www.cbo.gov 

CONGRESSIONAL BUDGET OFFICE

U.S. Congress 

Washington, DC 20515 

 July 14, 2006 

Honorable Larry E. Craig 

Chairman 

Committee on Veterans’ Affairs 

United States Senate 

Washington, DC 20510 

Dear Mr. Chairman: 

In response to your request, the Congressional Budget Office (CBO) has assessed the potential 

implications for future budgets if medical expenditures by the Department of Veterans Affairs 

(VA) continue to grow at the rates experienced over the past few years. Specifically, CBO 

formulated four scenarios for possible growth rates of VA’s medical expenditures over the next 

10 years. As you requested, the first scenario extrapolates the 11.5 percent increase between 

funding to date during fiscal year 2006 and VA’s budget submission for fiscal year 2007, with 

the latter modified to exclude the increases in user fees proposed in the budget submission. The 

other three scenarios apply annual growth rates that reflect a combination of longer-run trends in 

VA’s costs and some different assumptions regarding medical-care inflation and veterans’ 

propensity to use VA for care. 

The attachment describes the interim results developed by CBO’s National Security Division. 

CBO expects to provide a complete report to the Committee by February 2007. If you would like 

further details, CBO would be pleased to provide them. The analysis was prepared by Allison 

Percy, who can be reached at (202) 226-2913, and Matthew Goldberg, who can be reached at 

(202) 226-2914. 

 Sincerely, 

 Donald B. Marron 

 Acting Director 

Attachment 
Honorable Larry E. Craig 

Page 2 

cc: Honorable Daniel K. Akaka, Ranking Member 

Senate Committee on Veterans’ Affairs 

 Honorable Judd Gregg, Chairman 

Honorable Kent Conrad, Ranking Member 

Senate Committee on the Budget 

 Honorable Thad Cochran, Chairman 

Honorable Robert C. Byrd, Ranking Member 

Senate Committee on Appropriations 

 Honorable Kay Bailey Hutchison, Chairman 

Honorable Dianne Feinstein, Ranking Member 

Subcommittee on Military Construction and Veterans Affairs, 

 and Related Agencies 

 Senate Committee on Appropriations 

 Honorable Steve Buyer, Chairman 

Honorable Lane Evans, Ranking Member 

House Committee on Veterans’ Affairs 

 Honorable Jim Nussle, Chairman 

Honorable John Spratt, Ranking Member 

House Committee on the Budget 

 Honorable Jerry Lewis, Chairman 

Honorable David R. Obey, Ranking Member 

House Committee on Appropriations 

 Honorable Jim Walsh, Chairman 

Honorable Chet Edwards, Ranking Member 

Subcommittee on Military Quality of Life and Veterans Affairs, 

 and Related Agencies 

 House Committee on Appropriations 
The Congress of the United States O Congressional Budget Office

Potential Growth Paths for

Medical Spending by the

Department of Veterans Affairs

July 14, 2006

iii

Summary

The Veterans Health Administration (VHA) within the Department of Veterans Affairs (VA) provides medical care and rehabilitation services to eligible veterans, conducts medical research, provides graduate medical education, and plays a role in national emergency management. Funding for VHA is discretionary; its budget 

authority (that is, the authority to obligate funds) is provided one year at a time 

through the appropriation process.1

 Thus, it is not possible to project definitively 

VHA’s future appropriation levels because those levels depend on future acts of 

Congress. Nonetheless, the sometimes double-digit annual rates of increase in VHA’s 

appropriations have prompted observers to question the potential effects on future 

budgets if those increases continue.2

Several approaches could be used to project future paths for VHA’s spending. One approach would be to apply an assumed growth rate—derived from historical experience—to VHA’s current overall funding under the assumption that future growth will 

be similar to that experienced in the recent past. Another approach would rely on underlying factors to project the individual components of VHA’s future funding; such 

factors include the enrollment of veterans in VA’s medical system, the utilization of 

VA medical-care services per enrollee, and the growth rate of cost per service provided 

by the VA system. That approach assumes that the Congress would choose to appropriate funding for VA medical care at a rate sufficient to satisfy demand (under 

VA’s current policies on enrollment, access to care, and fees) and to accommodate

inflation.

A third approach would project VHA’s discretionary appropriations using the same 

rules that govern the Congressional Budget Office’s (CBO’s) annual baseline projections of the entire discretionary portion of the federal budget, as contained in CBO’s 

January 2006 Budget and Economic Outlook. Under the Balanced Budget and Emergency Deficit Control Act of 1985, CBO must assume that the most recent year’s discretionary budget authority is provided in each future year, adjusted using specific 

1. When VHA provides care for veterans with non-service-connected conditions, it has the authority 

to collect copayments from certain categories of veterans and to bill those veterans' insurance companies or other third-party payers. Those payments are deposited into VA's Medical Care Collections Fund (MCCF) and are treated as offsets to discretionary spending. Spending from the 

MCCF is subject to appropriations.

2. VHA is not unique in facing rapid growth in its medical expenditures. Overall health care expenditures have risen notably faster than the rest of the economy. The Centers for Medicare and Medicaid Services (CMS) estimates that from 1980 to 2004, U.S. per capita health care spending grew 

at an average annual rate of 7.5 percent, while per capita gross domestic product (GDP) grew at 

5.0 percent per year over that same period (see www.cms.hhs.gov/NationalHealthExpendData). 

Furthermore, CMS currently projects that per capita national health expenditures will rise at an 

annual rate of about 6 percent over the next 10 years, compared with a rate of about 4 percent per 

year for per capita GDP.
iv

price indexes to offset projected inflation and to allow for factors such as the 

cost-of-living adjustment for federal workers.3

Using those three approaches, CBO developed four scenarios to project future appropriations for VA medical care.4

 The first two scenarios follow the first approach described above, deriving growth rates from historical experience. Scenario 1 assumes 

that appropriations would grow at a nominal (that is, without the effects of future inflation removed) annual rate of 11.5 percent between fiscal year (FY) 2006 and FY 

2016. That rate reflects initial indications of the increase that the Congress will provide in appropriations for the next fiscal year (2007). It is nearly twice the 6.1 percent 

average annual increase in budget authority for VA medical care that occurred between 1992 and 2006. (In 12 of those 14 years, the annual increase was less than 10 

percent.)

Scenario 2 assumes that appropriations would grow at a nominal annual rate of 8.3 

percent, which was the average annual growth rate in VHA’s funding for medical care 

between 1999 and 2006. That more-recent period represents higher growth than in 

the immediately preceding years, because expansion of eligibility, coupled with the 

opening of more geographically dispersed outpatient clinics, brought about a substantial increase in the number of veterans who turned to VA for medical care.5

Scenario 3 assumes that the Congress would choose to appropriate funding for VA 

medical care at a rate sufficient to keep pace with the demand for care by currently eligible veterans and to accommodate inflation. That scenario implies an average annual growth rate of 6.9 percent in VHA’s appropriations. 

Scenario 4 assumes that the Congress would choose to appropriate funding in a manner consistent with the rules that govern CBO’s annual baseline projections of discretionary spending. That final scenario implies an average annual growth rate of 3.0 

percent.

Under Scenario 1, VHA’s current appropriation of $29 billion (net of collections) for 

medical care would grow to $86 billion by FY 2016 (see Summary Figure 1). Under 

Scenario 2, which applies a lower nominal growth rate of 8.3 percent to VHA’s appropriations, CBO determined that VHA’s appropriations for medical care would grow

3. CBO’s baseline projection methodology is described in Congressional Budget Office, The Budget 

and Economic Outlook: Fiscal Years 2007 to 2016 (January 2006), pp. 5-8.

4. Throughout this analysis, VA medical care is defined to include medical services, medical administration, and medical facilities. Medical care excludes other activities undertaken by VHA, such as 

medical and prosthetic research, the VA information and technology fund, major and minor construction, and grants for state extended care.

5. The enrollment system and corresponding relaxation of eligibility requirements followed from the 

Veterans' Health Care Eligibility Reform Act of 1996 (Public Law 104-262). The number of veterans using the system increased from 2.9 million in 1995 to 5.3 million in 2005.
v

Summary Figure 1.

Projected Appropriations for VA Medical Care

Under Four Scenarios, in Current Dollars

(Billions of dollars)

Source: Congressional Budget Office. 

Note: VA = Department of Veterans Affairs. 

to $64 billion by the end of the decade. Under Scenario 3 (VHA’s appropriations 

grow with veterans’ demand for medical care and inflation), funding for veterans’ 

medical care would grow to $57 billion by 2016. Finally, under Scenario 4, those appropriations would grow from $29 billion to $39 billion over the decade.

The same information may be displayed in terms of the potential share that appropriations for VA medical care might constitute of total federal discretionary spending. 

The path of discretionary spending will be determined by future acts of Congress and 

is impossible to project definitively, but two alternative assumptions about future 

growth are illustrative. The first assumption is that total discretionary appropriations 

would keep pace with inflation over the next decade. The second assumption is that 

discretionary spending would grow at the same rate that CBO projects for gross domestic product (GDP). Because CBO currently projects that GDP growth will exceed

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

10

20

30

40

50

60

70

80

90

100

Scenario 1:

VA medical appropriations

grow at 11.5% annually

Scenario 2:

VA medical appropriations

grow at 8.3% annually

Scenario 3:

VA medical appropriations

grow with enrollment and

national medical spending growth

Scenario 4:

VA medical appropriations

grow with inflation

Fiscal Year
vi

Summary Table 1.

Projected Appropriations for VA Medical Care as a Share of 

Total Federal Discretionary Spending, Fiscal Year 2016

(Percent)

Source: Congressional Budget Office. 

Notes: For FY 2006, VA's share of discretionary spending equals 3.2 percent.

 VA = Department of Veterans Affairs; FY = fiscal year. 

inflation by an average of 2.9 percent per year over the next decade, the second 

assumption implies faster-growing discretionary spending and a correspondingly 

slower-growing (or even declining) share for appropriations for VA medical care.

Under the first assumption for growth in overall discretionary spending, VA medical 

care as a share of the total might grow from its current level of 3.2 percent to 5.5 percent if appropriations increased at a nominal rate of 8.3 percent per year over the next 

decade (see Summary Table 1). That share could climb to 7.3 percent if VA medical 

appropriations grew at a nominal rate of 11.5 percent per year over the decade.

Under the second assumption—that discretionary spending will grow at the same rate 

as GDP—VA medical care as a share of the total could increase to 4.5 percent if appropriations grew at a nominal rate of 8.3 percent per year over the next decade and 

6.0 percent if appropriations grew at a nominal rate of 11.5 percent per year over that 

period.

7.3 5.5 4.8 3.3

6.0 4.5 3.9 2.7

Discretionary Spending Grows at the Same 

Rate as the Gross Domestic Product

Scenario 1 Scenario 2 Scenario 3 Scenario 4

Growth Rate Assumption for 

Total Federal Discretionary Spending, 

FY 2007 Through FY 2016

Discretionary Spending Grows at the Same 

Rate as General Inflation
1

Background Information

The Veterans’ Health Care Eligibility Reform Act of 1996 significantly expanded eligibility for health care services by Department of Veterans Affairs (VA) and directed 

that VA create an enrollment system for its health care programs. In most cases, veterans must enroll in order to use the VA medical system, although there is no enrollment fee. As part of the enrollment process, applicants must document their status as 

veterans and are assigned to one of eight priority groups on the basis of their serviceconnected disabilities (if any), income, assets, and other factors. Veterans in seven of 

the eight priority groups face no obstacles to enrollment; furthermore, those veterans 

may seek medical care and receive that care along a timeline determined by the Veterans Health Administration’s (VHA’s) available staffing and physical capacity. 

Priority Group 8 consists of veterans who do not have service-connected disabilities 

and whose income and net worth exceed both the VA means test and the geographic 

index developed by the Department of Housing and Urban Development (HUD).1

As of January 17, 2003, then-Secretary of Veterans Affairs Anthony Principi exercised 

his authority to freeze new enrollment among veterans in Priority Group 8, although 

veterans who had already enrolled by that time were “grandfathered” into the system 

and remain eligible for VA medical care. The freeze on Priority Group 8 enrollment 

remains in effect.2

Recent Budget History

VHA’s budget authority for medical care increased at an average annual rate of 8.3 

percent between fiscal year (FY) 1999 and FY 2006 (see Table 1). That increase was 

driven by several factors, including (1) increasing enrollment (notwithstanding the 

freeze on Priority Group 8 enrollment toward the end of that period), (2) increasing 

reliance of enrolled veterans on VA health care (as opposed to Medicare, employerprovided health insurance, or other sources of health care available to those veterans), 

and (3) medical inflation above the general rate of inflation.3

During the past two years, VHA’s costs have exceeded the amounts initially requested 

or appropriated. In a hearing of the House Committee on Veterans Affairs on 

June 23, 2005, Secretary of Veterans Affairs Jim Nicholson stated that VA’s costs for 

medical care for FY 2005 would exceed the amount already enacted for that year by

1. The income thresholds for the VA means test, which depend on family size, are updated each year 

for inflation. For fiscal year 2006, the threshold for a veteran with no dependents is $26,902 per 

year (see www.va.gov/healtheligibility/Resource/pubs/VAIncomeThresholds/VA2005.pdf). The 

HUD index takes into account differences in the cost of living from one geographic area to 

another.

2. The Secretary’s authority to freeze enrollment was established in the Veterans Health Care Eligibility Reform Act of 1996 (Public Law 104-262).

3. The role of those factors in determining VA’s costs for medical care is described in Congressional 

Budget Office, The Potential Cost of Meeting Demand for Veterans’ Health Care (March 2005).
2

Table 1.

Budget Authority for VA Medical Care, Fiscal Years 1999 

Through 2007

Source: Congressional Budget Office. 

Note: VA = Department of Veterans Affairs; n.a. = not applicable; FY = fiscal year. 

a. Figures include medical services, medical administration, and medical facilities; they exclude 

medical and prosthetic research, the VA information and technology fund, major and minor 

construction, and grants for state extended care. Figures include the spending of collections 

deposited into VA's Medical Care Collections Fund. 

b. The 2007 budget estimate is from VA’s FY 2007 Budget Submission (February 2006).

c. Percentage increase shown is gross of collections deposited into VA's Medical Care Collections 

Fund. The increase in the FY 2007 budget estimate, net of collections and deducting user fees 

proposed by the Administration but not enacted by the Congress, is 11.5 percent; see Table 2.

about $1 billion. At a hearing five days later of the Subcommittee on Military Quality 

of Life and Veterans Affairs, and Related Agencies, of the House Committee on Appropriations, Secretary Nicholson testified that VA would require between $1.1 billion and $1.6 billion more to administer its medical program in 2006 than had been 

requested in the FY 2006 President’s budget submission. In response to the issues 

raised during those hearings, the Congress included $1.5 billion in supplemental appropriations for veterans’ medical care in the FY 2006 Department of the Interior, 

Environment, and Related Agencies Appropriation Act (H.R. 2361, Public Law 109-

54), which the President signed into law on August 2, 2005. In addition, the Congress included $1.225 billion in emergency funding in the FY 2006 Military Quality 

of Life, Military Construction, Veterans Affairs, and Related Agencies Appropriations 

Fiscal Year

1999 Actual 17,820 n.a.

2000 Actual 19,462 9.2

2001 Actual 20,951 7.7

2002 Actual 22,482 7.3

2003 Actual 25,337 12.7

2004 Actual 27,952 10.3

2005 Actual 29,910 7.0

2006 Actual (to date) 31,049 3.8

2007 Budget Estimateb 34,546 11.3 c

Average Percentage Increase, 

1999-2006 n.a. 8.3

Budget Authority for

VA Medical Carea 

(Millions of dollars) Percentage Increase
3

Act (H.R. 2528, Public Law 109-114), which the President signed on November 30, 

2005.4

Budget Request for Fiscal Year 2007

The President’s budget submission for 2007 included two proposed increases in the 

fees that veterans pay to use VA medical care and one change in third-party billing 

practices, which would also increase the share of costs paid by veterans. First, the budget proposed to establish an annual enrollment fee of $250 for all veterans in Priority 

Groups 7 and 8.5 If the enrollment fee was implemented, then enrollment in VA 

medical care would decline. As a result, VA’s spending on medical services and pharmaceuticals would fall. The enrollment fee would also increase VA’s collections.6

In addition, the 2007 budget proposed to increase pharmaceutical copayments from 

$8 to $15 (for each 30-day prescription) for all enrolled veterans in Priority Groups 7 

and 8. Savings would reflect a reduction in spending on pharmaceuticals as well as an 

increase in collections.

Finally, the 2007 budget proposed legislative language that would more clearly 

delineate the financial responsibilities of veterans who are treated for non-serviceconnected conditions and who have sources of third-party payments, such as health 

insurance, workers’ compensation, victims’ aid, or tort settlement. VA’s current practice is that when a veteran owes a copayment but VA collects funds from third-party 

sources, those collections offset or reduce the veteran’s first-party indebtedness. That 

practice has been criticized by the Government Accountability Office, among 

4. The legislative history is summarized in Sidath Viranga Panangala, Veterans’ Medical Care: FY2007 

Appropriations, CRS Report for Congress RL33409 (Congressional Research Service, updated 

May 31, 2006). Public Law 109-114 (Page 119, Stat. 2384) stipulated that the President designate 

the entire $1.225 billion as an emergency requirement. The President provided that designation 

on January 28, 2006.

5. Veterans in Priority Group 7 are those who do not have service-connected disabilities and whose 

net worth is above the VA means test but below HUD’s geographic index. 

6. The Department of Defense (DoD) budget request for 2007 also proposed to increase user fees for 

non-Medicare-eligible military retirees and their family members. Specifically, the proposal would 

institute annual enrollment fees for TRICARE Standard and Extra (the non-managed-care 

options), increase deductibles for TRICARE Standard and Extra, and index those fees to future 

inflation. The proposal would also boost the annual enrollment fee for TRICARE Prime (the 

managed-care option) and index that fee as well. Section 704 of the House version of the FY 2007 

National Defense Authorization Act (NDAA) (H.R.5122, which passed on May 11, 2006) 

would prohibit DoD from increasing the premium, deductible, copayment, or other charges for 

TRICARE Prime or the charge for inpatient care under TRICARE Standard between April 1, 

2006, and December 31, 2007. Section 705 of the Senate version of the FY 2007 NDAA (S.2766, 

which passed on June 22, 2006) would prohibit increases in enrollment fees for TRICARE 

Prime during FY 2007. Although the House and Senate agree on the basic principle of freezing 

TRICARE fees, they differ in the details. Those differences (among others) have not been resolved 

in conference as of this writing.
4

Table 2.

Proposed Appropriations for VA Medical Care,

Fiscal Year 2007

(Millions of dollars)

Source: Congressional Budget Office.

Note: VA = Department of Veterans Affairs; FY = fiscal year.

a. CBO modified the dollar amounts in this column from the President’s request by deducting user 

fees proposed by the Administation but not enacted by the Congress.

b. The FY 2007 Military Quality of Life, Military Construction, and Veterans Affairs Appropriations 

Act (discussed below).

c. Increase of 11.3 percent above FY 2006 gross appropriations.

d. Increase of 11.5 percent above FY 2006 net appropriations.

others.7 Under the proposal, veterans would receive a bill for their copayment at the 

same time that VA bills their insurance company or another third-party payer, and 

any offsets would be eliminated.

CBO estimates that the proposed fees and copayments from the three initiatives 

would yield additional receipts to the government totaling $400 million to $500 million per year. They might also result in some reduction in utilization of VA medical 

services.

Excluding any estimated savings from the three initiatives and net of anticipated collections, the Administration requested $32.3 billion in appropriations for VA medical 

care in FY 2007 (see Table 2). That figure is 11.5 percent higher than the corresponding amount appropriated in FY 2006 to date.

Legislative Action to Date on FY 2007 Appropriations

The House of Representatives passed its version of the FY 2007 Military Quality of 

Life, Military Construction, and Veterans Affairs Appropriations Act (H.R. 5385) on 

7. Government Accountability Office, VA Health Care: Guidance Needed to Collect from Veterans and 

Private Health Insurers, GAO-04-938 (July 2004).

Account

Medical Services

General fund appropriations 22,707 25,511 25,412

Authority to spend collections 2,117 2,289 2,329

Medical Administration 2,927 3,177 3,277

Medical Facilities 3,298 3,569 3,594 ______ ______ ______

Total Budget Authority (Gross) 31,049 34,546 c 34,612

Total Budget Authority (Net of collections) 28,932 32,257 d 32,283

Requesta H.R. 5385b to Date

Fiscal Year 2006

Fiscal Year 2007

President's
5

May 19, 2006. That legislation contains no provisions authorizing VHA to increase 

veterans’ fees as proposed in the President’s budget submission. The legislation would 

set FY 2007 appropriations for VA medical care (net of anticipated collections) at 

$32.3 billion, or essentially the same amount requested by the Administration, excluding any estimated savings from the three initiatives (see Table 2).

The Senate Appropriations Committee has not yet taken up the FY 2007 appropriations for VA. However, the Senate discussed funding for VA medical care when it considered its budget resolution for FY 2007. On March 14, 2006, the Senate approved 

an amendment (number 2999) to its Concurrent Resolution on the Budget for FY 

2007 (S. Con. Res. 83); the purpose of the amendment was “[t]o provide increased 

funding for veterans health programs, and to negate the need for enrollment fees 

and increase in pharmacy co-payments.” The amendment added $823 million to the 

budget resolution’s allocation of budget authority for budget function 700 (veterans’ 

benefits and services). Of that amount, $795 million represents the Office of Management and Budget’s estimate of the funding that would have to be added to the 

President’s request in order to maintain service levels if the three legislative proposals 

were not enacted; the remainder would fund additional medical and prosthetic 

research.

Scenarios of Future Spending Growth

For purposes of this analysis, CBO analyzed four scenarios for the possible growth of 

VA’s appropriations for medical care over the next 10 years. 

Scenario 1

Under the first scenario, as specified by Senator Craig, appropriations for VA medical 

care grow at a nominal rate of 11.5 percent per year between FY 2006 and FY 2016.

Although VHA’s funding for medical care may increase by as much as 11.5 percent 

between FY 2006 and FY 2007 (depending on the Congress’s final disposition of the 

FY 2007 Military Quality of Life, Military Construction, and Veterans Affairs Appropriations Act), that rate is nearly twice the 6.1 percent average annual increase that occurred between 1992 and 2006. In 12 of those 14 years, the annual increase was less 

than 10 percent.

Scenario 2

Under the second scenario, appropriations for VA medical care grow at a nominal rate 

of 8.3 percent per year between FY 2006 and FY 2016. The second scenario assumes 

that funding grows at the average nominal rate of increase experienced between fiscal 

years 1999 and 2006 (see Table 1). That rate may be more indicative of the long-run 

trend. 
6

Scenario 3

Under the third scenario, appropriations for VA medical care grow at an average rate 

of 6.9 percent per year—a rate sufficient to meet projected demand for services by 

currently eligible veterans and to accommodate projected growth in the cost per enrolled veteran. CBO assumes that VA’s current policies on enrollment, access to care, 

and fee collections remain unchanged. 

The third scenario builds up the potential budget by considering the underlying 

population of veterans (by priority group) and those veterans’ propensities to enroll 

for VA medical care and to rely on VA (as opposed to alternative sources of care). That 

approach, which updates the projections reported in an earlier CBO paper, uses projections of veterans’ enrollment and reliance rates provided by VA, as well as factors 

describing the relative annual medical expenditures on veterans as a function of their 

priority group.8 The projections of enrollment and reliance do not incorporate the reductions in utilization that would be expected under the legislative proposals contained in the President’s budget for 2007. In addition, CBO assumes that the freeze 

on Priority Group 8 enrollment remains in effect but that the freeze is not extended to 

any of the higher-priority groups. The approach also allows for medical inflation and 

other factors that lead to growth in the annual medical expenditures per enrolled veteran. CBO estimated the latter using projections of the growth in national per-capita 

medical expenditures developed by the Office of the Actuary, Centers for Medicare 

and Medicaid Services (CMS), Department of Health and Human Services.9

Scenario 4

As specified in the Balanced Budget and Emergency Deficit Control Act of 1985 

(Public Law 99-177), CBO projects discretionary spending by applying forecasts of 

the employment cost index (ECI) to the wages and salaries of federal personnel and 

the gross domestic product (GDP) price index to all other expenditures. CBO’s most 

recent projection of discretionary spending, including the appropriations associated 

with VA medical care, is from its March 2006 Analysis of the President’s Budgetary Proposals for Fiscal Year 2007.10 Scenario 4 is CBO’s baseline for VA’s medical spending 

under those assumptions, reflecting an average rate of growth of 3.0 percent per year.

8. Congressional Budget Office, The Potential Cost of Meeting Demand for Veterans’ Health Care.

9. See “National Health Care Expenditures Projections: 2005-2015,” available at www.cms.hhs.gov/

NationalHealthExpendData/downloads/proj2005.pdf. CMS projects annual increases in per capita expenditures ranging from 6 percent to 7 percent over the next decade.

10. See Congressional Budget Office, An Analysis of the President’s Budgetary Proposals for Fiscal Year 

2007 (March 2006), which updates the projections in The Budget and Economic Outlook: Fiscal 

Years 2007 to 2016 (January 2006). Using the rules specified for its baseline, CBO projects that 

budget authority for VA medical care (defined to include medical services, medical administration, 

and medical facilities) will grow by between 3 percent and 4 percent per year for most of the next 

decade. Note that, under the baseline rules, total discretionary spending will decline both as a 

share of the overall federal budget and relative to the size of the economy. See The Budget and

Economic Outlook: Fiscal Years 2007 to 2016, Table 3-1 on p. 52.
7

Impact on Other Federal Programs

CBO did not estimate any reductions in demand for other federal programs (such as 

Medicare, Medicaid, TRICARE, or the Federal Employees Health Benefits program) 

that might offset the increases in funding for VA medical care. There is little empirical 

evidence that veterans will migrate entirely into VA medical care if increased funding 

improves their access to that care. For example, as of 2003, some 65 percent of enrolled veterans in Priority Groups 7 and 8 were also enrolled in Medicare Part A (hospital insurance), and 60 percent had purchased Medicare Part B (supplemental medical insurance); 88 percent had access to some source of medical coverage (including 

federal programs as well as various forms of private health insurance) outside of their 

VA eligibility. Enrolled veterans in those two groups relied on VA for about 20 percent of their total medical care, obtaining their care from various providers and funding sources.11 Moreover, even if there were reductions in spending on those other federal programs as VA’s spending rose, much of the funding involved would fall into the 

mandatory portion of the federal budget rather than the discretionary portion that is 

the subject of this analysis.

Projections of Future Appropriations

The four scenarios in this analysis span a wide range of potential outcomes for appropriations for VA medical care over the next 10 years. If growth occurred at a nominal 

rate of 11.5 percent per year over the next decade (Scenario 1), those appropriations 

would reach $86 billion by FY 2016 (see Figure 1). However, if VA’s medical appropriations just kept pace with inflation, those appropriations would reach $39 billion 

by FY 2016 (Scenario 4).

The growth curves in Figure 1 incorporate general inflation, which affects all sectors 

of the economy, including health care delivery. By contrast, the growth curves in 

Figure 2 remove the effect of general inflation by normalizing for the projected trend 

in the GDP price index. In that figure, the slowest-growing curve, depicting Scenario 

4, shows cumulative real growth of 12.1 percent over the entire next decade. That scenario generates real (inflation-adjusted) growth only to the extent that the federal pay 

raise—which is assumed to be equal to the annual percentage increase in the employment cost index—outpaces the GDP price index.12

If appropriations for VA medical care grew at a rate sufficient to meet veterans’ projected demand for services and to accommodate projected real growth in the cost per 

enrolled veteran (Scenario 3), real appropriations could reach $47 billion by FY 2016, 

about 63 percent higher than the level in FY 2006. Under Scenario 2, appropriations 

11. Congressional Budget Office, The Potential Cost of Meeting Demand for Veterans’ Health Care, p. 8.

12. The ECI grew more rapidly than the GDP price index in each year of the 1981-2005 period, and 

CBO expects that pattern to continue between 2006 and 2016. Over the next decade, growth of 

the ECI will exceed growth of the GDP price index by an average of 1.5 percent per year, CBO 

projects.
8

Figure 1.

Projected Appropriations for VA Medical Care 

Under Four Scenarios, in Current Dollars

(Billions of dollars)

Source: Congressional Budget Office. 

Note: VA = Department of Veterans Affairs.

would grow at the seven-year average rate of 8.3 percent, or a real rate averaging 6.4 

percent, over the next decade. Real appropriations would increase by 85 percent over 

the decade, reaching $54 billion by FY 2016. Finally, under Scenario 1, appropriations would grow at a nominal rate of 11.5 percent per year, or a real rate averaging 

9.5 percent, over the next decade. Real appropriations would be two and a half times 

as large as the current value by the end of the decade, reaching $72 billion by FY 

2016.

The same information may be displayed in terms of the potential share that VA’s medical appropriations might constitute of total federal discretionary spending. The path 

of the discretionary spending will be determined by future acts of Congress and is impossible to project definitively, but two alternative assumptions about future growth 

are illustrative. The first assumption is that the total federal discretionary budget 

would keep pace with inflation over the next decade. The second assumption is that 

the discretionary budget would grow at the same rate that CBO projects for GDP. 

Because CBO currently projects that GDP growth will exceed inflation by an average 

of 2.9 percent per year over the next decade, the second assumption implies faster

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

10

20

30

40

50

60

70

80

90

100

Scenario 1:

VA medical appropriations

grow at 11.5% annually

Scenario 2:

VA medical appropriations

grow at 8.3% annually

Scenario 3:

VA medical appropriations

grow with enrollment and

national medical spending growth

Scenario 4:

VA medical appropriations

grow with inflation

Fiscal Year
9

Figure 2.

Projected Appropriations for VA Medical Care

Under Four Scenarios, in Constant Dollars

(Billions of fiscal year 2006 dollars)

Source: Congressional Budget Office. 

Notes:The effects of future inflation have been removed from these estimates using CBO’s 

projection of the gross domestic product price index. 

VA = Department of Veterans Affairs. 

growth in overall discretionary spending and a correspondingly slower-growing (or 

even declining) share for VA medical appropriations.

Under the first assumption about growth in federal discretionary spending, VA’s medical appropriations would grow only slightly faster than overall discretionary spending 

under Scenario 4, so VA’s share would increase from 3.2 percent to 3.3 percent (see 

Figure 3). VA’s share would climb to 4.8 percent under Scenario 3 (in which VA’s 

medical appropriations grow with enrollment and national medical spending trends) 

and 5.5 percent under Scenario 2 (in which VA’s medical appropriations grow at the 

average annual rate of the past seven years). The share of VA’s medical appropriations 

would more than double—to 7.3 percent—under Scenario 1 (in which VA’s medical 

appropriations grow at an 11.5 percent nominal rate for the next 10 years).

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

10

20

30

40

50

60

70

80

90

100

Scenario 1:

VA medical appropriations

grow at 11.5% annually

Scenario 2:

VA medical appropriations

grow at 8.3% annually

Scenario 3:

VA medical appropriations

grow with enrollment and

national medical spending growth

Scenario 4:

VA medical appropriations

grow with inflation

Fiscal Year
10

Figure 3.

Projected Appropriations for VA Medical Care as a Share of 

Total Federal Discretionary Spending, Under the InflationOnly Growth Assumption

(Percent)

Source: Congressional Budget Office. 

Note: VA = Department of Veterans Affairs. 

Using the second assumption, federal discretionary spending would grow at the same 

rate that CBO projects for GDP. VA’s share would decline under Scenario 4, falling 

from 3.2 percent to 2.7 percent by 2016, because VA’s medical appropriations under 

that scenario would grow only as fast as inflation but not as fast as GDP (see 

Figure 4). VA’s share would increase to 3.9 percent under Scenario 3 (medical appropriations grow with enrollment and national medical spending trends) and to 4.5 percent under Scenario 2 (medical appropriations grow at the average annual rate of the 

past seven years). The share of VA’s medical appropriations would nearly double under Scenario 1 (in which the appropriations grow at an 11.5 percent nominal rate over 

the next decade), climbing from 3.2 percent to 6.0 percent by 2016.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

1

2

3

4

5

6

7

8

Scenario 1:

VA medical appropriations

grow at 11.5% annually

Scenario 2:

VA medical appropriations

grow at 8.3% annually

Scenario 3:

VA medical appropriations

grow with enrollment and

national medical spending growth

Scenario 4:

VA medical appropriations

grow with inflation

Fiscal Year
11

Figure 4.

Projected Appropriations for VA Medical Care as a Share of 

Total Federal Discretionary Spending, Under the GDP 

Growth Assumption

(Percent)

Source: Congressional Budget Office. 

Note: VA = Department of Veterans Affairs; GDP = gross domestic product.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

0

1

2

3

4

5

6

7

8

Scenario 1:

VA medical appropriations

grow at 11.5% annually

Scenario 2:

VA medical appropriations

grow at 8.3% annually

Scenario 3:

VA medical appropriations

grow with enrollment and

national medical spending growth

Scenario 4:

VA medical appropriations

grow with inflation

Fiscal Year