CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

CBO

PAPER

MARCH 2005

The Potential 

Cost of Meeting 

Demand for 

Veterans’

Health Care

The Congress of the United States O Congressional Budget Office

CBO

The Potential Cost of Meeting 

Demand for Veterans’ Health Care

March 2005

A

PAPER
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 mid1990s 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 (www.cbo.gov).

Douglas Holtz-Eakin

Director

March 2005

Summary ix

Introduction 1

Background 1

VA’s Eligibility Requirements 2

Recent Trends and Policy Changes 4

Outpatient Clinics 5

Methodology of This Analysis 6

Projection Results 8

Results for Scenario 1 8

Results for Scenario 2 11

Results for Scenario 3 11

Sensitivity Analysis of Increased Enrollment Rates 13

Sensitivity Analysis for Scenario 1 13

Sensitivity Analysis for Scenario 2 13

Sensitivity Analysis for Scenario 3 14

Comparing the Scenarios to CBO’s Baseline Projections 15

Conclusion 16

CONTENTS
vi THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Tables

1. VA’s Health Care Enrollees, by Priority Group, 1999 to 2004 3

2. VA’s Community-Based Outpatient Clinics 6

3. Percentage of Veterans with Other Sources of Health Insurance

Coverage, by Priority Group 8

4. Summary of Projection Results Under CBO’s Three Scenarios 14

5. Comparison of Out-of-Pocket Costs for Enrollees in Selected Health

Plans in Calendar Year 2005 16

6. Summary of Sensitivity Analysis with Increased Enrollment 

Under CBO’s Three Scenarios 17

7. Funds Needed to Meet Projected VA Medical Demand Under the

Various Scenarios Presented in This Paper 19

Figures

1. The Total Population of Veterans, 1990 to 2004 1

2. VA’s Medical Budget, 1990 to 2004 2

3. Estimated Percentage of Veterans Enrolled for Medical Care from VA,

by Priority Group, 2004 7

4. Veterans’ Rates of Reliance on VA Care, by Priority Group, 2002 9

5. Relative Cost of VA Enrollees, by Priority Group, 2002 11

6. Veterans’ Shares of Total VA Medical Enrollment and Costs, by Priority 

Group, 2004 12

7. Estimated Percentage of the Total Population of Veterans in Each

Priority Group, 2004 12

8. Projected Resource Needs Under Different Assumptions of Growth in

Heath Care Costs for Scenario 1 15

9. Projected Demand for VA Medical Resources Under Scenario 1,

Allocated by Priority Group, Compared with CBO’s Baseline

Budget Projections, 2005 to 2025 20

10. Projected Demand for VA Medical Resources Under CBO’s

Three Scenarios, 2005 to 2025 21

11. Summary of the Projections for 2025, by Scenario and Priority Group 22
CONTENTS vii

Boxes

1. VA’s Health Care Priority Groups 4

2. Interactions Between Sources of Health Care Coverage 10

3 Elements of the Congressional Budget Office’s Cost Projection 13

4. Modeling the Effects of Policy Changes on Enrollment and Costs 18

Summary

The Department of Veterans Affairs (VA) has faced 

an increase in demand for medical services in recent years 

that has driven rapid expansion of its budget. Although 

the number of veterans in the United States has been generally falling (the population of veterans was about 25 

million in 2004), VA medical budgets increased by 40 

percent in real (inflation-adjusted) terms from 1999 to 

2004. In the 1990s, lawmakers expanded eligibility for 

VA medical services and established an enrollment system, currently consisting of eight priority groups, to 

identify and prioritize veterans seeking care. Nearly 4.2 

million veterans were enrolled in 1999 (the first year in 

which the enrollment system was fully operational), rising to 7.4 million in 2004 (about 17 percent and 30 percent of the total population of veterans in those two 

years, respectively). 

In this paper, the Congressional Budget Office (CBO) 

used data from VA and other sources to project the cost 

from 2005 through 2025 of providing the current level of 

services to the changing population of veterans under 

three different scenarios. As a discretionary program, VA 

medical care relies on annual budget appropriations.1

This paper does not attempt to predict those appropriations; rather, the projections in this report reflect CBO’s 

best estimate of the funds that would need to be appropriated to continue providing the current level of services 

to veterans, assuming that enrollment rates and reliance 

on VA medical care followed current trends (Scenario 1). 

In addition, this report presents two other scenarios (Scenarios 2 and 3) that examine the effects of policy changes 

on those projections and shows how the estimates would 

vary with changes in key assumptions about enrollment 

and growth in health care costs. 

Health care costs have risen faster than overall price inflation in the past few decades. In projecting the cost of 

meeting the demand for VA medical services from 2005 

through 2025, CBO assumed that VA would face the 

same rate of growth in health care costs as the rest of the 

economy. Specifically, CBO assumed that per capita 

health care costs would grow by 6.1 percent in 2006 in 

nominal terms, falling to 4.2 percent by 2025. To hold 

down potential future costs, VA could seek to improve efficiency in some areas.

Under Scenario 1, CBO projected the levels of VA medical funding that would be needed to meet the demand for 

care, assuming that VA proceeds with its plans to expand 

its number of outpatient clinics but makes no major 

changes in eligibility rules, cost sharing, or other policies. 

Under those assumptions, in order to meet the demand, 

VA medical funding would need to increase by 89 percent in real terms over the projection period, in CBO’s estimation, growing from $28.2 billion in 2005 to $53.4 

billion in 2025.2 If VA received appropriations for all of 

the funds necessary to meet the demand, almost all of the 

spending (89 percent) in 2025 would be consumed by 

veterans in the first five priority groups, which include 

veterans with service-connected disabilities, housebound 

veterans, and those with low income and few assets. Veterans in priority group 6, most of whom have been exposed to chemical, biological, or radiological agents in 

the line of duty, make up only 2 percent to 3 percent of 

enrollees, and their care consumes only about 1 percent 

of VA’s medical budget. Only 10 percent of the costs of 

the VA health care system would be incurred for veterans 

in priority groups 7 and 8 (higher-income nondisabled 

veterans, with veterans in priority group 8 having higher 

1. The Veterans Health Administration manages the VA medical 

centers and clinics, which provide medical and rehabilitation services to veterans, medical research, graduate medical education, 

and emergency management.

2. The VA medical budget for 2005 used as the starting point for 

these projections is from the FY04 VA Health Care Projection 

Model (January 2004). It excludes the costs of long-term care and 

some other VA medical costs and differs somewhat from the final 

2005 VA medical budget.
x THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

income than those in group 7), in part because under this 

scenario, enrollment for veterans in priority group 8 

would remain frozen, as it has been since January 2003.

Under Scenario 2, CBO assumed that the freeze in enrollment for veterans in priority group 8 would be lifted 

in 2006 and no further restrictions on enrollment put in 

place. (All other assumptions were the same as those for 

Scenario 1.) Under those assumptions, in order to meet 

the demand for care, VA medical funding would need to 

increase by 103 percent in real terms over the projection 

period, CBO estimates, growing from $28.2 billion in 

2005 to $57.1 billion in 2025. In particular, spending on 

veterans in priority group 8 under Scenario 2 would need 

to triple compared with its level under Scenario 1, rising 

from $1.9 billion to $5.6 billion. 

Under Scenario 3, CBO estimated potential costs if the 

freeze on enrollment for veterans in priority group 8 was 

lifted but, at the same time, an annual enrollment fee of 

$250 and a higher pharmacy copayment of $15 were established for veterans in both priority groups 7 and 8. 

Those increased out-of-pocket costs for higher-income 

veterans were among the changes proposed in the President’s 2005 budget (although they did not appear in the 

legislation ultimately passed by the Congress for that 

year) and again in the President’s 2006 budget. CBO assumed that the enrollment fee and higher pharmacy copayments would constrain both enrollment and utilization of care for those two priority groups. Under those 

assumptions, total VA funding for medical care would 

need to rise to $52.6 billion in real terms in 2025 in order 

to meet the demand, CBO estimates, or 1 percent less 

than its projected level under Scenario 1 and 8 percent 

less than under Scenario 2. 

Projections of VA medical resources under all three scenarios are sensitive to the assumptions made about enrollment rates for each priority group. Only a fraction of eligible veterans are currently enrolled for VA medical care, 

particularly in the lower priority groups. For example, less 

than 20 percent of veterans in priority groups 6, 7, and 8 

were enrolled in 2004. If just one-quarter of the veterans 

in each priority group who were eligible but not enrolled 

turned to VA for care, VA’s medical funding would need 

to rise by 11 percent to 15 percent to meet the demand, 

in CBO’s estimation, compared with the amounts mentioned for each scenario above. 

Uncertainty about the accuracy of the assumptions in 

these projections increases over time, so the projections 

toward the end of the 20-year time horizon are more uncertain than those toward the beginning. Cost growth, 

enrollment rates, reliance on other sources of care, and 

many other factors are more likely to differ from CBO’s 

assumptions as time passes. In addition, legislative and 

economic changes may have a profound impact on the 

VA medical system over the next 20 years.

As noted earlier, VA medical care is funded with annual 

appropriations. To project growth in discretionary programs, CBO uses a methodology specified in the Balanced Budget and Emergency Deficit Control Act of 

1985. That formula projects expenditures that rise much 

more slowly than the anticipated growth in health care 

costs and VA enrollment. CBO’s baseline budget projections show the VA medical budget growing to $35.2 billion in 2025, only two-thirds of the amount projected in 

the first scenario presented in this paper. If VA medical 

care was budgeted at that level, and if health care costs 

and enrollment grew as anticipated under Scenario 1, VA 

would be able to provide the current level of services only 

to veterans in priority groups 1 through 4 and less than 

half of the veterans in priority group 5 likely to seek care 

from VA.
The Potential Cost of 

Meeting Demand for Veterans’ Health Care

Introduction

In recent years, the Department of Veterans Affairs (VA) 

has faced an increase in demand for its medical services 

that has driven rapid expansion in its budget. VA medical 

budgets have increased in real (inflation-adjusted) terms 

from $16 billion in 1990 to nearly $28 billion in 2004, 

even though the number of veterans in the United States 

has been falling by 1 percent to 2 percent a year. Since the 

enrollment system was established in 1999, the number 

of veterans enrolled in the VA health system has increased 

rapidly, reaching 7.4 million in 2004 (see Figures 1 and 2 

and Table 1). 

This paper examines the long-term budgetary implications of continuing to meet the changing demand for VA 

medical services. Decisions about policies and benefits for 

the veterans’ health care system have long-term consequences for the federal budget and for the performance of 

VA hospitals and clinics. In this paper, CBO projects the 

cost from 2005 through 2025 of providing the current 

level of services to the changing population of veterans 

under three different scenarios, two of which involve possible policy changes that would affect the growth in VA 

medical spending during that period. 

VA medical care is provided through the Veterans Health 

Administration (VHA). Because VHA is a discretionary 

program, it can spend only its appropriated funds. This 

paper does not attempt to predict those appropriations; 

rather, the projections in this report reflect CBO’s best estimate of the funds that would be required to provide the 

current level of services to veterans, assuming that enrollment rates and reliance on VA medical care followed current trends. A later section of this report compares those 

projections to the rate of growth normally anticipated for 

discretionary spending in the federal budget and discusses 

the implications for the level of services VA could provide. 

Figure 1.

The Total Population of Veterans,

1990 to 2004

(Millions)

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs.

Note: Estimates were revised after the 2000 census. Previous estimates have not been revised to reflect those newer figures. 

Background

The Department of Veterans Affairs provides veterans 

with three broad types of services. The Veterans Benefits 

Administration manages disability compensation, pension, education (such as the Montgomery GI Bill), homeownership, and other programs that benefit veterans 

through monthly payments, loans, and other forms of financial assistance. The National Cemetery Administration maintains national cemeteries and provides burial 

benefits for veterans and their eligible family members. 

1990 1992 1994 1996 1998 2000 2002 2004

0

5

10

15

20

25

30
2 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Figure 2.

VA’s Medical Budget, 1990 to 2004

(Billions of 2005 dollars)

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs (VA).

The Veterans Health Administration manages the VA 

medical centers and clinics.

VHA’s mission consists of four major tasks: medical and 

rehabilitation services for veterans, medical research, 

graduate medical education, and emergency management. VA medical personnel conduct and publish numerous research studies each year that contribute to medical 

knowledge about disease and disability. That research 

program is intended to help improve the medical care 

provided to veterans and to other patients and to attract 

quality physicians and other health professionals to VA. 

In addition, the department offers training programs as 

part of its graduate medical education that are “designed 

to help ensure an adequate supply of clinical care providers for veterans and the Nation.”1

 Each year, more than 

76,000 medical and associated health students and residents receive part of their clinical training at VA medical 

facilities because of VA’s affiliation with 1,200 educational institutions, including 107 medical schools.2

VA also provides contingency support should the military 

health system need additional medical capacity in case of 

a major conflict. As part of the National Disaster Medical 

System, VA provides support for national emergencies or 

natural disasters. For example, VA health care workers 

provided assistance after several major hurricanes in 

2004.3

In the past, VA focused on providing inpatient care in VA 

hospitals. In recent years, however, VA has expanded its 

outpatient services, following a national trend toward 

outpatient medical care. By building outpatient clinics itself (or negotiating contracts with existing clinics), VA 

has been able to make its services more accessible to veterans who do not live near one of VA’s 157 hospitals. During the 1999-2004 period, the share of veterans enrolled 

for health care with VA rose from 17 percent to 30 percent, and the share of veterans seeking medical care from 

VA rose from 13 percent to 19 percent.4 Improved geographic access and increased awareness by veterans of the 

value of the medical benefit may have contributed to 

those increases. 

For some eligible veterans, VA also provides long-term 

care in various settings. They include VA nursing homes, 

state-owned and -operated veterans’ homes, contract care 

at private nursing homes, home health services, and adult 

day care. 

Although VHA provides care primarily to veterans with 

service-connected disabilities or low income, the department also serves veterans more broadly. Many veterans 

have chronic illnesses, non-service-connected disabilities, 

or mental-health and substance-abuse problems that may 

not be covered by private insurance. Some veterans have 

access to other government or private insurance options, 

but they choose to receive care from VA because of its 

convenience or low out-of-pocket costs.

VA’s Eligibility Requirements

Eligibility for health care through the VA system has expanded over time. Before 1924, only veterans with injuries received during their military service were eligible for 

1. Department of Veterans Affairs, FY 2003 Performance and 

Accountability Report (Washington, D.C.: Department of Veterans 

Affairs, 2003), p. 12.

2. See www.va.gov/oaa/OAA_Mission.asp.

1990 1992 1994 1996 1998 2000 2002 2004

0

5

10

15

20

25

30

3. Department of Veterans Affairs, FY 2004 Performance and 

Accountability Report (Washington, D.C.: Department of Veterans 

Affairs, 2004), p. 30.

4. Enrollment with VA establishes a veteran’s eligibility and priority 

for health care services. Not all enrolled veterans actually seek care 

from VA each year.
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 3

Table 1.

VA’s Health Care Enrollees, by Priority Group, 1999 to 2004

(Thousands)

Source: Congressional Budget Office based on data from the Department of Veterans Affairs.

Notes: Veterans in priority group 7 (P7) have income above a VA-defined means test that is the same throughout the United States. Priority 

group 8 (P8) was created in October 2002 by dividing priority group 7 veterans into two separate groups on the basis of a higher,

geographically adjusted means test. “Unassigned” veterans have not yet completed the process of enrolling and have not been 

assigned to a priority group.

See Box 1 for definitions of the priority groups.

a. Enrollment for 2004 is not available by priority group. The only available breakdown is 5,112,000 veterans in priority groups 1-6 combined 

and 2,308,000 veterans in priority groups 7 and 8 combined.

coverage. Eligibility was gradually extended to wartime 

veterans with low income; by 1973, all low-income veterans, including those without injuries related to their military service, were eligible. The low-income requirement 

was eliminated in 1986, making all veterans eligible for 

treatment for service-connected conditions and, in some 

cases, conditions not related to their military service.5

In the mid-1990s, VA began transforming its hospitalbased system away from inpatient care toward providing 

more outpatient services, reflecting changing trends in 

medical practice nationwide as well as changing demands 

for VA care. VA also received statutory authority to 

reform the rules of eligibility for care. VA’s thenUndersecretary for Health argued that the eligibility rules 

were biased toward inpatient care and caused inefficiencies in the VA system. He also asserted that eligibility reform would not increase VA’s health care costs, but rather 

should save money by shifting care from the expensive inpatient setting to the less-expensive outpatient setting.6

The change in eligibility rules and creation of more geographically dispersed outpatient clinics brought about a 

substantial increase in the number of veterans who turned 

to VA for medical care. The number of veterans using 

VA’s health care system increased from 2.9 million in 

1995 to 4.7 million in 2004.7

As directed by the Veterans’ Health Care Eligibility Reform Act of 1996, VA created an enrollment system to 

keep track of veterans who planned to use VA care. In 

most cases, a veteran now must enroll in the VA medical 

system to be eligible for care. (Enrollment is free of 

charge.) As part of the enrollment process, applicants 

must document their status as veterans and are assigned 

to a priority group (from P1 to P8) on the basis of their 

service-connected disabilities (if any), income, and other 

factors (see Box 1 for definitions of VA’s priority groups). 

In any given year, some enrollees do not seek any medical 

care, either because they do not become ill or because 

they rely on other sources of care. 

Priority Group 1999 2000 2001 2002 2003 2004

440 492 561 642 721 a

303 345 400 436 464 a

553 629 790 861 912 a

130 168 200 214 226 a

1,708 1,949 2,203 2,382 2,424 a

70 91 110 124 140 a

970 1,142 1,748 2,129 2,299 a ____ ____ ____ ____ ____ ____

Total 4,176 4,816 6,013 6,789 7,187 7,420

P5

P6

P7, P8, and "Unassigned" Veterans

P1

P2

P3

P4

5. Statement of Cynthia A. Bascetta, Director, Health Care, Veterans’ Health, and Benefits Issues, General Accounting Office, 

before the Committee on Veterans’ Affairs, published as General 

Accounting Office, Key Management Challenges in Health Disability Programs, GAO-03756T (May 8, 2003), p. 4.

6. Kenneth W. Kizer, Prescription for Change: The Guiding Principles 

and Strategic Objectives Underlying the Transformation of the Veterans Healthcare System (Washington, D.C.: Department of Veterans Affairs, 1996), p. 14.

7. Department of Veterans Affairs, FY 2003 Performance and 

Accountability Report, p. 5; and Department of Veterans Affairs, 

FY 2006 Budget Submission, vol. 2, “Medical Programs,” p. 2-16.
4 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

VA’s enrollment system became fully operational in 1999, 

and enrollment grew from 4.2 million in that year to 7.4 

million in 2004. Under the priority system, the Secretary 

of Veterans Affairs decides each year whether VA’s medical budget is adequate to serve veterans in all priority 

groups who seek care. If not, those in the lowest priority 

groups (P7 and P8) would be the first to lose access to 

care. 

Recent Trends and Policy Changes

As eligibility for VA medical care has expanded, many 

moderate-income veterans without service-connected disabilities have sought to fill gaps in their other health insurance by turning to VA for pharmaceuticals and outpatient care. Some of the increased demand for outpatient 

care stems from VA’s policy that it dispenses pharmaceuticals only if they are prescribed during a visit to a VA medical center or clinic.

VA has had difficulties coping with the large influx of 

new users seeking pharmaceuticals and outpatient care. 

Although VA has substantial excess inpatient bed capacity 

in many facilities, the influx of new enrollees seeking 

pharmaceuticals and outpatient care has exacerbated 

waiting times for all veterans wanting to see a VA provider. By the end of 2002, about 300,000 enrolled veterans were on waiting lists for VA medical appointments.

Waiting times have been a long-standing problem for the 

department. In 1993, the General Accounting Office 

(GAO, now known as the Government Accountability 

Office) found that veterans frequently waited eight to 

nine weeks to obtain appointments at some specialty clinBox 1.

VA’s Health Care Priority Groups

Priority Group 1 (P1)

Veterans with service-connected disabilities (SCDs) 

rated 50 percent or more disabling

Priority Group 2 (P2)

Veterans with SCDs rated 30 percent or 40 percent 

disabling

Priority Group 3 (P3)

Veterans who are former prisoners of war; were 

awarded the Purple Heart; were discharged for an 

SCD; have SCDs rated 10 percent or 20 percent disabling; or were disabled by treatment or vocational 

rehabilitation

Priority Group 4 (P4)

Veterans who are receiving aid and attendance benefits or are housebound; and veterans who have been 

determined by the Department of Veterans Affairs 

(VA) to be catastrophically disabled

Priority Group 5 (P5)

Veterans without SCDs or with noncompensable 

SCDs rated zero percent disabling living below established VA means test thresholds; veterans who are 

receiving VA pension benefits; and veterans who are 

eligible for Medicaid benefits

Priority Group 6 (P6)

Veterans of either World War I or the Mexican Border War; veterans seeking care solely for disorders associated with exposure to chemical, nuclear, or biological agents in the line of duty (including, for 

example, Agent Orange, atmospheric testing, and 

Project 112/SHAD); and veterans with compensable 

SCDs rated zero percent disabling

Priority Group 7 (P7)

Veterans with net worth above the VA means test 

threshold and below a geographic index defined by 

the Department of Housing and Urban Development (HUD)

Priority Group 8 (P8)

Veterans with net worth above both the VA means 

test threshold and the HUD geographic index
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 5

ics.8 In 1996, lawmakers enacted legislation requiring VA 

to serve veterans in a timely manner.9 In response, the department initiated a number of actions to address waiting 

times and waiting lists, including better tracking, better 

scheduling, and use of a primary care model—that is, coordinated health care delivery through interdisciplinary 

teams. 

Accompanying the rise in the number of veterans seeking 

care at VA facilities were substantial increases in the annual budget for VHA. Although VA medical budgets 

were relatively flat in real terms in the mid-1990s, they 

grew by an inflation-adjusted 4 percent to 10 percent 

each year from 2000 to 2004. Those budget increases 

were appropriated by the Congress to fund the rapidly increasing demand for VA health care that followed the 

change in eligibility rules after 1996.10

In part because of the long waiting lists and influx of new 

patients that VHA could not accommodate in a timely 

manner, in January 2003 then-Secretary of Veterans Affairs Anthony Principi decided to cut off enrollment of 

new P8 veterans—those without service-connected disabilities who have income above $25,842 per year (for a 

single veteran) and above a geographically adjusted means 

test. Veterans in that priority group who had already enrolled in the system were “grandfathered,” however, and 

could continue to seek care from VA. According to the 

department, “Until the waiting time for medical appointments can be reduced to an acceptable standard, it would 

not be in the best interest of those most in need of care 

for VA to enroll additional priority group 8 veterans.”11

The management initiatives mentioned earlier, along 

with the freeze on new enrollments for P8 veterans, have 

reduced waiting times by between 32 percent and 61 percent (from 2000 to 2003) and waiting lists by 78 percent 

(from 2002 to 2003) in selected clinics.12

Outpatient Clinics

Community-based outpatient clinics (CBOCs) operate as 

physicians’ offices and are located in communities close 

to VA’s patients. The number of CBOCs has grown over 

time; and that growth may have implications for projecting enrollment. Tracking the growth of CBOCs is complicated by two factors, however: the definition of a 

CBOC has changed, and some clinics were closing while 

others were opening.13 VA started expanding the number 

of CBOCs in 1995 from its initial level of about 175. 

Around 2000, some VA satellite clinics were renamed as 

CBOCs, further adding to the increase.14 The number of 

new CBOCs changes substantially from year to year but 

averaged about 30 per year from 2000 to 2004, which is 

close to the estimated average rate of growth over the next 

three years (see Table 2).

There is some uncertainty about whether the new

CBOCs will primarily serve existing VA enrollees more 

conveniently or whether they will encourage new veterans 

to enroll. Roughly 30 percent, or 135,000, of CBOC patients were new to the VA system in 2000, but those new 

patients represented only about 2 percent of total VA enrollees.15 Even in the absence of new CBOCs, some of 

8. General Accounting Office, VA Health Care: Restructuring Ambulatory Care System Would Improve Services to Veterans, GAO/HRD94-4 (October 1993), p. 3; General Accounting Office, VA Health 

Care: More National Action Needed to Reduce Waiting Times, but 

Some Clinics Have Made Progress, GAO-01-953 (August 2001),

p. 1; statement of Cynthia A. Bascetta, Key Management Challenges in Health Disability Programs, p. 8.

9. Section 104(b)(1) of the Veterans’ Health Care Eligibility Reform 

Act of 1996, Public Law 104-262.

10. In recent years, the Congress has authorized and appropriated 

more for VA health care than was requested in the President’s

budget.

11. Department of Veterans Affairs, “The Truth About VA Funding” 

(press release, Washington, D.C., April 23, 2003), available at 

www.gla.med.va.gov/pages/documents/VAFunding.htm.

12. Data supplied to the Congressional Budget Office by the Department of Veterans Affairs in October 2004.

13. Data sources differ regarding the number of CBOCs in any given 

year. For example, the reported number in 2000 ranges from 277 

to 600; that variation is probably due to different definitions of 

CBOCs. See Michael K. Chapko and others, “Evaluation of the 

Department of Veterans Affairs Community-Based Outpatient 

Clinics,” Medical Care, vol. 40, no. 7 (2002), pp. 555-560 

(reporting 277 CBOCs in 2000); statement of Cynthia A. Bascetta, Director, Health Care, Veterans’ Health, and Benefits Issues, 

General Accounting Office, before the Subcommittee on VA, 

HUD, and Independent Agencies of the Senate Committee on 

Appropriations, published as General Accounting Office, Community-Based Clinics Improve Primary Care Access, GAO-01-678T 

(May 2, 2001), p. 1 (reporting about 575 CBOCs in 2000); and 

data supplied to the Congressional Budget Office by the Department of Veterans Affairs in November 2004 (reporting 600 

CBOCs in 2000).

14. Chapko and others, “Evaluation of the Department of Veterans 

Affairs Community-Based Outpatient Clinics.” 

15. Statement of Cynthia A. Bascetta, Community-Based Clinics 

Improve Primary Care Access, p. 10.
6 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Table 2.

VA’s Community-Based Outpatient

Clinics

Sources: Congressional Budget Office based on data from the 

Department of Veterans Affairs in November 2004; and 

Figure 1 in Michael K. Chapko and others, “Evaluation of 

the Department of Veterans Affairs Community-Based 

Outpatient Clinics,” Medical Care, vol. 40, no. 7 (2002),

p. 557 (for data on CBOC growth in 2000 measured as the 

change in the total number of clinics between July 1999 

and July 2000).

Notes: The Department of Veterans Affairs (VA) projected the data 

for 2005 and beyond.

CBOC = community-based oupatient clinic.

those veterans would probably have enrolled and gone to 

other, existing VA facilities. Thus, even the figure of 

135,000 represents an upper-bound estimate on the 

amount of new demand generated by the opening of

CBOCs. If similar trends continue, new CBOCs opened 

in the future may add only a small amount to the total 

number of VA patients.

Methodology of This Analysis

This paper estimates the long-term budgetary implications of providing the current range of VA medical services from 2005 through 2025. The projections include 

costs for inpatient care, outpatient services, pharmaceuticals, and related costs, but they do not include long-term 

care and some other costs.16 The projections take into account trends in the size and composition of the population of veterans as well as trends in health care costs 

throughout the economy.

The projections in this report are not intended to gauge 

future resource demands precisely. Actual budgetary outcomes are almost certain to differ from CBO’s projections, both because of future legislative actions and because of unanticipated changes in economic conditions, 

health insurance markets, prices for medical products and 

services, employment, medical technology, and other factors. The projections rely heavily on assumptions about 

enrollment, reliance on VA health care by veterans who 

are also eligible for Medicare or other sources of coverage, 

growth in health care costs, and the average cost of care 

for veterans in each priority group. A later section of this 

paper explores the effect of changes in enrollment and 

other assumptions. The projections represent CBO’s best 

estimate of the funding that would be required in order 

to meet the demand for veterans’ medical care over the 

next 20 years under the assumptions described for each

scenario. 

In performing its analysis, CBO relied on projections 

provided by VA of the size of the total population of veterans. VA distributed those population totals among the 

priority groups to which they would likely be assigned, 

on the basis of veterans’ income, disability status, and 

other factors, if the veterans enrolled in VA for health 

care. The projections do not include the small increase in 

the size of the population arising from the increase in activation of members of the Reserves and National Guard 

since September 11, 2001, nor do they include the increase in combat-disabled veterans arising from current 

conflicts in Iraq and Afghanistan. However, those omissions would probably affect the population projections by 

only 1 percent to 2 percent and the number of disabled 

veterans by a similarly small percentage. 

VA data indicate that most veterans with service-connected disabilities had enrolled for VA medical care by 

Year Existing CBOCs

2000 600 50

2001 695 95

2002 685 -10

2003 673 -12

2004 696 23

2005 751 55

2006 778 27

2007 798 20

2008 809 11

2009 817 8

2010 827 10

2011 835 8

2012 839 4

2013 844 5

2014 848 4

2015 852 4

New CBOCs

16. The excluded programs are long-term care, dental care, care for 

nonveterans, the Civilian Health and Medical Program of the 

Department of Veterans Affairs, readjustment counseling, spina 

bifida care, and the foreign medical program. See Department of 

Veterans Affairs, FY04 VA Enrollee Health Care Projection Model

(January 2004), p. I-3.
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 7

Figure 3.

Estimated Percentage of Veterans 

Enrolled for Medical Care from VA, by 

Priority Group, 2004

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs (VA).

Note: See Box 1 for definitions of the priority groups.

2004, but less than half of low-income veterans and less 

than one-fifth of higher-income veterans without serviceconnected disabilities had enrolled for care by then (see 

Figure 3). Enrollment among priority group 8 veterans in 

that year was further constrained by the freeze that had 

been imposed in January 2003.

Many veterans rely on other sources of coverage, such as 

Medicare, Medicaid, private health insurance, the military health system, or public hospitals (see Table 3). Even 

among enrolled veterans, most receive the majority of 

their care from sources outside VA (see Figure 4 on 

page 9). Disabled veterans receive the highest portion of 

their care from VA. Enrolled veterans in priority groups 1 

through 3, with service-connected disabilities, receive between 36 percent and 50 percent of their care, on average, 

from VA facilities. Enrolled veterans in priority group 4, 

most of whom are housebound with catastrophic disabilities not related to their military service, receive just over 

half of their care from VA, on average. Low-income enrolled veterans in priority group 5 receive about 44 percent of their care from VA. By comparison, enrolled veterans in priority group 6 (mostly veterans suffering from 

exposure to toxic substances) receive about a quarter of 

their care from VA, and enrolled veterans in priority 

groups 7 and 8 generally receive about 20 percent of their 

care from VA. CBO assumed that enrolled veterans 

would continue to receive the same percentage of their 

care (as measured in dollars) from VA as they currently 

do. (See Box 2 for a discussion of that assumption.) 

Veterans in some priority groups have higher average 

costs than others do (see Figure 5 on page 11). VA calculated the relative health care costs for enrolled veterans as 

part of its health care projection model.17 Those relative 

cost weights include the impact of such factors as the age, 

sex, and morbidity of veterans in each priority group. But 

the cost weights exclude the impact of reliance on other 

sources of care—that is, these are the relative costs that 

would be incurred by veterans in each group if they received 100 percent of their care from VA. (Reliance is estimated separately, as noted earlier.) The reference group 

for those relative cost weights is veterans in priority group 

1 (P1 veterans), or those with a 50 percent or higher service-connected disability. Compared with costs for that 

group, the average cost of services provided to most other 

groups is substantially less. Veterans in priority groups 2 

and 3 cost just 57 percent and 49 percent as much as P1 

veterans, while low-income veterans in priority group 5 

cost about 59 percent as much as P1 veterans. The most 

expensive group, however, is veterans in priority group 4 

(housebound veterans), who cost 71 percent more than 

P1 veterans. The least expensive veterans are those in priority groups 6, 7, and 8, who cost between 30 percent 

and 45 percent as much as P1 veterans.

Those various factors explain the difference between the 

number of enrolled veterans in each priority group and 

the costs of caring for veterans in each of those groups 

(see Figure 6 on page 12). Even though veterans in priority groups 7 and 8 made up 14 percent and 17 percent of 

enrollment, respectively, in 2004, they consumed just 5

P1 P2 P3 P4 P5 P6 P7 P8

0

10

20

30

40

50

60

70

80

90

100

17. Department of Veterans Affairs, FY04 VA Health Care Projection 

Model Final Model Run Reports, vol. I, sec. I, “Executive Summary” (prepared by Milliman USA and CACI, January 2004), 

available at www.va.gov/vhareorg/enroll02/enrldec.htm. 
8 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Table 3.

Percentage of Veterans with Other Sources of Health Insurance Coverage,

by Priority Group

Source: Congressional Budget Office based on data from Department of Veterans Affairs, Survey of Veteran Enrollees’ Health and Reliance 

Upon VA (December 2003).

Notes: See Box 1 for definitions of the priority groups.

HMO = health maintenance organization; n.a. = not applicable.

Data for private insurance coverage are available only as averages (for priority groups 1-3, 4-6, and 7-8).

percent and 6 percent, respectively, of VA resources during that year.18

Because relatively few veterans in priority groups 7 and 8 

are currently enrolled for VA health care, there are a large 

number of unenrolled veterans who might look to VA for 

care at some point in the future. VA has estimated the 

share of the total population of veterans (enrolled and unenrolled) that fell into each of the eight priority groups in 

2004 (see Figure 7 on page 12). Those shares must be estimated because priority-group determination for some 

veterans cannot be made until they enroll. Veterans in 

priority groups 7 and 8 make up 22 percent and 37 percent, respectively, of the total population. Thus, demand 

for VA’s resources could increase if a larger share of 

higher-income veterans without service-connected disabilities turned to VA for health care.

Projection Results

The long-range projections in this paper are organized 

into three main scenarios. The first reflects the cost of 

meeting the anticipated demand for VA health care without any changes in policy. The second considers the impact of reopening enrollment for higher-income veterans 

without disabilities. The third examines the impact of increasing cost sharing at the same time that enrollment is 

reopened for those higher-income veterans. 

Results for Scenario 1

Under the first scenario, CBO projected growth in the 

cost of meeting the demand for VA medical care assuming no major changes in policy. (This scenario does assume that VA moves forward with its plans to expand the 

number of CBOCs, as shown in Table 2 on page 6.) 

CBO assumes that the current priority group structure 

will remain the same and that new enrollment by veterans 

in priority group 8 (P8 veterans) will remain frozen. With 

no new enrollees, the number of enrolled P8 veterans will 

decrease as a result of mortality. CBO obtained projections of future enrollment under those base-case assumptions from VHA. Underlying those projections is the assumption that a fixed percentage of unenrolled veterans 

within each priority group (other than P8) will enroll 

each year—that is, the rate of new enrollment is fixed. 

That assumption is consistent with the statistical analysis

Priority Group

P1 52 43 16 4 74 14 15

P2 40 36 20 4 77 14 15

P3 43 38 23 5 78 14 15

P4 69 59 21 13 75 8 8

P5 57 50 22 9 68 8 8

P6 30 27 17 3 78 8 8

P7 and P8 65 60 45 5 88 16 19

Total 56 50 28 6 77 n.a. n.a.

Medigap Medicaid

Any

Insurance

Other Coverage in 2003 Other Coverage in 2002

Private

HMO

Private

Non-HMO

Medicare

Part A

Medicare

Part B

18. Those shares represent the current situation and are subject to 

change over time. See a later section of this paper for a sensitivity 

analysis that examines the impact of changes in enrollment rates 

on long-term cost projections.
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 9

Figure 4.

Veterans’ Rates of Reliance on VA Care, 

by Priority Group, 2002

(Percentage of care from VA)

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs (VA).

Note: See Box 1 for definitions of the priority groups.

by an actuarial firm with whom VA contracted when developing its health care projection model.19

That analysis projected the rates of new enrollment from 

data collected over a 17-month period, from April 2000 

to August 2001. At that time, VA was undergoing a period of geographic expansion, opening 50 new clinics in 

2000 and 95 more in 2001. The enrollment rates were 

probably affected by that expanded geographic access to 

outpatient services. The 2005-2025 period also includes 

a substantial planned expansion in the number of outpatient clinics, particularly in underserved areas. Thus, 

there is a strong case for using the historically estimated 

enrollment rates to project future enrollment, as this scenario does. If VA adds fewer new clinics in the future or if 

new enrollment slows down for other reasons, the demand for VA health care will be lower than anticipated in 

this scenario.

Other key assumptions in CBO’s projection involve 

health care costs and rates of reliance on VA care by enrollees. CBO assumed that health care costs would increase for VA at the same rate as those in the rest of the 

economy.20 CBO also began with VA’s assumptions 

about rates of reliance—that is, the percentage of health 

care that a typical veteran from each priority group receives from VA as opposed to other sources of care—and 

the relative costs of veterans in each priority group. (See 

Box 3 on page 13 for a simplified explanation of the elements in CBO’s cost projection.) Later sections of this 

paper will explore the effects of deviating from some of 

those assumptions. 

Under Scenario 1, in order to meet the demand for care, 

funding for VA medical care would need to increase by 

89 percent in real terms over the projection period, CBO 

estimates, growing from $28.2 billion in 2005 to $53.4 

billion in 2025 (see Table 4 on page 14).21 Most (89 percent) of the costs in 2025 would be to serve the first five 

priority groups—veterans with service-connected disabilities, housebound veterans, and those with low income or 

few assets. Only 10 percent of the costs of the VA system 

would be incurred for veterans in priority groups 7 and 8. 

That low percentage is due not only to the continued 

freeze on enrollment for P8 veterans, but also to the assumption that current low rates of enrollment for veterans in priority group 7 (P7) will persist, as well as low 

rates of reliance by both P7 and P8 veterans.

The projections are sensitive to the assumed rate of 

growth of health care costs. CBO’s projections of the total 

VA medical budget would change substantially if the

19. Department of Veterans Affairs, FY04 VA Health Care Projection 

Model Final Model Run Reports, vol. II, Appendix C, “Enrollment 

Rates Analysis Report” (prepared by Milliman USA and CACI, 

November 2003), available at www.va.gov/vhareorg/enroll02/

enrldec.htm. CBO did not attempt to assess the accuracy of VA’s 

base-case enrollment projections.

P1 P2 P3 P4 P5 P6 P7 P8

0

10

20

30

40

50

60

20. In deriving its estimates, CBO used projections of cost growth for 

hospital care and physicians’ and clinical services through 2013 

made by the Office of the Actuary, Centers for Medicare and 

Medicaid Services, Department of Health and Human Services 

(see www.cms.hhs.gov/statistics/nhe/projections-2003). For the 

years after 2013, CBO assumed that per capita growth in those 

expenditures would begin to decrease toward an ultimate rate of 

growth that was 1 percentage point above the growth in per capita 

gross domestic product.

21. The VA medical budget for 2005 used as the starting point for 

these projections is from the FY04 VA Health Care Projection 

Model (January 2004). It excludes the costs of long-term care and 

some other VA medical costs and differs somewhat from the final 

2005 VA medical budget. 
10 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

assumed rate of growth of health care costs was 30 percent higher or 30 percent lower than that in Scenario 1 

(see Figure 8 on page 15).22 Under Scenario 1, per capita 

health care costs begin growing by 6.1 percent per year in 

nominal terms in 2006, falling to 4.2 percent by 2025. A 

30 percent higher rate would imply growth rates of 7.9 

percent in 2006 and 5.5 percent in 2025, whereas a 30 

percent lower growth rate would equal 4.2 percent in 

2006 and 3.0 percent in 2025. The higher-growth assumptions would lead to a projected total level of $71.2 

billion in 2025, compared with $53.4 billion in Scenario 

1. In contrast, under the lower-growth assumption, VA’s 

budget would need to grow to only $39.8 billion in order 

to meet the demand for medical care. 

Uncertainty about the accuracy of the assumptions in 

these projections increases over time, so the projections 

toward the end of the 20-year time horizon are more uncertain than those toward the beginning. Cost growth, 

enrollment rates, reliance on other sources of care, and 

many other factors are more likely to differ from CBO’s 

assumptions as time passes. In addition, legislative and 

economic changes may have a profound impact on the 

VA medical system in the next 20 years. 

Box 2.

Interactions Between Sources of Health Care Coverage

Veterans’ rates of enrollment and reliance on care 

from the Department of Veterans Affairs (VA) depend heavily on their access to other sources of 

health insurance and medical care, such as Medicare, 

Medicaid, and private insurance. Demand for VA 

medical care in the future will be affected by changes 

in access to those other sources of coverage, such as 

cuts or expansions to Medicaid, the introduction of 

the Medicare drug benefit, and changes in the availability and cost of private insurance through current 

or past employers, all of which are difficult to predict. Some changes could lead to a reduction in demand for VA care but an increase in spending by another federal or state program. Other changes could 

substitute federal spending for private-sector spending on health care. 

The new Medicare prescription drug benefit could 

either increase or decrease enrollment and reliance 

on VA care. Some employers who currently offer 

drug coverage to their retirees may drop that coverage once Medicare drug plans become available in 

2006. If that occurs, some veterans who lose drug 

coverage through their former employer and are not 

currently enrolled with VA may decide to turn to VA 

rather than purchase a Medicare drug plan.1

 Conversely, low-income veterans who have been using 

VA’s services may find that the low-income subsidies 

available for the Medicare drug benefit make it a 

preferable option, particularly if they do not live 

close to a VA hospital or clinic. As a result, the demand for VA medical care may either increase or decrease, with concomitant changes in Medicare 

spending as well as veterans’ out-of-pocket costs. Because the impact of the Medicare drug benefit remains unclear, the Congressional Budget Office 

(CBO) assumed no specific changes in VA medical 

funding resulting from its availability. 

CBO’s projections of future VA resource demands 

are sensitive to assumptions about enrollment. 

Changes in the availability or cost of private health 

insurance or Medicare coverage could lead to higher 

enrollment at VA. Veterans in priority groups 7 and 

8 are the most likely to be affected by changes in alternate sources of coverage. Relatively few veterans in 

those groups are enrolled in VA, however, and many 

who are enrolled rely on VA for only a small percentage of their medical care.

1. If those individuals later choose to drop VA coverage and 

buy a Medicare drug plan, they may face substantially higher 

premiums. For most seniors, there will be a penalty of at 

least 1 percent per month for late enrollment in Medicare’s 

drug coverage.

22. The choice of rates of growth that are 30 percent higher and lower 

is within the range of error for projections of health care cost 

growth over a 10- to 20-year period. For the rationale behind that 

choice of range, see Congressional Budget Office, Growth in Medical Spending by the Department of Defense (September 2003),

p. 14.
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 11

Figure 5.

Relative Cost of VA Enrollees,

by Priority Group, 2002

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs (VA).

Notes: See Box 1 for definitions of the priority groups.

Veterans in priority group 1 (those with a 50 percent or 

higher service-connected disability) are the reference group 

in this figure. Costs for all other priority groups are shown 

relative to those for P1 veterans. The cost weights exclude 

the impact of reliance on other sources of care.

Results for Scenario 2

A key assumption in Scenario 1 is that enrollment by veterans in priority group 8 remains frozen—that is, no new 

P8 veterans are allowed to enroll with VA for medical 

care. Although medical coverage data that isolate P8 veterans were not available, data for P7 and P8 veterans 

combined showed that many of those veterans have access 

to sources of medical coverage outside of VA (see Table 3 

on page 8). More than 60 percent are enrolled in Medicare, and nearly 90 percent have some form of medical 

coverage outside VA. (The P8 veterans—who are more 

affluent than the P7 veterans—probably have even 

greater access to private health insurance.) Still, many veterans groups have advocated that the freeze on P8 enrollment be lifted, arguing that those veterans should have 

equal access to VA medical care.

CBO projected the demand for VA medical care under 

the assumption that the freeze in enrollment by P8 veterans is lifted in 2006 and no further restrictions on enrollment are put in place. All other assumptions are the same 

as those in Scenario 1.

Under Scenario 2, the funds needed to meet the demand 

for VA medical care would increase by 103 percent in real 

terms over the projection period, in CBO’s estimation, 

growing from $28.2 billion in 2005 to $57.1 billion in 

2025 (see Table 4). By 2025, the funds needed to meet 

the demand under this scenario would be 7 percent 

higher than under Scenario 1. That increase reflects triple 

the amount of resources dedicated to P8 veterans—from 

a projected level of $1.9 billion in Scenario 1 to $5.6 billion in Scenario 2.

Some of that increase in the demand for VA medical resources would be offset by decreases in other federal and 

nonfederal spending. Medicare spending would decrease 

as some P8 seniors switched some of their care from 

Medicare providers to VA facilities, resulting in little net 

change in federal spending.23 Some military retirees with 

TRICARE coverage might turn to VA for some services, 

reducing spending by the Department of Defense.24 For 

veterans with private coverage who drop that coverage or 

rely on VA for a higher share of their care, the move to 

VA care would result in a net increase in federal spending. 

This paper projects only the change in VA resource demands, not the overall change in total federal spending.

Results for Scenario 3

In the President’s budget submissions for both 2005 and 

2006, the Administration proposed, among other 

changes, the introduction of a $250 annual enrollment 

fee for P7 and P8 veterans and an increase in the copayment for pharmaceuticals for those two groups (from $7 

to $15 per 30-day prescription). The enrollment fee is 

similar to the $230 annual fee paid by single military retirees who enroll in TRICARE’s managed care plan,

TRICARE Prime. The $250 enrollment fee is much 

lower than the employee’s share of health insurance premiums paid by civil servants and annuitants covered by 

selected plans in the Federal Employees Health Benefits 

P1 P2 P3 P4 P5 P6 P7 P8

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

23. There may be an increase or decrease in federal spending if Medicare providers are significantly less expensive or more expensive 

than VA facilities.

24. TRICARE is the medical coverage provided by the Department of 

Defense for military service members, those who retire from the 

military after 20 years of service, and dependents of those two 

groups.
12 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Figure 6.

Veterans’ Shares of Total VA Medical 

Enrollment and Costs, by Priority 

Group, 2004

(Percentage of total enrollment and costs)

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs (VA).

Note: See Box 1 for definitions of the priority groups.

(FEHB) program in the Washington, D.C., area (see 

Table 5 on page 16). A copayment of $15 for all drugs is 

at the lower end of the range of copayments for pharmaceuticals paid by enrollees in the FEHB program and not 

much more than the amount paid by military retirees obtaining pharmaceuticals from an in-network local pharmacy. Examining those proposed fees provides some insight into the effects of modest cost sharing on demand 

for VA’s health services.

CBO examined the impact on costs if those two costsharing measures were introduced and, at the same time, 

the freeze on enrollment for P8 veterans was lifted.25

CBO assumed that the enrollment fee and increased copayment would be indexed to inflation using the CPI-U 

(the consumer price index for all urban consumers) and 

incorporated into its projection the revenues from those 

two sources and the effect of cost sharing on both enrollment and utilization of services. (See Box 4 on page 18 

for a description of CBO’s methodology for estimating 

those effects.)

Under Scenario 3, the cost of meeting the demand for VA 

medical care would rise to $52.6 billion in 2025, CBO 

estimates, or 1.4 percent less than the level in Scenario 1 

and 7.8 percent less than in Scenario 2 (see Table 4). 

Even with the enrollment fee, opening up new enrollment to P8 veterans would result in roughly 787,000 additional P8 enrollments by 2025 compared with the level 

under Scenario 1, in CBO’s estimation. In contrast, at 

least some P7 veterans, who had never been subject to a 

freeze in enrollment, would be discouraged by the enrollment fee, and about 440,000 fewer of them would sign 

up by 2025 as compared with their level under Scenario 

1. Moreover, the increased copayment would discourage 

pharmaceutical use by both groups. On net, the cost of 

meeting the demand for VA medical care would be similar in 2025 under Scenario 3 and under Scenario 1.

Figure 7.

Estimated Percentage of the Total

Population of Veterans in Each Priority 

Group, 2004

Source: Congressional Budget Office based on data from the 

Department of Veterans Affairs.

Notes: The figure includes both enrolled and unenrolled veterans. 

Shares must be estimated because priority-group determination for some veterans cannot be made until the time of 

enrollment.

See Box 1 for definitions of the priority groups. 25. The President’s budgets for 2005 and 2006 did not propose lifting 

the enrollment freeze for veterans in priority group 8.

P1 P2 P3 P4 P5 P6 P7 P8

0

5

10

15

20

25

30

35

40

45

Enrollment

Costs

 P1

 (3%) P2

 (2%) P3

 (5%) P4

 (3%)

P5 (24%)

P6 (4%)

P7 (22%)

P8 (37%)
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 13

As mentioned earlier, in the discussion of the previous 

scenario, there would probably be changes in spending by 

other federal programs such as Medicare and TRICARE. 

This paper does not estimate the size of those spending 

offsets.

Sensitivity Analysis of Increased

Enrollment Rates

CBO performed a sensitivity analysis to determine how 

its projections would be affected by a change in the assumptions about enrollment in the VA system. Currently, 

only 11.6 percent of total VA medical spending can be attributed to veterans in priority groups 7 and 8. However, 

that small number is largely due to their low rates of enrollment and reliance as well as the relatively lower average cost of veterans in those priority groups (see Figures 4 

through 6). Most P7 and P8 veterans have access to other 

sources of medical coverage, including private employerprovided health insurance and Medicare. 

In recent years, health insurance costs have increased dramatically, rising by an average of 10 percent per year from 

1999 to 2004.26 Some employers have stopped offering 

health insurance, have increased the share of premiums 

that must be paid by employees, or have restructured 

their health plans to offer fewer choices or to require increased deductibles and copayments. If changes in the 

availability or cost of private health insurance led more 

veterans to turn to VA for care, enrollment rates and the 

demand for VA medical care could rise substantially. 

CBO examined the possible effect of such changes on the 

long-range projections under each of the three scenarios.

Sensitivity Analysis for Scenario 1

Currently, a substantial number of veterans are not enrolled with VA for care (see Figure 3 on page 7). That 

pool of unenrolled veterans consists largely of veterans in 

lower priority groups, but even in high-priority groups a 

non-negligible minority of veterans has not enrolled for 

care. If enrollment rates increased among all groups (except P8, whose enrollment would remain frozen) until 

another 25 percent of each group’s unenrolled population 

had enrolled by the end of the projection period, the annual cost of meeting the demand for VA medical care 

would grow to $59.3 billion by 2025, an 11 percent increase over the earlier estimate for Scenario 1 (see Table 6 

on page 17). Relative to the figures in that earlier Scenario 1, an additional 510,000 P7 veterans would be enrolled by 2025, medical resources for their care would increase by 38.7 percent, and their share of VA medical 

funding would grow from 6.7 percent to 8.3 percent.

Sensitivity Analysis for Scenario 2

If the freeze on P8 enrollment was lifted and 25 percent 

of each group’s unenrolled population (including veterans 

in priority group 8) enrolled, the annual cost of meeting 

the demand for care would grow to $65.2 billion by 

2025, or 14 percent more than in the earlier estimate for 

Scenario 2. In comparison with that Scenario 2, an additional 510,000 P7 veterans and 847,000 P8 veterans 

Box 3.

Elements of the

Congressional Budget 

Office’s Cost Projection

The long-range spending projections in this

paper were determined using the following

formula:

spending projection for priority group =

veteran population in priority group x

percentage enrolled x

rate of reliance x

relative cost factor x

base cost.

Rate of reliance represents the dollar share of 

medical care that the average veteran in a given 

priority group receives from the Department of 

Veterans Affairs (VA) as opposed to other 

sources (Medicare, Medicaid, private insurance, 

TRICARE, and so forth). 

Relative cost factor represents the average demand for all health services (not just VA care) 

among veterans in that priority group, relative 

to a veteran in priority group 1.

Base cost is the inflated annual cost of care for a 

typical full-time priority group 1 veteran.

26. See the Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2004 Summary of Findings

(Menlo Park, Calif.: Kaiser Family Foundation, 2004), p. 1.
14 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Table 4.

Summary of Projection Results Under CBO’s Three Scenarios

Source: Congressional Budget Office.

Notes: VA = Department of Veterans Affairs.

See Box 1 for definitions of the priority groups.

Differences in enrollment and cost among scenarios are confined to P7 and P8 veterans.

The VA medical budget for 2005 used as the starting point for these projections is from the FY04 VA Health Care Projection Model 

(January 2004). It excludes the costs of long-term care and some other VA medical costs and differs somewhat from the final 2005 VA 

medical budget. 

would be enrolled by 2025. The level of funding needed 

to meet the demand by P7 and P8 veterans combined 

would increase from $9.2 billion to $12.7 billion and 

would make up 19.5 percent of VA’s medical budget.

Sensitivity Analysis for Scenario 3

If the freeze on P8 enrollment was lifted but a $250 annual enrollment fee was introduced for P7 and P8 veterans and the copayment for pharmaceuticals for those two 

groups was increased from $7 to $15 (again indexed to 

the CPI-U), the annual cost of meeting the demand for 

VA medical care would reach $60.4 billion by 2025, assuming that enrollment for VA medical care increased as 

in the previous two sensitivity analyses. Because there is a 

larger pool of unenrolled veterans in priority groups 7 

and 8 who might enroll, the funds needed to meet the demand by those veterans would increase by 68 percent relative to its level in the previous Scenario 3, growing from 

9.0 percent to 13.1 percent of the VA medical budget.

As in the earlier comparisons, which used VA’s base-case 

assumptions of enrollment rates, the sensitivity analyses 

of Scenarios 1 and 3 yield very similar total costs. Opening up new enrollment to P8 veterans, in the face of an 

2005 2015 2025 2005 2015 2025 2005 2015 2025

675 767 801 675 767 801 675 767 801

472 475 447 472 475 447 472 475 447

962 988 912 962 988 912 962 988 912

251 319 298 251 319 298 251 319 298

2,751 2,955 2,551 2,751 2,955 2,551 2,751 2,955 2,551

163 225 223 163 225 223 163 225 223

1,086 1,403 1,317 1,086 1,403 1,317 1,086 849 877

1,198 873 741 1,198 2,333 2,189 1,198 1,500 1,528 _____ _____ _____ _____ _____ _____ _____ _____ _____

Total 7,559 8,005 7,291 7,559 9,465 8,739 7,559 8,078 7,638

5.4 9.0 11.9 5.4 9.0 11.9 5.4 9.0 11.9

1.7 2.5 3.0 1.7 2.5 3.0 1.7 2.5 3.0

2.7 4.1 4.8 2.7 4.1 4.8 2.7 4.1 4.8

3.6 6.7 8.0 3.6 6.7 8.0 3.6 6.7 8.0

11.4 17.9 19.6 11.4 17.9 19.6 11.4 17.9 19.6

0.2 0.4 0.5 0.2 0.4 0.5 0.2 0.4 0.5

1.6 3.0 3.6 1.6 3.0 3.6 1.6 1.4 1.8

1.6 1.8 1.9 1.6 4.7 5.6 1.6 2.2 2.9 ____ ____ ____ ____ ____ ____ ____ ____ ____

Total 28.2 45.3 53.4 28.2 48.2 57.1 28.2 44.1 52.6

P1

P6

P7

P8

P2

P3

P5

Projected Funds to Meet VA Medical Demand, by Priority Group (Billions of 2005 dollars)

P8

P4

P5

P6

P7

Group

P2

P3

Projected VA Medical Enrollment, by Priority Group (Thousands)

P4

Scenario 1 Scenario 2 Scenario 3

P1

Priority 
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 15

Figure 8.

Projected Resource Needs Under

Different Assumptions of Growth in 

Heath Care Costs for Scenario 1

(Billions of 2005 dollars)

Source: Congressional Budget Office.

enrollment fee but with an assumed 25 percent increase 

in enrollment relative to VA’s base-case projections, results in about 1,013,000 additional P8 enrollments by 

2025. Enrollment by P7 veterans would be roughly 

620,000 higher than projected under the earlier Scenario 

3. The increased copayment again discourages the use of 

pharmaceuticals by both groups. On net, total resources 

needed to meet the demand for VA medical care is nearly 

the same in the sensitivity analyses of Scenarios 1 and 3.

Comparing the Scenarios to CBO’s 

Baseline Projections

The projections in this report use a different methodology than that of CBO’s periodic baseline projections for 

discretionary spending.27 VA medical care funding must 

be appropriated by the Congress annually, and VA cannot 

spend more than the amount appropriated. That type of 

spending contrasts with mandatory spending, which is 

automatically obligated each year and requires no annual 

appropriations. Mandatory programs include Social Security, Medicare, Medicaid, and veterans’ disability compensation. 

CBO projects discretionary spending (spending controlled by annual appropriation acts) following rules established in the Balanced Budget and Emergency Deficit 

Control Act of 1985. For its periodic baseline report, 

CBO projects discretionary spending by assuming that 

the most recent year’s funding is continued in each subsequent year with adjustments for projected inflation. Under that law, the inflation rate CBO uses to project medical budgets for VA is a weighted average of the GDP 

deflator and the employment cost index for wages and 

salaries, with the weights reflecting the shares of personnel costs and other costs in that portion of the budget. 

That specified inflation rate is applied to the total budget 

rather than on a per capita basis. As a result, using CBO’s 

baseline rules, the total VA medical budget grows relatively steadily over the 2005-2025 period rather than 

varying with changes in population, enrollment, and inflation specific to the health care sector. Using the CBO 

baseline methodology and those inflators for discretionary programs results in slower total budget growth than is 

seen in the projections in Scenarios 1, 2, and 3, which are 

based on anticipated growth in per capita health care 

costs, changes in the population of veterans, and growth 

in enrollment. The projections in this paper assume that 

health care costs will continue to grow faster than general 

economywide inflation, as they have in the past few decades. 

Although CBO’s latest baseline projections extend out 10 

years, to 2015, they can be further extended by assuming 

that the discretionary inflators from 2016 through 2025 

equal the average inflators for the prior three years (2013 

through 2015). Under those growth rates, the VA medical budget would climb to $35.2 billion in 2025, only 

two-thirds the level that CBO projected in Scenario 1 

(see Table 7 on page 19). That projected budget is lower 

than the $39.8 billion that might occur if health care cost 

growth was 30 percent less than CBO anticipates 

throughout the next 20 years. 

Medical care budgets for VA under CBO’s baseline assumptions would be substantially less than in any of the 

scenarios considered in this report (see Figure 9 on 

page 20). If health care costs, enrollment, reliance, and 

other factors evolved as anticipated, it would be difficult 

27. See, for example, Congressional Budget Office, The Budget and 

Economic Outlook: Fiscal Years 2006 to 2015 (January 2005).

2005 2010 2015 2020 2025

0

10

20

30

40

50

60

70

80

30% Higher

Health Care Costs

30% Lower

Health Care Costs

Base Case
16 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Table 5.

Comparison of Out-of-Pocket Costs for Enrollees in Selected Health Plans in

Calendar Year 2005

(Dollars)

Source: Congressional Budget Office based on data from the Office of Personnel Management and TRICARE.

Notes: See the text for a description of the elements of Scenario 3 in CBO’s spending projections.

HMO = health maintenance organization; n.a.=not applicable.

TRICARE is the medical plan for military service members, retirees, and their dependents.

for VA to hold spending growth to the rate assumed in 

CBO’s baseline. Under current law, if VA was required to 

restrain its budgetary growth to the rate assumed in 

CBO’s baseline projections, the Secretary of Veterans Affairs would need to make decisions in the very near future 

that would freeze enrollment or exclude veterans in several priority groups who are currently receiving care from 

VA. Priority group 8, as the lowest in the statutory priority list, would be the first to be excluded from receiving 

services, or “disenrolled.” Priority group 7 would face a 

freeze and disenrollment as early as 2007, as would priority group 6, which includes veterans with exposures to 

various toxic substances, such as Agent Orange. Even priority group 5, low-income veterans, would eventually 

face a freeze or other limitations in access if VA was required to restrain its budgetary growth to the rate assumed in CBO’s baseline projections.

Conclusion

CBO’s projections in this paper show that the resources 

needed to meet the demand for VA health care are likely 

to grow substantially through 2025 (see Figure 10 on 

page 21). Most of the VA medical budget pays for care 

provided to veterans in the first five priority groups: veterans with service-connected disabilities, housebound 

veterans, and low-income veterans (see Figure 11 on 

page 22). Although only a relatively small share of the VA 

medical budget (11.6 percent) is currently devoted to 

paying for care provided to P7 and P8 veterans, that share 

Washington, D.C., area 753 n.a. 10 20 25 50 40

Washington, D.C., area 1,168 n.a. 10 20 25 50 40

Washington, D.C., metro area 1,315 n.a. 10 20 25 50 40

Washington, D.C., area 833 n.a. 15 13 25 25 40

Washington, D.C., area 1,035 n.a. 10 8 20 18 55

military retirees 230 0 3 3 9 9 22

Scenario 3 250 15 n.a. n.a. n.a. n.a. n.a.

Pharmacy,

Facility

At Local

Pharmacy,

Pharmacy Copayments

Order,

Mail Mail At Local At Local

At 

Kaiser Permanente, High—

Health Plan

Premium

(Single member)

Aetna Open Access, Basic—

Aetna Open Access, High—

CareFirst BlueChoice—

Kaiser Permanente, Standard—

Name Brand

Federal Employees and 

Pharmacy,

Nonformulary

Order,

for

Annual

Generic Generic

Government

TRICARE Prime for 

Illustrative amounts for

for

 Name Brand

for for for

Military Retirees

Veterans

Annuitants in HMOs
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 17

Table 6.

Summary of Sensitivity Analysis with Increased Enrollment 

Under CBO’s Three Scenarios

Source: Congressional Budget Office.

Notes: VA = Department of Veterans Affairs.

See Box 1 for definitions of the priority groups.

Compared with the earlier Scenarios 1, 2, and 3, the numbers for enrollment under these scenarios are 15 percent, 22 percent, and 29 

percent higher, respectively. The numbers for projected spending are 11 percent, 14 percent, and 15 percent higher, respectively, than 

those in the earlier three scenarios (see Table 4 on page 14).

Differences in enrollment and cost among scenarios are confined to P7 and P8 veterans.

The VA medical budget for 2005 used as the starting point for these projections is from the FY04 VA Health Care Projection Model

(January 2004). It excludes the costs of long-term care and some other VA medical costs and differs somewhat from the final 2005 VA 

medical budget. 

could increase if veterans in those groups enrolled (or 

were allowed to enroll) in greater numbers than they do 

currently. But even under CBO’s highest enrollment estimates (shown in the sensitivity analysis for Scenario 2), 

spending on those two groups would make up less than 

20 percent of the VA medical budget. 

High anticipated growth in medical costs for the entire 

economy will play an important role in driving VA’s future medical costs regardless of the behavior of lower-priority veterans. But if VA’s appropriated budget does not 

grow at a rate consistent with health care cost growth, or 

if large numbers of currently unenrolled veterans decide 

to turn to VA for care, VA could again confront the decision of whether to freeze enrollment or to disenroll veterans who are currently using care within the VA system.

2005 2015 2025 2005 2015 2025 2005 2015 2025

675 774 815 675 774 815 675 774 815

472 479 452 472 479 452 472 479 452

962 1,002 931 962 1,002 931 962 1,002 931

251 348 335 251 348 335 251 348 335

2,751 3,201 2,939 2,751 3,201 2,939 2,751 3,201 2,939

163 286 315 163 286 315 163 286 315

1,086 1,756 1,827 1,086 1,756 1,827 1,086 1,271 1,497

1,198 873 741 1,198 2,921 3,036 1,198 2,192 2,541 _____ _____ _____ _____ _____ _____ _____ _____ _____

Total 7,559 8,718 8,355 7,559 10,765 10,651 7,559 9,552 9,826

5.4 9.0 12.1 5.4 9.0 12.1 5.4 9.0 12.1

1.7 2.5 3.0 1.7 2.5 3.0 1.7 2.5 3.0

2.7 4.2 4.9 2.7 4.2 4.9 2.7 4.2 4.9

3.6 7.3 9.0 3.6 7.3 9.0 3.6 7.3 9.0

11.4 19.3 22.6 11.4 19.3 22.6 11.4 19.3 22.6

0.2 0.5 0.7 0.2 0.5 0.7 0.2 0.5 0.7

1.6 3.7 4.9 1.6 3.7 4.9 1.6 2.0 3.1

1.6 1.8 1.9 1.6 5.9 7.8 1.6 3.2 4.8 ____ ____ ____ ____ ____ ____ ____ ____ ____

Total 28.2 48.4 59.3 28.2 52.5 65.2 28.2 48.1 60.4

P3

Sensitivity Analysis of Projected VA Medical Enrollment, by Priority Group (Thousands)

P4

Scenario 1 Scenario 2 Scenario 3

P1

Priority 

P5

Sensitivity Analysis of Funds to Meet Projected VA Medical Demand, by Priority Group (Billions of 2005 dollars)

P8

P4

P5

P6

P7

Group

P2

P1

P6

P7

P8

P2

P3
18 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Box 4.

Modeling the Effects of Policy Changes on Enrollment and Costs

The third scenario in the Congressional Budget Office’s 

(CBO’s) three scenarios of projected long-range medical 

funding for the Department of Veterans Affairs (VA) incorporates two cost-sharing measures: a $250 enrollment 

fee as well as an increased pharmacy copayment of $15 

(compared with the current level of $7) for veterans in priority groups 7 and 8. CBO assumed that the enrollment 

fee would affect veterans’ decision about whether to enroll 

and that the increased copayment for pharmaceuticals 

would affect both enrollment and utilization. 

CBO modeled the enrollment fee as an increase in the 

“premium” (defined as veterans’ expected annual out-ofpocket costs, including copayments and the enrollment 

fee) for using the VA health care system. In 2004, P7 and 

P8 veterans faced average annual out-of-pocket costs of 

$121 for pharmaceuticals and between $37 and $45 for 

nonpharmacy services if they used VA care.1

 CBO inflated those amounts by the projected rate of health care 

cost growth from 2004 to 2006 and added in the $250 

enrollment fee and expected average increases in pharmacy and other copayments of $218 for P7 veterans and 

$152 for P8 veterans. As a result, the premium faced by 

those veterans would increase by 237 percent (P8) to 262 

percent (P7) compared with the levels they would have 

faced without the proposed policy changes.

Previous research on the price responsiveness of individuals choosing employer-sponsored health insurance and 

nongroup health insurance has found that for a 10 percent 

increase in health insurance premiums, the percentage of 

people insured declines by about one-half of one percentage point.2 CBO assumed the same price response would 

hold for veterans, so the fraction of P7 and P8 veterans 

who chose to enroll would decrease by 0.5 percentage 

points for each 10 percent increase in their “premium.” 

However, healthier veterans with lower expected medical 

costs, or veterans with a less expensive alternative source of 

care, would be more likely to drop VA enrollment once it 

was no longer free. Thus, the remaining P7 and P8 veterans who chose to enroll despite the $250 fee would probably have higher average costs than would veterans who 

drop their enrollment, because the former either are sicker 

or have been relying on VA for a higher percentage of 

their care. CBO assumed that VA’s average cost to treat 

veterans enrolling after the $250 fee is imposed would be 

25 percent greater than for veterans who had enrolled previously. 

The higher pharmacy copayment for P7 and P8 veterans 

would also be expected to affect utilization. CBO assumed 

that pharmacy utilization would decrease by 22 percent 

for P7 and P8 veterans as a result of that increase.3

 In addition, because many outpatient visits are prompted by a 

desire for pharmaceuticals, CBO assumed that outpatient 

utilization would decrease as well. Specifically, CBO assumed that one-quarter of outpatient visits are prompted 

largely by a desire for pharmaceuticals and that there 

would be a 22 percent decrease in utilization for that type 

of outpatient visit. (Other outpatient and all inpatient utilization would remain unchanged.)

CBO calculated the anticipated revenues from both the 

enrollment fee and the increased pharmacy copayments 

and included those amounts in calculating the net cost of 

VA medical care under Scenario 3. 

1. Personal communication to the Congressional Budget 

Office by staff members of the Department of Veterans 

Affairs, November 16, 2004 (for collections data) and 

December 3, 2004 (for enrollment data). VA collected additional revenues from third-party insurance plans covering P7 

and P8 veterans, but those revenues were not included in the 

estimate of the notional “premium” currently faced by those 

veterans.

2. See, for example, Linda J. Blumberg, Len M. Nichols, and 

Jessica S. Banthin, “Worker Decisions to Purchase Health 

Insurance,” International Journal of Health Care Finance and 

Economics, vol. 1, no. 3/4 (September/December 2001), pp. 

305-325; Jonathan Gruber and Ebonya Washington, Subsidies to Employee Health Insurance Premiums and the Health 

Insurance Market, Working Paper No. 9567 (Cambridge, 

Mass.: National Bureau of Economic Research, March 

2003); and Michael Chernew, Kevin Frick, and Catherine 

G. McLaughlin, “The Demand for Health Insurance Coverage by Low-income Workers: Can Reduced Premiums 

Achieve Full Coverage?” Health Services Research, vol. 32, no. 

4 (October 1997), p. 453.

3. See Bruce Stuart and Christopher Zacker, “Who Bears the 

Burden of Medicaid Drug Copayment Policies?” Health 

Affairs, vol. 18, no. 2 (March/April 1999), pp. 201-212. 
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 19

Table 7.

Funds Needed to Meet Projected VA Medical Demand Under the Various

Scenarios Presented in This Paper

(Billions of 2005 dollars)

Source: Congressional Budget Office.

Notes: VA = Department of Veterans Affairs.

See the text for an explanation of the various scenarios.

The VA medical budget for 2005 used as the starting point for these projections is from the FY04 VA Health Care Projection Model

(January 2004). It excludes the costs of long-term care and some other VA medical costs and differs somewhat from the final 2005 VA 

medical budget.

2005 2010 2015 2020 2025

Scenario 1 28.2 37.7 45.3 50.1 53.4

Scenario 2 28.2 39.8 48.2 53.5 57.1

Scenario 3 28.2 36.1 44.1 49.2 52.6

Scenario 1—Sensitivity Analysis 28.2 39.4 48.4 54.6 59.3

Scenario 2—Sensitivity Analysis 28.2 42.0 52.5 59.7 65.2

Scenario 3—Sensitivity Analysis 28.2 38.2 48.1 55.1 60.4

Scenario 1, 30 Percent Lower Growth 

Rate for Health Care Costs 28.2 34.6 38.4 39.7 39.8

Scenario 1, 30 Percent Higher Growth

Rate for Health Care Costs 28.2 41.1 53.3 62.9 71.2

Memorandum:

Projected Budgets Under Assumptions

Used in CBO's Baseline 28.2 29.9 31.6 33.3 35.2
20 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Figure 9.

Projected Demand for VA Medical Resources Under Scenario 1, Allocated by

Priority Group, Compared with CBO’s Baseline Budget Projections, 2005 to 2025

(Billions of 2005 dollars)

Source: Congressional Budget Office.

Notes: VA = Department of Veterans Affairs.

See Box 1 for definitions of the priority groups.

2005 2010 2015 2020 2025

0

10

20

30

40

50

60

P1 P2 P3 P4 P5 P6 P7 P8

CBO's Baseline Projection
THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE 21

Figure 10.

Projected Demand for VA Medical Resources Under CBO’s Three Scenarios, 

2005 to 2025

(Billions of 2005 dollars)

Source: Congressional Budget Office.

Notes: The reduction in spending from 2005 to 2006 in Scenario 3 reflects the effects of introducing an enrollment fee and increasing pharmacy copayments for veterans in priority groups 7 and 8.

VA = Department of Veterans Affairs.

2005 2010 2015 2020 2025

0

10

20

30

40

50

60

Scenario 1

Scenario 2

Scenario 3
22 THE POTENTIAL COST OF MEETING DEMAND FOR VETERANS’ HEALTH CARE

Figure 11.

Summary of the Projections for 2025, by Scenario and Priority Group

(Billions of 2005 dollars)

Source: Congressional Budget Office.

Notes: SA = sensitivity analysis of higher enrollment rates.

See Box 1 for definitions of the priority groups.

1 2 3 1-SA 2-SA 3-SA

0

10

20

30

40

50

60

70

P1 P2 P3 P4 P5 P6 P7 P8

INSIDE MAIL

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

WASHINGTON, DC 20515