November 13, 2013
OPTIONS FOR REDUCING THE DEFICIT: 2014 TO 2023

Discretionary SpendingOption 14

700 - Veterans Benefits and Services

End Enrollment in VA Medical Care for Veterans in Priority Groups 7 and 8

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Discretionary Spending                        
  Budget authority 0 -4.7 -4.9 -5.1 -5.2 -5.4 -5.6 -5.7 -5.9 -6.1 -19.9 -48.5
  Outlays 0 -4.2 -4.8 -5.0 -5.2 -5.3 -5.5 -5.7 -5.8 -6.0 -19.2 -47.6
Change in Mandatory Outlays 0 2.3 2.4 2.5 2.6 2.6 2.7 2.8 2.9 3.0 9.7 23.8

Notes: This option would take effect in October 2014.

Discretionary savings accrue to the Department of Veterans Affairs; increases in mandatory outlays are projected for the Medicare and Medicaid programs and for federal subsidies to purchase health insurance through exchanges.

Veterans who seek medical care from the Department of Veterans Affairs (VA) are enrolled in one of eight priority groups that are defined on the basis of income, disability status, and other factors. The highest priority for access to health care is given to veterans who have service-connected disabilities (priority groups 1 through 3); the lowest priority is given to higher-income veterans who have no conditions that are disabling to the degree that VA provides compensation. Veterans in priority group 8 do not have compensable service-connected disabilities, and their annual income exceeds both VA’s national income threshold and the (generally higher) geographic income threshold that pertains to the veteran’s place of residence. Veterans enrolled in priority group 7 also have no compensable service-connected disabilities; either their income lies between the national and geographic thresholds, or their net worth exceeds VA’s national threshold. As of 2012, about 2.3 million veterans who were enrolled in VA’s health care system had been assigned to priority groups 7 and 8. In any given year, not all of the veterans in those groups seek medical care from VA.

Although veterans in priority groups 7 and 8 pay no annual enrollment fees, they make copayments for their care; if they have private health insurance, VA may bill those insurance plans for reimbursement. Copayments and private-plan billings cover about 18 percent of the cost of care for those veterans. In 2012, VA incurred $4.3 billion in net costs for those patients, or about 8 percent of the department’s total spending for medical care (excluding spending from the medical care collections fund, in which amounts collected or recovered from first- or third-party payers are deposited and used for medical services for veterans). When the priority system was established, in 1996, the Secretary of the Department of Veterans Affairs was given the authority to decide which priority groups VA could serve each year. By 2003, VA could no longer adequately serve all enrollees, prompting the department to cut off new enrollment of veterans in priority group 8. Veterans who were already enrolled were allowed to remain in the program. VA eased that restriction in 2009 to allow some additional enrollment of priority group 8 veterans.

This option would end enrollment of veterans in priority groups 7 and 8 and cancel enrollment of all veterans currently in those two groups. Such action would curtail VA’s health care spending for veterans who do not have service-related medical needs and who are not poor. To be eligible for VA’s medical services under this option, a veteran would have to qualify for a higher priority group by demonstrating a service-connected disability, by documenting income and assets that are below the thresholds, or by qualifying under other criteria (such as having been exposed to Agent Orange, receiving a Purple Heart, being a former prisoner of war, qualifying for Medicaid, or having a catastrophic disability not connected to military service).

Canceling enrollment for all veterans in priority groups 7 and 8 would reduce discretionary outlays, on net, by $48 billion from 2015 through 2023, the Congressional Budget Office estimates. That estimate reflects the assumption that appropriations would be reduced accordingly. However, because this option would result in greater use of other government health care programs, implementing it would increase mandatory spending for Medicare and Medicaid and for federal subsidies provided through the health insurance exchanges by $24 billion between 2015 and 2023.

An advantage of this option is that it would refocus VA’s attention and services on its traditional group of patients—those with the greatest needs or fewest financial resources. Higher-income veterans gained access to the VA system only in the mid-1990s, when the federal budget was under less strain and experiencing less demand for services by higher-priority veterans. In 2012, nearly 90 percent of enrollees in priority groups 7 and 8 had other health care coverage, most notably Medicare and private health insurance. As a result, the vast majority of the veterans who would lose VA coverage under this option would continue to have access to other sources of coverage, and veterans without other health insurance options could qualify for coverage through the health insurance exchanges.

A disadvantage of the option is that veterans enrolled in priority groups 7 and 8 who have come to rely on VA for at least part of their medical care might find their health care disrupted by the change in enrollment rules. Some of those veterans—particularly those with income just above the thresholds—might have difficulty finding other affordable sources of care. In addition, because of the relatively low out-of-pocket cost to veterans for VA health care, veterans switching to alternative sources of care might pay more than they would have paid at VA facilities.