Senate Vets Bill Could Create New $500 Billion Entitlement Program

The Senate voted 93-3 yesterday on new legislation to expand veterans' benefits by allowing beneficiaries to seek out private (non-VA) health care paid for by the Department of Veterans Affairs (VA). Although recent events highlight a real need to improve the veterans health system, the Senate-passed legislation provides an unprecedented "blank check" to the VA, violates every principle of good budgeting, and could add substantially to the national debt.

While the fast timeline of the legislation gave the CBO little opportunity to score the cost of the bill, a preliminary partial CBO estimate suggests just one provision of the legislation could cost more than $35 billion through 2016. Importantly, however, that assumes the provision takes time to ramp up and then the new authority expires after 2016. If enacted, there could be tremendous pressure to extend this new benefit beyond 2016. CBO estimates that, if fully phased in, this provision would cost $50 billion per year -- more than doubling what is currently spent on VA health care.

If the program were permanently extended, and fully phased-in costs grew with the economy, the total cost could exceed $500 billion over the next decade before interest.¹ In other words, the provision could create an entitlement bigger than Medicare Part D when it was enacted, nearly two-thirds the cost of the ACA's coverage provision when it was enacted, three times as large as the House Research and Experimentation (R&E) credit expansion which the President threatened to veto specifically because it irresponsibly increased the deficit, and about 70 times as large as the military retirement reform that Congress repealed last year. In fact, for the cost of making this new entitlement permanent, policymakers could fully repeal the defense sequester.

The tremendous potential cost of the Senate-passed legislation is a direct result of the unprecedented budget powers it puts in the hands of the VA itself. Ordinarily, legislation giving an agency new authority will leave it to the appropriators to decide how much to spend on this authority. On occasion, Congress will pass what is known as a "mandatory appropriation" where a fixed amount of money is given directly to an agency without going through the normal appropriations process.

But this legislation gives an unlimited mandatory appropriation set at "such sums as are necessary." It does not limit the VA's spending in any way, instead giving the agency the authority to spend "such sums necessary" to carry out the provisions of the bill, forgoing any limits or accountability for spending on these activities. That spending would proceed automatically without any further action by Congress or oversight from the Appropriations Committees.

In addition to the estimated costs of contracting with private health care providers, the legislation contains provisions regarding leases of medical facilities and the use of unobligated balances to hire more staff which would increase mandatory spending by an additional $2 billion over ten years. More significantly, the legislation authorizes several new requirements and activities that normally would be subject to annual appropriations but instead would be funded by the open-ended mandatory appropriation for the bill, including a requirement that the VA fill health provider shortages identified by the Inspector General in an expedited manner, improvements in clinic management and telemedicine, and several studies and commissions. There is no estimate for the amount of open-ended mandatory appropriation that would be spent to implement these provisions, but the provision requiring the VA to fill provider shortfalls could add significantly to the costs of the legislation. As a result, the full costs of the legislation could be much higher than the partial CBO estimate indicates.

To make matters worse, Congress (ab)used an 'emergency designation' to exempt itself from pay-as-you-go budget rules meant to prevent huge increases in the debt. As CRFB President Maya MacGuineas explained in a statement: 

The 'emergency' designation is for sudden, unforeseen, and temporary needs - none of which define this situation - not a tool for politicians who are unwilling to pay the bills. Budgeting is about prioritizing, but by resorting to abusing the emergency escape clause, Washington is once again looking for the easy way out.

Unfortunately, the Senate waived the budget rules altogether to pass this legislation, and only three Senators -- Senators Corker (R-TN), Johnson (R-WI), and Sessions (R-AL) -- ultimately stood up for fiscal responsibility.

The House, for its part, passed a similar bill on Tuesday which would require the Office of Management and Budget (OMB) to determine the spending level needed to implement the provisions of the bill and report back to Congress within 30 days. This is a far more responsible approach than offering an unlimited mandatory appropriation. If this bill were signed into law and OMB indicated that additional funding is necessary, OMB should work with Congress to identify offsets to allow additional spending within the existing spending caps.

Comments (subscription required) from House Veterans Affairs Committee Chairman Jeff Miller (R-FL) that a final bill will be paid for are encouraging. As are was Senate Appropriations Committee Chairwoman Barbara Mikulski (D-MD) suggestion that new VA spending be offset within the current spending caps.

There is no question the VA is in need of reform, but policymakers should focus on fixing the VA health care system rather than creating a costly new open-ended entitlement to receive care outside of the VA system. Ideally, new spending would come first from making choices within the appropriations process under the current caps -- for example by focusing VA health care on those with service-related ailments and those of lower or moderate income. Any additional spending outside or above these caps must be fully offset to avoid contributing to our unsustainable national debt.

___________

^{1 CRFB's extrapolations of CBO's cost estimate assume that the provision is fully phased in by 2018 and that the $50 billion cost of fully implementation grows at the rate of GDP after 2015. Various other factors could put upward or downward pressure on the estimate.}