Lifetime Cost of Treating Latest Generation of Veterans Higher than Predicted

by U.S. Medicine

November 14, 2010

WASHINGTON, DC—In March 2008, when federal officials were quoting a wide range of numbers when citing the cost of the wars in Iraq and Afghanistan, a book was published that calculated an estimated total price tag that included the cost of OEF/OIF veterans’ healthcare and disability expenses over their lifetime. The book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict, put the total estimated cost at between $3 trillion and $5 trillion—a figure that Congressional reports later agreed with.

However, according to the book’s authors, economists Linda Bilmes, PhD, and Joseph Stiglitz, PhD, their estimates from two years ago are too low. Data gleaned from veterans who have redeployed over the last two years suggests the number is closer to $4 to $6 trillion, with most of that increase due to an increase in veterans seeking care through VA and the increased availability of that care.

How We Count The Cost

Testifying before the House Veterans Affairs Committee at a hearing held just after Congress recessed, Stiglitz and Bilmes explained to legislators that the federal government has not done nearly enough in terms of calculating the future cost of the Iraq and Afghanistan conflicts. “Looking at long-term costs for wars is important, because the costs last so long,” said Stiglitz, who is the former chief economist at the World Bank and a 2001 Nobel Laureate in Economics. “Disability claims for WWI veterans did not peak until 1969.”

Even the numbers showing what is currently being spent on the war are misleading, because the data is spread out across a large and complex federal budget. The Congressional Budget Office continues to use accounting framework that focuses on the budget costs of the war for 10 years, Stiglitz explained. The only suggestion that the cost goes beyond the cessation of combat missions is a notation in the US Treasury’s financial statements for 2009 noting that the US liability for burial and disability benefits for military veterans exceeds $1.3 trillion. And even that, Stiglitz declared, not does reflect the full liability, because it excludes medical care and other benefits.

“And there is no provision anywhere in the budget for how this liability will be paid,” he noted. “The way we account for our troops matters. For example, from the sole perspective of military accounting, the cost of a soldier’s life is valued at $500,000—$400,000 in life insurance and $100,000 in death gratuity payment.”

That does not reflect the full cost, Stiglitz said. The figure does not take into account the cost to the military of recruiting and training a new troop to replace the one who is lost, and the impact on morale and mental health on the rest of the unit, which may result in higher medical costs. It also does not reflect the economic loss of the death of a young person. “By contrast, when civilian agencies such as the EPA and FDA are evaluating a proposed regulation—when they compare the cost of imposing a regulation to the potential lives saved—they estimate the value of a life at between $6 million and $8 million,” he argued.

Reality Revises the Numbers

Over the past nine years more than 2.1 million Americans have served more than 3 million tours of duty.  More than 1.25 million veterans from these conflicts have returned home. As of October, 5,700 servicemembers have died in conflicts and more than 90,000 have been wounded in action or injured seriously enough to require medical evacuation. A much larger number—600,000—have been treated in VA facilities.

Evidence from previous wars shows that the most significant long-term budgetary cost of war is providing medical care to those who have served, and paying disability compensation, pensions, and other benefits to eligible veterans, Bilmes stated. “[That evidence shows] the cost of caring for war veterans continues [and] typically rises for several decades and peaks in 30 to 40 years or more after a conflict.  The costs rise over time as veterans get older and their medical needs grow.”

When the two economists published their book two-and-a-half years ago, they were producing estimates basted on historical patterns from previous wars. With data from more than 400,000 recent returning veterans, Bilmes and Stiglitz are revising their figures, raising them by 25% to 30%.

“The most striking finding is that veterans from recent wars are utilizing VA medical services and applying for disability benefits at much higher rates than previous wars,” Bilmes told legislators.

In 2008, they projected that a little less than 400,000 returning veterans would file disability claims by 2010. To date, more than 513,000 have applied. They also estimated that the cost of providing medical care and disability for returning veterans would be between $400 and $700 billion depending on the length and intensity of the conflict and future deployment levels. Their new estimates put the cost between $589 billion and $984 billion.

About three-quarters of that increase is due to a higher number of disability claims and higher use of medical services, Bilmes explained. The higher rate of medical care usage is the result of higher survival rates for seriously wounded, higher incidents of PTSD and other mental health problems, more veterans willing to seek treatment for mental health, more generous medical benefits, more presumptive conditions, and higher benefits in some categories.

The high incidence of PTSD also skews the estimates upwards. “The high incidence of PTSD means the medical cost of current conflicts will continue to rise at a rapid rate for many decades,” Bilmes said. “This was the experience with Vietnam veterans diagnosed with PTSD. And recent studies show that PTSD sufferers are at a higher risk for heart disease, RA, bronchitis, asthma, liver, and peripheral arterial disease. They are 200% more likely to be diagnosed with a disease within five years from returning from deployment.”

According to Bilmes, veterans with PTSD utilize non-mental health services 71% to 170% more than those without PTSD.

VA is also partly responsible for this increase, Bilmes declared. By increasing free care for new veterans from two years to five, opening the system back up to priority 8 veterans, making PTSD claims easier to file, adding claims processors, and investing heavily in IT and mental health, VA has made VA care easier to access and is able to handle more claims.

Bilmes and Stiglitz had estimated two years ago that about 30% of returning veterans—fewer than 400,000—would have been treated in VA by 2010. The actual number is approaching 600,000—about 45% of discharged troops.

The New Price Tag

The cost of medical care and disability benefits for veterans has a price tag that the US government is not prepared for, declared Committee Chair Rep Bob Filner, D-CA. The current federal budget system, where VA medical care is appropriated as discretionary funding, will only make it harder to fulfill the nation’s obligations to veterans in the future.

While VA disability benefits are appropriated as mandatory funding—meaning they are calculated and fixed every year—VHA’s budget is at the discretion of Congress. Any increase in discretionary spending must be offset by an equal decrease elsewhere in what is known as a “pay-go” system.

“We have to [off-set using] pay-go. But the Department of Defense doesn’t have to. The system we have in Congress makes it easier to send our soldiers into harm’s way than care for them,” Filner declared. “Every Congressional appropriation for war should include money for a Veterans’ trust fund that will assure that the projected needs of our wounded and injured soldiers are fully met at the time that they are needed.”

Both Bilmes and Stiglitz agreed with the concept of mandatory funding for VA healthcare. Asked if it was possible to calculate the cost of things like benefits and medical care at the outset of a war, Stiglitz said, “You can’t estimate it perfectly. But you can get a reliable estimate that could be the basis of a surcharge. Whether you express it as a percentage of defense appropriations or a separate tax, it would be very easy to do that.”

Something like a trust fund would insulate this money against what Stiglitz sees as several decades of tight federal budgets. “For the next 20 or 30 years we are going to be facing very difficult budgetary problems. They’re not going to go away. There’s no easy way out of that. The reality then is that under the current pay-go framework, that supporting these obligations that we’ve undertaken to our veterans [has] to compete with every other expenditure. And there will be pressure.”

Filner defended the concept, noting that private businesses are required to account for deferred liability every year.  “Our federal government has no such requirement when it comes to the deferred liability of meeting the needs of our men and women in uniform—even though meeting these needs is a moral obligation of our nation and a fundamental cost of war.”

At the very least, there needs to be a mandatory funding component to VA healthcare, Bilmes added. VA ran short of funds in 2005 and 2006, and a GAO report in 2009 found that VA’s estimation of long-term care costs was unreliable. As a result, VA is now required to do appropriations request two years in advance. “However, using their current model, VA cannot estimate operating needs two and a half years in advance,” Bilmes declared.

Whatever step the federal government takes, it will need to be done now in order to prepare for the next several decades of providing care to OIF/OEF veterans, Bilmes explained. “The cost of veterans’ care is approaching what we’ve spent on actual combat operations. The tale of this war—the tale of any war—is very, very long.”

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