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

Veterans who seek medical care from the Department of Veterans Affairs (VA) are enrolled in one of eight priority- care groups that are defined on the basis of income, disability status, and other factors. Veterans in priority group 8 do not have service-connected disabilities, and their annual income or net worth exceeds both VA's means-testing thresholds and VA's geographic income thresholds, which are updated annually. Veterans enrolled in priority group 7 have no service-connected disabilities, and their income is above the VA's means-testing threshold but below the VA's geographic index. About 2.3 million veterans who are currently enrolled in the VA health care system have been assigned to priority groups 7 and 8; not all of those veterans seek medical care from VA in any given year.

Although veterans in those groups pay no annual enrollment fees, they make copayments for their care; if they have private health insurance, VA bills those insurance plans for reimbursement. Copayments and private-plan billings cover about 18 percent of the cost of those veterans' care. In 2009, VA incurred $4.4 billion in net costs for those patients, or about 11 percent of the department's total appropriations for medical care (excluding 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 law 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 close enrollment for priority groups 7 and 8 and cancel the 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 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 were below the means-testing thresholds, or by qualifying under other criteria (such as exposure to Agent Orange, status as a Purple Heart recipient or a former prisoner of war, eligibility for Medicaid, or catastrophic non-serviceconnected disability).

Disenrolling all priority groups 7 and 8 veterans would reduce discretionary outlays on net by almost $30 billion between 2012 and 2016 and by about $62 billion between 2012 and 2021. Those estimates reflect the assumption that appropriations would be reduced accordingly. However, because this option would result in greater use of other government health care programs, implementing the option would increase mandatory spending for Medicare and Medicaid and for federal subsidies provided through health insurance exchanges by about $15 billion between 2012 and 2016 and by $34 billion between 2012 and 2021.

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 without service- connected disabilities 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 2007, 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 have continued access to other sources of coverage, and veterans without other health insurance options could be eligible to obtain coverage through health insurance exchanges in future years.

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 whose income was just above the income thresholds--might have difficulty identifying other 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.