VA Health Bill Should Be Offset

The House will vote this week on a bill that would temporarily extend then replace the Veterans Choice Program, which allows veterans facing long wait times or who live far from Department of Veterans Affairs (VA) health facilities to visit non-VA health care providers. According to CBO, the bill will cost $4.5 billion on the mandatory side and potentially sets the stage for significant new discretionary (or future mandatory) costs. Though the bill would fund an important priority in caring for veterans, its costs should be fully paid for rather than added to the already-unsustainable national debt.

The Veterans Choice Program was established in 2014 to allow veterans to see non-VA providers if they lived at least 40 miles from a VA facility or faced a wait time of at least 30 days. The final version of this program was much more limited than the initial House and Senate bills, which offered open-ended entitlements that we warned could have ultimately cost $500 billion over a decade. Still, the Veterans Choice Program has required over $12 billion of mandatory funding in the last four years – funding that will run out in the next two to four weeks.

A new House bill (H.R. 5674) expected to get a full House vote later this week would provide funding to extend the program for a year before a new program, the Veterans Community Care program, would take its place (as well as replace existing VA community care programs). The bill would spend an additional $5.2 billion on the VA Choice Program over the next year and a half while offsetting $0.7 billion of these costs in 2028, resulting in a net mandatory cost of $4.5 billion ($6.3 billion with interest). The new Veterans Community Care program would be funded out of the existing discretionary budget – at least in theory – and CBO estimates it will cost about $5 billion to $6 billion per year. The total discretionary cost of the bill would be $10 billion to $15 billion per year.

Regardless of where the money comes from, policymakers will need to finance the cost one way or another, and the funds shouldn't come from adding to the debt. The direct cost of the bill should be fully offset with mandatory savings or revenue as under PAYGO rules, and the discretionary costs should be offset either with other discretionary savings or with fully paid-for cap adjustments or increases.

While offsets need not come from other veterans or military programs, there are plenty of funds available if policymakers choose to take this approach. The below table presents a number of possible options.

Potential VA Funding Offsets

Provision Ten-Year Savings
Discretionary Spending Options
Make working-age military retirees ineligible for TRICARE Prime $60 billion
End VA health system enrollment for higher-income groups with conditions less related to military duty $28 billion
Cap basic pay raises for military service members at the growth of the Employment Cost Index minus 0.5% $25 billion
Increase TRICARE enrollment fees and cost sharing for working-age military retirees $16 billion
Replace some military personnel with civilian employees $15 billion
Reduce annual adjustment for military retirees under age 62 $10 billion
Mandatory Spending Options
Eliminate concurrent receipt of retirement pay and disability compensation for disabled veterans $139 billion
Introduce minimum out-of-pocket requirements under TRICARE for Life $27 billion
Exclude disabilities unrelated to military duty for veterans' disability compensation eligibility $256 billion
Restrict VA's individual unemployability benefits to disabled veterans below the Social Security age $40 billion
Institute a time limit for disability benefit applications after leaving active duty $10-30 billion
Use highest five instead of highest three earning years to determine federal pensions and eliminate supplement $5 billion^
Reduce VA housing allowances to DoD levels $3 billion
Reinstate round-down of VA cost-of-living adjustments $2 billion
Adjust threshold for certain VA medical evaluations and simplify compensation net-worth calculations $1 billion
Modify rules for education benefits transferred to dependents under Post-9/11 GI bill  $1 billion
Cap Post–9/11 GI Bill benefits for flight training  $1 billion
Revenue Options
Eliminate exclusion of veterans' disability payments $94 billion
Eliminate exclusion for armed forces benefits $70 billion
Eliminate exclusion for GI Bill benefits ~$20 billion
Eliminate exclusion for combat pay $15 billion
Eliminate exclusion for military disability pensions $2 billion

Sources: CBO, JCT, OMB, and CRFB calculations.

Note: Discretionary spending options can only be used to offset other discretionary spending unless spending caps are also lowered.

^Includes savings from both civilian and military retirement. Savings from just military retirement are $2 billion.

Whatever form a final bill ultimately takes, it should deal with the Veterans Choice Program permanently, be limited in cost rather than open-ended, and, most importantly, be fully offset. We'll follow up with more detailed analysis in the coming days, but lawmakers should fully offset the direct cost of this bill, as well as consider options to finance the long-term increase in discretionary spending, which could be done through reductions to other discretionary spending, reductions in mandatory programs, or increases in revenue.