CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE Possible Higher Spending Paths for Veterans’ Benefits December 2018 At a Glance The Department of Veterans Affairs (VA) administers a variety of programs for veterans and their families. VA spent $180 billion on those benefits in 2017, nearly triple what it spent in 2000 after removing the effects of inflation. (Spending was higher in 2018; however, the Congressional Budget Office’s analysis focused on 2017, because it lacked information to provide a detailed breakdown of VA’s 2018 spending.) The two largest programs, VA’s disability compensation and medical care pro- grams, accounted for most of that growth. CBO briefly examined VA’s past growth in spending and projected VA’s spending through 2028 under three scenarios. (All spending amounts discussed here are in 2018 dollars.) Past Growth in Spending. Between 1970 and 2017, VA’s spending grew significantly faster than inflation; growth accelerated after 2000, averaging more than 6 percent annually above the rate of inflation through 2017. •• Spending on disability compensation to veterans grew from $22 billion in 2000 to $73 billion in 2017, an average annual increase of 7.5 percent. •• Medical care spending grew from $27 billion in 2000 to $69 billion in 2017, an average annual increase of 5.7 percent. •• The number of beneficiaries and the spending per beneficiary grew substantially for both programs after 2000, despite an overall decline in the number of veterans. Possible Future Growth in Spending. The scenarios CBO analyzes in this report capture some possible trajectories for VA’s future spending—a modified version of CBO’s baseline projection and two scenarios that could result in more spending. (VA’s spending could also be less than projected in the modified baseline; however, because of Congressional concern about budgetary risks, this report focuses on possible higher spending paths.) Although the growth in VA’s spending would exceed the rate of inflation under all three scenarios, the growth in total spending would still be slower than VA has experienced in recent years—in part because the number of beneficiaries for the largest programs is projected to stay about the same or rise more slowly than in the past. •• Scenario 1 matches CBO’s baseline projection for VA, modified to incorporate additional appropriations provided in the 2018 VA MISSION Act, which was enacted after the baseline was completed. Spending would grow by nearly 20 percent from 2017 to 2028, from $180 billion to $215 billion—an annual increase 1.6 percent above the rate of inflation. •• Scenario 2 is the same as Scenario 1 except that it assumes larger appropriations for medical care—extending VA’s current policies for medical care spending and incorporating the projected spending required to implement the VA MISSION Act. It accounts for changes in enrollment, medical care spending, and other factors. Under Scenario 2, VA’s spending could grow by about one-third, to $238 billion in 2028—an average annual rate of 2.6 percent. •• Under Scenario 3, spending per beneficiary for the disability compensation and medical care programs would be greater than that in Scenario 2, growing at rates similar to those experienced over the past decade. In total, VA’s spending would grow by just over 50 percent over the 2017– 2028 period, to $272 billion in 2028. That increase represents the highest growth of the scenarios considered here, an average annual rate of 3.8 percent. www.cbo.gov/publication/54881 Contents Summary 1 How Much Does VA Spend on Care for Veterans? 1 How Will the Recent Legislation Expanding Access to Medical Services Affect VA’s Spending? 2 How Might VA’s Spending Grow Over the Next Decade? 2 An Overview of VA’s Benefits 3 Disability Compensation 4 Medical Care 4 Education and Vocational Benefits 5 Long-Term Trends in VA’s Total Spending and Major Programs 5 Trends in Disability Compensation 6 Trends in Medical Care 8 Recent Trends in VA’s Spending 10 How Some Recent Legislative Changes Affect VA’s Medical Spending 10 Projected Spending for Veterans’ Benefits From 2018 to 2028 12 CBO’s Scenarios for VA’s Spending 12 Possible Spending Paths 16 Appendix: Possible Spending Paths for VA in Nominal Dollars 21 List of Tables and Figures 24 About This Document 25 Notes Unless otherwise specified, all years referred to in this report are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end. Unless otherwise specified, all spending amounts are reported in 2018 dollars. Amounts are adjusted to remove the effects of inflation using the gross domestic product price index, with values of that index for 2018 through 2028 projected by the Congressional Budget Office. This report uses the term spending to refer to net outlays, which are outlays offset by payments such as deductibles or copayments. Net outlays may stem from obligations (a legal liability to disburse funds) incurred in a prior fiscal year or in the current year. Unless otherwise specified, spending in a fiscal year is normalized to 12 monthly payments to veterans and their families. The number of payments in a fiscal year can vary depending on whether October 1 falls on a weekend, in which case certain payments scheduled for that date are made in September. Numbers in the text and tables may not add up to totals because of rounding. On the cover: Government and military leaders and guests attend the National Veterans Day Observance at Arlington National Cemetery, Arlington, Virginia, on November 11, 2018. Photo courtesy of the Department of Defense. Possible Higher Spending Paths for Veterans’ Benefits Summary care will increase at the rate of inflation in the general The Department of Veterans Affairs (VA) administers economy. In the other two scenarios, CBO relaxes the programs to aid former members of the armed forces constraints governing the baseline. Instead, CBO extends and their families. By far the largest share of its budget VA’s current policies for medical care, thereby assuming is spent on two programs, one that pays compensation increases in discretionary appropriations that are greater to veterans who have service-connected disabilities and than the rate of inflation; and in one of the scenarios, one that provides medical care to veterans. VA’s spending projects growth in both per-beneficiary medical care and (adjusted to remove the effects of inflation) has grown disability compensation on the basis of VA’s experience rapidly—from $64 billion, or 2.6 percent of all federal from 2008 to 2017. CBO also incorporates into those spending, in 2000 to $180 billion, or 4.4 percent of two scenarios the effects of recent legislation on discre- spending, in 2017.1 (The Congressional Budget Office tionary spending. estimates that spending was $187 billion in 2018; how- ever, CBO’s analysis focused on 2017, because it lacked In the modified baseline, VA’s spending increases by information required to provide a detailed analysis of nearly 20 percent (in 2018 dollars) from 2017 to 2028. VA’s 2018 spending.) That large increase has prompted Under the two higher-growth scenarios, VA’s spending is concerns about the long-run affordability of VA benefits, projected to increase by about 33 percent or by just over particularly if their cost continues to increase at the same 50 percent over that period. It could be higher or lower rate as in recent years. under other scenarios. To help policymakers assess the risks associated with How Much Does VA Spend on Care for Veterans? increased costs, CBO has projected VA’s spending Of the $180 billion VA spent in 2017, the department through 2028 under three different scenarios—a version paid disability compensation of $73 billion to 4.5 mil- of CBO’s baseline (modified to reflect the effects on lion veterans with service-connected disabilities. VA mandatory spending of recent legislation) and two alter- spent a little less, $69 billion, on medical care for more native scenarios involving more rapid growth.2 CBO’s than 6 million veteran patients and medical research. baseline budget projections are based on an assump- Substantially less, $14 billion, was spent on the next tion that current laws will generally remain in place. largest set of programs, which provide education and Under the rules for constructing the baseline, CBO vocational rehabilitation benefits for about 1 million assumes that VA’s spending for disability compensation veterans and their dependents, and the remainder paid will increase as needed to comply with laws governing for other programs and administrative costs. the program and that appropriations for VA’s medical Between 1970 and 2017, VA’s spending grew signifi- cantly faster than economywide inflation, even as the 1. Unless otherwise specified, spending in a fiscal year is normalized number of veterans waned. Growth was fastest in the to 12 monthly payments to veterans and their families. The years after 2000, averaging more than 6 percent annually number of payments in a fiscal year can vary depending on whether October 1 falls on a weekend, in which case certain above the rate of inflation. As a result, VA’s spending payments scheduled for that date are made in September. Such nearly tripled between 2000 and 2017. timing shifts occurred in 2016, 2017, and 2018. 2. Mandatory spending is generally governed by provisions of permanent law, whereas discretionary spending is controlled by annual appropriation acts. 2 Possible Higher Spending Paths for Veterans’ Benefits December 2018 How Will the Recent Legislation Expanding Access to mandatory spending—which includes disability com- Medical Services Affect VA’s Spending? pensation—CBO’s baseline projects that funding will In June 2018, lawmakers enacted the VA MISSION Act, be adequate to make all payments required by current which among other things increases veterans’ access to laws. Therefore, to estimate mandatory spending, CBO VA’s medical services and expands support to veterans’ uses detailed information on the eligibility and bene- families. The law will affect discretionary and mandatory fits established by those laws, the projected size of the spending. CBO estimates that implementing the law veteran population, and other factors. For this scenario, will cost $46.5 billion (or $43.1 billion in 2018 dollars) CBO modified its most recently published baseline through 2023 in discretionary spending, assuming that (from April 2018) to incorporate the mandatory funding the Congress appropriates the necessary amounts each for 2018 that was provided in the MISSION Act but did year. One provision expands veterans’ access to medical not incorporate its estimates of the discretionary costs of care at non-VA medical providers and facilities. That the law because the Congress did not provide any discre- new community care program will cost $21.4 billion tionary appropriations in the law. ($19.9 billion in 2018 dollars) in discretionary funding over the next five years, CBO estimates. Under Scenario 1, VA’s total spending would grow by 19 percent, from $180 billion in 2017 to $215 billion The law also provided $5.2 billion in mandatory funding in 2028 (in 2018 dollars; see Figure 1 and Table 1). The for the Veterans Choice Program, a separate community estimated average annual rate of growth of 1.6 percent care program enacted in 2014 and set to expire after all over the 2017–2028 period would be substantially slower of its funds have been used. (CBO’s cost estimate for the than the 5.5 percent rate that VA experienced between VA MISSION Act, H.R. 5674, which was enacted as 2010 and 2017. S. 2372, provides details about the law’s provisions and projected spending required to implement them.) Scenario 2. The baseline’s assumption that medical care appropriations would not grow faster than inflation How Might VA’s Spending Grow Over the Next Decade? does not accord with historical experience, suggesting The scenarios CBO analyzes in this report capture some a second scenario. Scenario 2 follows Scenario 1 except possible trajectories for VA’s future spending—CBO’s that VA’s medical spending rises on the basis of cur- modified baseline and two alternative scenarios involving rent policies governing its programs and services (such more rapid growth. VA’s spending could also be less than as eligibility for care). To that end, CBO uses detailed projected in the modified baseline; however, because of enrollment information, the projected per-capita growth Congressional concern about budgetary risks, this report in medical costs in the general economy, and other data focuses on developments that could result in higher to project the costs of providing medical care to veterans. spending paths. Scenario 2 also incorporates the discretionary spending that CBO projects will be needed under the VA Mission Although the growth in VA’s total spending would Act from 2019 to 2023, as provided in CBO’s cost exceed the rate of inflation under all three scenarios, estimate for that legislation, and extends those estimates the growth in total spending would still be slower than through 2028. VA has experienced in recent years—in part because the number of beneficiaries for the largest programs is Under Scenario 2, VA’s spending would grow by about projected to stay about the same or rise more slowly than one-third, from $180 billion in 2017 to $238 billion in in the past. 2028, an average annual increase of 2.6 percent above the rate of inflation. That rate is roughly 60 percent Scenario 1. The first scenario is CBO’s baseline projec- higher than that for Scenario 1 but a little less than half tion, which the agency constructs using rules specified the rate of growth that VA experienced between 2010 in law, modified to incorporate the mandatory funding and 2017. provided in the VA MISSION Act. For discretionary programs—such as those for most of VA’s medical Scenario 3. Because policies for the disability compensa- spending—the baseline projects that future appropria- tion and medical care programs have not remained con- tions will equal the most recent appropriation, increasing stant over the past several years, CBO considered a third only at the rate of inflation in the general economy. For scenario. Under Scenario 3, spending per beneficiary for December 2018 Possible Higher Spending Paths for Veterans’ Benefits 3 Figure 1 . Some Possible Higher Spending Paths for VA Through 2028 Billions of 2018 Dollars 350 Actual Projected 300 Scenario 3: Extend Past Growth 250 Scenario 2: Extend Current Policies Scenario 1: Modified Baseline Projection 200 150 100 50 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Source: Congressional Budget Office. Spending reflects net outlays and is adjusted for the number of monthly benefit payments (which can vary from 11 to 13) in a fiscal year. Because 11 payments were made in 2018, actual outlays for that year were about $8 billion less than shown above. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. disability compensation and medical care would grow at is nearly 2.5 times the average annual rate of growth in rates that reflect VA’s experience over the past 10 years: Scenario 1—yet it is about 30 percent lower than the growth that incorporates, in part, VA’s spending aris- annual growth that VA experienced from 2010 to 2017. ing from government actions, changes in the economy, and world events. In effect, Scenario 3 reflects a path in An Overview of VA’s Benefits which lawmakers, VA, or the courts take new actions— This report focuses on VA’s disability compensation and or changes occur in the health insurance market or the medical care programs, but VA also provides a variety economy—that boost VA’s spending and cause it to rise of other benefits to aid veterans and their families.3 at the same rate as has occurred over the past 10 years. Among them, the department offers education and Any of those changes could occur in combination with vocational rehabilitation assistance; provides pensions to others. For disability compensation, that historical rate low-income veterans and benefits for surviving spouses of growth in spending per beneficiary is applied to each and dependent children; provides life insurance; guar- year of the projection period. For medical care, Scenario antees home loans to veterans; and manages veterans’ 3 is the same as Scenario 2 while the MISSION Act is being implemented (over the 2019–2023 period); for 3. Basic eligibility for VA’s benefits varies by program. Most years after 2023, CBO applied the historical rate of programs set minimum active-duty requirements (such as length increase in spending per beneficiary. of active duty service and the nature of service). For example, to be eligible for VA medical care, veterans generally must have served 24 continuous months or the full period for which they Under Scenario 3, spending would grow by just over were called to active duty, and left the military in any manner 50 percent, from $180 billion in 2017 to $272 billion other than a dishonorable discharge. However, in addition to the by 2028 (in 2018 dollars). That increase would represent basic eligibility rules, VA may also consider other factors, such an average annual rate of growth of 3.8 percent, which as current income and time since discharge from the military, in providing specific benefits to veterans and their families. 4 Possible Higher Spending Paths for Veterans’ Benefits December 2018 Table 1 . VA’s Spending in 2028 Under Alternative Scenarios Billions of 2018 Dollars Scenario 1: Scenario 2: Scenario 3: Modified Baseline Projection Extend Current Policies Extend Past Growth Disability Compensation 92 92 122 Medical Care 78 102 105 Education and Vocational Programs a 17 17 17 Other Spending 28 28 28 Total VA Spending 215 238 272 Memorandum: Percentage Change, 2017–2028 19 33 51 Source: Congressional Budget Office. Spending reflects net outlays and is adjusted for the number of monthly benefit payments (which can vary from 11 to 13) in a fiscal year. Because 11 payments were made in 2018, actual outlays for that year were about $8 billion less than shown above. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. a.Scenarios 2 and 3 incorporate the baseline projection for spending on education and other programs. cemeteries. (The Department of Defense offers addi- and are compensated at higher rates.5 In calendar year tional benefits, primarily to veterans who retired from 2018, base payments ranged from about $135 per month military service or left service because of a qualifying for a 10 percent rating to about $2,975 per month for medical disability.) a 100 percent rating. Some veterans receive supplemen- tal benefits in addition to the base payment. Unlike Disability Compensation some federal and private-sector disability programs, the Disability compensation, one of VA’s largest programs, employment status, earnings, ability to work, and age of provides payments to veterans with medical conditions the veteran are not factored into the disability rating and or injuries that were incurred or aggravated during subsequent base payment. Payments usually continue for active-duty military service (service-connected dis- the duration of the veteran’s life. abilities). The conditions of veterans who receive such compensation vary widely, from tinnitus (ringing in the Medical Care ears) to post-traumatic stress disorder, hypertension, or Medical care, the other major component of VA’s lost limbs. The amount of the base payment is linked services, includes hospital care, outpatient primary and to the composite disability rating that VA assigns the specialty care, counseling services, rehabilitation and veteran. That rating is expressed from zero to 100 per- prosthetic care, diagnostic tests, prescriptions, and assis- cent in increments of 10.4 The rating for any individual tive devices such as prescription glasses, hearing aids and condition is linked to the clinical severity of that veter- an’s condition; higher composite ratings generally reflect 5. A rating of zero (not generally compensated) may be assigned for a greater number of disabilities or more severe disabilities a condition that is not considered disabling, such as a small scar or minor limitation in the motion of a thumb. Impairments rated at 60 percent are considered significant; a rating of 100 percent is assigned to conditions that VA considers completely disabling, such as multiple amputations or chronic congestive heart 4. The composite rating is not created by adding up the disability failure. The same medical condition may be rated differently ratings for each physical or mental condition that VA determines depending on its severity. For example, diabetes may be rated is service-connected but rather is a nonlinear combination of from 10 percent (controlled by diet) to 100 percent (multiple ratings. hospitalizations and other complications). December 2018 Possible Higher Spending Paths for Veterans’ Benefits 5 supplies, and mobility assistance. Most of those services largest readjustment benefit. Today, most veterans who or products are delivered at VA’s facilities at little or no use education benefits do so through the Post-9/11 GI cost to the veterans. VA operates a network of about Bill, which went into effect August 1, 2009. The Post- 170 medical centers as well as more than 1,000 outpa- 9/11 GI Bill provides education and related benefits to tient clinics, rehabilitation facilities, and nursing homes. veterans who served on or after September 11, 2001, as To facilitate access to medical care, some veterans receive well as to certain service members and qualifying spouses reimbursement for travel to VA facilities; others receive and dependents. Generally, to be eligible for full bene- care from private medical professionals in their com- fits, an individual must have served on active duty for munities that is paid for by VA. (The MISSION Act is three years; veterans may be eligible for partial benefits expected to increase the amount of such care.) Beyond sooner. VA pays tuition and fees for up to four years at medical services, VA’s medical care funding supports ser- public colleges and universities at the in-state rate, or vices and stipends for veterans’ caregivers and initiatives up to about $23,000 in the 2017–2018 academic year such as efforts to reduce homelessness among veterans. for a private school. For students enrolled more than half time, a monthly housing allowance may also be Most veterans are eligible for VA’s medical care but must provided. (Veterans also use other education programs, enroll to receive treatment. Veterans are assigned to one including the usually less-generous Montgomery GI Bill; of eight priority groups based on their service-connected their eligibility for a specific program depends in part on disabilities, income, combat status, and other factors the date and length of their previous active-duty service.) when they apply.6 VA determines how many priority VA also offers job counseling, training, and adaptive groups it can serve with the funding approved by the aids or grants to certain veterans with service-connected Congress. Veterans in the lowest-priority groups would disabilities. be the first to be denied service. Currently, new enroll- ment in priority group 8, which includes higher-income Long-Term Trends in VA’s Total Spending veterans without compensable service-connected dis- and Major Programs abilities, is restricted, and as a result some veterans Between 1970 and 2017, VA’s total spending grew sig- who would be assigned to that group are not eligible to nificantly faster than the rate of inflation (see Figure 2). enroll. Although most veterans are neither disabled nor VA spent about $180 billion, or more than 4 percent lower-income (as determined by VA), roughly two-thirds of total federal outlays, in 2017. That is more than four of VA’s enrollees are assigned to priority groups that times as much as the $45 billion VA spent in 1970. include service-connected disabled veterans (priority (All amounts are in 2018 dollars.) Spending increased groups 1 through 3) or lower-income veterans (priority by about 40 percent, to $64 billion, in 2000 and then group 5). accelerated—nearly tripling between 2000 and 2017. Over that period, annual increases averaged more than Education and Vocational Benefits 6 percent above the rate of inflation. The growth of VA also offers a number of education and vocational VA spending has slowed somewhat since 2010 but rehabilitation or training benefits to veterans. Those remains substantially higher than inflation in the general benefits are often referred to as readjustment benefits economy. because they are intended to ease the transition from military to civilian employment. Education is the The increase in VA’s spending is particularly noteworthy because the number of veterans, which grew from about 6. The highest priority groups, priority groups 1 to 3, primarily 28 million in 1970 to 30 million in 1980, has declined include veterans who have service-connected disabilities. Priority in the decades since then to about 21 million in 2017. In group 4 consists of veterans who receive aid and attendance short, VA is spending more to provide benefits for each benefits, are housebound, or are catastrophically disabled. Priority group 5 contains lower-income veterans. Priority group veteran. Moreover, that growth has accelerated in recent 6 includes special populations of veterans, including most Gulf decades. The agency’s total spending per veteran (in War II veterans when they first enroll. The lowest priority groups, 2018 dollars) rose from about $1,600 in 1970 to about 7 and 8, include higher-income veterans without compensable $2,400 in 2000, an increase of about 50 percent over service-connected disabilities. For a fuller description of the 30 years. That figure tripled over the following 17 years, enrollment groups and criteria, see Department of Veterans Affairs, “VA Health Care Enrollment and Eligibility” (Accessed reaching about $8,800 in 2017. The higher cost of those April 2, 2018), https://go.usa.gov/xPktT. veterans’ benefits can be partly explained by the fact that 6 Possible Higher Spending Paths for Veterans’ Benefits December 2018 Figure 2 . Spending on Veterans’ Benefits Compared With the Number of Veterans, 1970 to 2017 Billions of 2018 Dollars Millions 200 35 Number of Veterans (right scale) 30 160 25 120 20 80 15 10 40 Total Spending (left scale) 5 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Congressional Budget Office, using data from the Department of Veterans Affairs and the Current Population Survey. Spending reflects net outlays. Data for 1970 to 1999 are not adjusted for the number of monthly payments in a fiscal year (which can vary from 11 to 13). Thereafter, data are adjusted for the timing of payments. VA = Department of Veterans Affairs. veterans, on average, are growing older—and health Number of Beneficiaries. In 2017, some 4.5 million vet- generally deteriorates as people age. The average age of erans received disability compensation, about twice the veterans increased from 44 in 1970 to 60 in 2017 as the number of beneficiaries in 2000. That rise was caused by veterans of previous major wars aged—most Vietnam annual increases in the number of new veterans receiving veterans are now older than 65—and the size of the compensation. In 2000, new recipients totaled 85,000. military forces declined. The figure peaked at 315,000 in 2015 and has since receded slightly to 295,000 in 2017. The share of veter- Because the disability compensation and medical care ans who receive disability payments grew from 9 percent programs comprise the bulk of VA’s budget, growth in of the veteran population in 2000 to 22 percent in 2017. those programs has had the largest effects on the agency’s spending. Since 1970, those programs have experienced The increase in disability recipients is concen- considerable growth, which has accelerated over the past trated among veterans who left military service after two decades (see Figure 3). The costs per beneficiary September 11, 2001 (often referred to as veterans of the and the number of beneficiaries have increased substan- Gulf War II era). Of the 4 million Gulf War II veterans, tially for both programs despite the shrinking pool of CBO estimates that roughly 1.5 million received disabil- veterans.7 ity payments in 2017—about 35 percent of that group’s total population, which is a much higher rate of receipt Trends in Disability Compensation than that observed in previous eras. Combat veterans From 2000 through 2017, total payments to veterans are fueling that rise, but non-combat veterans also have for service-connected disabilities more than tripled. higher rates of service-connected disability than were Measured in 2018 dollars, spending increased from seen in previous generations. $22 billion in 2000 to $73 billion in 2017 (see Table 2).8 7. For the disability compensation program, beneficiary refers to those disabilities. It excludes administrative costs and spending a veteran who receives payments for VA-determined service- on information technology systems (IT). In 2017, general connected disabilities; for the medical care program, beneficiary operating expenses for the Veterans Benefits Administration refers to a veteran who is enrolled in the program, whether or not (VBA), which primarily administers VA’s financial programs, he or she receives care in a given year. were $3 billion; for all of VA, more than $4 billion was spent 8. In this report, spending on service-connected disabilities includes on IT. In 2005, IT spending was consolidated from individual recurring and nonrecurring payments from VA to veterans for program accounts, including medical care accounts. December 2018 Possible Higher Spending Paths for Veterans’ Benefits 7 Figure 3 . VA’s Spending on Major Programs Compared With the Number of Veterans, 1970 to 2017 Billions of 2018 Dollars Millions 100 35 Number of Veterans (right scale) 30 75 25 20 50 15 Medical Care 10 25 Education and Vocational Disability Compensation Programs 5 0 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Congressional Budget Office, using data from the Department of Veterans Affairs, Census Bureau, and Bureau of Labor Statistics. Spending reflects net outlays. Data for 1970 to 1999 are not adjusted for the number of monthly payments in a fiscal year (which can vary from 11 to 13). Thereafter, data are adjusted for the timing of payments. Spending on disability compensation includes recurring and nonrecurring payments from VA to veterans for those disabilities. It excludes administrative costs and information technology (IT) spending. In 2017, VA’s Veterans Benefits Administration spent about $3 billion on general operating expenses; across all of VA, IT spending comprised more than $4 billion. Spending on medical care includes outlays from discretionary medical care accounts (medical support and compliance, medical services, medical facilities, and medical community care) and the medical and prosthetic research account. That spending is offset by reimbursements to VA from third parties for medical care, which totaled about $3.5 billion in 2017. Also included are care for nonveterans, which cost VA about $2 billion in 2017 and outlays from mandatory funding provided in the VA Choice Act and in subsequent legislation that extended the Veterans’ Choice Program. Spending to build VA medical facilities is not included. Spending on education and vocational programs includes payments to beneficiaries—veterans, their family members, and some active-duty service members. It includes offsets to those accounts from contributions made by current service members ($150 million in 2017), but not intragovernmental transfers, administrative costs, or IT spending associated with the programs. Other spending (not shown) includes programs such as pensions, housing guarantees and life insurance, contributions from the Department of Defense, service members, and others for various benefit programs, and departmentwide expenses such as IT. In 2006, VA recategorized spending on IT from the medical care and other accounts into its own separate account. VA = Department of Veterans Affairs. Moreover, the number of veterans of previous eras who growth. Those policy changes include more outreach receive disability compensation has increased, particu- by VA to inform veterans of their postmilitary benefits; larly among Vietnam veterans. In 2017, they accounted a streamlined application process for service members for 1.4 million recipients—an additional 650,000 peo- leaving the military that has probably resulted in more ple, or 90 percent increase, since 2000. About 20 percent veterans receiving benefits sooner; and the designation of all Vietnam veterans received disability payments in of several medical conditions, primarily certain health 2017, compared with about 10 percent in 2000. problems related to the use of Agent Orange defoliant, as presumptive for certain Vietnam veterans (that is, VA The aging of the covered population and correspond- presumes those conditions were caused by veterans’ mil- ing increase in their health needs are only some of the itary service, so veterans with any of the conditions need reasons the number of disability recipients has grown. not prove the condition is attributable to their service). An increase in combat-related medical conditions is another factor. However, policy changes since 2000 have Spending per Beneficiary. Not only has the number probably also had a substantial impact on VA’s spending of veterans receiving disability compensation nearly 8 Possible Higher Spending Paths for Veterans’ Benefits December 2018 Table 2 . VA’s Spending per Recipient for Major Programs, 2000 to 2017 Average Annual Rate of Growth (Percent) 2000 2010 2017 2000–2010 2010–2017 Disability Compensation Total spending (Billions of 2018 dollars) 22 43 73 7.2 7.8 Recipients (Millions) 2.3 3.1 4.5 3.2 5.1 Spending per beneficiary (2018 dollars) 9,400 13,800 16,500 3.9 2.6 Medical Care Total spending (Billions of 2018 dollars) 27 50 69 6.4 4.7 Recipients (Millions) 5.1 8.2 9.1 4.8 1.6 Spending per beneficiary (2018 dollars) 5,300 6,200 7,600 1.5 3.1 Education and Vocational Programs Total spending (Billions of 2018 dollars) 2 10 14 16.8 4.8 Recipients (Millions) 0.5 0.9 1.1 7.1 2.8 Spending per beneficiary (2018 dollars) 4,600 10,900 12,600 9.1 2.1 Memorandum: Total VA Spending (Billions of 2018 dollars) a 64 124 180 6.9 5.5 Source: Congressional Budget Office. Spending reflects net outlays and is adjusted for the number of monthly benefit payments (which can vary from 11 to 13) in a fiscal year. Because 13 payments were made in 2000, actual outlays for that year were about $3 billion more than shown above. Spending for medical care includes outlays from mandatory funding provided in the VA Choice Act of 2014 and in subsequent legislation that extended the Veterans’ Choice Program. VA = Department of Veterans Affairs. a.Includes spending on other programs not listed here. doubled since 2000, but the average cost of disability and those Gulf War II payments are rising faster than the compensation per beneficiary has also increased by other payments as well. about 75 percent after adjusting for inflation. That represents an average increase of 3.4 percent annually, For veterans of all eras, spending per beneficiary grew from $9,400 in 2000 to $16,500 in 2017. (All costs for some of the same reasons that the number of ben- are expressed in 2018 dollars and rates of growth are eficiaries increased: The population has aged and some calculated after removing the effects of inflation.) That policy changes have made it easier to both navigate increase is partly attributable to the growing number the system and receive benefits. For instance, Vietnam of service-connected conditions per veteran (which veterans’ medical conditions probably worsened or new climbed, on average, from 2.5 in 2000 to 5.1 in 2017) conditions developed as they entered their 50s and and the resulting rise in the average disability rating 60s. Consequently, many of those veterans requested (from 33 percent in 2000 to 51 percent in 2017). reevaluations of their disability rating. In 2017, VA Although both the average rating and the average benefit increased the disability ratings of about 290,000 veterans have increased for veterans of all eras, a disproportionate (or 6.5 percent of compensated beneficiaries). share is caused by the influx of Gulf War II veterans, particularly combat veterans. (In 2017, those combat Trends in Medical Care veterans had an average of 7.6 disabilities and an average From 2000 through 2017, VA’s net spending on disability rating of 59 percent.) As a result, the average medical care (measured in 2018 dollars) more than payment to Gulf War II veterans is higher than the aver- age payments to Korean War and World War II veterans, December 2018 Possible Higher Spending Paths for Veterans’ Benefits 9 doubled—rising from $27 billion to $69 billion (see Between 2000 and 2017, enrollment grew in most of Table 2).9 Net outlays for that care increased at an aver- the VA’s priority groups.10 The number of veterans with age annual rate of 6.4 percent between 2000 and 2010, service-connected disabilities (priority groups 1 to 3) after removing the effects of inflation. Since then, the more than doubled, from 1.8 million in 2000 to 4.4 mil- pace of growth has slowed to an average of 4.7 percent lion in 2017. The number of those rated 50 percent dis- annually. A continued rise in costs is a potential chal- abled or higher (priority group 1) tripled. The number of lenge for future federal budgets, particularly since current enrolled veterans with higher incomes (priority group 8) spending reflects only a fraction of the potential costs the nearly doubled to about 1.7 million, partly because some agency could incur if all eligible veterans enrolled and new applicants from that group enrolled, primarily in sought all of their care from VA. the early 2000s, and partly because some eligible veterans from other priority groups were reassigned to group 8 Number of Beneficiaries. In 1996, VA received statu- (for example, because their income increased). tory authority to offer medical care to all veterans to the extent that resources and facilities were available. VA also Gulf War II combat veterans enrolled at higher rates rapidly moved to increase outpatient services by adding than veterans of other eras: About 1.6 million of those outpatient facilities as well as new types of services. As Gulf War II combat veterans signed up, more than half a result, enrollment grew quickly. In 2000 (the year in of that population. (More than 600,000 of those veter- which VA’s enrollment system became fully operational), ans are rated at least 50 percent disabled, thus contrib- enrollment stood at 5.1 million. It reached 7.0 million uting to the enrollment growth in priority group 1.) The in 2003, an average annual rate of growth of 11 per- higher enrollment of Gulf War II veterans is explained cent over that three-year period. However, VA lacked in part because VA expanded its outreach programs to the funding to treat more patients at that point, so it service members leaving the military, and also because restricted the ability of higher-income veterans to enroll special eligibility was extended to those veterans. The in VA’s system. Enrollment grew at a slower pace there- aging of the Vietnam-era population also contributed to after, rising to 9.1 million by 2017. The share of veterans the rise in overall enrollment, because the health of those who enrolled in the VA system also grew sharply, from enrollees probably deteriorated when they entered their 20 percent to 46 percent between 2000 and 2017. The 50s and 60s. Some of those veterans had been eligible number of enrolled veterans who sought treatment grew but had not previously enrolled with VA. Others became at a similar pace: 3.5 million veterans were treated in newly eligible for VA medical care once they began 2000, 4.5 million in 2003, and 6.1 million in 2017. (In receiving disability compensation, possibly because of any year, the number of enrollees is larger than the num- VA’s declaration of new presumptive conditions associ- ber of patients: About one-third of enrollees do not seek ated with service in Vietnam. treatment from VA in a given year.) Spending per Beneficiary. Since 2000, medical spending per enrollee has increased substantially, from $5,300 in 2000 to $7,600 in 2017 (in 2018 dollars). Between 2000 and 2010, average annual spending per enrollee grew by 1.5 percent more than the rate of inflation. Thereafter, that difference doubled to 3.1 percent. However, the 9. In this report, spending on medical care includes outlays from the four discretionary medical care accounts (medical support increase was uneven. Expenditures per enrollee fell and compliance, medical services, medical facilities, and medical briefly after 2000 (by about 15 percent through 2003), community care) and the medical and prosthetic research as healthier veterans enrolled and used more of the newly account. It also nets out payments that offset spending, such as available outpatient services rather than inpatient care. reimbursements to VA from third parties for medical care, which After 2003, spending per enrollee began to rise again, in totaled about $3.5 billion in 2017. Spending on nonveterans, which equaled about $2 billion in 2017, is also included. VA part because the mix of enrollees shifted to higher-cost medical care spending also includes outlays from mandatory priority groups. Rising costs for health care in the general funding provided in the VA Choice Act, and from subsequent legislation that extended the Veterans’ Choice Program, for 10. Enrollment declined over the 2000–2017 period among just one which spending equaled $6 billion in 2017. However, it excludes group: veterans who were housebound or catastrophically disabled funding for the construction of VA medical facilities. from non-service-connected conditions (priority group 4). 10 Possible Higher Spending Paths for Veterans’ Benefits December 2018 economy probably also affected VA’s medical spend- Spending for disability compensation, VA’s biggest ing because the agency is subject to many of the same expense in 2017, was $73 billion, an increase of 6 per- pressures as the private sector, such as higher prices for cent from 2016. CBO estimates that net outlays for dis- supplies and increased compensation costs for medical ability compensation totaled about $78 billion in 2018, practitioners. based on preliminary data, about 6 percent higher than net outlays in 2017. Another factor that may have increased VA’s per-enrollee costs is a possible increase in the amount of care enroll- Medical care, VA’s second biggest expense in 2017, ees sought from VA as opposed to other sources of accounted for $69 billion in net outlays, more than care—a ratio known as the rate of reliance. Taken as a 6 percent higher than in the previous year. Of that total, group, enrollees rely on VA for about 35 percent of their about $6 billion in discretionary spending was used to medical care. (About 80 percent of enrollees have other provide community care through its long-established medical care available to them.) The share that relies on programs and another $5 billion in mandatory spend- VA is higher for veterans under age 65 and lower for ing went to a newer, temporary program, the Veterans older veterans who become eligible for Medicare. Some Choice Program. (Those figures reflect net outlays; VA limited evidence suggests that the overall rate of reliance spending was offset in part by $3.5 billion in payments has increased over the past 10 years for both groups. that it received for medical care from veterans and third parties.) CBO estimates that medical care accounted for Although veterans in all priority groups have increased $72 billion of VA’s spending in 2018. their enrollment in the VA system, spending per enrollee and spending growth per enrollee vary widely by priority After disability compensation and medical care, VA’s group. In 2017, average annual expenditures per enrollee third largest expenditures are for education and voca- ranged from about $5,500 for the higher-income veter- tional programs. They accounted for $14 billion of VA’s ans (priority group 8) to $32,900 for veterans who were spending in 2017, a decline of 4 percent compared with housebound or had catastrophic non-service-connected the amount in the previous year.12 The vast majority of disabilities (priority group 4). Contrary to public per- that spending, $11 billion, goes for education benefits ception, the average cost to care for Gulf War II combat provided by the Post-9/11 GI Bill. VA spent less on those veterans is relatively low—less than one-half the average benefits in 2017, primarily because fewer people used the amount spent per enrollee—and it has not been a major Post-9/11 GI Bill benefits. The remainder of VA’s spend- driver in spending growth. That may change, however, as ing—which includes survivor benefits, pensions, housing those veterans age and their health declines. programs, life insurance, information technology (IT) systems and administrative costs for VBA—totaled about Recent Trends in VA’s Spending $24 billion, or 13 percent of the agency’s spending in Although the rate of VA’s spending growth has slowed 2017. somewhat in recent years, annual growth is still sub- stantial. Federal spending (net outlays) in 2017 for VA How Some Recent Legislative Changes Affect totaled $180 billion in 2018 dollars, nearly 4 percent VA’s Medical Spending higher than the $173 billion spent in 2016 (see Table 3). Since 2014, lawmakers have provided funding to expand CBO estimates that VA spent about $187 billion in veterans’ access to community care—medical care pro- 2018, about 4 percent more than in 2017, although that vided by medical practitioners outside of VA facilities amount is based on preliminary data and could change.11 but paid for by VA. Those changes have increased VA’s spending on medical care and will affect future spending. 11. Spending in 2016 and 2018 is normalized to 12 monthly 12. In this report, spending on education and vocational programs payments for recipients of disability compensation and pensions includes VA’s payments to beneficiaries including veterans, and for beneficiaries of education programs to enable comparison their family members, and some active-duty service members. across years. Because 13 payments were made in 2016, total Spending is net of offsets such as contributions from service net outlays for VA were nearly $8 billion higher than stated members ($150 million in 2017). However, it does not include above. Fiscal year 2018 had only 11 payments; if they were not intragovernmental transfers, nor does it include general operating normalized, total net outlays for VA would be about $8 billion costs and IT expenses associated with the program. (Spending has less than the adjusted spending cited in the text. been normalized to 12 monthly payments for those programs.) December 2018 Possible Higher Spending Paths for Veterans’ Benefits 11 Table 3 . VA’s Spending for Major Programs, 2016 to 2018 Billions of 2018 Dollars Annual Rate of Growth (Percent) 2016 2017 Estimated, 2018 2016–2017 2017–2018 Disability Compensation 69 73 78 6.0 6.1  a Medical Care Medical care and research accounts 62 64 67 2.8 5.0 Veterans Choice Program b 3 5 4 87.8 -18.2 Total 65 69 72 6.3 3.3 Education and Vocational Programs c 14 14 13 -4.3 -2.4 Memorandum: Total VA Spending d 173 180 187 3.8 4.1 Source: Congressional Budget Office. Spending reflects net outlays and is adjusted for the number of monthly benefit payments (which can vary from 11 to 13) in a fiscal year. Because 13 payments were made in 2016, actual outlays were about $8 billion more than shown above; 11 payments were made in 2018, and actual outlays were about $8 billion less. VA = Department of Veterans Affairs. a.Includes outlays from discretionary medical care accounts (medical support and compliance, medical services, medical facilities, and medical community care) and the medical and prosthetic research account. That spending is offset by reimbursements to VA from third parties for medical care, which totaled about $3.5 billion in 2017. Also included are care for nonveterans, which cost VA about $2 billion in 2017, and outlays from mandatory funding provided in the VA Choice Act and in subsequent legislation that extended the Veterans’ Choice Program. Spending to build VA medical facilities is not included. b.Includes outlays for medical care from community providers as provided in the VA Choice Act of 2014 and subsequent legislation, including the VA MISSION Act of 2018. c.Includes payments to beneficiaries—veterans, their family members, and some active-duty service members. Also includes offsets to those accounts from contributions made by current service members ($150 million in 2017), but not intragovernmental transfers, administrative costs, or information technology spending associated with the programs. d.Includes spending on other programs not listed here. The Veterans Access, Choice, and Accountability Act appointment or the travel distance to a VA facility does of 2014 provided mandatory funding of $5 billion not meet VA’s standards. The Congress appropriated to expand VA’s in-house capacity and an additional $2.1 billion for the Veterans Choice Program in August $10 billion to establish the Veterans Choice Program, a 2017 and another $2.1 billion in December 2017. (All temporary program intended to improve veterans’ access amounts in this section are expressed in nominal, or to community care for three years or until the funds were non-inflation-adjusted, dollars.) expended.13 To be eligible for that program, veterans must have difficulty accessing care at VA facilities— In June 2018, the VA MISSION Act was signed into for example, either the veteran’s waiting time for an law, further expanding veterans’ access to community care. The MISSION Act requires VA to establish the Veterans Community Care Program (VCCP) and 13. To provide medical care, VA relies primarily on discretionary to provide community care in several situations: for funding—that is, funding the Congress provides through annual instance, when VA facilities do not offer the medical care appropriation acts. However, funding for the Veterans Choice Program, which is provided through other legislation, is classified needed or when a veteran cannot get care in a manner as mandatory. Mandatory spending is generally governed by that complies with VA’s standards for timely access to statutory criteria and is not normally constrained by the annual treatment. VCCP replaces a long-established program appropriation process. 12 Possible Higher Spending Paths for Veterans’ Benefits December 2018 that authorized community care, usually in limited have been modified to reflect the effects on mandatory circumstances, to some groups of enrolled veterans, such spending of recent legislation) and two scenarios that as those who have service-connected disabilities. The new could result in more spending. (VA’s spending could also law both broadens the criteria for offering community be less than projected in the modified baseline; however, care and extends eligibility to all enrolled veterans who because of Congressional concern about budgetary risks, meet the broader criteria. CBO estimates that imple- this report focuses on possible higher spending paths.) menting the new community care program will cost VA The scenarios focus on VA’s largest programs: disability $21.4 billion over the 2019–2023 period, assuming that compensation for veterans with service-connected dis- the Congress appropriates the amounts necessary to fully abilities and medical care. implement the law.14 The law also provides $5.2 bil- lion in mandatory funding to continue the temporary The first scenario, which is based on CBO’s baseline pro- Veterans Choice program. jection, generates the lowest projected outlays, because it is based on current appropriations and does not reflect In addition to expanding access to community care, the VA’s recent history of rising costs. The other two scenar- MISSION Act expands a caregivers’ stipend program. ios would result in higher spending. For the second sce- Under the previous program, enacted in 2010, family nario, CBO again used its modified baseline projection members and others who provided care for Gulf War II for VA spending, with one exception: the cost of medical veterans who were severely injured while they were on care. The assumption that medical care appropriations active duty could receive stipends, health care, and other will grow at the rate of inflation, which is specified in assistance. Under the new law, the program, phased in the law governing CBO’s baseline projections, does not over two stages, will be open to caregivers for all veterans. accord with historical experience. Hence, in Scenario 2, CBO estimates that spending associated with the expan- CBO instead projects how spending would need to grow sion will total $2.5 billion in 2023, a fivefold increase to extend current law (including the recently enacted over the previous program, which cost $0.5 billion in VA MISSION Act) and VA’s policies for medical care, 2017. (Several other provisions in the MISSION Act and to reflect the projected rate of increase in spending also affect veterans’ health care or other VA programs, on health care in the general economy. Because pol- but their costs are less significant.)15 icies for both the disability compensation and medi- cal care programs have changed over the years, CBO Projected Spending for Veterans’ Benefits also constructed a third scenario. In Scenario 3, CBO From 2018 to 2028 projects both disability compensation and medical care Spending on VA programs is affected by many factors differently than it does in the modified baseline. Using that cannot be projected with certainty. CBO therefore historical growth in spending as a guideline, it increases examined three scenarios to illustrate some possible paths spending per beneficiary for disability compensation and for VA’s projected spending over the next 10 years. The medical care at rates similar to those experienced by VA three scenarios capture some possible trajectories for VA’s in the past 10 years (see Table 4). future spending—CBO’s baseline projections (which CBO’s Scenarios for VA’s Spending 14. For a more detailed description of the legislation and projected CBO’s scenarios illustrate some possible paths for VA spending, see Congressional Budget Office, cost estimate spending. Some of the factors underlying those scenarios for H.R. 5674, the VA Maintaining Internal Systems and are uncertain, however. They include the rate of inflation Strengthening Integrated Outside Networks Act of 2018 (enacted as S. 2372), May 2018, www.cbo.gov/publication/53871. in the general economy and, for VA programs specifi- cally, unexpected changes in the number of beneficiaries 15. The law also allows VA to enter into Veterans Care Agreements (for instance, because of increased disabilities resulting with local health care providers, which are not subject to competition or other requirements that normally apply to federal from deployments) and changes to VA’s policies and contracts. CBO estimates that giving VA the legal authority to benefits. This report does not predict future appropri- continue to provide some existing community care through those ations but rather illustrates what VA’s spending would agreements would cost $15 billion over the 2019–2023 period. be if the Congress appropriated funding under various However, costs for such community care have been factored into assumptions. VA’s budget and previous appropriations. Consequently, for the purpose of this analysis, they are not included as an incremental cost to the MISSION Act. December 2018 Possible Higher Spending Paths for Veterans’ Benefits 13 Table 4 . Assumptions Used to Project VA’s Spending Paths Under Alternative Scenarios Scenario 1: Scenario 2: Scenario 3: Modified Baseline Projection Extend Current Policies Extend Past Growth Beneficiaries Disability Eligibility and program parameters reflect Same as Scenario 1 Same as Scenario 1 Compensation current law Medical Care Not modeled; baseline projections extend Existing policies are incorporated Same as Scenario 2 the 2019 level of spending, adjusted for through the projection period (2028) inflation Mandatory spending for the VA MISSION All projected spending for the Same as Scenario 2 Act is incorporated VA MISSION Act is incorporated Veterans Choice Program is not renewed Same as Scenario 1 Same as Scenario 1 once funds are expended Education and Eligibility and program parameters reflect Same as Scenario 1 Same as Scenario 1 Vocational Programs current law Per Capita Growth in Spending Disability Eligibility and program parameters reflect Same as Scenario 1 Growth per beneficiary is about the Compensation current law; growth is about the same as same as VA experienced from 2008 expected for the consumer price index to 2017 Medical Care Not modeled; baseline projections extend Rate of growth per enrollee in the After 2023, rate of growth per the 2019 level of spending, adjusted for medical care spending accounts is enrollee is about the same as VA inflation about the same as expected in the experienced from 2008 to 2017 general economy Mandatory spending for the VA MISSION All projected spending for the Same as Scenario 2 Act is incorporated VA MISSION Act is incorporated Veterans Choice Program is not renewed Same as Scenario 1 Same as Scenario 1 once funds are expended Education and Eligibility and program parameters reflect Same as Scenario 1 Same as Scenario 1 Vocational Programs current law Rate of growth for education and housing Same as Scenario 1 Same as Scenario 1 expenses is about the same as expected in the general economy Source: Congressional Budget Office. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. 14 Possible Higher Spending Paths for Veterans’ Benefits December 2018 Scenario 1: Modified Baseline Projection. This scenario year’s appropriation is continued in each subsequent is based on CBO’s April 2018 baseline budget pro- year, with adjustments each year for projected economy- jection, updated to include an additional $5.2 billion wide inflation.17 The inflation rate used in the baseline is provided for the Veterans Choice Program as part of the a weighted average of the gross domestic product (GDP) MISSION Act. VA’s budget includes both mandatory price index and the employment cost index (ECI) for funding (generally determined by eligibility rules, benefit wages and salaries, with the weights reflecting the shares formulas and other parameters that are set in law) and of personnel costs and other costs in that portion of discretionary funding (which is controlled by annual the budget. For Scenario 1, CBO follows the rules for appropriation acts). CBO’s baseline budget projection is constructing baselines for discretionary programs and prepared following rules specified in law for each type of applies the inflation rate to VA’s total budget for medical funding, primarily the Balanced Budget and Emergency care rather than estimating it per enrollee. The baseline Deficit Control Act of 1985, and with guidance from the does not reflect changes in the number of enrollees, the budget committees. In constructing its baseline, CBO characteristics of those enrollees, or their use of services. generally assumes that existing laws and policies will Moreover, it does not reflect the projected growth in remain unchanged.16 spending that is specific to the U.S. health care sector. It simply extrapolates the growth from the most recent Mandatory Spending. Many of VA’s programs, including appropriation using the general measure of inflation its disability compensation program and education and described above. The modified baseline projection for vocational rehabilitation benefits, are mandatory pro- discretionary spending was not affected by the discre- grams. To project spending for those programs in the tionary provisions of the MISSION Act because funding baseline, CBO estimates the future veterans population, for those provisions had not been appropriated at the applies the programs’ eligibility parameters and estimates time the law was signed. payment growth. For the disability compensation pro- gram, CBO projects its growth in Scenario 1 by esti- Scenario 2: Extend Current Medical Care Policies. For mating the number of beneficiaries over the projection this scenario, CBO takes factors affecting VA medical period, incorporating actual caseload and estimated mor- spending that do not vary in the baseline and allows tality rates from the most recent fiscal year. It projects them to change. Unlike Scenario 1, this scenario also the number of new beneficiaries over the next decade includes the anticipated discretionary spending required on the basis of the number of service members leaving to implement the MISSION Act. Scenario 2 uses CBO’s the military, the estimated total number of veterans over modified baseline projection from Scenario 1 for all the projection period, and the rate at which it is esti- other VA programs. mated veterans will apply for disability benefits. Finally, CBO estimates the average net payment per beneficiary, In Scenario 2, CBO projects what spending would be incorporating a cost-of-living increase as represented by if the Congress appropriated the funding needed to pay the consumer price index (CPI). The projection builds the estimated costs of medical care under VA’s current in adjustments to account for changes that have been policies and to implement the MISSION Act. Other made in law or policy that would substantially affect the than the MISSION Act, Scenario 2 incorporates no number of beneficiaries or average payments. other major changes in current policies, such as VA’s eligibility rules and cost-sharing, and anticipates that VA Discretionary Spending. Most of VA’s medical care pro- would continue to provide essentially the same package grams are discretionary, which means that their funding of services. is controlled by annual appropriation acts. In construct- ing its baseline for discretionary programs, following the The methodology CBO uses differs fundamentally from rules specified in law, CBO assumes that the most recent the baseline’s methodology for projecting discretionary medical accounts. In this scenario, CBO allows the mix 16. CBO’s baseline projection methodology is described in its February 2018 report, How CBO Prepares Baseline Budget 17. The starting point for CBO’s April 2018 baseline budget Projections. The baseline projection that was used to construct projection of spending for medical care is VA’s advance Scenario is summarized in Congressional Budget Office, An appropriation for 2019 as enacted in 2018 for the discretionary Analysis of the President’s 2019 Budget (May 2018), www.cbo.gov/ medical community care, medical services, medical support and publication/53884. compliance, and medical facilities accounts. December 2018 Possible Higher Spending Paths for Veterans’ Benefits 15 of enrollees, the use of medical services per enrollee, and ends in 2023. After 2023, the scenario incorporates the medical inflation to vary over the projection period. To assumption that the spending required to implement the project medical care spending (other than that required MISSION Act’s community care provision grows at the to implement the MISSION Act), CBO uses VA’s same rate per enrollee as health care spending is antic- projections of the future number of enrollees in each pri- ipated to grow in the general economy. CBO projects ority group. (VA’s projections are based on assumptions that the expanded caregivers’ benefits would grow as a similar to those that CBO used for this scenario.) Among measure of wage and salary growth, as represented by the other factors, the enrollment projections incorporate ECI. Scenario 2 also incorporates the assumption that anticipated changes in the number and combat status the VA Choice Program will expire once the funds that of service members separating from military service and have already been appropriated for it are expended. observed patterns in new enrollment.18 In this scenario, CBO uses the most recent values for the veterans’ rates of Scenario 3: Extend the Past Rate of Growth. This reliance on VA’s care and the relative costs of caring for scenario reflects a future in which VA’s per-recipient enrollees in each priority group throughout the projec- spending on disability compensation and medical care tion period.19 CBO estimates the future cost to the VA grows at the annual rates that VA has experienced over of providing that medical care per user, applying the the past decade (2008 to 2017): 3.0 percent and 3.9 per- anticipated growth in national health care spending per cent, respectively. (CBO uses the average growth rate capita to the average cost of a user by priority group.20 over the past 10 years to reduce the effect of shorter-term variations in spending and to exclude the expenses asso- In addition, Scenario 2 includes the effects of the ciated with revamping VA’s medical care program in the MISSION Act on discretionary medical spending. From early 2000s.) For disability compensation, the historical 2019 to 2023, the scenario incorporates the projected growth rate is applied to each year of the projection spending required to implement the law, as reported in period. For medical spending, Scenario 3 is the same as CBO’s cost estimate for the legislation, which estimated Scenario 2 for the first five years of the projection period costs assuming a five-year implementation period that as the MISSION Act is implemented. This scenario incorporates no additional growth over that period as VA 18. CBO relied on data on enrollment, reliance, and relative cost focuses its resources on implementing the new commu- by priority group provided by VA from its Enrollee Health nity care program (for instance, developing standards Care Projection Model (with some adjustments). For a general for timely access to care, contracting with networks of description of some elements of the model, see 2015 VA Enrollee private providers, informing enrollees about their ben- Health Care Projection Model (August 19, 2015), Department efits, and overseeing the initial rollout). For years after of Veterans Affairs, and Government Accountability Office, Veterans’ Health Care: VA Uses a Projection Model to Develop Most 2023, CBO applies the historical growth in spending per of Its Health Care Budget Estimate to Inform the President’s Budget beneficiary. Finally, Scenario 3 uses the same number of Request, GAO-11-205 (January 2011), www.gao.gov/products/ beneficiaries as the previous scenario for both the disabil- GAO-11-205. ity compensation program and medical care. 19. As the health care delivery and insurance markets evolve over the next 10 years, it seems likely that reliance will change; however, Unlike CBO’s modified baseline scenario, Scenario 3 the direction or magnitude of any future change is uncertain. does not incorporate the assumption that current law 20. Using the data described above, CBO determined the number and policy will remain in effect. Instead, under Scenario of full-time-equivalent users (a measure of veterans’ use of VA’s 3, legislative or economic changes or a combination of services) in each priority group for each year of the projection factors may lead to further growth. Specifically, the sce- period. The annual cost for each such user was estimated from nario illustrates how costs would grow if actions by the historical data by priority group. The costs per enrollee by priority Congress and the President, VA, or the courts increased group were inflated using increases in the rate of spending per capita in the general economy for each group as projected by VA spending at the same rate as they have in recent the Centers for Medicare and Medicaid Services and adapted years. For example, the VA Secretary or the Congress by CBO. Calculating full-time-equivalent users enables CBO could establish new presumptive conditions or expand to separately and easily adjust for future changes in reliance and eligibility for medical care to higher-income veterans total cost per user by priority group. For a fuller description of without service-connected disabilities. In addition to CBO’s methodology, see Congressional Budget Office, Potential Costs of Veterans’ Health Care (October 2010), www.cbo.gov/ changes in veterans’ benefits, other factors that could publication/21773. affect spending are possible future deployments, changes 16 Possible Higher Spending Paths for Veterans’ Benefits December 2018 in the economy, or changes in the medical insurance $14 billion in 2017 to $17 billion in 2028) do not market. As in Scenario 2, spending for programs other account for much of the total growth in VA’s spend- than disability compensation and medical care follows ing over the projection period; however, the growth in CBO’s baseline projections. those programs’ spending would exceed general infla- tion by 2.1 percent annually. The number of recipients Possible Spending Paths is expected to flatten out but spending per recipient is Applying the baseline’s methods and price indexes would anticipated to rise annually by 1.7 percent, driven by result in slower projected growth in total spending rates of inflation for housing and education that exceed than in the other two scenarios. Under Scenario 1, VA’s general price increases in the economy. costs would increase by nearly 20 percent from 2017 to 2028.21 By contrast, VA’s costs would increase by about Projected Spending Increase Under Scenario 2 (Extend 33 percent under Scenario 2 and by just over 50 percent current medical care policies). Adjusted for economy- under Scenario 3. wide inflation, spending under Scenario 2 would reach $238 billion by 2028, about one-third higher than the Projected Spending Increase Under Scenario 1 level in 2017—an annual growth rate of 2.6 percent. (Modified baseline projection). Adjusted for inflation, That growth rate is roughly 60 percent higher than under VA’s spending would grow from $180 billion in 2017 Scenario 1 but a little less than half as rapid as VA’s to $215 billion in 2028 (see Table 5). Growth would spending growth between 2010 and 2017. average 1.6 percent annually from 2017 to 2028, sub- stantially less than the 5.5 percent average annual growth In this scenario, more than half of the increase in VA’s that occurred between 2010 and 2017. spending over the projection period is attributable to ris- ing costs for the medical care program. Spending for that Net outlays for disability compensation are projected to program increases to $102 billion in 2028, an average grow from $73 billion in 2017 to $92 billion in 2028, an annual growth rate from 2017 to 2028 of 3.5 percent.22 average annual growth rate of 2.1 percent. That growth About 9 percent of that $102 billion would be for dis- is primarily driven by new recipients (see Table 6). cretionary spending associated with the MISSION Act. CBO estimates that the average number of recipients of Because CBO’s baseline projection is the basis for all but disability compensation would grow by 24 percent, to the medical care portion of this projection, spending on 5.5 million, by 2028. Although CBO anticipates that disability compensation and all other programs remains the number of new beneficiaries in each year would be the same under this scenario as in Scenario 1. higher than it was in the early 2000s, it will be lower than in recent years for at least two reasons: Fewer service Under Scenario 2, enrollment in VA’s medical care members are being deployed to combat regions, and program would increase from 9.1 million in 2017 to most service members who were deployed in support of 9.4 million by 2022 and then drop back to 9.2 million the recent conflicts have left active-duty military service. by 2028, stemming in part from an anticipated decline (Combat veterans are more likely both to receive disabil- in the number of combat veterans leaving the military. ity compensation and to be awarded higher disability At the same time, however, a greater share of enroll- ratings than non-combat veterans.) ees will be veterans with service-connected disabilities because the number of veterans receiving disability By contrast, VA’s medical care spending shows less compensation is expected to continue increasing. The growth (from $69 billion to $78 billion from 2017 vast majority of disability compensation recipients through 2028) in part because of the baseline rules CBO enroll in VA’s medical care program. In 2018, roughly followed to project discretionary accounts. Increases in 50 percent of enrolled veterans are estimated to have spending for education and vocational programs (from 22. That growth does not include increases to build new VA facilities. 21. To compare the scenarios, CBO applied the gross domestic CBO did not estimate such increases partly because there is product (GDP) price index to convert the projections to 2018 substantial uncertainty about how VA might increase its physical dollars. Because CBO projects that wages and salaries will rise presence. Rather than build new facilities, VA could choose to more rapidly than the GDP price index, the modified baseline extend its community care programs, extend hours of operation projection (which incorporates projected increases in wages and at its facilities, or reduce the average length of appointments, salaries) increases in real terms through 2028. among other options. December 2018 Possible Higher Spending Paths for Veterans’ Benefits 17 Table 5 . Spending by VA and for Major Programs in 2028 Under Alternative Scenarios, Compared With 2010 and 2017 Spending Scenario 1: Scenario 2: Scenario 3: Modified Baseline Projection Extend Current Policies Extend Past Growth All of VA Spending (Billions of 2018 dollars) 2010 124 124 124 2017 180 180 180 2028 215 238 272 Increase, 2017–2028 35 59 92 Average Annual Growth (Percent) 2010–2017 5.5 5.5 5.5 2017–2028 1.6 2.6 3.8 Disability Compensation Spending (Billions of 2018 dollars) 2010 43 43 43 2017 73 73 73 2028 92 92 122 Increase, 2017–2028 19 19 49 Average Annual Growth (Percent) 2010–2017 7.8 7.8 7.8 2017–2028 2.1 2.1 4.8 Medical Care Spending (Billions of 2018 dollars) 2010 50 50 50 2017 69 69 69 2028 78 102 105 Increase, 2017–2028 9 32 35 Average Annual Growth (Percent) 2010–2017 4.7 4.7 4.7 2017–2028 1.1 3.5 3.8 Education and Vocational Programs Spending (Billions of 2018 dollars) 2010 10 10 10 2017 14 14 14 2028 17 17 17 Increase, 2017–2028 4 4 4 Average Annual Growth (Percent) 2010–2017 4.8 4.8 4.8 2017–2028 2.1 2.1 2.1 Source: Congressional Budget Office. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. 18 Possible Higher Spending Paths for Veterans’ Benefits December 2018 Table 6 . VA’s Spending per Recipient and by Major Program Under Alternative Scenarios Scenario 1: Modified Baseline Scenario 2: Scenario 3: Projection Extend Current Policies Extend Past Growth Average Average Average Annual Rate Annual Rate Annual Rate of Growth, of Growth, of Growth, Actual, 2017–2028 2017–2028 2017–2028 2017 2028 (Percent) 2028 (Percent) 2028 (Percent) Disability Compensation Total spending (Billions of 2018 dollars) 73 92 2.1 92 1.9 122 4.8 Recipients (Millions) 4.5 5.5 2.0 5.5 1.7 5.5 2.0 Spending per recipient (2018 dollars) 16,500 16,700 0.1 16,700 0.1 22,200 2.7 Medical Care Total spending (Billions of 2018 dollars) 69 78 1.1 102 3.5 105 3.8 Recipients (Millions) 9.1 n.a. n.a. 9.2 0.1 9.2 0.1 Spending per recipient (2018 dollars) 7,600 n.a. n.a. 11,000 3.4 11,400 3.7 Education and Vocational Programs Total spending (Billions of 2018 dollars) 14 17 2.1 17 2.1 17 2.1 Recipients (Millions) 1.1 1.1 0.4 1.1 0.4 1.1 0.4 Spending per recipient (2018 dollars) 12,600 15,100 1.7 15,100 1.7 15,100 1.7 Memorandum: Total VA Spending (Billions of 2018 dollars) a 180 215 1.6 238 2.6 272 3.8 Source: Congressional Budget Office. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs; n.a. = not applicable (CBO’s baseline projection for medical care does not include estimates of the number of enrollees or spending per enrollee). a.Includes spending on other programs not listed here. service-connected disabilities; that share is expected to population.23 Aging of the veteran population will prob- increase to about 60 percent by 2028. Because veter- ably not contribute substantially to the growth in ans with service-connected disabilities also generally cost more to care for than other veterans, their share of 23. CBO’s findings are broadly consistent with other research. VA’s medical spending (excluding the spending for the See Projesh Ghosh, Sebastian Negrusa and John Warner, “Health Insurance, Health Conditions, and Veteran Health MISSION Act) would increase from about 60 percent to Care Utilization,” Defence and Peace Economics, vol. 29, no. 1 nearly 75 percent in 2028. (July 2017), pp. 24–43, https://doi.org/10.1080/ 10242694.2017.1349311, in which the authors predict Besides the spending associated with the VA MISSION substantial increases in outpatient visits to the VA through Act, spending growth for medical care under this the end of their projection period (2023). Also see Christine Eibner and others, Current and Projected Characteristics and scenario is largely driven by the assumption that med- Unique Health Care Needs of the Patient Population Served by ical expenditures per enrollee grow at about the same the Department of Veterans Affairs (RAND Corporation, 2015), rate as CBO projects that they would in the general www.rand.org/pubs/research_reports/RR1165z1.html, which projects some increases in the number of patients treated by VA and a rise in the prevalence of several medical conditions among veterans through the end of RAND’s projection period (2024). December 2018 Possible Higher Spending Paths for Veterans’ Benefits 19 spending because most Vietnam veterans are now over than 50 percent higher than in 2017—an annual aver- 65 and thus qualify for Medicare. (At that age, veterans’ age rate of growth of 3.8 percent (see Table 5 on page reliance on VA drops, and the costs to VA per veteran 17). That rate is nearly 2.5 times greater than under decline until veterans begin using long-term medi- Scenario 1 but about 30 percent lower than the growth cal services, such as nursing home care, in substantial in VA’s health care spending from 2010 to 2017. numbers.) In Scenario 3, the increase in spending on disability In 2028, the amount of medical care spending required compensation dominates increases in other programs. in this scenario would be about $24 billion, or more Spending for that program would reach $122 billion by than 30 percent, higher than the modified baseline 2028, an average annual increase of 4.8 percent. Unlike projection. That difference in spending would be more in the previous scenario, increases in the size of the dis- than the amount required to serve priority groups 6, 7, ability payment per beneficiary would contribute more and 8 in that year under this scenario. Consequently, if toward growth in that program than would increases in lawmakers held VA’s medical care funding to the amount the number of recipients. in CBO’s modified baseline projection (that is, Scenario 1), the projections under Scenario 2 indicate that the Spending for medical care would grow to $105 billion in Secretary of Veterans Affairs would be required under 2028, an annual average increase of 3.8 percent—slightly current law to rescind enrollment for veterans in those higher than in Scenario 2. The annual rate of growth priority groups so that VA could continue to provide per enrollee that is projected for 2017 to 2023 (the years care for the other groups. Even lower-income veterans over which the MISSION Act will be implemented) (priority group 5) would face some limitation on enroll- turns out to be similar to the annual rate of growth ment or other restrictions in access by 2028 if VA were per enrollee over the 2008–2017 period (3.6 percent required to restrain its budgetary growth to the rate in between 2017 and 2023 compared to 3.9 percent over CBO’s modified baseline projections. Priority group 8 that period). The rise in spending per enrollee would be veterans, as the lowest in the statutory list, would be the the primary driver of the growth in medical spending. first to be excluded from receiving services, potentially as As in the previous scenario, if appropriations did not early as 2021. keep pace with the growth that CBO projects under this scenario (as in Scenario 1, for example), the Secretary of Projected Spending Under Scenario 3 (Extend the past Veterans Affairs would have to rescind the enrollment of rate of growth). Spending in this scenario would reach some veterans. $272 billion by 2028, adjusted for inflation, a little more Appendix: Possible Spending Paths for VA in Nominal Dollars T he growth curves in Figure 1 (on page 3) In nominal terms, VA’s spending in the CBO modified and spending growth shown in Table 5 (on baseline (Scenario 1) would total $265 billion in 2028, page 17) are adjusted to remove the effects an increase of about 50 percent above the 2017 amount. of inflation using the gross domestic product Under Scenario 2, spending would grow to $294 billion price index, with values of that index for 2018 through by the end of the projection period (2028), about two- 2028 projected by the Congressional Budget Office. thirds more the 2017 amount. Finally, under Scenario 3, In contrast, the growth curves and spending shown spending would grow to $335 billion in 2028, about 90 in Figure A-1 and Table A-1 are expressed in nominal percent higher than the 2017 amount. dollars, meaning that they include the effects of inflation. 22 POSSIBLE HIGHER SPENDING PATHS FOR VETERANS’ BENEFITS December 2018 Figure A-1 . Some Possible Higher Spending Paths for VA Through 2028, in Nominal Dollars Billions of Nominal Dollars 350 Actual Projected Scenario 3: Extend Past Growth 300 Scenario 2: Extend Current Policies Scenario 1: Modified Baseline Projection 250 200 150 100 50 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Source: Congressional Budget Office. Spending reflects net outlays and is adjusted for the number of monthly benefit payments (which can vary from 11 to 13) in a fiscal year. Because 11 payments were made in 2018, actual outlays for that year were about $8 billion less than shown above. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. APPENDIX POSSIBLE HIGHER SPENDING PATHS FOR VETERANS’ BENEFITS 23 Table A-1 . Spending by VA and for Major Programs in 2028 Under Alternative Scenarios, Compared With 2010 and 2017 Spending (in Nominal Dollars) Scenario 1: Scenario 2: Scenario 3: Modified Baseline Projection Extend Current Policies Extend Past Growth All of VA Spending (Billions of nominal dollars) 2010 108 108 108 2017 177 177 177 2028 265 294 335 Increase, 2017–2028 88 109 150 Average Annual Growth (Percent) 2010–2017 7.2 7.2 7.2 2017–2028 3.8 4.7 6.0 Disability Compensation Spending (Billions of nominal dollars) 2010 38 38 38 2017 72 72 72 2028 114 114 151 Increase, 2017–2028 42 42 79 Average Annual Growth (Percent) 2010–2017 9.6 9.6 9.6 2017–2028 4.2 4.2 7.0 Medical Care Spending (Billions of nominal dollars) 2010 44 44 44 2017 68 68 68 2028 96 125 129 Increase, 2017–2028 28 57 61 Average Annual Growth (Percent) 2010–2017 6.4 6.4 6.4 2017–2028 3.2 5.7 6.0 Education and Vocational Programs Spending (Billions of nominal dollars) 2010 9 9 9 2017 13 13 13 2028 21 21 21 Increase, 2017–2028 8 8 8 Average Annual Growth (Percent) 2010–2017 6.6 6.6 6.6 2017–2028 4.3 4.3 4.3 Source: Congressional Budget Office. CBO’s modified baseline budget projection is based on the April 2018 baseline, adjusted to include appropriated spending for the VA MISSION Act of 2018. The baseline’s starting point includes advance appropriations for 2019 for VA’s discretionary medical care accounts and 2018 appropriations for VA’s other discretionary accounts. VA = Department of Veterans Affairs. List of Tables and Figures Tables 1. VA’s Spending in 2028 Under Alternative Scenarios 4 2. VA’s Spending per Recipient for Major Programs, 2000 to 2017 8 3. VA’s Spending for Major Programs, 2016 to 2018 11 4. Assumptions Used to Project VA’s Spending Paths Under Alternative Scenarios 13 5. Spending by VA and for Major Programs in 2028 Under Alternative Scenarios, Compared With 2010 and 2017 Spending 17 6. VA’s Spending per Recipient and by Major Program Under Alternative Scenarios 18 A-1. Spending by VA and for Major Programs in 2028 Under Alternative Scenarios, Compared With 2010 and 2017 Spending (in Nominal Dollars) 23 Figures 1. Some Possible Higher Spending Paths for VA Through 2028 3 2. Spending on Veterans’ Benefits Compared With the Number of Veterans, 1970 to 2017 6 3. VA’s Spending on Major Programs Compared With the Number of Veterans, 1970 to 2017 7 A-1. Some Possible Higher Spending Paths for VA Through 2028, in Nominal Dollars 22 About This Document This Congressional Budget Office report was prepared at the request of the Chairman of the House Budget Committee. In accordance with CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations. Heidi Golding prepared the report with guidance from David Mosher and Edward G. Keating. Elizabeth Bass, Terry Dinan, Ann Futrell, Sebastien Gay, Sarah Jennings (formerly of CBO), David Newman, Evelio Rubiella, Logan Smith, and David Weaver provided useful comments. David Chu of the Institute for Defense Analyses and Sebastian Negrusa of the Lewin Group pro- vided comments on the draft. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.) Jeffrey Kling, John Skeen, and Robert Sunshine reviewed the report. Elizabeth Schwinn edited the report; and Casey Labrack prepared it for publication. An electronic version of the report is available on CBO’s website (www.cbo.gov/publication/54881). CBO continually seeks feedback to make its work as useful as possible. Please send any feedback to communications@cbo.gov. Keith Hall Director December 2018