President Obama, after an uproar by veterans groups, has scrapped a plan to require private insurance carriers to reimburse the Department of Veterans Affairs for the treatment of troops injured in service.

"In considering the third-party billing issue, the administration was seeking to maximize the resources available for veterans," White House press secretary Robert Gibbs said Wednesday in a written statement. "However, the president listened to concerns raised by the [veteran service organizations] that this might, under certain circumstances, affect veterans' and their families' ability to access health care.

"Therefore, the president has instructed that its consideration be dropped," Gibbs said.

Obama met with 11 veterans service organizations on Monday and explained his plan to increase funding for Veterans Affairs by $25 billion over five years and bring more than 500,000 eligible veterans of modest income into the VA health care system by 2013.

But the American Legion, the nation's largest veterans group, said the president's plan would have increased premiums, made insurance unaffordable for veterans and imposed a massive hardship on military families. It could have also prevented small businesses from hiring veterans who have large health care needs, the group said.

The American Legion applauded Obama's decision to drop the plan on Wednesday.

"We are glad that President Obama listened to the strong objections raised by The American Legion and veterans everywhere about this unfair plan," Cmdr. David K. Rehbein of the American Legion said. "We thank the administration for its proposed increase in the VA budget and we are always available to assist by providing guidance to ensure a veterans health are system that is worthy of the heroes that use it."

The American Legion wants the existing system to remain in place. Service-related injuries currently are treated and paid for by the government. The American Legion has proposed that Medicare reimburse the VA for the treatment of veterans.