OCTOBER 2010

Potential Costs of

Veterans’ 

Health Care

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

R E P O R T

CBO
Pub. No. 4045
The Congress of the United States O Congressional Budget Office

A

REPORT

CBO

Potential Costs of Veterans’ Health Care

October 2010
CBO

Notes

Unless otherwise indicated, all years referred to in this report are federal fiscal years (which 

run from October 1 to September 30), and all dollar amounts are expressed in 2010 dollars 

(having been converted, when necessary, using the gross domestic product price index).

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

CBO

The Department of Veterans Affairs (VA) is operating its medical care system and associated research program with a budget of $48 billion for 2010, a rise of 8 percent in nominal 

terms (without adjusting for inflation) from 2009. In nominal terms, that budget grew at an 

average rate exceeding 9 percent annually between 2004 and 2009. VA’s health care budget 

will face continued pressure over the next few years: Additional veterans are likely to seek care 

from VA, and cost increases in medical care are expected to continue to outpace cost increases 

for other goods and services. 

This Congressional Budget Office (CBO) report—which was mandated by section 104 of the 

Consolidated Appropriations Act, 2008 (Public Law 110-161)—examines prospective 

demands on VA’s health care system and the potential budgetary implications of meeting 

veterans’ health care needs over the 2011–2020 period. CBO projects the potential costs to 

treat all veterans enrolled in VA’s health care system and also, separately, projects the potential 

costs to treat veterans returning from the military operations in Iraq and Afghanistan and 

related activities. In keeping with CBO’s mandate to provide objective analysis, this report 

makes no recommendations. 

The report was prepared by Heidi Golding of CBO’s National Security Division under the 

supervision of Matthew Goldberg and David Mosher. Nabeel Alsalam, Elizabeth Bass, 

Sunita D’Monte, Sarah Jennings, and Allison Percy of CBO provided thoughtful comments 

on earlier drafts, as did Kristy Piccinini (formerly of CBO) and David Hunter of the Institute 

for Defense Analyses. (The assistance of external reviewers implies no responsibility for the 

final product, which rests solely with CBO.) Alec Johnson provided research assistance. 

The Department of Veterans Affairs and the Department of Defense provided data used in 

the analysis. 

Sherry Snyder edited the report, and Chris Howlett and Kate Kelly proofread it. 

Cindy Cleveland produced drafts of the manuscript. Maureen Costantino prepared the report 

for publication, with assistance from Jeanine Rees, and designed the cover. Monte Ruffin 

printed the initial copies, Linda Schimmel handled the print distribution, and 

Simone Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf

Director

October 2010
Contents

CBO

Summary vii

Introduction 1

The Health Care Program of the Department of Veterans Affairs 2

Trends in the Number of Veterans Enrolled and Being Treated by VA 2

Eligibility and Enrollment of Veterans of 

Overseas Contingency Operations 6

Potential Costs of Providing Health Care to All Enrolled Veterans 10

Analytic Method 10

Projected Enrollment, Use of Services, and 

Growth in Medical Expenditures per Enrollee 12

Projected Cost 16

Potential Costs of Providing Health Care to Veterans of 

Overseas Contingency Operations 21

Analytic Method 21

Projected Enrollment, Use of Services, and Growth in 

Medical Expenditures per OCO Enrollee 23

Projected Cost 27

Appendix A: Procedures for Projecting VA’s Potential Costs 31

Appendix B: Differences in Veterans’ Use of VA’s Health Care Services 35
VI

CBO

Tables

S-1. Assumptions Underlying the Scenarios Used to Project Enrollment of 

Veterans and the Potential Costs for VA to Provide Health Care 

Services to Them ix

1. Assumptions Underlying the Scenarios 12

2. Projected Enrollment of Veterans for VA Health Care and the 

Potential Costs for VA to Provide Health Care Services to Them 19

3. Number of OCO Veterans Treated Each Year at VA and 

Average Annual Obligations per OCO Patient 24

Figures

S-1. Potential Costs for VA to Provide Health Care Services to Enrolled Veterans xi

1. Enrolled Veterans and the Number Who Use VA’s Health Care Services 3

2. Distribution of Enrolled Veterans, by Priority Group, 2009 6

3. Number of Veterans of Overseas Contingency Operations Treated by VA 7

4. Estimated Rates of Reliance of Enrolled Veterans on VA’s Health Care Services, 

by Priority Group, 2008 15

5. VA’s Expenditures on Health Care Services per Enrollee, 

by Priority Group, 2008 18

6. Potential Costs for VA to Provide Health Care Services to Enrolled Veterans 20

7. Distribution of OCO Veterans by Time Between Separation from 

Active Duty and Their First Use of VA’s Health Care Services 25

8. Potential Costs for VA to Provide Health Care Services to 

Enrolled Veterans of Overseas Contingency Operations 28

B-1. Use of VA’s Health Care Services per 1,000 Enrollees, by Priority Group 36

B-2. Use of VA’s Health Care Services by OCO and Recent Non-OCO Enrollees, 

by Months Since Enrollment 38

Boxes

1. Eligibility, Priority Groups, and Cost Sharing for Veterans’ Health Care 4

2. Medical Status of Service Members and Veterans Who Served in 

Iraq and Afghanistan and Their Use of Health Care Services 8

3. Health Care Coverage of Enrolled Veterans 16

4. Comparing the Scenarios with CBO’s Baseline Budget Projections 22
CBO

Summary

The Department of Veterans Affairs (VA) provides 

health care at little or no charge to more than 5 million 

veterans annually. Medical services are provided through 

the inpatient and outpatient facilities run by the Veterans 

Health Administration. Those services include routine 

health assessments, readjustment counseling, surgery, 

hospitalization, and nursing home care.

The Congressional Budget Office (CBO) projects that 

the future costs for VA to treat enrolled veterans will be 

substantially higher (in inflation-adjusted dollars) than 

recent appropriations for that purpose, partly because 

more veterans are likely to seek care in the VA system but 

mostly because health care costs per enrolled veteran are 

projected to increase faster than the overall price level. 

Under two scenarios that CBO examined, the total real 

resources (in 2010 dollars) necessary to provide health 

care services to all veterans who seek treatment at VA 

would range from $69 billion to $85 billion in 2020, 

representing cumulative increases of roughly 45 percent 

to 75 percent since 2010.

Although veterans from recent conflicts will represent a 

fast-growing share of enrollments in VA health care over 

the next decade, the share of VA’s resources devoted to the 

care of those veterans is projected to remain small 

through 2020, in part because they are younger and 

healthier than other veterans served by VA. 

Background

To provide health care services, VA depends on discretionary funding that the Congress provides in annual 

appropriation acts. Although eligibility for VA health care 

is based primarily on veterans’ military service, VA may, 

and does, adjust enrollment according to the resources 

available to it. 

The Veterans’ Health Care Eligibility Reform Act of 1996 

(Public Law 104-262, 110 Stat. 3177) mandated that VA 

deliver services to veterans who have service-connected 

conditions, to veterans unable to pay for necessary medical care, and to specific groups of veterans, such as former 

prisoners of war. The legislation permitted VA to offer 

services to all other veterans to the extent that resources 

and facilities were available; it also required VA to 

develop and implement an enrollment system to facilitate 

the management and delivery of health care services. 

VA’s enrollment system includes eight categories that 

determine veterans’ eligibility and priority for access to 

health care. The highest priority is given to veterans who 

have service-connected disabilities (priority groups 1 

through 3, or P1 through P3); the lowest priority is given 

to higher-income veterans who have no compensable 

service-connected disabilities, that is, no conditions 

that are disabling to the degree that VA provides 

compensation (P8). 

The number of veterans treated by VA climbed rapidly 

following the enactment of the 1996 law, increasing from 

2.9 million in fiscal year 1995 to 4.5 million in 2003.1

 By 

2003, VA no longer had the capacity to adequately serve 

all current enrollees, prompting the Secretary of Veterans 

Affairs to suspend further enrollment of some higherincome veterans (those in P8); VA eased that restriction 

in 2009 to allow some of those veterans to enroll. 

(Enrolled veterans typically have more than one source of 

health care available to them and choose to use VA for 

only a small portion of their health care, relying on other 

sources such as Medicare, employer-sponsored insurance, 

or the Department of Defense’s TRICARE program.) 

1. Some enrolled veterans do not seek treatment from VA each year 

and consequently are not included in the counts of patients in a 

given year. 
VIII POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Current Resources

A total of $44 billion was appropriated to VA for 2009 to 

provide medical services to veterans and to conduct medical research.2

 That amount was increased by 8 percent, 

to $48 billion, for 2010. VA has requested an appropriation of $52 billion, an additional 8 percent, for 2011.3

The average annual increase was more than 9 percent 

from 2004 through 2009. 

One group of veterans—those who have deployed or will 

deploy to overseas contingency operations (OCO), which 

include Operation Iraqi Freedom, Operation New Dawn, 

and Operation Enduring Freedom in Afghanistan and 

related activities—are of particular interest as policymakers and others attempt to determine the extent of the 

war-related medical conditions of those veterans and the 

resources required to treat them. Those veterans 

accounted for only about 6 percent of all patients in 2009 

and 3 percent of the total dollars obligated for veterans’ 

health care in that year. Of the $43 billion obligated in 

2009, VA estimates that it obligated $1.5 billion to care 

for OCO veterans. VA further estimates that those obligations will rise to $2.0 billion in 2010, $2.6 billion in 

2011, and $3.3 billion in 2012. 

Projecting Future Costs

This CBO report examines prospective demands on VA 

and projects the resources the agency would need to 

provide medical care to all enrolled veterans during the 

next 10 years, 2011–2020. (The report does not attempt 

to predict appropriations for VA.) Although the focus of 

this report is on the resources VA would need to treat all 

enrolled veterans, CBO has also separately projected the 

portion of those resources that would be needed to treat 

the veterans of the ongoing overseas contingency 

operations.

The recent increases in VA’s medical budget have 

reflected factors that will probably affect future resource 

requirements. First, as is true for all U.S. health care, VA’s 

medical expenditures per enrollee have grown more rapidly than has the overall price level. Second, the ongoing 

deployments to combat operations in Iraq and Afghanistan have increased the number of veterans seeking care 

from VA. Third, VA has been easing restrictions on 

enrolling higher-income veterans (those in P8), in part 

because of concerns expressed by policymakers and others 

who believe that restrictions on enrollment have caused 

some veterans to be denied benefits that they deserve. 

To account for some possible policy changes and for 

uncertainty about the number of veterans who will be 

enrolled and the growth of medical expenditures per 

enrollee, CBO presents two scenarios to capture some of 

the range of possible outcomes. The scenarios differ in 

their assumptions about the number of enrollees in the 

VA health care system and the costs of providing medical 

services (see Summary Table 1). CBO also assumes that 

there will be no major changes in VA’s policies (except for 

a possible change in eligibility criteria) and that the 

enrollment of non-OCO veterans (except for higherincome veterans) and the percentage of total health care 

that veterans receive from VA as opposed to other 

sources, referred to as their “reliance on VA,” follow 

current trends.

Scenario 1. The first scenario was crafted using assumptions about enrollment and medical expenditures per 

2. All dollar amounts in this and the following paragraph are 

reported in nominal terms.

VA’s budget for medical care and research includes funding from 

all of VA’s health care accounts, including all collections (that is, 

reimbursements to VA from third parties for medical care), but 

excludes funding for construction of medical facilities. In 2009, 

appropriations for construction totaled more than $1.5 billion. 

Funding for medical care and research for 2009 includes $1 billion appropriated in the American Recovery and Reinvestment 

Act of 2009 (Public Law 111-5). 

3. The Veterans Health Care Budget Reform and Transparency Act 

of 2009 (P.L. 111-81) authorized advance appropriations for VA’s 

medical services, medical support and compliance, and medical 

facilities accounts; it also requires that VA’s annual budget submission include estimates of appropriations for those accounts for the 

fiscal year following the budget year. An advance appropriation is 

an appropriation that first becomes available for the government 

to obligate (that is, legally commit to pay for goods and services 

ordered or received) in a fiscal year after the budget year. For 

example, the Military Construction and Veterans Affairs and 

Related Agencies Appropriations Act, 2010—Division E of the 

Consolidated Appropriations Act, 2010 (P.L. 111-117)—provided an advance appropriation of $48 billion for the three health 

care accounts (excluding the authority to spend collections) to be 

first available for obligation in fiscal year 2011. The President’s 

budget for fiscal year 2011(submitted in February 2010) contains 

the amounts that were appropriated in advance in P.L. 111-117 

for the three VA health care accounts and requests additional 

amounts for medical and prosthetic research and for the spending 

of collections. Accordingly, the total amount available for VA 

medical care and research in 2011 will include the advance appropriations made in 2010 modified by funding provided in the 

appropriation act for 2011.
SUMMARY POTENTIAL COSTS OF VETERANS’ HEALTH CARE IX

CBO

Summary Table 1.

Assumptions Underlying the Scenarios Used to Project Enrollment of 

Veterans and the Potential Costs for VA to Provide Health Care Services to Them

Source: Congressional Budget Office.

Notes: The starting point for the cost projections in the two scenarios is the Department of Veterans Affairs’ (VA’s) appropriation for medical 

care and research in 2010. CBO’s baseline budget projection, following Congressional rules, is based on VA’s enacted advance appropriations for 2011 for medical services, medical support and compliance, and medical facilities and on VA’s enacted appropriations for 2010 

for all other medical accounts. Under those rules, CBO projects baseline spending in subsequent years by adjusting those appropriations 

by a forecast of future inflation—a weighted average of the gross domestic product (GDP) price index and the employment cost index for 

wages and salaries. For comparison with the two scenarios, those projections are converted to 2010 dollars by applying the GDP price 

index. Because CBO projects that wages and salaries will rise more rapidly than the GDP price index, the baseline projection increases 

slightly (in 2010 dollars) during the 2011–2020 period.

Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

n.a. = not applicable.

a. Projections of growth in medical expenditures for the general population are based on data from the Centers for Medicare and Medicaid 

Services and others. 

Eligibility to Enroll for VA Health Care

Veterans of overseas contingency n.a. Deployed troop strength for those Deployed troop strength for those operations drops more 

operations operations drops to 30,000 by 2013 slowly, to 60,000 by 2015

All other veterans n.a. Policies in place at the beginning of Enrollment allowed for veterans whose income exceeds 

2010 remain in effect thresholds by 30 percent or less; all other VA policies in 

place at the beginning of 2010 remain in effect

Per Capita Growth in Medical Expenditures n.a. About the same rate as in the 30 percent faster than in Scenario 1

general populationa

2011 n.a. 8.5 8.7

2020 n.a. 8.7 9.3

2011 51 50 52

2016 54 62 70

2020 56 69 85

2011–2020 535 602 682

Number of Enrollees

2011 n.a. 0.8 0.8

2020 n.a. 1.4 1.7

2011 n.a. 9 9

2020 n.a. 16 18

Potential VA Health Care Costs

2011 n.a. 2 3

2016 n.a. 4 6

2020 n.a. 5 8

2011–2020 n.a. 40 54

2011 n.a. 5 5

2016 n.a. 7 8

2020 n.a. 8 10

2011–2020 n.a. 7 8

Number of Enrollees (Millions)

Potential VA Health Care Costs 

Baseline Scenario 1 Scenario 2

In billions of 2010 dollars

As a percentage of the potential 

costs for all enrolled veterans

Assumptions Underlying the Scenarios

In millions

As a percentage of all enrolled veterans

(Billions of 2010 dollars)

Projections for All Enrolled Veterans

Projections for Enrolled Veterans of Overseas Contingency Operations
X POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

enrollee that generate lower resource requirements than 

Scenario 2. The assumptions about factors affecting 

enrollment include the following: 

B VA’s eligibility, cost-sharing, and other policies are 

those in effect at the beginning of 2010. Those policies include the easing of enrollment restrictions that 

began in 2009 for veterans in priority group 8 who 

have no compensable service-connected disabilities 

and whose income is 10 percent or less above VA’s 

income thresholds. 

B The number of troops deployed to overseas contingency operations, which currently include the military 

operations in Iraq and Afghanistan and related activities, drops to 30,000 by 2013 and remains at that 

number throughout the decade. 

B VA’s medical expenditures per enrollee for each priority group grow in nominal terms at slightly more than 

5 percent per year, about the same rate as that anticipated in the general population over the decade. 

Scenario 2. CBO crafted the second scenario to illustrate 

potential policy changes and other outcomes that may 

result in higher resource needs for VA’s health care services. The assumptions for that scenario are as follows:

B VA changes its eligibility rules to allow veterans who 

have no compensable service-connected disabilities 

and whose income is 30 percent or less above VA’s 

income thresholds to enroll. Other than that change, 

all policies relating to eligibility, cost sharing, and 

other factors are those in effect at the beginning of 

2010.

B The number of troops deployed to overseas contingency operations declines more slowly than in 

Scenario 1, dropping to 60,000 by 2015 and remaining at that number through the rest of the decade. 

B VA’s medical expenditures per enrollee for each 

priority group grow initially at the rate VA assumed in 

preparing the Administration’s 2011 budget request 

that was transmitted in February 2010 and, in subsequent years, at an annual rate that is about 30 percent 

higher than that anticipated in the general population—a rate that exceeds the average rate experienced 

by VA from 2003 through 2007, before significant 

numbers of veterans from the ongoing conflicts had 

enrolled. 

Potential Costs to Treat All VA 

Enrollees

Under Scenario 1, CBO estimates that total enrollment 

would grow from 8.0 million in 2009 to more than 

8.8 million by 2016—an increase of about 10 percent—

but would edge down to 8.7 million in 2020 (see Summary Table 1 and Summary Figure 1). The resources 

required to treat all enrolled veterans would be about 

$69 billion in 2020, nearly 45 percent higher than the 

$48 billion that has been provided for 2010.

Under Scenario 2, enrollment would be 620,000 higher 

in 2020 than in Scenario 1, with 340,000 new enrollees 

resulting from VA’s further relaxation of the restrictions 

on enrollment and 280,000 from the higher troop 

deployments. The resources required to treat all enrolled 

veterans would reach nearly $85 billion in 2020, or 

22 percent more than under Scenario 1 and about 

75 percent more than the amount provided for 2010. 

What factors explain the difference of roughly $15 billion 

in the potential costs of the two scenarios in 2020? The 

disparity between the growth rates of medical expenditures per enrollee in the two scenarios accounts for the 

lion’s share of the difference—$13 billion. Extending 

eligibility to additional higher-income veterans who have 

no compensable service-connected disabilities would add 

just $1 billion to the costs under Scenario 1; because 

those new enrollees are drawn from a group that historically has cost less to treat than most other veterans, the 

additional resources VA would require would be relatively 

small. The higher troop levels for contingency operations 

under Scenario 2 would also add $1 billion; the increase 

in the number of enrollees would be small—only about 

3 percent—and they too would use fewer resources than 

the average enrollee.

The projections for both scenarios exceed the baseline 

projections that CBO constructs in accordance with the 

provisions set forth in the (now expired) Balanced Budget 

and Emergency Deficit Control Act of 1985. The baseline projections reflect the assumption that appropriations increase at the same rate as the employment cost 

index for the wage and salary component of VA’s budget 
SUMMARY POTENTIAL COSTS OF VETERANS’ HEALTH CARE XI

CBO

Summary Figure 1.

Potential Costs for VA to Provide Health Care Services to Enrolled Veterans

(Billions of 2010 dollars)

Source: Congressional Budget Office.

Notes: The starting point for the projections in the two scenarios is the Department of Veterans Affairs’ (VA’s) appropriation for medical care 

and research in 2010. CBO’s baseline budget projection, following Congressional rules, is based on VA’s enacted advance appropriations for 2011 for medical services, medical support and compliance, and medical facilities and on VA’s enacted appropriations for 

2010 for all other medical accounts. Under those rules, CBO projects baseline spending in subsequent years by adjusting those appropriations by a forecast of future inflation—a weighted average of the gross domestic product (GDP) price index and the employment 

cost index for wages and salaries. For comparison with the two scenarios, those projections are converted to 2010 dollars by applying 

the GDP price index. Because CBO projects that wages and salaries will rise more rapidly than the GDP price index, the baseline projection increases slightly (in 2010 dollars) during the 2011–2020 period.

Compared with Scenario 1, under Scenario 2 CBO assumes higher enrollment of veterans of overseas contingency operations 

(currently including military operations in Iraq and Afghanistan and related activities), further easing of the restrictions on enrollment 

of higher-income veterans, and faster growth in medical expenditures per enrollee. See the text for a detailed explanation of the 

scenarios.

and at the same rate as the gross domestic product price 

index for all other components.4

In making its projections, CBO did not explicitly 

account for recently enacted health care legislation—in 

particular, the Patient Protection and Affordable Care Act 

(P.L. 111-148) and the Health Care and Education 

Reconciliation Act of 2010 (P.L. 111-152). Although 

there is considerable uncertainty regarding how the new 

legislation will be implemented, CBO conducted a 

preliminary analysis of how it might affect VA’s resource 

requirements. That analysis indicates that the new laws 

may either increase or decrease the number of enrollees—

and therefore VA’s resource requirements—but in either 

case probably by only a small amount. On the one hand, 

the costs of obtaining health insurance will be lower for 

some veterans in the latter part of the coming decade, 

leading some of them to seek less care from VA than they 

would have without the recent legislation. On the other 

hand, to avoid financial penalties that may be assessed on 

people who do not have a required level of health insurance, some veterans who would otherwise neither enroll 

in VA’s program nor obtain other insurance might choose 

to enroll with VA. Neither of those effects is likely to be 

large enough to significantly affect the projections in this 

report.

2008 2010 2012 2014 2016 2018 2020

0

10

20

30

40

50

60

70

80

90

Baseline Budget Projection

Scenario 1

Scenario 2

4. The projections shown in this report are from CBO’s January 

2010 report The Budget and Economic Outlook: Fiscal Years 2010 

to 2020. CBO recently released The Budget and Economic Outlook: 

An Update (August 2010), which updates CBO’s baseline budget 

and economic projections. Those economic projections, however, 

are not sufficiently different from the ones in the January volume 

to affect the projections for VA presented in this report.
XII POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Potential Costs to Treat Veterans of 

Overseas Contingency Operations

As part of its projections for the resources needed to treat 

all enrolled veterans, CBO separately estimated the portion of resources that would be required to treat veterans 

of overseas contingency operations. CBO estimates that 

between the time hostilities began and the end of 2020, 

VA would enroll a total of 1.4 million or 1.7 million 

OCO veterans under Scenarios 1 and 2, respectively.5

The annual resources (in 2010 dollars) required to treat 

OCO veterans would increase from an estimated 

$2.0 billion in 2010 to $5.4 billion in 2020 under 

Scenario 1 and to $8.3 billion under Scenario 2. Because 

OCO veterans are typically younger and healthier than 

the average VA enrollee, they are less expensive to treat. 

Accordingly, the resources devoted to OCO veterans 

would be a small share of outlays, consuming 8 percent 

and 10 percent of VA’s resources for health care services in 

2020 under Scenario 1 and Scenario 2, respectively. As 

the OCO veterans age, however, CBO expects that their 

costs will be similar to those of other older veterans who 

use VA’s health care services.

5. Operations in Afghanistan and Iraq began in October 2001 and 

March 2003, respectively.
CBO

Potential Costs of Veterans’ Health Care

Introduction

Providing health care services to military veterans is an 

important part of the Department of Veterans Affairs’ 

(VA’s) mission. Veterans usually receive those services at 

facilities operated and staffed by the Veterans Health 

Administration (VHA), which also conducts medical 

research. To carry out its medical mission, VA relies on 

annual appropriations (unlike Medicare, for example, 

which is funded by permanent appropriations). The 

Congress appropriated $44 billion for that mission in 

2009 and $48 billion (8 percent more) in 2010. VA has 

requested an appropriation of $52 billion, an additional 

8 percent, for 2011.1

VA’s medical expenditures per enrollee, like medical 

expenditures per capita in the U.S. population, are 

growing faster than general inflation. In addition, the 

number of veterans seeking care at VA has increased in 

recent years and will probably continue to increase over 

the next few years. 

This Congressional Budget Office (CBO) report examines future demands on VA’s health care system and the 

resources it would require to meet those demands over 

the 2011–2020 period. CBO projects the potential costs 

of treating all enrolled veterans under two scenarios with 

different assumptions about eligibility for enrollment 

and the growth of health care expenditures per enrollee. 

The projections for both scenarios exceed the baseline 

projections that CBO constructs in accordance with the 

provisions set forth in the (now expired) Balanced Budget 

and Emergency Deficit Control Act of 1985. The baseline projections reflect the assumption that appropriations increase at the same rate as the employment cost 

index for the wage and salary component of VA’s budget 

and the gross domestic product price index for all other 

components.2

Along with its projections of resources required to treat 

all veterans, CBO presents additional detail on the 

projected resources required to treat veterans of overseas 

1. All dollar amounts in this paragraph are reported in nominal 

terms. 

The Veterans Health Care Budget Reform and Transparency Act 

of 2009 (Public Law 111-81) authorized advance appropriations 

for VA’s medical services, medical support and compliance, and 

medical facilities accounts; it also requires that VA’s annual budget 

submission include estimates of appropriations for those accounts 

for the fiscal year following the budget year. An advance appropriation is an appropriation that first becomes available for the government to obligate (that is, legally commit to pay for goods and 

services ordered or received) in a fiscal year after the budget year. 

For example, the Military Construction and Veterans Affairs and 

Related Agencies Appropriations Act, 2010—Division E of the 

Consolidated Appropriations Act, 2010 (P.L. 111-117)—provided an advance appropriation of $48 billion for the three health 

care accounts (excluding the authority to spend collections) to be 

first available for obligation in fiscal year 2011. 

The President’s budget for fiscal year 2011(submitted in February 

2010) contains the amounts that were appropriated in advance in 

P.L. 111-117 for the three VA health care accounts and requests 

additional amounts for medical and prosthetic research and for 

the spending of collections. Accordingly, the total amount available for VA medical care and research in 2011 will include the 

advance appropriations made in 2010 modified by funding provided in the appropriation act for 2011. See Sidath Viranga Panangala, Veterans Medical Care: FY2011 Appropriations, CRS 

Report for Congress R41343 (Congressional Research Service, 

July 27, 2010).

2. The projections shown in this report are from CBO’s January 

2010 report The Budget and Economic Outlook: Fiscal Years 2010 

to 2020. CBO recently released The Budget and Economic Outlook: 

An Update (August 2010), which updates CBO’s baseline budget 

and economic projections. Those economic projections, however, 

are not sufficiently different from the ones in the January volume 

to affect the projections for VA presented in this report.
2 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

contingency operations (OCO).3

 Among the nation’s 

recent named overseas contingency operations are Operation Enduring Freedom in Afghanistan and, in Iraq, 

Operation Iraqi Freedom and Operation New Dawn. 

(The latter began with the withdrawal of the final U.S. 

combat brigade from Iraq in August 2010.) VA specifically tracks military personnel who actually served in the 

theater of operations, in contrast to military personnel 

who supported those operations from locations elsewhere 

in the world, including the United States. CBO projects 

the costs of treating veterans who have or will have served 

in those theaters as well as personnel who may serve in 

theater in future such operations over the next 10 years. 

CBO projects those costs because the war-related medical 

needs of OCO veterans have garnered significant attention among policymakers and the public and because VA 

data show that the use of medical services by those 

veterans is significantly different from that of most other 

veterans.

Before proceeding with the analysis and a discussion of 

the methods used to make the projections, this report 

presents an overview of VA’s health care program and the 

trends in the number of veterans who enroll and the 

number who seek health care at VA. 

The Health Care Program of the 

Department of Veterans Affairs 

With appropriations of $48 billion in 2010 for medical 

care and research, the VHA operates VA’s medical centers 

and clinics and provides health care and rehabilitation 

services to veterans. VHA’s medical personnel also 

provide emergency management services, train medical 

students and other health care providers, and conduct 

research. The health care system consists of about 

150 medical centers, 950 ambulatory care and 

community-based outpatient clinics, 230 Vet Centers 

(which provide readjustment counseling and outreach 

services), 130 nursing homes, and more than 150 rehabilitation and home care programs. The outpatient clinics 

tallied over 73 million visits for services in 2009, 

including routine health assessments, specialty care, and 

outpatient surgery. In total, VHA employed about 

235,000 full-time-equivalent employees in 2009, 

including nearly 16,000 physicians and 66,000 nurses 

and nursing assistants.4

Trends in the Number of Veterans Enrolled and 

Being Treated by VA

Eligibility for VA’s health care services is based primarily 

on a veteran’s military service. In addition, VA operates 

an eight-tier priority system that establishes a veteran’s 

eligibility and priority for using its health care services 

(see Box 1). Veterans with the highest priority include 

those who have service-connected disabilities, low 

income, or both; those with the lowest priority have 

higher income and no compensable service-connected 

disabilities.5

The number of veterans using VA’s health care services 

grew substantially after enactment of the Veterans’ Health 

Care Eligibility Reform Act of 1996 (Public Law 104-

262, 110 Stat. 3177). That law required VA to provide 

care to certain types of veterans, such as those with 

service-connected disabilities, and permitted VA to offer 

services to additional veterans if funding permitted. It 

also required VA to manage the provision of its services 

through an enrollment system. In 1999 (the year VA’s 

enrollment system became fully operational), VA permitted all veterans to enroll, even those with relatively high 

income. In the 1990s, VA also began restructuring its 

delivery of care, shifting from a hospital-based system to 

one focused more on ambulatory care (care that is delivered in an outpatient setting). New outpatient clinics 

have made medical care more accessible to veterans who 

do not live close to VA hospitals. Enrollment, which had 

stood at 4.9 million in 2000, reached 7.2 million in 

2003, an average annual increase of 13 percent (see 

Figure 1).

3. According to 10 United States Code (USC) 101[a][13], the term 

“contingency operation” refers to a military operation that “(A) is 

designated by the Secretary of Defense as an operation in which 

members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy of the 

United States or against an opposing military force; or (B) results 

in the call or order to, or retention on, active duty of members of 

the uniformed services under section 688, 12301 (a), 12302, 

12304, 12305, or 12406 of USC title 10, chapter 15 of USC 

title 10, or any other provision of law during a war or during a 

national emergency declared by the President or Congress.”

4. The number of full-time-equivalent employees equals the 

number of employees on full-time schedules, plus the number of 

employees on part-time schedules converted to a full-time basis.

5. Veterans may seek compensation for service-connected disabilities 

from the Veterans Benefits Administration. VBA rates a disability 

as zero to 100 percent disabling in increments of 10 percent. 

Disability payments are determined by a veteran’s disability rating; 

VBA may determine that some veterans have service-connected 

disabilities but that those conditions are not sufficiently disabling 

to qualify for VA compensation (that is, the disabilities are not 

compensable).
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 3

CBO

Figure 1.

Enrolled Veterans and the Number Who Use VA’s Health Care Services

(Millions)

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

In any given year, not all enrolled veterans seek medical 

treatment from VA. The number of veterans treated by 

VA totaled 3.4 million in 2000 and grew to 4.5 million in 

2003, increasing at an average annual rate of 9 percent—

even though the number of veterans in the U.S. population has been falling by 1 percent to 2 percent each year 

since at least the mid-1990s. The growing number of 

patients reflected both the opening of enrollment and the 

restructuring of VA’s system for providing health care. By 

2003, VA did not have sufficient funding to meet the 

increased demand for its services (for example, there were 

long waiting lists to receive an appointment). That situation prompted the Secretary of Veterans Affairs in 2003 

to grant priority access for health care services to veterans 

with service-connected disabilities. The Secretary also 

suspended new enrollment for higher-income veterans 

(those in the lowest priority group, P8) at that time, but 

veterans already enrolled in P8 were permitted to continue using VA’s services. Since then, growth in annual 

enrollment and in the number of veterans treated by VA 

has slowed dramatically, to an average of 2.3 percent and 

3.0 percent each year, respectively. In 2009, 8.0 million 

veterans were enrolled and 5.2 million were treated.6

The suspension of enrollment for veterans with higher 

income was eased somewhat in June 2009, when VA 

reopened P8 enrollment to veterans whose income 

exceeded the current income thresholds by 10 percent or 

less.7

 VA anticipates that 200,000 of an estimated 

900,000 veterans made eligible by the easing of that 

income restriction will enroll by the end of 2010 and 

that smaller annual increases in enrollment will occur 

thereafter among the remaining veterans who are newly 

eligible on the basis of income. 

Low-income veterans (P5s) accounted for the largest 

share of all enrollees—28 percent—in 2009 (see Figure 2 

on page 6). Veterans whose income was above the VA 

means-test thresholds and who had no compensable 

service-connected disabilities (P7s and P8s) together 

made up 28 percent of enrollees; the vast majority of that 

group were P8s. Veterans with service-connected disabilities (those in P1 through P3) made up 35 percent of all 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

1

2

3

4

5

6

7

8

9

10

All Enrollees Enrollees Using VA's Services

6. VA treated about 500,000 additional patients who were not veterans in 2009. Those patients included employees (who receive services such as tests and vaccinations required for employment at 

VA facilities); dependents and survivors of disabled veterans who 

are eligible for the Civilian Health and Medical Program of the 

Department of Veterans Affairs (CHAMPVA); and patients seen 

through sharing agreements with other providers, including the 

Department of Defense’s TRICARE program.

7. VA applies nationwide means-test thresholds and geographic 

income thresholds to determine priority for enrolling in VA health 

care. The geographic thresholds acknowledge variations in the 

cost of living in different parts of the country. For enrollment in 

P8, a veteran’s income must not exceed the current VA means-test 

thresholds ($29,402 for a veteran with no dependents in 2010) 

or the higher VA geographic income thresholds by more than 

10 percent.
4 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Continued

Box 1.

Eligibility, Priority Groups, and Cost Sharing for Veterans’ Health Care

Eligibility for health care services provided by the 

Department of Veterans Affairs (VA) is based primarily on veterans’ military service. Generally, veterans 

who have served in the active components must have 

served 24 continuous months on active duty and 

been discharged under other than dishonorable conditions.1

 Reservists and National Guard members 

who were called to active duty under a federal order 

also qualify for health care benefits if they completed 

the term for which they were called and were granted 

an other than dishonorable discharge.2

Those broad criteria, however, do not necessarily 

translate into access to medical treatment. Because 

VA’s medical system relies on funding provided by 

annual appropriation acts, access to care depends on 

the amount of funding that the Congress makes 

available. 

VA may, and does, restrict enrollment according to 

the resources available. Historically, VA has focused 

its resources on providing medical services to veterans 

who have service-connected conditions—that is, 

medical conditions that occurred or worsened during 

military service. Beginning in the 1970s, medical care 

was also offered to low-income veterans who had no 

service-connected conditions. The Veterans’ Health 

Care Eligibility Reform Act of 1996 (Public Law 

104-262, 110 Stat. 3177) mandated that VA deliver 

health care services to veterans with serviceconnected disabilities, to those unable to pay for 

necessary medical care, and to specified groups of 

veterans, such as former prisoners of war and veterans 

of World War I. The legislation also permitted VA to 

offer services to all other veterans to the extent that 

resources and facilities were available.

To aid the management and delivery of health care 

services, the Congress required VA to develop and 

operate a system for enrolling veterans for those services. VA currently assigns veterans to one of eight 

categories that indicate their priority for enrollment. 

The eight priority groups reflect such factors as the 

presence and extent of a disability that is related to 

military service and a veteran’s income. Disabled and 

low-income veterans are given a higher priority, 

and veterans who have higher income and do not 

have a compensable service-connected disability (that 

is, a medical condition that is disabling to the extent 

that VA provides compensation) receive a lower priority. The Secretary of Veterans Affairs decides each 

year whether VA’s budget for medical care is sufficient 

to serve veterans in all priority groups who seek care. 

If not, veterans deemed to have a lower priority may 

face restrictions on new enrollment or lose their 

eligibility.

The priority groups, from highest to lowest (P1 

through P8), are as follows:

B P1—Veterans who have service-connected 

disabilities (SCDs) rated 50 percent or more 

disabling (or two or more SCDs that together are 

50 percent or more disabling); veterans deemed to 

be unemployable because of service-connected 

conditions.

1. Enlisted service members who entered service before September 1980 and officers who first did so before October 1981 

need not meet the time-in-service requirements.

2. Other veterans and reservists not meeting those conditions 

may still be eligible. For example, some service members who 

were discharged or released from active duty for a disability 

that occurred or worsened during service or who received an 

“early out” may be eligible.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 5

CBO

Box 1. Continued

Eligibility, Priority Groups, and Cost Sharing for Veterans’ Health Care

B P2—Veterans with SCDs rated 30 percent or 

40 percent disabling.

B P3—Veterans who are former prisoners of war; 

were awarded the Purple Heart; were discharged 

because of SCDs; have SCDs rated 10 percent or 

20 percent disabling; or were disabled as a result of 

treatment or vocational rehabilitation. 

B P4—Veterans who are receiving aid and attendance benefits or are housebound and veterans 

whom VA has determined to be catastrophically 

disabled as a result of a non-service-connected 

illness or injury.

B P5—Veterans who do not have SCDs or who 

have noncompensable SCDs rated zero percent 

disabling and whose annual income and net worth 

are below VA’s national means-test thresholds; veterans who are receiving VA pension benefits; and 

veterans who are eligible for Medicaid benefits.3

B P6—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); veterans who have 

compensable SCDs rated zero percent disabling; 

and recently discharged combat veterans who are 

within a five-year period of enhanced eligibility 

and benefits. (Most veterans of the ongoing 

overseas contingency operations are initially 

assigned to P6.)

B P7—Veterans who have no SCDs (or who have 

noncompensable SCDs rated zero percent disabling), whose annual income or net worth is 

above the VA means-test thresholds and below the 

VA national geographic income thresholds, and 

who agree to make copayments.4

B P8—Veterans who have no SCDs (or who have 

noncompensable SCDs rated zero percent disabling), whose annual income or net worth is 

above the VA means-test thresholds and the VA 

national geographic income thresholds, and who 

agree to make copayments.

Through the Veterans Health Administration, VA 

provides ambulatory visits, inpatient services, and 

prescription medications at no charge to many veterans, including those who have service-connected disabilities rated 50 percent or greater and those seeking 

treatment for a service-connected condition. Copayments ($15 for primary care visits, $50 for specialty 

care visits, and $9 for a 30-day supply of medication 

in 2010) apply to veterans in P7 and P8 for care that 

is not related to a service-connected condition and 

may also apply to veterans in P2 through P6. Additional copayments for inpatient and other services 

may also apply.

3. An SCD is compensable if monetary compensation is 

authorized for payment. A disability rated zero may be 

compensable if it entitles the veteran to special monthly compensation; a combination of two or more such ratings may be 

compensable if they interfere with the veteran’s ability to 

work.

4. Unlike the VA means-test thresholds, which apply 

nationwide, the geographic income thresholds acknowledge 

variations in the cost of living in different parts of the 

country.
6 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure 2.

Distribution of Enrolled Veterans, by Priority Group, 2009

(Percent)

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

Note: VA’s enrollment system assigns veterans to one of eight priority groups (P1 through P8). Veterans with service-connected disabilities 

that are rated 50 percent or more disabling are in P1 (highest priority); those with higher income and no compensable serviceconnected disabilities are in P8 (lowest priority). For definitions of the priority groups, see Box 1 on page 4.

a. Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

enrollees, and two-fifths of them (14 percent of all enrollees) had a rating of 50 percent or higher (P1).

Eligibility and Enrollment of Veterans of 

Overseas Contingency Operations 

The U.S. military is currently engaged in overseas contingency operations in Iraq and Afghanistan and a number 

of other locations. Qualified service members who have 

served on active duty in combat operations since November 1998, including reservists and members of the 

National Guard, are eligible to use VA’s health care system after separating from active military service.8

 The 

Veterans Programs Enhancement Act of 1998 

(P.L. 105-368) gave combat veterans a two-year period 

of eligibility for enrollment after leaving active duty, 

waiving any requirements for them to document that 

their income is below established thresholds or to demonstrate a service-connected disability, which veterans who 

have not served in combat operations must do. In 2008, 

the Congress extended the eligibility period to five years.9

Under those authorities, VA provides free health care for 

medical conditions potentially related to military service 

in combat operations. VA also treats combat veterans for 

non-combat-related conditions but may bill the veteran’s 

third-party insurance or charge the veteran a copayment 

unless he or she is in a high priority group. About 

1.1 million veterans of the current military operations 

had become eligible for VA’s health care services through 

September 2009—575,000 members who had served in 

the active component and 520,000 members who had 

served in the National Guard and reserves.10

Most veterans of overseas contingency operations are 

placed in P6 upon enrollment, although some of them 

may be moved into higher priority groups (for example, if 

at any point they are deemed disabled as a result of their

P1 P2 P3 P4 P5 P6 P7–P8

0

5

10

15

20

25

30

35

40

P1 P2 P3 P4 P5 P6 P7–P8

0

5

10

15

20

25

30

35

40

Enrolled Veterans of

All Enrolled Veterans Overseas Contingency Operations

8. VA disqualifies certain veterans from receiving health care benefits—for example, those who receive a dishonorable discharge.

9. See title XVII of the National Defense Authorization Act for 

Fiscal Year 2008, P.L. 110-181, 122 Stat. 493.

10. Some members of the National Guard and reserves who have 

returned from current military operations may retain their reserve 

affiliations—making them potentially subject to future call-ups—

while at the same time being immediately eligible to enroll for VA 

health care.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 7

CBO

Figure 3.

Number of Veterans of Overseas Contingency Operations Treated by VA

(Thousands)

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

Note: Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

a. Data on veterans of overseas contingency operations who have been treated by VA in a given year are not available before 2005.

military service). Enrolled OCO veterans may continue 

to use VA’s services when the five-year period of enhanced 

eligibility ends, but their priority group may change, 

depending on their disability status and income. In 

particular, OCO veterans may be moved to a lower 

priority group, including P8—an exception to the general 

freeze on new enrollments in that group. Once reclassified, veterans are required to make the standard copayments for their priority group.

Although most OCO veterans are initially placed in P6, 

just 37 percent of the 560,000 OCO enrollees in 2009 

were in that priority group (see Figure 2). Forty-four percent had service-connected disabilities (P1 through P3), 

and a little over one-third of them (17 percent of all 

OCO enrollees) had a disability rating of 50 percent or 

higher (P1). Less than 1 percent were catastrophically 

disabled with non-service-connected disabilities (P4). 

Another 12 percent had income or net worth below the 

VA thresholds (P5), and the remaining veterans 

(6 percent) had income or net worth that exceeded the 

means-test thresholds and were enrolled in P7 or P8.11

Nearly one-half of OCO veterans had used VA’s health 

care services through September 2009. The number of 

OCO veterans who have ever used that system has grown 

rapidly, by roughly 100,000 veterans per year in the past 

several years (see Figure 3).12 Of the 575,000 activecomponent members who separated from military 

service, more than 270,000 (47 percent) had used those 

services at least once (see Box 2). An additional 

520,000 members of the reserves or National Guard were 

demobilized and returned to civilian life, and 235,000 of 

them (45 percent) had used VA’s services at least once. In 

total, almost 510,000 OCO veterans had sought care 

from VA since the overseas contingency operations began 

in 2002.13

2003 2004 2005 2006 2007 2008 2009

0

100

200

300

400

500

600

Ever Been Treated by VA

Treated in a Given Yeara

11. The distribution of OCO veterans among priority groups will 

probably change between now and 2020. As large numbers of 

combat veterans enter VA’s health care system over the next few 

years, the number of P6 veterans will increase. In later years, however, that number will decrease as the special eligibility period for 

combat veterans expires and veterans are reclassified.

12. Despite the growth in use of services, not all eligible veterans with 

service-connected disabilities are enrolled in VA’s health care 

system. According to VA, almost 40 percent (nearly 85,000) of 

OCO veterans who receive disability compensation had not used 

VA’s health care services as of September 2008.

13. The source for these statistics and those in the following paragraph is Department of Veterans Affairs, Veterans Health Administration, Office of Public Health and Environmental Hazards, 

Analysis of VA Health Care Utilization Among U.S. Southwest Asia 

War Veterans (October 2009).
8 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Continued

Box 2.

Medical Status of Service Members and Veterans Who Served in 

Iraq and Afghanistan and Their Use of Health Care Services

The United States has been involved in overseas contingency operations (OCO) in Afghanistan and Iraq 

since October 2001 and March 2003, respectively. 

Some of the troops who have served in those operations have been injured or have developed medical 

conditions requiring treatment. This box discusses 

the extent of service members’ medical problems in 

theater, including post-traumatic stress disorder 

(PTSD) and traumatic brain injury (TBI) among 

deployed troops.

Medical Conditions While Deployed

Widespread use of body armor and recent advances 

in battlefield medicine have enabled many soldiers to 

survive what might otherwise have been fatal injuries. 

According to data from the Department of Defense 

(DoD), through December 2009, 57,600 service 

members had been evacuated from the Iraq and 

Afghanistan theaters for medical reasons: 10,900 

(19 percent) were wounded in battle (an additional 

25,500, not included in this total, were wounded but 

could return to duty without the need for medical 

evacuation); 12,100 (21 percent) had a non-battlerelated injury; and 34,600 (60 percent) had a disease 

or other medical condition. Among the latter group, 

the most common reasons for being airlifted were 

disorders of the musculoskeletal system or connective 

tissue (19 percent) and mental disorders (15 percent). 

The vast majority of service members evacuated for 

battle-related injuries through 2007 were able to 

resume their military duties: According to DoD, only 

one-quarter of them had separated from military service for any reason by the end of that year. 

Some service members have had severely disabling 

injuries, such as amputations and serious brain 

injuries, while deployed to Iraq or Afghanistan.1

Although firm data on the number of seriously ill or 

disabled veterans of those U.S. military operations are 

not readily available, a recent study sheds some light 

on the magnitude. The authors estimate that each 

year during the 2003–2008 period, about 720 seriously wounded, injured, or ill service members, on 

average, needed a caregiver and that those caregivers 

were required for an average of 19 months.2

Data from the Department of Veterans Affairs’ (VA’s) 

Traumatic Injury Protection Under Servicemembers’ 

Group Life Insurance (TSGLI) program also provide 

a rough estimate of the number of service members 

who have been severely disabled by war-related 

injuries. TSGLI provides a financial benefit to service 

members who experience certain traumatic injuries 

(on or off duty), such as hearing loss, amputation, or 

severe brain injury. (The benefit does not cover all 

injuries that may lead to severe impairment.) 

Through September 2009, a total of 4,800 veterans 

of contingency operations, equal to 1 percent of all 

veterans who served there and are enrolled in VA’s 

health care system, had received benefits from the 

TSGLI program.

Troops also seek medical care for less severe 

conditions while deployed. Service members in the 

Central Command (CENTCOM), which oversees 

U.S. military missions in the Middle East, had 

2.4 million medical encounters from January 2005 

through December 2009. (A medical encounter is 

any contact a service member has with DoD’s medical system for treatment.) Of those encounters, 

22 percent were for injuries (battle- and non-battlerelated) and 9 percent were for psychiatric illnesses. 

Despite the number of medical encounters tallied, 

85 percent of returning troops who completed a 

DoD health assessment within three to six months of 

their return from deployment self-reported their 

health status as excellent, very good, or good, 

1. Matthew S. Goldberg, “Death and Injury Rates of U.S. 

Military Personnel in Iraq,” Military Medicine, vol. 175, 

no. 4 (April 2010), pp. 220–226.

2. Eric Christensen and others, Economic Impact on Caregivers of 

the Seriously Wounded, Ill, and Injured (Alexandria, Va.: CNA 

Corporation, April 2009), p. 3. By comparison, VA provides 

long-term care (institutional and noninstitutional care) to 

more than 100,000 veterans, or 1.5 percent of VA enrollees. 
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 9

CBO

Box 2. Continued

Medical Status of Service Members and Veterans Who Served in 

Iraq and Afghanistan and Their Use of Health Care Services

although 40 percent had physical concerns and 

40 percent stated they had mental health concerns.

PTSD and TBI

Two medical conditions that troops develop in theater have received widespread attention. PTSD is an 

anxiety disorder induced by exposure to a traumatic 

event and is characterized by symptoms that include 

reexperiencing the traumatic event, hyperarousal 

(such as irritability or exaggerated startle response), 

and diminished responsiveness to or avoidance of 

stimuli associated with the trauma. TBI is an injury 

to the head arising from sudden trauma to the brain, 

resulting in a decreased level of consciousness, amnesia, or neurological or intracranial abnormalities. TBI 

is classified at the time of the injury as mild, moderate, or severe. Almost 90 percent of the service members diagnosed with that type of injury have a mild 

case, and the vast majority are expected to recover 

within one year after the injury.

A number of studies have estimated the prevalence of 

PTSD among military personnel and veterans who 

have served in Iraq or Afghanistan, but less is known 

about the prevalence of TBI among that population. 

(Prevalence is an estimate of cases in a population 

whether or not the individual has received a diagnosis 

from a medical professional.) Estimates of the prevalence of PTSD or symptoms of PTSD among those 

personnel generally range between 5 percent and 

25 percent, depending on the study’s methodology 

and the population it sampled.3

 Fewer studies have 

estimated the prevalence of TBI in theater, partly 

because programs at DoD and VA to screen service 

members are relatively new and because TBI and 

related symptoms are particularly difficult to diagnose months after the initial injury.4

Recent studies indicate that between 19 percent and 

23 percent of service members and veterans who have 

deployed to Iraq or Afghanistan may have had TBI, 

depending on the study’s methodology and the 

population it sampled.5

 A limited body of research 

also suggests that a minority of service members who 

had TBI experience symptoms over the longer term 

that may have been caused by that condition. In one 

study, less than 20 percent of the group with suspected TBI had at least two symptoms upon their 

return home that might be attributable to that type 

of injury.6

No extant studies of the prevalence of either PTSD or 

TBI are definitive, however. Most studies surveyed 

subgroups of deployed personnel, such as Army 

infantry, and extrapolating the results to the general 

deployed population is problematic. Also, the survey 

instruments used to screen for a possible case of 

PTSD or TBI either have not been validated or do 

not produce highly accurate estimates of those 

conditions.7

3. For a survey of the literature, see Rajeev Ramchand and 

others, “Prevalence of PTSD, Depression and TBI Among 

Returning Service Members,” in Terri Tanielian and 

Lisa H. Jaycox, eds., Invisible Wounds of War: Psychological 

and Cognitive Injuries, Their Consequences, and Services to 

Assist Recovery (Santa Monica, Calif.: RAND Corporation, 

April 2008), pp. 33–85.

4. DoD and VA have active outreach and awareness campaigns 

to encourage service members and veterans to seek treatment 

for PTSD. The departments also routinely screen all service 

members who have served in Iraq or Afghanistan (DoD) and 

veterans of those operations (VA) for PTSD and TBI and 

provide treatment for the conditions.

5. Terry Schell and Grant Marshall, “Survey of Individuals 

Previously Deployed for OEF/OIF,” in Tanielian and Jaycox, 

eds., Invisible Wounds of War, pp. 87–115; and Heidi Terrio 

and others, “Traumatic Brain Injury Screening: Preliminary 

Findings in a US Army Brigade Combat Team,” Journal of 

Head Trauma Rehabilitation, vol. 24, no. 1 (January/February 

2009), pp. 14–23.

6. Terrio and others, “Traumatic Brain Injury Screening.”

7. Rajeev Ramchand and others, “Prevalence of PTSD, 

Depression and TBI Among Returning Service Members”; 

and Heidi Golding and others, “Understanding Recent 

Estimates of PTSD and TBI from Operations Iraqi Freedom 

and Enduring Freedom,” Journal of Rehabilitation Research 

and Development, vol. 46, no. 5 (October 2009), pp. vii–xiii. 
10 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Through September 2009, mental health problems and 

musculoskeletal disorders (disorders of the muscles, 

nerves, tendons, ligaments, joints, cartilage, or spinal 

disks) were the most common diagnoses among the 

OCO veterans who had used VA’s health care services. 

According to VA, since 2002, about 245,000 veterans 

had cumulatively received at least a preliminary diagnosis 

for a mental health condition, and nearly 130,000 of 

them had visits that were coded in the VA system for 

post-traumatic stress disorder (PTSD). In addition, 

265,000 veterans had visits that were coded for a musculoskeletal condition.14 Despite the large numbers of 

OCO veterans’ visits, the resources devoted to OCO 

enrollees are much smaller than for other groups of veterans, primarily because OCO veterans are much younger 

and healthier. CBO expects the cost of treating OCO 

veterans to rise as they age. 

Potential Costs of Providing Health 

Care to All Enrolled Veterans

VA’s appropriations for medical care totaled $48 billion 

for 2010—a little more than $47 billion for health care 

services and about $0.6 billion for medical research—a 

nominal increase of 8 percent over the appropriation for 

2009.15 More than four-fifths of the 2010 obligations for 

medical care—$42.4 billion—is allocated to providing 

services such as ambulatory care, inpatient acute care, 

pharmacy services, and dental care.16 The remainder 

funds long-term care for veterans ($6.0 billion) and other 

health care initiatives and programs such as the Civilian 

Health and Medical Program of the Department of 

Veterans Affairs (CHAMPVA)—which provides benefits 

to certain dependents and survivors of disabled veterans 

($1.1 billion)—and readjustment counseling at Vet 

Centers ($170 million). 

In real (inflation-adjusted) terms, budget authority for 

VA’s health care services and medical research increased at 

an average annual rate of almost 6 percent between 2004 

and 2008, by 12 percent in 2009, and by 7 percent in 

2010.17 With enrollment growing about 1 percent each 

year through 2008 and 3 percent in 2009, most of the 

additional funding was used to support greater use of 

services per enrollee and to cover the increases in costs for 

a medical visit or service. Annual resources averaged 

about $5,600 (in 2010 dollars) per enrollee for 2009—an 

inflation-adjusted increase of 9 percent from the previous 

year’s total of $5,100. Greater use of services and higher 

costs of providing them each accounted for roughly half 

of that increase.18 By contrast, health expenditures per 

capita in the general U.S. population, as measured by the 

Centers for Medicare and Medicaid Services (CMS), were 

expected to grow by about 4 percent in 2009. 

CBO estimated the resources that VA would require to 

treat all enrollees under two scenarios for the 2011–2020 

period. Under different assumptions regarding the 

growth in enrollment and medical expenditures per 

enrollee, the resources required would increase from 

$48 billion in 2010 to between $69 billion and $85 billion in 2020 (in 2010 dollars).

Analytic Method

To reflect the considerable uncertainty about future 

military operations, enrollment in VA health care, and 

the growth of medical expenditures in the economy, 

CBO formulated two scenarios. Each scenario involves 

two separate projections for the 2011–2020 period: one 

for veterans of overseas contingency operations and 

14. Not all of those veterans ultimately received diagnoses of those 

conditions. Some of the visits produced “rule-outs”: The physician 

conducted an examination to determine whether the veteran had a 

particular medical condition and determined that he or she did 

not. Up to one-third of the mental health diagnoses were provisional pending further evaluation. The available data did not 

enable CBO to deduct rule-outs or provisional diagnoses from 

confirmed diagnoses. 

15. The total of $48 billion includes the authority to spend an anticipated $3.0 billion from the Medical Care Collections Fund 

(MCCF). Title VIII of the Veterans Reconciliation Act of 1997 

(P.L. 105-33) established the MCCF account and required that 

amounts collected or recovered from first- or third-party payers 

be deposited into that account and used for medical services for 

veterans. 

16. An obligation is a commitment that creates a legal liability on the 

part of the government to pay for goods and services ordered or 

received. Such payments may be made immediately or in the 

future. Obligations during any year may exceed appropriations 

provided during that year because an agency may obligate funds 

that were provided in an earlier year.

17. Budget authority is the authority provided by federal law to enter 

into financial obligations that will result in immediate or future 

outlays involving federal government funds. 

18. The higher costs of providing services may reflect some changes in 

the intensity and mix of services at VA. For example, patients may 

require longer office visits, or physicians may order the use of 

newer diagnostic methods instead of older ones—changes that are 

reflected not in the number of services used but in the cost per service provided. Likewise, if patients shifted from primary care visits 

to outpatient mental health visits for the same medical condition, 

the number of services would not change but the average cost of 

ambulatory services would change. 
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 11

CBO

another for all other veterans. (CBO used a separate 

method for the OCO veterans because of their rapidly 

growing enrollment and because the types of services they 

use and the frequency with which they use them are 

different from those of most other veterans.) The two sets 

of projections were combined to derive total annual 

potential costs for VA’s medical system.

Those costs can be projected several ways. One approach 

is to use a “top-down” model, in which the basic bundle 

of services a typical enrollee is expected to use remains the 

same over time, and a factor reflecting the year-to-year 

percentage growth in the cost of services is applied across 

the board. That method, however, does not allow the mix 

of enrollees, or their use of services, to change over the 

projection period. An alternative approach is to build a 

“bottom-up” model based on specific medical conditions, 

but that method requires analyzing data for a multitude 

of conditions, developing probability estimates that those 

conditions would occur, and estimating the yearly costs 

of treating a patient who has that medical ailment. The 

large number of medical conditions and the lack of 

pertinent data on costs make that approach infeasible to 

undertake alone.

CBO used a mix of those two methods to project the use 

of health care services and VA’s potential costs over the 

2011–2020 period. For the non-OCO enrollees, CBO 

built up the cost projection for each of the eight priority 

groups from separate estimates of their use of services 

(measured as full-time-equivalent users) and the annual 

cost per user in each group. The number of users was 

computed as the number of non-OCO enrollees times 

the reliance of veterans within a priority group on VA; 

reliance is the portion of veterans’ costs incurred by VA as 

a percentage of their total annual health care costs 

provided by any source.19 The annual cost per user was 

estimated from historical data pertaining to veterans in 

each priority group. The costs per user were then inflated 

using a common rate for all priority groups (but different 

inflation rates for the two scenarios, as discussed below). 

For the OCO veterans, CBO projected the potential 

costs on the basis of broad categories of services, incorporating observed changes in the OCO veterans’ use of services in the years following enrollment. (See Appendix A 

for greater detail on the procedures CBO used.)

The blended approach has several advantages over a 

strictly bottom-up or top-down approach. The amount 

of information required is less extensive than that 

required by a fully bottom-up method. Compared with a 

top-down approach, the blended approach is more flexible and can more easily and accurately project changes in 

the mix of enrollees or in the services they use than can a 

more aggregate method. That feature is especially important for projections under Scenario 2, which incorporates 

an assumption that the growth in P8 enrollment and in 

the use of certain services among VA enrollees outpaces 

that in the general population.

For Scenario 1, CBO assumes slower growth in 

enrollment and in medical expenditures per enrollee than 

it does in Scenario 2 (see Table 1). Specifically, for 

Scenario 1, CBO assumes that VA’s enrollment policies in 

2010 remain in effect (that is, veterans whose income is 

no more than 10 percent above the thresholds may 

enroll) and that the number of troops deployed to overseas contingency operations drops to 30,000 service 

members by 2013 and stays at that number through 

2020. Within each priority group, enrollees’ use of medical services and the associated costs are assumed to grow 

at about the same rates as those projected for the general 

U.S. population. That path would represent a slowdown 

in the relative rate of spending growth in the VA system 

because average expenditures per capita grew faster 

among VA enrollees than in the general population from 

2003 through 2007.20

For Scenario 2, CBO assumes that VA further relaxes its 

restrictions on enrollment for veterans who have higher 

income (those in P8) and that deployments to overseas 

contingency operations drop more slowly than in 

Scenario 1, reaching 60,000 by 2015 and staying at that 

number through 2020. CBO also assumes that growth in 

VA’s health care expenditures for each priority group is 

about 30 percent above the rates anticipated for the 

general population, which is twice as fast as the rate VA 

experienced between 2003 and 2007.

19. VA calculates reliance as its expenditures on veterans’ health care 

divided by its estimate of the total expenditures on health care 

devoted to those veterans, including costs paid by the public 

sector, by private insurance, or out of pocket by the veteran.

20. Over the longer period of 2000 through 2007, average expenditures per capita grew at a slower pace for VA enrollees than for the 

general population. However, the growth in waiting lists for 

appointments through 2003 and the restrictions on enrollment 

imposed in that year suggest that expenditures did not keep pace 

with the increase in veterans’ demand for services. The 2003–

2007 period reflects the effects of VA’s policies to provide 

sufficient services to all enrolled veterans. 
12 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Table 1.

Assumptions Underlying the Scenarios

Source: Congressional Budget Office.

Notes: Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

VA = Department of Veterans Affairs.

a. Projections of growth in medical expenditures for the general population are based on data from the Centers for Medicare and Medicaid 

Services and others.

Both scenarios rely on information about projected 

enrollment that is consistent with VA’s 2010 and 2011 

budget requests, which were submitted to the Congress 

before the enactment in March 2010 of the Patient 

Protection and Affordable Care Act (P.L. 111-148) and 

the Health Care and Education Reconciliation Act of 

2010 (P.L. 111-152). Certain provisions of that legislation will, in the latter part of the coming decade, lower 

the costs of obtaining health insurance for some veterans. 

Some of those veterans will seek less care from VA than 

they would have without the recent legislative changes, 

reducing the potential costs for the VA health care 

system. Conversely, beginning in 2014, that legislation 

will require most residents of the United States to have a 

certain level of health insurance, or “minimum essential 

coverage” as defined in the law, and (with some exemptions) it will impose financial penalties on people who do 

not meet that requirement. More recent legislation states 

that the Secretary of Veterans Affairs, in coordination 

with the Secretary of Health and Human Services, will 

determine whether the health care provided by VA qualifies as minimum essential coverage.21 If the Secretary of 

Veterans Affairs determined that VA health care does 

qualify, some eligible veterans who are currently neither 

enrolled in VA nor otherwise insured would choose to 

enroll in VA to avoid any penalties for being uninsured. 

That factor alone would increase potential costs for the 

VA health care system. 

On balance, CBO’s preliminary analysis indicates that 

the effects of all three laws on the projected number of 

enrollees and the resources they would require would 

probably be either a slight increase or a slight decrease, 

but in neither case would those effects materially change 

the projections in this report. In particular, OCO veterans would continue to account for a small share of VA’s 

costs with the new laws in place. Similarly, the relative 

importance of the factors responsible for the differences 

between Scenarios 1 and 2 would remain essentially the 

same if the recent changes in law were reflected in the 

analysis.

More generally, CBO’s projections should not be viewed 

as precise predictions of the future costs of providing 

health care to all veterans enrolled in the VA health care 

system. Actual budgetary outcomes are almost certain to 

differ from CBO’s projections because of future legislative actions and because of unanticipated changes in economic conditions, health insurance markets, prices for 

medical products and services, medical technology, and 

other factors.

Projected Enrollment, Use of Services, and 

Growth in Medical Expenditures per Enrollee

The most important factors determining the potential 

costs of VA’s health care system over the 2011–2020 

Scenario 1 Scenario 2

Eligibility to Enroll for VA Health Care

Veterans of overseas contingency Deployed troop strength for those Deployed troop strength for those 

operations operations drops to 30,000 by 2013 operations drops more slowly, to

60,000 by 2015.

All other veterans VA policies in place at the beginning Enrollment allowed for veterans whose

of 2010 remain in effect income exceeds thresholds by 30 percent 

or less; all other VA policies in place at 

the beginning of 2010 remain in effect

Per Capita Growth in Medical About the same rate as for the general 30 percent faster than in Scenario 1

Expenditures populationa

21. See P.L. 111-173, an act to clarify the health care provided by the 

Secretary of Veterans Affairs that constitutes minimum essential 

coverage.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 13

CBO

period are enrollment, veterans’ use of VA’s services, and 

the growth in expenditures per enrollee. 

Enrollment. Altogether, 8 million of an estimated 23 million veterans were enrolled in VA’s health care system in 

2009. The number of enrollees over the projection period 

will depend on VA’s policies about enrollment, cost sharing, and other factors; the size of the veteran population; 

and the relative attractiveness of VA’s health care services. 

Using data from VA and the Department of Defense, 

CBO projects that total enrollment would grow to 

8.8 million in 2016 under Scenario 1, or by 10 percent, 

even though the number of veterans in the population is 

expected to fall to about 21 million by 2016. The projected boost in enrollment is entirely attributable to two 

factors: the increased enrollment of OCO veterans and 

the addition of veterans who are newly eligible because 

their income exceeds VA’s thresholds by no more than 

10 percent. The former group accounts for 7 percentage 

points of the increase and the latter for the remaining 

3 percentage points. The largest increases in annual 

enrollment would occur earlier, as the bulk of newly 

eligible P8s and OCO veterans enroll.22 Other than those 

two groups of veterans, new enrollments would be 

roughly offset by veterans who die during the projection 

period. For all veterans, overall enrollment is projected to 

decline slightly after 2016, falling to 8.7 million by 2020.

Under Scenario 1, CBO assumes that the number of 

service members deployed to Iraq, Afghanistan, and 

related activities will decline sharply, from an average of 

approximately 220,000 active-duty, reserve, and National 

Guard personnel during 2009 to only 30,000 by 2013 

and will remain at that number thereafter. Enrollment of 

those personnel would grow from about 560,000 in 2009 

to 1.4 million in 2020, or 16 percent of all enrollees. 

Between the easing of the income restriction in 2009 

and the end of the projection period in 2020, about 

300,000 newly eligible P8s (whose income is as much as 

10 percent above VA’s income thresholds) would enroll 

for health care services, CBO projects. According to VA, 

about 900,000 veterans are in that income bracket and 

would be eligible to enroll. Not all of them would choose 

to do so, however, and the number who would enroll is 

difficult to predict. CBO estimates that of all veterans 

who were eligible to enroll—and would be classified as 

P8 if they did enroll—less than 20 percent were actually 

enrolled at the end of 2008. That figure, however, does 

not provide a direct estimate of their propensity to enroll, 

because enrollment of new P8s had been barred since 

2003.23 To estimate the number of additional P8 enrollees over the projection period, CBO assumes that the 

percentage of newly eligible P8s who would enroll would 

gradually approach the roughly 40 percent share of 

P7 veterans (the group most similar to P8 veterans) who 

are enrolled.

Assuming a larger deployed force than in Scenario 1, 

CBO projects that total enrollment in Scenario 2 would 

reach 9.2 million in 2016 and gradually increase to 

9.3 million in 2020. The projection incorporates the 

assumption that deployment peaks at an average of 

235,000 troops for 2010, drops more slowly than under 

Scenario 1 through 2014, levels out at 60,000 at the 

beginning of 2015, and remains at that number thereafter. The total number of OCO personnel who would 

enroll would grow to 1.7 million in 2020, or 18 percent 

of all enrollees. 

Under Scenario 2, CBO assumes that VA will open 

enrollment to veterans whose income is as much as 

30 percent above VA’s income thresholds in 2011, making an additional 1.5 million veterans eligible to enroll 

compared with Scenario 1. Using the same method to 

calculate additional P8 enrollees as in Scenario 1, CBO 

estimates that enrollment in 2020 would be higher in 

Scenario 2 by 340,000 veterans, a difference of 4 percent. 

Those additional veterans are also assumed to receive the 

same amount of care that currently enrolled P8 veterans 

are expected to receive in future years.24

The majority of enrolled veterans either had not deployed 

to overseas contingency operations and were assigned to 

P1 through P7 or had enrolled in P8 before June 2009, 

22. Annual growth in the number of full-time-equivalent enrollees is 

about one-third lower than the growth in overall enrollment 

because the new enrollees are expected to rely less on VA for their 

health care. 

23. Combat veterans are an exception to that policy. They are permitted to remain enrolled in P8 after their five-year period of special 

eligibility ends, although they may be reclassified into a different 

priority group on the basis of standard criteria.

24. Although CBO does not analyze this policy option, removing all 

income-based restrictions on enrollment could result in a newly 

eligible pool of nearly 10 million additional veterans. Assuming 

that the pattern of enrollment for those veterans was similar to 

that for P7s, about 4 million additional veterans would probably 

choose to enroll over the 20 years or more following the policy 

change.
14 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

when the income restrictions were eased. The number of 

such veterans would be the same under both scenarios 

and is projected to remain stable through 2016 and then 

decline by roughly 5 percent by 2020.25 Enrollment will 

remain stable for the first part of the decade because 

CBO expects VA to enroll an ever larger share of nonOCO veterans who are not newly eligible on the basis of 

income, continuing a trend that began several years ago. 

For the past few years, the share of those veterans who 

have enrolled has increased annually by an average of 

about 1 percentage point, probably in part because VA 

has added new outpatient clinics and adopted new technologies to make VA care more accessible to veterans. On 

the basis of historical trends and other factors, CBO projects that the percentage who enroll will continue to 

increase, reaching 37 percent of non-OCO veterans by 

2015, up from 32 percent in 2008, even without the 

easing of the restriction on income for P8s.26 

Use of VA’s Health Care Services. On average, enrollees 

depended on VA for about 23 percent of their health care 

(as measured in dollars) in 2008, VA estimates, although 

the extent to which they relied on VA varied by priority 

group. Veterans with higher income (P7 and P8 enrollees) had, on average, the lowest rates of reliance on VA, 

partly because they have the highest rates of medical coverage outside VA (see Figure 4 and Box 3). Veterans in 

those groups—who also account for the largest portion of 

enrollees over the age of 65 and are therefore eligible for 

Medicare—relied on VA for just over 10 percent of their 

medical care. By contrast, the most disabled veterans 

(those in P1 and P4) and the poorest veterans (P5) 

received about 35 percent and 28 percent of their health 

care from VA, respectively. That greater reliance is 

reflected in their use of services; they are the heaviest 

users of some categories of care, such as inpatient hospital 

care and ambulatory care (see Appendix B for further 

detail on the use of categories of services). Many of those 

enrollees have no out-of-pocket costs for their care at 

VA—a benefit that probably contributes to their higher 

use of VA’s services. 

Reliance and the amount of care obtained from VA 

depend on many factors: veterans’ characteristics—such 

as age, sex, and morbidity (the incidence of ill health); the 

availability of other health care options; and the 

characteristics of the VA medical system (including the 

convenience of VA’s facilities, the ease of scheduling an 

appointment, and the enrollees’ perceptions of the quality 

of the care they receive). Reliance rates among priority 

groups have remained relatively stable through the past 

several years. CBO assumes that they will remain so 

through the projection period under both scenarios; in a 

later section, CBO presents a sensitivity analysis in which 

reliance varies. 

Expenditures per Enrollee. In 2008, VA’s average 

expenditure for medical care was about $5,000 (in 2010 

dollars and measured as outlays per enrolled veteran). 

That care includes all health care services, medical 

research, nursing home care, and special programs and 

initiatives. Health care services, which accounted for the 

largest share of spending, averaged about $4,300 per 

enrolled veteran but varied substantially by priority 

group. Average expenditures ranged from about $1,500 

per P6 enrollee (veterans of recent combat and certain 

other veterans) to $15,000 per P4 enrollee (veterans who 

have catastrophic disabilities that are not service connected or who receive certain VA benefits) (see the lefthand panel of Figure 5 on page 18). The most severely 

disabled veterans (those in P1) were the second-mostexpensive group; spending on their health care services 

averaged about $9,500. For all other priority groups, 

average expenditures ranged between 15 percent and 

55 percent of those for P1 veterans.

VA calculates an index of the resources that would be 

expended to treat the average enrollee in each priority 

group if, hypothetically, reliance was the same for all of 

them. The index reflects differences between priority 

groups in such characteristics as morbidity.

Using that measure, differences between priority groups 

remain but are less pronounced (see the right-hand panel 

of Figure 5 on page 18). Instead of a tenfold difference in 

25. CBO obtained projections of future enrollment from VA. Those 

projections incorporate the assumption that VA maintains its current policies. See Appendix A for more information on how VA 

projects enrollment.

26. To derive the portion of non-OCO veterans who will enroll, CBO 

relies on projections by VA of the size of the veteran population 

for the next 20 years and of the priority groups to which those veterans are likely to be assigned. VA bases that information on historical data for disability and income status derived from the U.S. 

census and other sources. The portion of veterans who will enroll 

would be higher if the income restrictions on P8s were relaxed. By 

2015, the fraction of eligible non-OCO veterans who chose to 

enroll would equal 39 percent if veterans whose income was 

10 percent above the thresholds could enroll; that fraction would 

surpass 40 percent if veterans whose income was 30 percent above 

the thresholds could enroll. 
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 15

CBO

Figure 4.

Estimated Rates of Reliance of Enrolled Veterans on VA’s Health Care Services, by 

Priority Group, 2008

(Percent)

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

Notes: Reliance is the portion of a veteran’s total health care (measured in dollars) that is provided by VA.

VA’s enrollment system assigns veterans to one of eight priority groups (P1 through P8). Veterans with service-connected disabilities 

that are rated 50 percent or more disabling are in P1 (highest priority); those with higher income and no compensable serviceconnected disabilities are in P8 (lowest priority). For definitions of the priority groups, see Box 1 on page 4.

resources used per enrollee between P6s and P4s, the difference shrinks to roughly fivefold. Resources used for 

other priority groups (excluding P4s) are between 35 percent and 75 percent of those for P1 veterans. CBO 

assumes in both scenarios that the relative expenditures 

on veterans’ health care will not change through the 

projection period.

In both scenarios, CBO adapted CMS’s projections of 

growth in health care expenditures per capita for the 

general population to the pool of enrolled veterans.27

CBO adjusted those projections to reflect differences in 

the technical and economic assumptions used by the two 

agencies, differences in the enrollee population specific to 

VA, and other relevant factors. 

To capture the effect of aging on the growth in health 

care expenditures, CBO used its own projection, which 

includes two effects. The larger effect is caused by a shift 

of VA’s enrolled population from lower (less expensive) 

priority groups (such as P8) to higher (more expensive) 

groups (such as P1 through P3) as those enrollees age and 

their service-connected medical problems worsen. The 

smaller effect reflects the aging of enrollees within 

priority groups. 

In Scenario 1, VA’s per-enrollee expenditures for medical 

services for each priority group are assumed to grow at 

about the same rates as the national averages. CBO 

assumes that, on the basis of CMS data, the rate of 

growth of VA’s health care expenditures per enrollee will 

be 3.7 percent for 2011, will increase to a 5.5 percent 

pace by 2016, and will stabilize at about that rate through 

2020.

Under Scenario 2, CBO assumes a higher rate of growth 

in expenditures per enrollee for each priority group. Specifically, CBO applies growth rates for 2011 that are similar to those VA used in its budget planning for that year. 

Those rates are about 2.5 percentage points higher than 

the ones used in Scenario 1. Expenditures per enrollee are 

expected to rise more rapidly at VA than nationally in 

P1 P2 P3 P4 P5 P6 P7–P8

0

5

10

15

20

25

30

35

40

27. Centers for Medicare and Medicaid Services, National Health 

Expenditure Projections, 2009–2019, www.cms.hhs.gov/

nationalhealthexpenddata/downloads/proj2009.pdf. CBO used 

the published personal health care expenditure series and other 

unpublished data from CMS as the basis for projecting increases 

in VA’s health care expenditures per enrollee. CBO used the rates 

for 2019 in projecting growth for 2020. 
16 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Continued

2011, in part because the cost of providing services is rising faster within VA than in the general population. For 

example, VA anticipated average nominal increases of 

4.0 percent in the compensation of its medical and medical support employees in both 2010 and 2011; the 

increase in compensation for health services workers in 

private industry was about one-half that rate for the 

12-month period ending June 30, 2010.28 For the 

remainder of the projection period, CBO assumes that 

expenditures per enrollee for each priority group will 

grow at an annual rate that exceeds growth in Scenario 1 

by 30 percent. (In other words, they grow about 30 percent faster than the rate CMS projects for the general 

population.) CBO assumes faster growth in use of services per enrollee and in medical price inflation for OCO 

and non-OCO enrollees in Scenario 2.

Projected Cost 

CBO projects that the resources required to provide 

health care to all enrollees would increase from $48 billion in 2010 to $69 billion (in 2010 dollars) in 2020 

under Scenario 1 and to $85 billion in 2020 under Scenario 2 (see Table 2 on page 19 and Figure 6 on page 20). 

Both estimates are higher than CBO’s baseline projection, under which appropriations for discretionary 

programs simply keep pace with inflation (see Box 4 on 

page 22).

Scenario 1. Adjusted for inflation, annual resources 

required to provide health care to all enrollees under 

Box 3.

Health Care Coverage of Enrolled Veterans

As of 2007, most veterans who were enrolled in the 

Department of Veterans Affairs’ (VA’s) health care 

system—nearly 80 percent—had other sources of 

health care available to them.1

 Nearly a third of veterans had access to employer-based health insurance or 

health care, and others had access to public sources 

for insurance coverage.2

 Veterans who are 65 or older 

and some who are disabled qualify for Medicare 

coverage, and some low-income veterans are eligible 

for Medicaid. In 2007, 55 percent of enrollees were 

covered by Medicare and 8 percent by Medicaid. 

Whether veterans have other sources of insurance 

coverage—and what those sources are—varies 

according to which of the priority groups (P1 

through P8) they are in (see the table at right). The 

higher-income groups (P7 and P8) were most likely 

to have non-VA coverage (90 percent in 2007). 

Those groups also had among the highest rates of private health insurance coverage and, because they had 

the largest percentage of enrollees over the age of 65 

(more than 60 percent), were the most likely to be 

covered by Medicare. The lowest-income group (P5) 

had the fewest enrollees with other insurance coverage (68 percent in 2007); only 20 percent of 

P5 enrollees had employer-based coverage, and just 

12 percent received Medicaid assistance. 

Many veterans who have additional sources of coverage but enroll in the VA health care system use that 

system for at least a portion of their health care. For 

example, among veterans enrolled in both Medicare 

and VA’s health care system, only about 30 percent 

relied solely on Medicare, and 15 percent relied solely 

on VA.

1. Department of Veterans Affairs, Veterans Health Administration, 2007 Survey of Veteran Enrollees’ Health and Reliance 

Upon VA (May 2008).

2. About 40 percent of veterans enrolled in VA’s health care 

system are in the U.S. labor force, and 60 percent of them 

work full time. Many of the enrolled veterans who are not in 

the labor force may be retired (about 45 percent are over the 

age of 65) or in school.

28. The private industry benchmark is total compensation for health 

care and social assistance workers from the employment cost 

index, which is published by the Bureau of Labor Statistics. See 

Department of Labor, Bureau of Labor Statistics, “Table 5: 

Employment Cost Index for Total Compensation, for Private 

Industry Workers, by Occupational Group and Industry,” Economic News Release (July 30, 2010), www.bls.gov/news.release/

eci.t05.htm.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 17

CBO

Scenario 1 would rise by about 45 percent, CBO 

estimates (see Figure 6 on page 20). Real growth in the 

annual resources required would be highest in the first 

five years of the projection period (reaching almost 5 percent in 2012), as OCO veterans and some additional, 

newly eligible P8 veterans enrolled; real growth would 

then decline slightly and, after 2016, would average 

3 percent to 4 percent annually. 

Assumptions about the growth of medical expenditures 

per enrollee, which outpaces that of general inflation, 

account for most of the increase through 2020 in CBO’s 

projection of VA’s potential costs. CBO estimates that the 

aging of the veteran population accounts for 1 percentage 

point of the annual growth in those costs in the early 

years of the projection period but for no more than 

0.5 percentage points in later years. 

Box 3. Continued

Health Care Coverage of Enrolled Veterans

Percentage of Enrolled Veterans Who Reported Having Other Sources of 

Health Insurance Coverage, by Priority Group, 2007

Source: Congressional Budget Office based on data from Department of Veterans Affairs, Veterans Health Administration, 

2007 Survey of Veteran Enrollees’ Health and Reliance Upon VA (May 2008).

Note: For definitions of the priority group, see Box 1 on page 4.

a. Most Medicare beneficiaries are automatically enrolled in Part A (hospital care) with no annual premium. Of veterans who 

participate in Medicare, most (about two-thirds) choose to enroll for a fee in Part B (medical insurance), which covers services 

provided by physicians and other practitioners, hospitals’ outpatient departments, and suppliers of medical equipment. A 

much smaller proportion of Part A beneficiaries (about one-third) also choose to enroll in Part D (prescription drug coverage). 

Although for most priority groups, the proportions of veterans reporting, respectively, Part B coverage and Part D coverage 

coincidentally add to roughly the proportion reporting any Medicare coverage, there is no rigid mathematical relationship 

among those proportions because veterans enrolled in Part A may choose to enroll in either Part B or Part D individually, in 

both programs, or in neither program.

b. Medigap plans are private supplemental insurance plans that provide additional coverage for Medicare beneficiaries. They may 

be purchased individually or provided by former employers as part of a retirement plan.

c. Medicaid is the federal/state program in which the federal government provides funds to states to cover a portion of the costs 

they incur in paying health care providers serving low-income individuals.

d. TRICARE is a Department of Defense (DoD) program that provides health care to active and retired military personnel and their

eligible family members either at military treatment facilities or through purchased care contracts. TRICARE for Life (TFL) is a 

DoD program that provides supplemental coverage for military retirees and family members who are eligible for Medicare.

e. A health maintenance organization (HMO) is a type of managed health care plan.

Priority

Group

P1 35 13 52 13 6 38 24 79

P2 24 11 35 11 5 37 39 82

P3 26 13 39 14 6 31 38 81

P4 42 26 67 19 19 5 12 72

P5 34 21 56 17 12 4 20 68

P6 15 7 22 7 4 18 56 79

P7 and P8 50 24 70 39 7 9 39 90

All Enrolled 

Veterans 37 19 55 22 8 17 31 79

Medicarea

Private

Coverage

Any Non-VA

or HMOe

TRICARE/ Insurance

TFLd Medicaidc Medigapb Part B Any Part D
18 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure 5.

VA’s Expenditures on Health Care Services per Enrollee, by Priority Group, 2008

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

Notes: Expenditures exclude those for medical research, nursing home care, and special programs and initiatives. 

VA’s enrollment system assigns veterans to one of eight priority groups (P1 through P8). Veterans with service-connected disabilities 

that are rated 50 percent or more disabling are in P1 (highest priority); those with higher income and no compensable serviceconnected disabilities are in P8 (lowest priority). For definitions of the priority groups, see Box 1 on page 4.

a. Veterans in P1 are the reference group. Expenditures for all other groups are shown relative to the expenditures for P1 veterans. 

Calculations assume that enrollees depend on VA for all of their health care (100 percent reliance).

Under CBO’s assumptions, the easing of the income 

restrictions on P8 enrollment in 2009 has little impact on 

total costs. The enrollees added since the restriction was 

eased in 2009 contribute $1.2 billion, or less than 2 percent, to total costs for 2020. Similar to the current situation, most (about 85 percent) of the resources in 2020 

would be used to treat veterans in the first six priority 

groups, and only about 15 percent would be devoted to 

the higher-income enrollees in P7 and P8. (Some of the 

increase in resources attributable to opening enrollment 

to more P8 veterans may be offset by decreases in other 

federal and nonfederal government spending, such as the 

Medicare and Medicaid programs, because some enrollees 

will switch part of their care from other health care 

options to VA. However, this report considers only the 

changes in VA’s costs, not the impact on the entire federal 

budget or on national spending for health care.)

The resources required to treat OCO veterans would 

total $5.4 billion by 2020 under Scenario 1, or less than 

10 percent of all of VA’s costs in this scenario. That 

portion would grow after 2020, CBO estimates; at that 

time, OCO veterans would account for a larger share of 

enrollees, as service members who have served in overseas 

contingency operations separate from the military, veterans of earlier conflicts die, and OCO veterans develop 

age-related health conditions. 

Scenario 2. Potential costs in this scenario reach nearly 

$85 billion by 2020 (see Figure 6 on page 20). That 

amount is roughly $15 billion—or 22 percent—higher 

than under Scenario 1 and about 75 percent more than 

the amount that has been provided for 2010. 

VA’s potential costs are very sensitive to the assumption 

about growth in expenditures per enrollee, which 

accounts for $13 billion of the $15 billion difference 

between the two scenarios in 2020. By contrast, CBO 

estimates that if the number of deployed troops and the 

growth of medical expenditures were held to the values 

assumed under Scenario 1 but the restriction on enrollment was eased so that veterans whose income exceeded 

P1 P2 P3 P4 P5 P6 P7–P8

0

2

4

6

8

10

12

14

16

Average Annual Expenditures per Enrollee

P1 P2 P3 P4 P5 P6 P7–P8

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Relative Expenditures,

Assuming 100 Percent Reliancea

(Thousands of 2010 dollars) (Index, P1 = 1.0)
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 19

CBO

Table 2.

Projected Enrollment of Veterans for VA Health Care and the Potential Costs for 

VA to Provide Health Care Services to Them

Source: Congressional Budget Office.

Notes: The starting point for the cost projections in the two scenarios is the Department of Veterans Affairs’ (VA’s) appropriation for medical 

care and research in 2010. CBO’s baseline budget projection, following Congressional rules, is based on VA’s enacted advance appropriations for 2011 for medical services, medical support and compliance, and medical facilities and on VA’s enacted appropriations for 

2010 for all other medical accounts. Under those rules, CBO projects baseline spending in subsequent years by adjusting those appropriations by a forecast of future inflation—a weighted average of the gross domestic product (GDP) price index and the employment 

cost index for wages and salaries. For comparison with the two scenarios, those projections are converted to 2010 dollars by applying 

the GDP price index. Because CBO projects that wages and salaries will rise more rapidly than the GDP price index, the baseline projection increases slightly (in 2010 dollars) during the 2011–2020 period. See Table 1 on page 12 for the scenarios’ underlying assumptions.

Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

n.a. = not applicable.

b. Projections of growth in medical expenditures for the general population are based on data from the Centers for Medicare and Medicaid 

Services and others. 

2011 n.a. 8.5 8.7

2020 n.a. 8.7 9.3

`

51 50 52

54 62 70

56 69 85

535 602 682

2011 n.a. 0.8 0.8

2020 n.a. 1.4 1.7

As a percentage of all enrolled veterans

2011 n.a. 9 9

2020 n.a. 16 18

2011 n.a. 2 3

2016 n.a. 4 6

2020 n.a. 5 8

2011–2020 n.a. 40 54

costs for all enrolled veterans

2011 n.a. 5 5

2016 n.a. 7 8

2020 n.a. 8 10

2011–2020 n.a. 7 8

In millions

Potential VA Health Care Costs

In billions of 2010 dollars

As a percentage of the potential health care 

Number of Enrollees in 2020 (Millions)

Potential VA Health Care Costs (Billions of 2010 dollars)

Baseline 

Projections for Enrolled Veterans of Overseas Contingency Operations

Projections for All Enrolled Veterans

Scenario 1 Scenario 2

Number of Enrollees

2011

2016

2020

2011–2020
20 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure 6.

Potential Costs for VA to Provide Health Care Services to Enrolled Veterans

(Billions of 2010 dollars)

Source: Congressional Budget Office.

Notes: The starting point for the projections in the two scenarios is the Department of Veterans Affairs’ (VA’s) appropriation for medical care 

and research in 2010. CBO’s baseline budget projection, following Congressional rules, is based on VA’s enacted advance appropriations for 2011 for medical services, medical support and compliance, and medical facilities and on VA’s enacted appropriations for 

2010 for all other medical accounts. Under those rules, CBO projects baseline spending in subsequent years by adjusting those appropriations by a forecast of future inflation—a weighted average of the gross domestic product (GDP) price index and the employment 

cost index for wages and salaries. For comparison with the two scenarios, those projections are converted to 2010 dollars by applying 

the GDP price index. Because CBO projects that wages and salaries will rise more rapidly than the GDP price index, the baseline projection increases slightly (in 2010 dollars) during the 2011–2020 period.

Compared with Scenario 1, under Scenario 2 CBO assumes higher enrollment of veterans of overseas contingency operations 

(currently including military operations in Iraq and Afghanistan and related activities), further easing of the restrictions on enrollment 

of higher-income veterans, and faster growth in medical expenditures per enrollee. See the text for a detailed explanation of the 

scenarios.

VA’s thresholds by 30 percent or less could enroll, real 

costs in 2020 would increase by about $1 billion. Easing 

the income restriction matters relatively little, because the 

additional P8 enrollees would have no compensable 

service-connected disabilities and would be more likely 

than veterans in other priority groups to have other 

health care options they might use rather than seeking 

care from VA. 

Larger numbers of troops deployed to overseas contingency operations also explain little of the increase over the 

potential costs projected under Scenario 1. Using the 

same assumptions about the enrollment eligibility of P8 

veterans and the growth in medical expenditures as under 

Scenario 1, the larger OCO deployments in Scenario 2 

would add about $1 billion.

Sensitivity Analysis. Two important assumptions that 

CBO adopted for both scenarios were that the number of 

enrolled non-OCO veterans (other than newly eligible 

P8 veterans) would remain largely stable, as would the 

veterans’ rates of reliance on VA throughout the projection period. Most veterans use VA for less than half of 

their health care; the demand for VA’s services would be 

significantly higher if that reliance increased. 

CBO performed a sensitivity analysis to determine how 

its projections would be affected by changing its assumptions about veterans’ reliance on VA for their health care. 

Specifically, CBO projected the increase in costs that 

would result from assuming that enrollees’ reliance on VA 

rose on average by 10 percentage points, meaning that, 

on average, enrollees would receive about one-third of 

their care from VA, up from the current 23 percent. CBO 

2008 2010 2012 2014 2016 2018 2020

0

10

20

30

40

50

60

70

80

90

Baseline Budget Projection

Scenario 1

Scenario 2
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 21

CBO

selected a reliance of one-third as being a reasonable 

upper bound because veterans in P1 (those who have 

service-connected conditions rated 50 percent or more 

disabling) and in P4 (those who have disabilities that are 

catastrophic but not service connected or who are housebound) already rely on VA for that fraction of their 

annual medical care. All other assumptions were the same 

as in Scenario 1. In that case, although enrollment was 

unchanged, the greater reliance on VA would boost by 

nearly 45 percent the volume of services VA provides to 

veterans. Consequently, the costs for VA would grow by 

about that percentage, to just over $100 billion by 2020, 

compared with the $69 billion projected in Scenario 1.

CBO also performed a sensitivity analysis to determine 

how its projections would be affected by changing its 

assumptions about enrollment. Enrollment patterns are 

influenced by many factors, ranging from changes in VA’s 

policies and outreach activities to changes in the economy. If those changes affected enrollment patterns 

equally across the board, the resources required to treat all 

enrolled veterans would also rise or fall by about the same 

percentage. However, the resource requirements associated with increased or decreased enrollment would vary 

significantly if certain groups of veterans enrolled disproportionately. In particular, increases in enrollment among 

the higher priority groups would boost costs more than 

would increases in enrollment among lower priority 

groups because the former groups consume more health 

care resources and rely more on VA for their health care. 

For example, out of a pool of about 10 million veterans 

who had not enrolled but who would probably be 

classified as P8 if they did so, each increment of 100,000 

P8 enrollments above the number projected under 

Scenario 1 would add $400 million, or 0.6 percent, in 

real costs for 2020, compared with $1.8 billion, or 

2.6 percent, for an equal increment in P1 enrollments 

(only about 100,000 of whom have not yet enrolled).

Potential Costs of Providing 

Health Care to Veterans of Overseas 

Contingency Operations

More than 1 million service members have deployed to 

overseas contingency operations since hostilities began in 

October 2001. As more of those personnel separate from 

military service and seek care at VA for war-related and 

other medical conditions, the resources VA will require 

over the next decade will be significantly affected. VA 

expects to obligate almost $2 billion in 2010 to provide 

health care to OCO veterans, a real increase of 34 percent 

above 2009 obligations (see Table 3 on page 24). In real 

terms, annual growth in VA’s health care obligations for 

OCO veterans has exceeded 50 percent in three of the 

past four years. A large portion of that growth stems from 

rising enrollment and an increasing number of enrollees 

seeking care from VA; however, increases in the use of services per enrollee and in the rate of medical inflation 

above that of general inflation have also contributed. For 

example, use of ambulatory services, such as visits to physicians, grew by an annual average of more than 10 percent per OCO enrollee over the past several years.

In 2009, VA’s average annual obligation per OCO patient 

was $4,440 (in 2010 dollars), compared with $8,600 per 

patient among all veterans. As a result, although OCO 

veterans accounted for 6 percent of all enrollees using 

VA’s health care services in 2009, the resources devoted to 

their care consumed only 3 percent of VA’s medical 

funding for that year. Their lower cost of care is largely 

attributable to their younger age; the amount of resources 

devoted to their care is similar to that of non-OCO 

veterans under the age of 45. As the OCO veterans age, 

CBO expects that their costs will be similar to those of 

other older veterans who use VA’s health care services.

CBO separately projected the resources that VA would 

require to treat all OCO enrollees from 2011 to 2020. 

Those projections reflect the rapidly growing size of the 

OCO veteran population, the specific VA services those 

veterans use, and trends in health care costs throughout 

the economy. Under different assumptions about the 

number of troops deployed to overseas operations and 

about the growth in medical expenditures, CBO estimates that the potential costs would reach $5 billion and 

$8 billion in 2020 in Scenarios 1 and 2, respectively, 

compared with an anticipated $2 billion for 2010. 

Analytic Method

To project the potential costs of treating OCO veterans, 

CBO disaggregated the use of services into broad 

categories and, using detailed data on the projected 

growth in medical expenditures for different services, 

allowed OCO veterans’ use of medical services and the 

cost of those services to vary over the projection period. 

That amount of detail is greater than what CBO used in 

its projections for non-OCO veterans (for whom the mix 
22 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO Continued

Box 4.

Comparing the Scenarios with CBO’s Baseline Budget Projections

In this report, the Congressional Budget Office 

(CBO) presents three sets of projections of the future 

costs of the Department of Veterans Affairs’ (VA’s) 

health care programs. One is CBO’s baseline budget 

projection; the others are two scenarios that use 

different assumptions and methods to make the 

projections. This box explains how CBO produces its 

baseline projections and then compares that method 

and the resulting projections with the ones CBO 

used in the two scenarios.

In preparing its baseline budget projection for VA 

health care, CBO follows rules established in the 

Balanced Budget and Emergency Deficit Control Act 

of 1985 for projecting spending that is controlled by 

annual appropriation acts. In making those projections, CBO assumes that the most recent year’s 

funding is continued in each subsequent year, with 

adjustments for projected economywide inflation.1

Specifically, the inflation rate is a weighted average of 

the gross domestic product (GDP) price index 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 rate is applied to VA’s total budget for medical 

care rather than on a per capita basis; that is, that 

baseline does not vary from year to year with changes 

in inflation specific to the health care sector, in the 

number of enrollees in VA’s health care system, or in 

the characteristics of those enrollees and their corresponding use of services. It represents, simply, an 

extrapolation of the most recent appropriation over 

the projection period.

By contrast, the two scenarios reflect anticipated 

growth in health care expenditures and are applied on 

a per-enrollee basis rather than to the budget as a 

whole. (The growth in those expenditures is higher 

than the inflation rate used in the baseline projections.) The projections in those scenarios also 

incorporate growth in enrollment and changes in the 

demographic profile of enrollees and their use of 

services. 

Applying the baseline’s methods and the price indexes 

results in slower projected growth in the total budget 

than is seen in the projections from the two scenarios. 

In CBO’s baseline, VA’s costs grow in real terms from 

$48 billion in 2010 to $56 billion by 2020.2

 By contrast, VA’s costs in 2020 would total $69 billion in 

real terms in Scenario 1 and $85 billion in Scenario 2.

An implication of the results in both scenarios is that 

if VA’s funding was held to the amount in CBO’s 

baseline projection, the Secretary of Veterans Affairs 

would have to freeze enrollment or rescind the 

enrollment of veterans in several priority groups.3

 In 

particular, VA would need to deny enrollees in the 

three lowest priority groups (P6, P7, and P8) access 

to care within the next 10 years. In Scenario 1, for 

example, VA would have to restrict enrollment of P8 

and P7 veterans as early as 2012 and 2014, respectively. Even enrollees in P5—the lower-income 

enrollees—would face either a freeze on enrollment 

or other restrictions on access to VA’s health care 

services by 2018 (see the figure below). If enrollment 

and health care costs grew at the higher rates assumed 

in Scenario 2, the need to impose restrictions on 

access would occur sooner and be even more severe if 

funding were provided at baseline levels.

1. The starting point for CBO’s baseline budget projection is 

VA’s enacted advance appropriation for 2011 for medical 

services, medical support and compliance, and medical 

facilities; for all other medical accounts, the starting point is 

VA’s enacted appropriation for 2010.

2. For comparison with the two scenarios, CBO applies the 

GDP price index to convert the annual baseline projections 

to 2010 dollars. Because CBO projects that wages and 

salaries will rise more rapidly than the GDP price index, and 

because the baseline is projected from the 2011 advance 

appropriation, the baseline projection increases in real terms 

through 2020.

3. Eligibility for VA’s health care services is based primarily on a 

veteran’s military service; in addition, VA operates an eighttier priority system (P1 through P8) that establishes a 

veteran’s eligibility and priority for using health care services. 

Veterans with the highest priority include those who have 

service-connected disabilities, low income, or both; those 

with the lowest priority have higher income and no 

compensable service-connected disabilities (that is, they have 

no medical condition that is disabling to the extent that VA 

provides compensation). 
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 23

CBO

of services is more stable). The evolution in the use and 

costs of medical services over time is especially important 

in Scenario 2, in which CBO assumes that the use of certain services grows faster among VA enrollees than among 

the general population. (See Appendix A for a further 

description of the method used.) 

In Scenario 1, the number of service members deployed 

to overseas contingency operations drops to 30,000 in 

2013 and stays at that number through 2020 (see Table 1 

on page 12). The patterns of enrollment among OCO 

veterans and their use of services after they leave the military are assumed to be similar to those of recent years. 

Scenario 2 represents a slower drawdown in the forces 

supporting such operations, to 60,000 by 2015. CBO 

assumes increases in the use of services and the growth of 

medical prices above those in Scenario 1, with mental 

health services accounting for the largest increases in use. 

Projected Enrollment, Use of Services, and Growth 

in Medical Expenditures per OCO Enrollee

Several factors—enrollment, use of VA’s services, and the 

growth in health care expenditures per enrollee—influence the potential costs of treating OCO veterans. 

Enrollment and expenditures for certain health care services are growing much faster among those veterans than 

among veterans from earlier periods. Those factors, and 

CBO’s assumptions, are discussed in this section. 

Deployments and Separations from Active Service. CBO 

projected potential costs under two scenarios using differing assumptions about deployments and the effect on 

Box 4. Continued

Comparing the Scenarios with CBO’s Baseline Budget Projections

Potential Costs Under Scenario 1, by Priority Group, 

Compared with CBO’s Baseline Budget Projection

(Billions of 2010 dollars)

Source: Congressional Budget Office.

Note: The starting point for the projection in Scenario 1 is the Department of Veterans’ Affairs’ (VA’s) budget for medical care and 

research in 2010. The starting point for CBO’s baseline budget projection is VA’s enacted advance appropriation for 2011 for 

medical services, medical support and compliance, and medical facilities and VA’s enacted appropriation for 2010 for all 

other medical accounts. 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

10

20

30

40

50

60

70

80

P1

P2

P3

P4

P5

P7

P8

Baseline

P6
24 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Table 3.

Number of OCO Veterans Treated Each Year at VA and 

Average Annual Obligations per OCO Patient

Sources: Congressional Budget Office based on the Department of Veterans Affairs’ (VA’s) budget submissions for 2007 through 2011.

Notes: Overseas contingency operations (OCO) include current military operations in Iraq and Afghanistan and related activities.

n.a. = not applicable.

a. An obligation is a commitment that creates a legal liability on the part of the government to pay for goods and services ordered or 

received. Such payments may be made immediately or in the future.

VA’s resource requirements. Both scenarios reflect the 

current troop surge to Afghanistan, the concurrent 

drawdown of troops from Iraq, and subsequent decreases 

in the number of service members deploying to overseas 

contingency operations around the world in future years. 

In Scenario 1, deployments are assumed to be lower 

throughout the projection period than in Scenario 2. In 

both scenarios, CBO assumes that the current rates of 

separation from military service, which are low by historical standards, will persist until the economy recovers and 

will then revert to the higher rates experienced in the 

beginning and middle of the past decade. 

Under Scenario 1, CBO assumes that the number of 

deployed service members peaks at an average of approximately 220,000 active-duty, reserve, and National Guard 

personnel in theater in 2009; drops to 30,000 by 2013; 

and remains at that number thereafter (not necessarily in 

Iraq and Afghanistan).29 Actual separations from military 

service for OCO troops since 2002, plus projected separations through 2020, would total 2.2 million personnel, 

CBO estimates. 

For Scenario 2, CBO assumes that the deployed force is 

larger than the one in Scenario 1, peaking at an average of 

235,000 troops for 2010 and dropping more slowly 

through 2014. The size of the deployed force declines to 

60,000 at the beginning of 2015 and remains at that 

number thereafter. Separations of military personnel who 

deployed for overseas contingency operations from 2002 

through 2020 would exceed 2.6 million. 

Enrollment and Use of Services. Recent combat veterans 

are more than twice as likely to enroll as are non-OCO 

veterans and, of those enrolled, are as likely to use VA’s 

health care services in a given year as are other enrollees. 

From 2005 through 2009, the annual number of OCO 

enrollees treated by VA grew rapidly, from 101,000 to 

333,000—an average annual increase of 35 percent (see 

Table 3). Sixty percent of OCO enrollees used VA’s 

health care services in 2009, a rate similar to that for all 

enrolled veterans. 

Most service members (including reservists and members 

of the National Guard) who separate from active duty 

and then use VA’s health services seek care for the first 

time shortly after they separate (see Figure 7).30 For 

Number of OCO Veterans Treated 101,000 155,000 206,000 261,000 333,000 382,000

Millions of 2010 dollars 260 440 690 1,050 1,480 1,980

Percentage change from previous year n.a. 69 57 52 41 34 

(2010 dollars) 2,580 2,810 3,340 4,040 4,440 5,170

Obligationsa

Average Annual Obligations per OCO Patient

Actual

2005 2006 2007 2008 2009

Projected,

2010

29. The two scenarios and associated budgetary outlays are described 

in Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2010 to 2020, pp. 14–15. The total of 

30,000 deployed service members excludes U.S. military personnel who are permanently based overseas (in locations such as 

South Korea or Okinawa, Japan) but are not engaged in contingency operations.

30. Data on the time between separating from active duty and first 

seeking care at VA are not available for reservists and members of 

the National Guard. However, data on their return from their first 

deployment (which approximates their separation from active 

duty) indicate a similar pattern; those personnel usually seek care 

at VA shortly after that time, if they seek care at all. 
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 25

CBO

Figure 7.

Distribution of OCO Veterans by Time Between Separation from Active Duty and 

Their First Use of VA’s Health Care Services

(Percent)

Source: Congressional Budget Office based on data from the Department of Veterans Affairs (VA) and the Department of Defense.

Notes: Data on time between separation from active duty and first use of VA’s health care services are not available for reservists and 

members of the National Guard. However, data on their return from their first deployment (which approximates their separation from 

active duty) indicate a similar pattern; those personnel usually seek care at VA shortly after that time, if they seek care at all.

Overseas contingency operations (OCO) include military operations in Iraq and Afghanistan and related activities.

3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48

0

5

10

15

20

25

30

35

40

45

50

3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48

0

5

10

15

20

25

30

35

40

45

50

Months Between Separation from Active Duty and First Use of VA's Health Care Services

Months Between End of First Deployment and First Use of VA's Health Care Services

2003

2003

2004

2004

2005

2005

2006

2006

Veterans of Active Components, by Year of Separation

Veterans of Reserve Components, by Year of Return
26 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

example, 18 percent of active-duty personnel who separated from the military in 2004 used those services within 

3 months of separation, and an additional 14 percent did 

so within the next 9 months. In the second year after separation, only 6 percent of the cohort became new users of 

VA’s services, and 3 percent sought care for the first time 

in the 24 to 36 months after separation. The two-year 

window of eligibility for combat veterans to enroll regardless of income or disability that was in effect at that time 

does not appear to have substantially limited access to 

VA’s medical services; most veterans who enroll do so 

soon after separation. In addition, the proportion of veterans who seek care at VA soon after separation has generally been increasing with each successive group of service 

members who separate from military service. That trend 

may indicate that more veterans are aware of the services 

the department provides or are in greater need of its 

services. 

Under both scenarios CBO assumes that the time OCO 

veterans take to enroll after separation from active-duty 

service remains stable over the projection period and that 

the proportion of newly separated veterans who enroll 

continues to grow early in the projection period but 

quickly levels off. (In a later section, CBO presents a 

sensitivity analysis of those assumptions.) Because the 

number of service members who are assumed to deploy 

varies between the two scenarios, the number of new 

enrollees also differs. The cumulative number of veterans 

who enroll after returning from overseas contingency 

operations would grow from about 550,000 in 2009 to 

1.4 million in 2020 in Scenario 1 and to 1.7 million in 

Scenario 2.

VA reports, and CBO projects, veterans’ use of seven 

major categories of service: ambulatory care (for example, 

outpatient visits and pathology and laboratory services), 

inpatient hospital care, pharmacy services (dispensing of 

pharmaceuticals, over-the-counter drugs, and related supplies), other medical services (aids and equipment), outpatient programs for mental health care, special residential care programs (such as rehabilitation for the blind or 

residential psychiatric treatment), and dental procedures. 

As in VA’s overall enrollee population, the largest component of costs among OCO veterans is ambulatory care, 

followed by inpatient hospital care and pharmacy services. (Although fewer than 27,000 OCO veterans, or 

5 percent of all OCO enrollees, have been hospitalized in 

a VA facility since 2002, the high cost of inpatient care 

makes it one of the largest components of costs.)

Use of VA’s medical services by OCO veterans is greatest 

in the months immediately after they enroll and then 

declines sharply in the next several months for most categories of service. The generally downward trend in use of 

services within each new group of enrollees has several 

possible explanations. Some veterans who find civilian 

employment or, in the case of reservists, who return to 

work, may prefer to use private health care providers for 

most or all of their care, particularly if they do not have 

any service-connected injuries or conditions. Other veterans may turn to private sources of care after receiving a 

health screening or completing treatment for a medical 

condition.

VA’s historical data indicate that rates of use of services 

typically stabilize after 12 months of enrollment. That 

constancy suggests that it is likely that no material change 

in use of services occurred after eligibility was extended 

from two years to five years for veterans to receive free 

care for conditions that could be combat related. (When 

a combat veteran’s special eligibility period ends, the 

veteran continues to have access to health care services, 

although perhaps in a lower priority group with applicable copayments.)31

CBO assumes, under both scenarios, that the pattern of 

use of services observed in the years after enrollment 

remains the same over the projection period. Any increase 

in the use of services attributable to the aging of the population is reflected in those data and consequently in the 

projections. The scenarios, however, involve different 

assumptions about the overall growth in the use of services per enrollee. 

Expenditures per OCO Enrollee. CBO follows the same 

general assumptions about the growth in expenditures 

per OCO enrollee as it did for other VA enrollees. In 

both scenarios, CBO applies detailed data, which are 

based on CMS’s projections of rates of expenditure 

growth for various categories of medical services, to 

corresponding categories within the VA program. CBO 

then adjusts those estimates to reflect differences in the 

technical and economic assumptions used by the two 

agencies, differences in the enrollee population specific to

31. See Department of Veterans Affairs, Combat Veteran Eligibility, 

VA Health Care Fact Sheet 16-4 (September 2010), 

www4.va.gov/healtheligibility/Library/pubs/CombatVet/

CombatVet.pdf.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 27

CBO

VA, and other relevant factors.32 Specifically, CBO 

eliminates the growth in health care expenditures that 

CMS attributes to the aging of the U.S. population 

(about 0.5 percentage points annually) and, instead, 

incorporates the effect of aging in the assumed use of 

services in the years after enrollment. 

Under Scenario 1, CBO assumes that VA’s health care 

expenditures per OCO enrollee for the seven major categories of service grow at about the same rates as the 

national averages for those services. CMS projects that 

the growth in expenditures for individual types of services 

will generally rise through the middle of the decade and 

then stabilize or decline slightly and that the growth rates 

in any given year will vary by type of service. For example, per capita expenditures for visits to physicians are 

expected to grow 3.4 percent in 2011 (in nominal terms) 

compared with a 4.7 percent increase for prescription 

drug expenditures.33

Under Scenario 2, CBO projects a higher rate of growth 

in expenditures per OCO enrollee than under Scenario 1. 

Specifically, CBO applies assumptions about the growth 

in use for each of the seven broad categories of service and 

their unit costs for 2011 that are similar to those VA used 

in its budget planning for that year. Higher rates of use of 

services may reflect, in part, VA’s outreach efforts and 

special initiatives. For the remainder of the projection 

period, CBO generally assumes that expenditures per 

OCO enrollee grow at an annual rate that is 30 percent 

higher than the rate in Scenario 1. 

Because VA expects that the largest growth will occur in 

visits per enrollee to specialized psychiatric programs—

16 percent in 2010, falling to 10 percent in 2012—CBO 

adjusts the growth in the use of outpatient psychiatric 

programs (as measured by visits per enrollee) upward in 

2012 to more closely reflect those expectations. CBO 

assumes that, by 2014, the growth slows to a rate that is 

30 percent higher than in Scenario 1. Those programs 

include treatment programs for veterans with PTSD. VA 

treated nearly 60,000 OCO veterans for that disorder in 

2008 and projects that the number will continue to grow 

substantially through 2020. Accurately estimating the 

number of enrollees who will be treated for PTSD in the 

longer term is difficult, however; it depends on many factors that change over time, including the deployment of 

troops, the intensity of battle, the resiliency of the veterans, the effectiveness of treatment, the extent of VA’s outreach efforts, and the willingness of veterans who require 

treatment to seek it.

Projected Cost 

The costs that would be incurred to treat OCO veterans 

under the two scenarios are presented in this section. 

Both scenarios reflect plausible but different assumptions 

about how many service members will deploy to overseas 

contingency operations and about growth in medical 

expenditures per enrollee. (The relaxation of the restrictions on P8 enrollment does not affect OCO veterans 

because they remain enrolled after their special eligibility 

ends.) 

Scenario 1. Under the assumption that deployed troop 

strength drops to 30,000 by 2013, CBO estimates that 

VA will have enrolled 1.4 million OCO veterans and 

treated a total of 1.3 million of them from the beginning 

of hostilities through 2020. The real resources required 

to provide care to those veterans would more than double, rising from $2 billion in 2010 to roughly $5 billion 

in 2020 (see Figure 8), for a cumulative total of $40 billion.34 By comparison, CBO projects that the total 

resources needed to treat other VA enrollees would rise by 

almost 40 percent, from $46 billion in 2010 to $64 billion in 2020.

The largest growth would occur in 2011 and 2012, when 

potential costs are projected to increase by 15 percent or

32. The mix of services within each major category of services provided to the general population may differ from that provided to 

veterans by VA (for example, VA’s inpatient care may be composed 

of relatively more psychiatric stays), but CBO assumes that the 

categorywide rates of growth are similar.

33. These are unpublished figures from CMS that assume that Medicare physician payments would stay constant in 2010. The rates 

CMS published on its Web site assume, by contrast, that physician payment rates would be cut by 21.3 percent for that year. 

That cut was avoided when the payment rates were temporarily 

frozen by the Continuing Extension Act of 2010 (P.L. 111-157), 

which was enacted on April 15, 2010. That action was later overridden by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192), which was 

enacted on June 25, 2010, and granted a 2.2 percent increase in 

payment rates. Those higher rates prevailed for just over one quarter of fiscal year 2010.

34. Including the funding devoted to those veterans from 2002 to 

2010 would boost that amount to $46 billion.
28 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure 8.

Potential Costs for VA to Provide Health Care Services to Enrolled Veterans of 

Overseas Contingency Operations

(Billions of 2010 dollars)

Source: Congressional Budget Office.

Notes: The starting point for the projections in the two scenarios is the Department of Veterans Affairs’ (VA’s) estimate of obligations in 2010 

to provide health care services to veterans of overseas contingency operations (currently including military operations in Iraq and 

Afghanistan and related activities).

Compared with Scenario 1, under Scenario 2 CBO assumes higher enrollment of veterans of overseas contingency operations and 

faster growth in medical expenditures per enrollee. See the text for a detailed explanation of the scenarios.

more annually. After that, the number of new enrollees in 

any given year would begin to fall. Partly because 

enrollees incur the highest costs in the year after they 

enroll, annual costs would begin to grow at a slower rate. 

By 2015, annual real increases would be less than 10 percent and would fall to about 6 percent by the end of the 

projection period. 

Rising enrollment over the projection period is responsible for a large portion of the increase in the projected resources required to treat OCO veterans under 

Scenario 1. Treating the additional 720,000 OCO veterans projected to enroll between 2011 and 2020 would 

consume nearly $3 billion, or roughly half of the costs 

for OCO veterans in 2020, CBO estimates; the 

670,000 OCO veterans expected to enroll before 2011 

would account for the rest.

The aging of the OCO population is likely to have only a 

small effect on costs. According to data from VA, nearly 

70 percent of OCO veterans who use VA’s health care 

services are under the age of 40, and all but 1 percent are 

under the age of 60. By contrast, about 45 percent of 

the U.S. population is over 40 years old, and almost 

20 percent is at least 60 years old.35 Because a large fraction of the OCO veteran population is relatively young—

in an age group in which medical costs are largely 

stable—their aging over the decade will probably have a 

small effect on the resources required per OCO enrollee 

in 2020.36

Veterans of military operations probably seek more 

medical services than do other veterans, for several 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

1

2

3

4

5

6

7

8

9

Scenario 1

Scenario 2

35. About 45 percent of all enrolled veterans are 65 or older. The 

statistics about aging are CBO’s calculations based on data from 

the Census Bureau’s Population Division.

36. See E. Meara and others as cited in Uwe Reinhardt, “Does the 

Aging of the Population Really Drive the Demand for Health 

Care?” Health Affairs, vol. 22, no. 6 (2003), p. 28. That research 

indicates that annual medical costs for the U.S. population 

between the ages of 35 and 44 are similar to costs for people ages 

25 to 34. Costs for people ages 44 to 54 are about 40 percent 

higher than for those between 25 and 34. The largest increases 

occur after age 55. Compared with costs for 25-year-olds, costs are 

twice as high for people ages 55 to 64 and three times as high for 

those ages 65 to 74.
POTENTIAL COSTS OF VETERANS’ HEALTH CARE 29

CBO

reasons. Some may have battle-related injuries, and others 

may develop medical conditions from the harsh environment. Still others may be more aware of their VA benefits. The estimated costs under both scenarios include the 

total resources that may be used to treat OCO veterans 

for conditions that veterans incurred while deployed 

and conditions that are unrelated to the deployment. 

In addition to estimating the potential costs for OCO 

veterans, CBO has also investigated how much of the 

expenditures for treating them are related to their deployments to contingency operations and would not have 

been incurred otherwise. Those estimates should not 

include the costs associated with treating conditions that 

veterans developed while deployed but would have developed even if they had remained in the United States (for 

example, normal age- or training-related injuries). CBO 

has little direct data on that question; however, VA has 

published data on enrollment and the number of ambulatory visits for veterans who deployed to the first Gulf War 

(August 1990 through July 1991) and for veterans who 

served during the same period but did not deploy. The 

experience of the latter group can be used to estimate the 

rates at which Gulf War veterans might have used VA’s 

health care services had they not deployed. 

To estimate the use of services attributable to deployment, CBO subtracted the use of services by veterans 

who had not deployed from the larger volume used by 

veterans who had deployed to that earlier conflict. CBO 

estimates that just over one-half of service members who 

deployed to the first Gulf War would have used VA’s 

health care services even if they had not served in theater 

but that those users would have made 10 percent fewer 

ambulatory visits, on average, through 2004 had they not 

deployed. Assuming that similar patterns hold true for 

OCO enrollees, CBO estimates that of the $46 billion in 

projected costs over the 2002–2020 period for OCO veterans under Scenario 1, about $25 billion can be specifically attributed to their deployments.

Scenario 2. Under the assumption that a larger force will 

deploy and that medical expenditures per enrollee will 

grow faster than in Scenario 1, CBO estimates that the 

resources VA would need to treat OCO veterans in 2020 

are substantially higher in Scenario 2 than in Scenario 

1—$8 billion (in 2010 dollars) compared with $5 billion 

(see Figure 8). As in Scenario 1, the largest growth in 

resource requirements would occur early in the projection 

period, rising by more than 35 percent in 2011 and by 

20 percent in 2012. After that, annual growth slows—to 

9 percent by 2020. Costs over 10 years would total 

$54 billion (in 2010 dollars) compared with $40 billion in 

Scenario 1. 

The faster growth in expenditures per enrollee in 

Scenario 2 accounts for most of the difference in resource 

requirements between the two scenarios for 2020. 

Holding deployments to the smaller size assumed in 

Scenario 1, higher expenditures per enrollee alone would 

result in potential costs of $7 billion (in 2010 dollars) for 

2020, an increase of $2 billion above the requirements in 

Scenario 1.

The larger number of service members deployed to overseas contingency operations in Scenario 2 accounts for 

little of the increase in resource requirements. Assuming 

the same growth in medical expenditures as in Scenario 1, 

the higher number of troops deployed in Scenario 2 

would cost an additional $1 billion compared with 

Scenario 1. Although the number of military personnel 

deployed to overseas contingency operations for the 

10-year period is twice that in Scenario 1, the projected 

health care costs differ by only about 12 percent as a 

result for the same period. 

Two factors account for the nonproportional relationship 

between deployments and costs. First, although the 

number of personnel deployed at a point in time doubles 

in Scenario 2, the total number of personnel (in the active 

and reserve components) who separated from active duty 

for the 10-year period increases by 45 percent in 

Scenario 2; it does not double because most of the service 

members who will ever deploy in the current conflicts are 

expected to have done so before 2011. Many of them will 

separate during the 10-year projection period and are 

therefore eligible for VA’s health care services under both 

scenarios. That common group of separations is much 

larger than the difference between the two scenarios in 

the number of separations. Second, the difference in separations is attenuated because—like all OCO veterans—

many of the additional service members who separate in 

Scenario 2 are not likely to seek care at VA within the 

projection period; indeed, many may choose not to 

enroll.37 Consequently, VA would not incur costs to treat 

many of the additional veterans who separate during the 

projection period. 

37. Only about one-third of all veterans are currently enrolled.
30 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Sensitivity Analysis. Two important assumptions CBO 

adopted for both scenarios were that the percentage of 

OCO veterans seeking treatment at VA and the time 

between separation and enrollment would be stable 

through the projection period. Those assumptions, however, are uncertain. VA’s policies and outreach efforts or 

external factors could influence how many OCO veterans 

would seek care at VA and when they would do so.

To see how sensitive its projections are to assumptions 

about enrollment, CBO assumed instead that the share of 

OCO veterans separating in 2011 or later and enrolling 

would increase by 10 percentage points and that they 

would enroll within three months of separation; more 

than two-thirds of those OCO veterans would eventually 

enroll under that assumption.38 All other assumptions 

were the same as in Scenario 1. In that case, the number 

of OCO enrollees would rise to 1.5 million from 1.4 million in Scenario 1, an increase of 7 percent. The corresponding potential cost to treat OCO enrollees would be 

nearly $6 billion in 2020, or just a little higher than in 

Scenario 1, and $42 billion over the projection period, or 

$2 billion (5 percent) higher than in Scenario 1.

38. CBO selected 10 percentage points as a reasonable variation in the 

proportion of OCO veterans who enroll, in light of the differences 

in the rates at which they seek care (see Figure 7 on page 25).
APPENDIX

CBO

A

Procedures for Projecting VA’s Potential Costs 

This Congressional Budget Office (CBO) report 

projects the potential costs the Department of Veterans 

Affairs (VA) might incur to provide health care services to 

enrolled veterans for the next 10 years, 2011 through 

2020. It makes those projections for two groups of veterans: those who have served in the ongoing overseas contingency operations (OCO) in Iraq, Afghanistan, and 

related activities and those who have not (referred to as 

non-OCO veterans). 

CBO used different methods for projecting VA’s costs for 

non-OCO and OCO veterans, in part because the enrollment of non-OCO veterans and the mix of services they 

use typically change little from year to year compared 

with that of their OCO counterparts. Because non-OCO 

veterans’ use of services and the resources devoted to 

them differ significantly by priority group, CBO projected the total costs by priority group. CBO projected 

the number of enrollees on the basis of VA’s enrollment 

projections and assumed that the mix of services within 

each priority group will remain the same over the projection period.1

For the OCO veterans, CBO accounted for the anticipated rapid increase in enrollment by projecting their 

separation from active-duty service and their subsequent 

enrollment. To reflect the changes in their use of services 

over time, CBO projected their use of the seven major 

categories of medical services that VA provides. 

Projecting Costs for Non-OCO Veterans

Substantial differences exist between priority groups in 

the use of VA’s health services, the extent to which enrollees rely on VA for health care, and the annual expenditures per enrollee. To take advantage of that information 

and to add the capability to predict changes in the enrollment of non-OCO veterans within priority groups, CBO 

projected the use of health care services and potential 

costs separately for each of the eight priority groups.

As the starting point for its projections, CBO used the 

2010 appropriations for VA’s medical program (subtracting the resources estimated to be used for OCO veterans). CBO then applied VA’s projections of annual enrollment (with some adjustments). Those projections are 

derived from VA’s current and historical data on enrollment, mortality rates of enrollees, and other demographic 

information about enrollees and are reported by priority 

group. 

Underlying the projections of enrollment is the assumption that a fixed percentage of veterans who have not 

enrolled will do so each year.2

 VA allocates projected new 

enrollees among the priority groups to which they would 

most likely be assigned and adjusts projected enrollment 

for recent policy changes or shifts in enrollment. For 

instance, the projections include changes in enrollment 

from expected increases in copayments that are determined by regulation. VA further adjusts future enrollment rates and numbers within geographic localities 

downward if its initial projected enrollment approaches 

1. VA operates an eight-tier priority system that establishes a 

veteran’s eligibility and priority for using health care services. 

Factors such as the presence and extent of disability and a veteran’s 

income determine placement among the eight priority groups. For 

a detailed description of the eight priority groups, see Box 1 on 

page 4.

2. That assumption is consistent with the statistical analysis by an 

actuarial firm with which VA contracted when developing its 

model for projecting enrollment in its health care program and its 

funding needs. See 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). CBO did not assess 

the accuracy of VA’s enrollment projections.
32 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

the total number of veterans living in those regions—the 

notion being that not all eligible veterans will enroll.

CBO built up the cost projection for each of the eight 

priority groups from separate estimates of use of services 

(measured as full-time equivalent users) and the annual 

cost per user in each group. The number of users was 

computed as the number of non-OCO enrollees times 

the reliance of veterans within a priority group on VA; 

reliance is the portion of veterans’ costs incurred by VA as 

a percentage of their total annual health care costs 

provided by any source.3

 That methodology enables 

CBO to separately adjust for future changes in reliance 

and total cost per user by priority group. The annual cost 

per user was estimated from historical data specifically for 

veterans in each priority group and was then inflated by 

the same annual factors for each priority group. CBO 

adapted its estimates of growth in health care expenditures from data developed by the Centers for Medicare 

and Medicaid Services (CMS).

Projecting Costs for OCO Veterans

Enrollment among OCO veterans has been growing rapidly since service members who deployed to the current 

overseas contingency operations began to separate from 

active-duty service. Those veterans enroll in VA’s health 

care system at higher rates than do non-OCO veterans, 

and some of them (for example, reservists who deploy) 

may not have been eligible for VA’s services otherwise. 

Accurately estimating the annual enrollment of OCO 

veterans and the annual costs of treating them requires a 

different estimation procedure than the one used for nonOCO veterans. CBO’s projections for OCO veterans 

therefore reflect the growing number of veterans who will 

be eligible to use VA’s medical services, anticipated 

changes in veterans’ use of services, and economywide 

increases in medical expenditures per capita. CBO’s projections start with the obligations VA expects to devote to 

OCO veterans in 2010.

To project the number of new enrollees in a given year, 

CBO first estimated the annual number of service 

members who separate from military service after their 

deployment to overseas contingency operations. To do 

that, CBO estimated annual separation rates for 2010 

and for 10 years thereafter among service members who 

have returned (or will return) from deployment since the 

beginning of hostilities through 2020. Those rates are 

based on historical separation rates of service members 

who deployed to overseas contingency operations from 

2002 through 2007, which the Department of Defense 

provided to CBO. CBO applied those annual historical 

rates to the actual or projected number of service members returning from deployment in a given year, until all 

individuals in that cohort had separated from active duty. 

Some members serving in the active components will not 

separate until they have accrued 20 years or more of additional military service.4

 Reservists who end their deployment in a given year, however, are assumed to separate 

from active service and thus be eligible to enroll in that 

year (although they may remain affiliated with the 

reserves and deploy again). To avoid double-counting the 

number of reservists who become eligible, CBO considered only separations associated with a reservist’s first 

deployment.

Using historical data from VA on the time between separation from active-duty service and enrollment, CBO 

estimated how many service members who separate in a 

given year will enroll in that year or subsequent years.5

CBO estimated OCO veterans’ use of seven broad categories of services in each year after enrollment, assuming 

that past trends in use of services continue into the 

3. VA calculates reliance as its expenditures on veterans’ health care 

divided by its estimate of the total expenditures on health care 

devoted to those veterans, including costs paid by the public 

sector, by private insurance, or out of pocket by the veterans.

4. The number of OCO veterans who are expected to be retirees 

increases over the projection period. By the end of the period, 

almost 15 percent of OCO separations from the active component are military retirees, compared with about 10 percent at the 

beginning of the period. Presumably, those retirees, who may also 

use the Department of Defense’s health care system (known as 

TRICARE), are less likely than other veterans to enroll and to use 

VA’s services. CBO does not account for differences in use of services between retirees and other veterans but anticipates that the 

overstatement of potential costs would be minimal. 

5. Data on time between separation from active duty and first use of 

VA’s services are not available for reservists and members of the 

National Guard. However, data on their return from their first 

deployment (which approximates their separation from active 

duty) indicate a similar pattern; those personnel usually seek care 

at VA facilities shortly after that time, if they seek VA care at all.
APPENDIX A POTENTIAL COSTS OF VETERANS’ HEALTH CARE 33

CBO

future.6

 That approach allows the mix of services to 

change as each new cohort of enrollees ages. Some veterans may develop conditions that do not present symptoms or require medical attention until several years after 

the deployment. Because the projection is based on historical data that reflect the enrollment of veterans or use 

of services for no more than six years after deployment, it 

may not capture those ailments or their attendant costs.7

On the basis of the use of health care services in a fiscal 

year projected by CMS, CBO then applied projections of 

per capita growth in medical expenditures to the seven 

categories of services and estimated a stream of VA’s 

annual potential costs.8

6. Those categories are ambulatory care (for example, outpatient 

visits and pathology and laboratory services), inpatient hospital 

care, pharmacy services (dispensing of pharmaceuticals, over-thecounter drugs, and related supplies), other medical services (the 

provision of aids and equipment), outpatient programs for mental 

health care, special residential care programs (such as rehabilitation for the blind or residential psychiatric treatment), and dental 

procedures. 

7. CBO estimates the enrollment rates more than six years after separating from military service using the patterns of Gulf War veterans; however, insufficient data are available to estimate the annual 

use of services associated with conditions that do not appear until 

more than six years after enrollment. CBO anticipates that the 

omission of costs would have a negligible impact on the 10-year 

costs presented in this paper but might have a greater impact on 

costs in the longer term. 

8. Although CBO estimates the cumulative number of veterans 

treated at VA, the projections of expenditures are based on the 

enrollees’ use of each broad category of medical services. The 

number of patients in a given year and the typical bundle of 

services a patient uses are not projected directly. 
APPENDIX

CBO

B

Differences in Veterans’ Use of 

VA’s Health Care Services

The extent to which enrollees use the health care 

services provided by the Department of Veterans Affairs 

(VA) varies substantially, both between different groups 

of veterans and, for individual veterans, by the number of 

months since their enrollment. The most disabled veterans and those who have low income make the greatest use 

of services, and higher-income veterans and veterans of 

overseas contingency operations (OCO) use fewer 

services.1

 Use of services, which is measured in this 

appendix on a per-enrollee basis, tends to be highest at 

the time veterans enroll, although that is not true for all 

medical services. 

Use of Services by All Enrollees

The Department of Veterans Affairs has a system of eight 

enrollment categories, or priority groups, to establish 

veterans’ eligibility and priority for care. Veterans who 

have service-connected disabilities (priority groups 1 

through 3, or P1 through P3) have the highest priority; 

higher-income veterans who have no compensable 

service-connected disabilities (that is, no medical 

condition that is disabling to a degree that VA provides 

compensation) have the lowest priority (P8). 

Variation in the use of services among those priority 

groups is pronounced. Several factors account for that 

variation. Veterans who have disabilities probably require 

more services, all else being equal. In addition, not all 

veterans face the same out-of-pocket costs. Typically, 

enrollees considered by VA to be 50 percent or more 

disabled and enrollees who are being treated only for 

service-connected medical conditions pay no out-ofpocket costs, but most other enrollees may have a 

copayment associated with their treatment. 

Enrollees in P1 (veterans who have service-connected 

conditions rated 50 percent or more disabling) and 

P4 (veterans who have disabilities that are catastrophic 

but not service connected or who are housebound) use 

substantially more medical services than do other 

enrollees for each of the seven major categories of service 

for which VA reports unit costs and number of services 

used. P4 veterans make the heaviest use per enrollee of 

five of the seven categories—ambulatory care, inpatient 

hospital care, other medical services (the provision of aids 

and equipment), outpatient programs for mental health 

care, and special residential care programs—and rank 

second in use per enrollee of the other two categories 

(pharmacy services and dental procedures). 

As shown in Figure B-1, enrollees who are rated 50 percent or more disabled (those in P1) use at least two and a 

half times more services per enrollee in the three largest 

components of expenditures (ambulatory care, inpatient 

hospital care, and pharmacy services) than do higherincome veterans without compensable service-connected 

disorders (those in P7 and P8).2

 Only P6 veterans—most 

of whom are recent combat veterans who have not 

received disability ratings and are typically much younger 

than VA’s overall population—make less use of VA’s services than do P7 and P8 veterans. 

1. Overseas contingency operations include current military operations in Iraq and Afghanistan and related activities.

2. Of the seven categories of services, ambulatory care accounted 

for the largest component of expenditures ($15 billion in 2008), 

followed by inpatient hospital care ($9 billion) and pharmacy 

services ($5 billion). 
36 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure B-1.

Use of VA’s Health Care Services per 1,000 Enrollees, by Priority Group

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

Note: VA’s enrollment system assigns veterans to one of eight priority groups (P1 through P8). Veterans with service-connected disabilities 

that are rated 50 percent or more disabling are in P1 (highest priority); those with higher income and no compensable serviceconnected disabilities are in P8 (lowest priority). For definitions of the priority groups, see Box 1 on page 4.

a. Includes the number of outpatient visits and other services, such as radiology and pathology services.

b. Includes the dispensing of pharmaceuticals, over-the-counter drugs, and related supplies. 

P1 P2 P3 P4 P5 P6 P7 P8

0

10,000

20,000

30,000

40,000

50,000

Ambulatory Carea

(Number of services used)

P1 P2 P3 P4 P5 P6 P7 P8

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Inpatient Hospital Care

(Days in hospital)

P1 P2 P3 P4 P5 P6 P7 P8

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Pharmacy Servicesb

(Units dispensed)
APPENDIX B POTENTIAL COSTS OF VETERANS’ HEALTH CARE 37

CBO

Enrollees’ use of services not only differs among various 

groups of veterans but also changes over the months 

after enrollment, typically declining over the first year of 

enrollment (see Figure B-2). For example, ambulatory 

care and inpatient hospital care show steady declines in 

use. By the second year after enrollment, the use of those 

two services drops to roughly one-half and one-third, 

respectively, of that experienced initially. Most services 

within those categories, such as pathology-related services 

and office and urgent care visits, follow a similar pattern.

Enrollees’ use of pharmacy services follows a somewhat 

different pattern than that for ambulatory care and 

inpatient hospital care (see Figure B-2). The number of 

pharmacy services per 1,000 enrolled veterans shows an 

early spike as veterans schedule and receive their initial 

visits after enrolling, then a steady increase over the first 

60 months after enrollment. Veterans’ share of the cost of 

prescription medication (a maximum copayment of 

$9 for non-service-connected conditions) is lower than 

that for enrollees in many private health insurance plans, 

and veterans may therefore rely more on VA for that 

service. 

Use of Services by Veterans of Overseas 

Contingency Operations

Use of services by OCO veterans is substantially lower 

than for enrollees overall and is generally similar to or 

lower than that for non-OCO enrollees who are under 

the age of 45 (see Figure B-2). OCO veterans are likely to 

be younger than the overall enrollee population, and 

healthier, because they have not developed age-related 

conditions, such as diabetes and heart conditions. Nearly 

70 percent of OCO veterans are under the age of 45, and 

all but 1 percent of the rest are under the age of 60. By 

contrast, about 15 percent of enrollees in the overall VA 

population are under the age of 45, 40 percent are 45 to 

64 years of age, and 45 percent are 65 or older.

OCO veterans’ pattern of use is similar to that shown by 

non-OCO enrollees. Use of ambulatory and inpatient 

hospital services for OCO veterans declines steadily after 

enrollment. By the second year, the use of both types of 

services drops to one-third of the initial rate. Most ambulatory care services follow a similar pattern, with one 

notable exception: Outpatient psychiatric visits hold 

steady at about 110 per month for every 1,000 enrollees 

through three years after enrollment. Enrollees’ use of 

pharmacy services, by contrast, spikes soon after enrollment and then increases steadily for the next few years. 
38 POTENTIAL COSTS OF VETERANS’ HEALTH CARE

CBO

Figure B-2.

Use of VA’s Health Care Services by OCO and Recent Non-OCO Enrollees, 

by Months Since Enrollment 

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

Note: Overseas contingency operations (OCO) include current military operations in Iraq and Afghanistan and related activities.

a. Includes the number of outpatient visits and other services, such as radiology and pathology services.

b. Includes the dispensing of pharmaceuticals, over-the-counter drugs, and related supplies. 

Ambulatory Carea

(Number of services used)

Inpatient Hospital Care

(Days in hospital)

Pharmacy Servicesb

(Units dispensed)

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

0

10

20

30

40

50

60

70

80

90

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

0

500

1,000

1,500

2,000

2,500

Months Since Enrollment

Months Since Enrollment

Months Since Enrollment

Non-OCO Enrollees OCO Enrollees

Non-OCO Enrollees Younger than 45

OCO Enrollees

Non-OCO Enrollees

Non-OCO Enrollees Younger than 45

OCO Enrollees

Non-OCO Enrollees

Non-OCO Enrollees Younger than 45