assumed to be the same across states for every racial/ethnic
    group except for white, non-Hispanic* (RACE = 3). For each cell
    defined by GENDER, AGE, PERSVC13, and PERSVC2, we will calculate the
    proportion of veterans in a category defined by race, state, and
    CP_STAT (Rx_yy_z for RACE = x, state = yy, and CP_STAT = z) as
    follows:

    i.  Rx_yy_z = Rx_STyy \* Pr(CP_STAT = z \| RACE= x) if x \< \> 3,
        and Rx_yy_z = STyy_CPz -- sum(Rx_yy_z over all z \< \> 3) if x =
        3, for each state yy

e.  We will use another new parameter file, **LOWINC**, containing
    values of coefficients estimated from the NSV, to predict, by
    GENDER, AGE, PERSVC13, RACE, and CP_STAT, the proportion of veterans
    that are low-income (that is, fall below the national means test
    threshold). *These proportions will be assumed to be the same across
    states for veterans receiving either compensation or pension
    benefits, but not for other veterans* (CP_STAT = 7 or "OTHER"). For
    each cell defined by GENDER, AGE, PERSVC13, and PERSVC2, we will
    calculate the proportion of veterans in a category defined by race,
    state, income level, and CP_STAT (Rx_yyi_z for RACE = x, state = yy,
    income level = i, and CP_STAT = z) as follows:

    i.  Low income shares: Rx_yyL_z = Rx_yy_z \* Pr(low income \| RACE =
        x and CP_STAT = z) if z \< \> 7, and Rx_yyL_z = Rx_STyyL --
        sum(Rx_yyL_z over all z \< \> 7) if z = 7, for each state yy

    ii. Medium income shares: Rx_yyM_z = (Rx_yy_z - Rx_yyL_z) \*
        Rx_STyyM / (Rx_STyyM + Rx_STyyH), for each state yy

    iii. High income shares: Rx_yyM_z = (Rx_yy_z - Rx_yyL_z) \* Rx_STyyH
         / (Rx_STyyM + Rx_STyyH), for each state yy

f.  We will then sum Rx_yy_z across states, obtaining Rx_CPz, the
    proportion of veterans in each cell with RACE = x (1 to 7) and
    CP_STAT = z (0 to 7). We will split each cell defined by GENDER,
    AGE, PERSVC13, and PERSVC2 into cells defined by these variables
    plus RACE and CP_STAT. We will recalculate the following variables
    for each cell as a function of the corresponding values in the
    "parent" cell not distinguished by RACE or CP_STAT:

    i.  VETERANS = VETERANS \* Rx_CPz

    ii. STATE_yy = Rx_yy_z / Rx_CPz

    iii. INC_yy_i = Rx_yyi_z / Rx_yy_z

g.  We will sum the ratio (Rx_yyi_z / Rx_CPz) across all value of i to
    obtain, for the national file, the proportion of veterans in the
    cell at each of the 3 income levels.

h.  We will use new a parameter files, **DEGR**, containing coefficients
    for an equation varying by GENDER, AGE, PERSVC13, RACE, and CP_STAT,
    to determine the values of DEGR_xx (xx = 00, 10, 20, ..., 90, 100)
    within each cell of veterans. The coefficients in this parameter
    file could be estimated from either C&P or NSV data.

i.  We will use a new parameter file, **HCP**, containing coefficients
    for equations varying by GENDER, AGE, PERSVC13, RACE, and CPSTAT, to
    determine the values of HCP_x (x = 1A, 2A, and 3 to 8) within each
    cell of veterans. The coefficients in this parameter file could be
    estimated from the Sullivan file (combining C&P and additional BIRLS
    data) or from the NSV. Because these datasets lack the data to
    distinguish priority groups 7 and 8, veterans assigned to group 8 as
    opposed to group 7 and group 7 as opposed to group 5 will need to be
    distinguished by applying the ratios INCOME_H and INCOME_M (or
    INC_yy_H and INC_yy_M for state yy) to the residual portion of
    veterans.

j.  BRANCH_w, RETIREE, OFFICER, and MARSTAT will be allocated for each
    cell using actual data, to the extent available for cells with
    SOURCE = "DMDC", and the parameter files **INNONDEF, SPNONDEF**,
    **RETIREE2000**, **OFFICER**, and **SPALIVE**. While the default
    values of these parameter files could be used initially, eventually
    the files could contain coefficients of equations to be used in
    creating the allocation variables in question.

k.  We have not focused on the creation of counts and characteristics of
    deceased veterans using parameters such as **DECEASED**, but
    recommend that the approach mimic that used in VetPop2001, with no
    updating of the underling parameter files at this point in time.

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4.  **Steps for Moving from 4/1/2000 to 9/30/2002**

> To capture the full detail of DMDC and C&P data available between
> 4/1/2000 and 9/30/2002, we propose that a similar approach be used to
> creating the 9/30/2000, 9/30/2001, and 9/30/2002 veteran databases as
> in creating the 4/1/2000 baseline. The main differences would be as
> follows:

a.  To create the underlying Census 2000 data, the entire Census 2000
    dataset used to create the 4/1/2000 baseline would be aged one year,
    and **CENSMORT** would be applied to determine which veterans have
    died. **MIGRATE_HISTORICAL**, estimated by AGE group for veterans
    based on actual transitions between 1995 and 2000, would be used to
    determine the new state distribution of all (surviving) Census
    veterans.

b.  Veterans in the DMDC would be aged one year, and actual deaths would
    be merged onto the file. New separations would be added, as would
    CPSTAT_z and STyy_CPz variables obtained from a merge with the C&P
    file for the new time period.

c.  Other C&P data would be those C&P records for living veterans in the
    new time period that do not correspond with living veterans in the
    DMDC.

d.  The creation of the veterans population at the new point in time
    (9/30/2000, 9/30/2001, or 9/30/2002) would proceed according to the
    steps outlined in sections 3 and 4, above, except the aged and
    migrated Census data would take the place of the original Census
    2000 data, and the current time period's DMDC / C&P and Other C&P
    data would be used instead of the 4/1/2000 versions of these files.

> **5. Steps for Simulating the Veterans Population After 9/30/2002**
>
> After 9/30/2002, no new DMDC or C&P data would be available, although
> separations projected by the DOD Office of the Actuary would provide a
> source of new veterans. The parameter files **IMP_MORT** and **MORT**
> would determine which veterans die each year, and would possibly be
> updated based on new mortality study findings. The new parameter file
> **CPCHNG**, estimated from C&P data, would indicate changes in CP_STAT
> from year to year (replacing the old parameter file **DIS**), while
> the parameter file **CHNGDEGR** would indicate changes in the degree
> of disability within CP_STAT groups. For new veterans, the new
> parameter file **NEWCP** would indicate the CP_STAT value of new
> veterans and **NEWDEGR** would indicate the degree of disability
> within CP_STAT categories for these veterans. **DODGENDR** and
> **DODRACE** would continue to indicate the GENDER and RACE of new
> separations; the latter would be updated to reflect the new RACE
> definition. A new version of the parameter file **MIGRATE** would
> allow migration rates to differ for veterans based not only on prior
> state of residence and AGE but possibly on disability status as
> indicated by CP_STAT. **SPDOD** would determine the state of residence
> of new separations. Other parameter files used in future projections
> -- **CENSLOS, DODLOS, DPALIVE, DPDECSD, NEWENT, PCTRESV, SPALIVE,
> SPDECSD,** and **SPNONDF2** - would, at least initially, include the
> structure and values used in VetPop2001 Adjusted.

cc: Mark Brinkley (MPR)

Chris Rankin (MPR)

Ed Hustead (Hay)

Craig Graby (Hay)

Cathy Tomczak (VA)

Floyd Watson (VA)

George Sheldon (VA)

Michael Wells (VA)

Peter Ahn (VA)

Robert Klein (VA)

Eddie Thomas (VA)

Robyn Gerdes (VA)