Based on an innovative model from Washington state , states have the opportunity to help veterans improve their benefits and save millions of dollars for their own budgets.
Using a US Department of Health and Human Services national database called PARIS, Washington’s Department of Social and Health Services has launched a program that identifies veterans on Medicaid. If those veterans are found eligible for health coverage, long-term care benefits or pensions through the US Department of Veterans Affairs (VA) or Department of Defense, they can be taken off the state’s Medicaid rolls. Since 2003, Washington state has shaved $18 million from their Medicaid  budget by qualifying over 5,600 veterans and their families for VA or Defense Department coverage. The program in Washington is designed to ensure that until clients qualify for a VA monthly cash benefit that makes them financially ineligible for state public assistance, they maintain existing state benefits.
The Public Assistance Reporting Information System  (PARIS) was originally designed to weed out people who were cheating state benefit systems by receiving benefits from more than one state. But in realizing how effective the database can be in not only providing veterans with more comprehensive health and related benefits and trimming state spending in the process, no less than 20 other states have expressed interest in following Washington's example.
For example, Montana implemented the system  in 2007 and has saved almost $900,000 in Medicaid costs. Since last November, Colorado has identified  about 1,600 potentially eligible individuals or families that could save the state up to $8 million a year. California began a 2009 pilot program of the system in three counties. According to California’s Legislative Analyst’s Office , the state could save $25 million per year if only 10% of its veteran population switched from enrollment in Medicaid to health coverage through the VA.
The program of course doesn't reduce medical costs overall, but by shifting spending from the states to the federal government, it both eases state budget deficits and ensures that veterans, who have earned the right to access the full range of VA benefits, are informed of their eligibility so they can exercise that right.
CMS letter to State Medicaid Directors: Background of PARIS  (June 21, 2010)
Washington State Department of Social & Health Services - Interface between PARIS and the Veteran Benefit Enhancement Project 
Washington State Department of Social & Health Services - DSHS Veterans Project
CA Legislative Analyst Office - Analysis of Veterans’ Benefits
USA Today - States try to link up vets with federal government benefits
The Bellingham Herald - Benefits Program Helps Veterans and State Taxpayers.