1 GAO-12-383R VA Budget Resources

United States Government Accountability Office

Washington, DC 20548

March 30, 2012

The Honorable Patty Murray

Chairman

The Honorable Richard Burr

Ranking Member

Committee on Veterans’ Affairs

United States Senate

The Honorable Jeff Miller

Chairman

The Honorable Bob Filner

Ranking Member

Committee on Veterans’ Affairs

House of Representatives

Subject: VA Health Care: Estimates of Available Budget Resources Compared with 

Actual Amounts

The Department of Veterans Affairs (VA) is one of the nation’s largest health care 

providers. In fiscal year 2011, VA spent about $51.4 billion to provide health care 

to about 6.2 million patients. To provide this care, VA operates more than 

150 hospitals, 130 nursing homes, 800 outpatient clinics, and 300 readjustment 

counseling centers through 21 regional health care networks known as Veterans 

Integrated Service Networks.1 VA is required by law to provide health care services 

to certain veterans and may provide care to other veterans on a discretionary basis.2

 

1

VA is responsible for providing health care services to various populations, including an aging 

veteran population and a growing number of younger veterans returning from the military operations 

in Afghanistan and Iraq.

In general, veterans must enroll in the VA health care system to receive VA’s 

medical benefits package, which includes coverage for a full range of hospital and 

outpatient services, prescription drug coverage, and noninstitutional long-term care 

2

VA is required to provide health care services to specified veterans, such as those with serviceconnected disabilities, income below a certain level, or other special statuses, such as former 

prisoners of war. See 38 U.S.C. § 1710(a)(1), (2). VA is authorized to provide care to other veterans 

not identified in these groups. See 38 U.S.C. § 1710(a)(3). Requirements for VA health care services 

are effective in any fiscal year only to the extent and in the amount provided in advance in 

appropriations acts for such purposes. See 38 U.S.C. § 1710(a)(4). To manage the provision of 

health care services within available resources, VA operates a system of annual patient enrollment, 

as required by 38 U.S.C. § 1705, in accordance with eight listed priorities.
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services provided in veterans’ own homes and in other locations in the community.3

VA also provides some services that are not part of its medical benefits package, 

such as nursing home care.4

The amount of funding VA receives to provide its health care services is determined 

by Congress in the annual appropriations process. Congress provided new 

appropriations5 of about $48.2 billion for fiscal year 2011 and advance 

appropriations of $50.6 billion for fiscal year 2012 for VA health care.6 In preparation 

for the appropriations process, VA must annually develop a budget estimate of the 

resources that it believes are needed to provide its health care services. This 

estimate is subsequently used to help inform the President’s formal budget request 

for appropriations for VA health care.7

VA’s annual budget estimate for a fiscal year includes estimates of the resources 

available to provide VA health care services.8 This includes an annual estimate of 

the amount of resources expected to be available from collections and 

reimbursements that VA anticipates it will receive in the fiscal year. It also includes 

an estimated amount of resources VA has not spent—known as an unobligated 

balance—that VA is authorized to carry over into the following fiscal year from the 

previous one.9

 

3

VA provides adult day health care, respite care, and other noninstitutional long-term care services as 

part of the medical benefits package provided to all enrolled veterans. See 38 U.S.C. §§ 1701(6)(E), 

1710B; 38 C.F.R. § 17.38.

VA’s collections include third party payments from veterans’ private 

health care insurance for the treatment of nonservice-connected conditions and 

veterans’ copayments for outpatient medications. VA’s reimbursements include 

amounts VA receives for services provided under service agreements with the 

4

VA is required by law to provide nursing home care to certain veterans needing such care who also 

have service-connected disabilities, and VA also makes nursing home care available to other 

veterans on a discretionary basis as resources permit. See 38 U.S.C. § 1710A.

5

We use the term “new appropriations” to refer to the appropriations provided during the current 

annual appropriations process for the upcoming fiscal year and, in the case of “advance 

appropriations,” appropriations provided for the following fiscal year.

6

Veterans Health Care Budget Reform and Transparency Act of 2009, Pub. L. No. 111-81,

§ 3, 123 Stat. 2137, 2137–38 (2009), codified at 38 U.S.C. § 117, provided that VA’s annual 

appropriations for health care include advance appropriations that become available 1 fiscal year 

after the fiscal year for which the appropriations act was enacted.

7

See GAO, Veterans’ Health Care: VA Uses a Projection Model to Develop Most of Its Health Care 

Budget Estimate to Inform the President’s Budget Request, GAO-11-205 (Washington, D.C.: Jan. 31, 

2011); and GAO, Veterans’ Health Care Budget Estimate: Changes Were Made in Developing the 

President’s Budget for Fiscal Years 2012 and 2013, GAO-11-622 (Washington, D.C.: June 14, 2011).

8

VA’s annual budget estimate for a fiscal year also includes estimates of the resources needed to 

meet the expected demand for VA health care services. As we have previously reported, VA uses 

what is known as the Enrollee Health Care Projection Model (EHCPM) to develop most of its estimate 

of the resources needed to meet the expected demand for VA health care services, and VA uses 

other methods to develop the remainder of the estimate. See GAO-11-205. 

9

In addition to new appropriations that VA may receive from Congress as a result of the annual 

appropriations process, funding may also be available from unobligated balances of multiyear 

appropriations, which remain available for a fixed period of time in excess of 1 fiscal year. For 

example, VA’s fiscal year 2012 appropriations provided that about $1.75 billion be available for 

2 fiscal years. These funds may be carried over from fiscal year 2012 to fiscal year 2013 if they are 

not obligated by the end of fiscal year 2012. See Pub. L. No. 112-74, § 227(b), 125 Stat. 786, 1159 

(2011).
3 GAO-12-383R VA Budget Resources

Department of Defense (DOD). As indicated in the President’s budget request for VA 

for fiscal year 2012, VA estimated it would receive $3.4 billion in collections and 

reimbursements and would carry over an unobligated balance of $1.1 billion from 

fiscal year 2011. The President’s fiscal year 2012 budget request assumed that VA’s 

total spending for health care services would be $54.9 billion to serve an estimated 

6.2 million patients.

VA’s estimates of collections, reimbursements, and unobligated balances are part of 

VA’s overall formulation of its annual budget estimate. This process is inherently 

complex, as VA must rely on assumptions and imperfect information. The process 

begins approximately 18 months in advance of the fiscal year for which the 

President is requesting funding. As such, VA’s budget formulation, including its 

estimates of collections, reimbursements, and unobligated balances, occurs with 

significant uncertainty about the future. Our past work has highlighted VA’s 

challenges regarding budget formulation in making realistic assumptions about the 

budgetary impact of policy changes, making accurate calculations, and obtaining 

sufficient data for useful budget projections.10

Given the importance of VA’s collections, reimbursements, and unobligated 

balances in the formulation of its budget estimate and given VA’s budget formulation 

challenges, you asked us to examine VA’s experience estimating these funds in the 

context of the President’s budget request. In this report, we examine how VA:

1. estimates the amount of collections and reimbursements, how the estimated 

amounts have compared to actual amounts in recent years, and what factors 

may explain any differences; and

2. estimates the amount of its unobligated balances, how the estimated amounts 

have compared to actual amounts in recent years, and what factors may 

explain any differences.

To examine how VA estimates the amount of collections and reimbursements for 

budget purposes, how VA’s estimates have compared to actual amounts collected, 

and the factors explaining the differences, if any, we reviewed VA documents and 

interviewed officials from VA’s Veterans Health Administration Office of Finance and 

VA’s Chief Business Office. We also examined other information regarding events 

that took place during the period of our analysis. For example, we examined whether 

or to what extent changes in the health care services VA is required to provide to 

certain veterans may impact VA’s actual collections amounts. We obtained 

information on the methods, data, and assumptions VA used to develop the 

estimates of collections and reimbursements for fiscal years 2005 through 2013. We 

also compared VA’s estimated amounts to the actual amounts VA collected or 

received for fiscal years 2005 through 2011, as reported in the President’s budget 

request for VA. In instances where we identified differences between VA’s estimates 

and actual amounts, we also examined factors that could help explain these 

 

10See GAO, VA Health Care: Budget Formulation and Reporting on Budget Execution Need 

Improvement, GAO-06-958 (Washington, D.C.: Sept. 20, 2006), and VA Health Care: Challenges in 

Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations, GAO-09-664T, 

(Washington, D.C.: Apr. 29, 2009).
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differences. As part of this analysis, we discussed with VA officials the strengths and 

weaknesses of the data we used and examined the consistency of these data in 

order to assess the data’s reliability. We determined that the data were reliable for 

our purposes.

To examine how VA estimates the amount of unobligated balances to be carried 

over from 1 fiscal year to the next, how these estimates have compared with actual 

amounts, and what factors explain the difference, if any, we reviewed documents, 

interviewed officials from VA’s Veterans Health Administration Office of Finance, and 

examined other information regarding events that took place during the time frame 

for our analysis. We obtained information on the methods, data, and assumptions 

VA used to develop the estimates of its obligations—that is, spending—for fiscal 

years 2005 through 2013. We also compared VA’s estimates of its unobligated 

balances with the actual balances available to the agency for fiscal years 2005 

through 2012 as reported in documents such as the President’s budget request for 

VA. In instances when we identified differences between VA’s estimates and actual 

balances, we also identified the factors that could help explain these differences. As 

part of this analysis, we discussed with VA officials the strengths and weaknesses of 

the data we used and examined the consistency of these data in order to assess the 

data’s reliability. We determined that the data were reliable for our purposes.

We conducted our work from July 2011 to March 2012 in accordance with generally 

accepted government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives.

Results in Brief

VA estimates the amount of collections and reimbursements it expects to receive 

each year by using a projection model and other methods. These estimates have 

varied when compared with actual amounts for various reasons. VA used a 

projection model to estimate its collections for fiscal years 2005 through 2012 based 

on data reflecting the amount of health care—known as workload—VA has provided 

in the past and the amounts VA has collected in the past. To estimate its collections 

in fiscal year 2013, VA began using a second projection model, known as the 

Integrated Collections Forecasting Model (ICFM) to estimate collections. The ICFM 

relies on many of the same data sources as VA’s previous collections model, but it 

also incorporates forecasts related to future workload. For fiscal years 2005 

through 2011, VA both overestimated and underestimated its collections. For 

example, for fiscal year 2011, VA overestimated the amount of its collections by 

about $582 million, or 17 percent. VA officials attribute this difference to several 

factors, such as overestimating the amount of collections VA would receive when it 

billed veterans’ third-party insurance plans. To estimate the amount of 

reimbursements it would likely receive in each of the fiscal years, VA used one of 

two methods depending on the year. For fiscal years 2005 through 2011, VA applied 

a growth rate to its most recent full year data on actual reimbursement amounts 

received to reflect anticipated increases in reimbursements, and for fiscal years 
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2012 and 2013, VA relied on individual reimbursement estimates provided by each 

of VA’s 21 Veterans Integrated Service Networks. While VA’s estimates of 

reimbursements were relatively consistent with actual amounts in fiscal years 2005 

through 2007, in fiscal years 2008 through 2011, VA underestimated 

reimbursements by an average of $74 million, or 26 percent annually.

VA estimates its unobligated balances based on anticipated spending, and these 

estimates have been generally less than actual amounts for various reasons. 

Approximately 18 months in advance of the fiscal year for which it is requesting 

appropriations, VA begins to develop an estimate of the unobligated balance likely to 

be carried over from the prior year into that year. VA determines this amount based 

on an estimate of its likely spending—that is, obligations—in that prior fiscal year, 

relative to available resources. To the extent VA does not obligate all of its available 

resources in the previous year, it can carry over these resources into the following 

fiscal year up to the amount authorized by appropriations acts. For fiscal years 2005 

through 2011, VA’s estimates of its unobligated balances available to be carried over 

were generally less than the actual amounts available to be carried over. For 

example, while VA estimated it would have an unobligated balance of $0 to carry 

over into fiscal year 2011, VA’s actual unobligated balance was about $1.4 billion. In 

contrast, for fiscal year 2012, VA’s estimated and actual unobligated balances were 

nearly equal—$1.1 billion and $1.16 billion, respectively. A change in VA policy 

helps explain the changing relationship between VA’s estimates and its actual 

unobligated balances. VA officials told us that prior to fiscal year 2012, VA’s policy 

was for its annual budget estimate to assume that VA would not have unobligated 

balances to carry over that would help lower the request for new appropriations for 

that fiscal year. In order to implement this policy, VA assumed that it would obligate 

all of its available resources during the fiscal year for which they were first made 

available. In contrast, VA officials told us that VA changed this policy so that the 

agency’s annual budget estimate was based on the assumption that VA would have 

an unobligated balance to carry over into fiscal year 2012 in order to help lower the 

amount of new appropriations requested for that year.

In commenting on a draft of this report, VA requested that we replace some of the 

language from our report that described VA’s change in policy when estimating the 

unobligated balance to be carried over into fiscal year 2012. VA requested that we 

substitute language explaining that three unique events contributed to the 

unobligated carry over into fiscal year 2012: a federal pay freeze, savings from 

operational improvements, and updated estimates that reduced program funding 

requirements. We did not remove the language VA requested concerning the 

information on the fiscal year 2012 change in policy that VA officials consistently 

provided us throughout the course of our work. We did, however, revise our draft 

report to include VA’s new information although we also note that VA did not provide 

documentation to support its assertion.
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Background

VA’s annual budget estimate for a fiscal year includes estimates of the collections 

and reimbursements VA expects to receive in the fiscal year and an estimate of the 

unobligated balance VA will carry over into the fiscal year from prior years. VA has 

statutory authority to collect amounts from patients and private insurance companies 

to be obligated for health care services.11 VA collects first-party payments from 

patients, such as copayments for outpatient medications, and third-party payments 

from veterans’ private insurance companies for health care services provided to treat 

health care conditions that are not service connected.12 For fiscal years 2005 

through 2011, about 95 percent of VA’s collections were from first-party payments 

and third-party payments. VA collects the remaining funds for items such as parking 

fees. VA has the authority to deposit these collections into the Medical Care 

Collections Fund and may use them to provide health care services and to pay 

expenses associated with the collections program.13,14

To manage veterans’ access to services in relation to available resources, VA 

assigns veterans to one of eight priority groups for purposes of enrollment in VA 

health care15

 

11See 38 U.S.C. § 1729.

and VA is more likely to collect first- and third-party payments for 

veterans in lower priority categories. The order of priority for the categories is 

generally based on service-connected disability, income, or other special status such 

as having been a prisoner of war. Priority 1—the highest-priority category—consists 

of veterans with a service-connected disability rated at 50 percent or more, based on 

the severity of the disability. Priority 8—the lowest-priority category—consists of 

veterans with no compensable service-connected disability, who have incomes 

exceeding certain thresholds, and are not catastrophically disabled. VA is more likely 

to collect first-party or third-party payments for veterans in the lower priority 

categories who seek medical care at a VA facility, generally because their treatment 

is more likely to be for nonservice-connected health care conditions and they are 

more likely to have private insurance. For example, veterans in Priority Group 1 are 

not required to make copayments for medical care or prescriptions, whereas 

veterans in Priority Group 8 are generally required to make copayments for both.

12VA is not authorized to collect for service-connected treatments from third-party insurers. VA can bill 

enrollees’ private health insurance policies, including Medicare Supplement Insurance, but cannot bill 

Medicare.

13Amounts in the Medical Care Collections Fund are available without fiscal year limitation for VA 

health care and expenses of certain activities related to collections subject to provisions of 

appropriations acts. Appropriations acts have authorized VA to transfer collections to its appropriation 

for Medical Services, but provide for these amounts to be available without fiscal year limitation. See, 

e.g., Pub. L. No. 112-74, § 215, 124 Stat. 786, 1156 (2011); Pub. L. No. 111-117, § 215, 123 Stat. 

3034, 3305 (2009).

14Also, in 2003, 2004, and 2008, we found weaknesses in VA’s collections processes that may impair 

its ability to maximize the amount of dollars VA receives from these sources. See GAO, VA Health 

Care: Third-Party Collections Rising as VA Continues to Address Problems in Its Collections 

Operations, GAO-03-145 (Washington, D.C.: Jan. 31, 2003); VA Medical Centers: Further 

Operational Improvements Could Enhance Third-Party Collections, GAO-04-739 (Washington, D.C.: 

July 19, 2004); and VA Health Care: Ineffective Controls over Medical Center Billings and Collections 

Limit Revenue from Third-Party Insurance Companies, GAO-08-675 (Washington, D.C.: June 10, 

2008).

15See 38 U.S.C. § 1705(a); 38 C.F.R. § 17.36.
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VA’s ability to collect first-party or third-party payments for veterans also varies 

depending on the veteran’s age, employment status, type of insurance, and 

geographic location.

• Veteran age: VA is less likely to be able to collect third-party payments for 

services provided to veterans who are 65 years or older than it is for younger 

veterans because VA is not authorized to collect third-party payments from 

Medicare.16

• Veteran employment status: VA is also less likely to collect first-party or thirdparty payments for veterans who are unemployed. Veterans who are 

unemployed are less likely to be covered by employer-provided insurance plans, 

and VA may require fewer payments for veterans who experience financial 

difficulties.17

• Veteran private insurance type: Finally, VA cannot collect payments from certain 

private insurers. For example, VA cannot collect payments from health 

maintenance organizations (HMO) when VA is not a participating provider unless 

the HMO covers services provided by nonparticipating providers.18 Therefore, VA 

is less likely to collect third-party payments in regions of the country where a 

large percentage of veterans are enrolled in HMOs.

VA also receives reimbursements for services it provides to other government 

entities, such as DOD, or to private or nonprofit entities. For example, VA receives 

reimbursements for services provided under service agreements with DOD and 

reimbursements from other entities by selling laundry services.19 These amounts 

inform funding decisions reflected in the President’s budget request for VA. In fiscal 

year 2011, VA spent about $51.4 billion on health care for veterans and received 

about $3.2 billion, or about 6 percent, in collections and reimbursements.

In addition to new appropriations that VA may receive from Congress as a result of 

the annual appropriations process, as well as collections and reimbursements, 

funding may also be available from unobligated balances from multiyear 

appropriations, which remain available for a fixed period of time in excess of 1 fiscal 

year. For example, VA’s fiscal year 2011 appropriations provided for some amounts 

to be available for 2 fiscal years. These amounts may be carried over from fiscal 

year 2011 to fiscal year 2012 if they are not obligated by the end of fiscal year 2011; 

 

16Veterans who are age 65 or older may have private health insurance policies, such as Medicare 

Supplement Insurance. VA can collect payments from those private health insurers.

17Veterans who experience temporary financial difficulties may apply to their local VA facility for 

hardship waivers to eliminate copayments for a defined period or to have VA waive a specified 

amount of outstanding debt incurred for prior medical services. See 38 U.S.C. § 1710(a)(2)(G); 

38 C.F.R. §§ 17.47, 17.105.

18VA has interpreted the third-party payments statute to mean that HMOs must pay only to the extent 

that they generally cover services provided by health care facilities not affiliated with the HMO and 

that HMOs that have a point-of-service option are required to pay VA the same amount that would be 

paid under the plan to nongovernment providers. See 38 U.S.C. § 1729; 75 Fed. Reg. 62,348, 62,351 

(Oct. 8, 2010).

19GAO-06-958. 
8 GAO-12-383R VA Budget Resources

the remainder expires at the end of 1 fiscal year. VA and the Office of Management 

and Budget consider anticipated unobligated balances, as well as expected 

collections and reimbursements, when formulating the President’s budget request.

VA Estimates Collections and Reimbursements Using a Projection Model and 

Other Methods, and These Estimates Have Generally Differed from Actual 

Amounts

VA uses a projection model each year to estimate most of the amount of 

collections—first-party payments and third-party payments—the agency expects to 

receive, and depending on the year, these estimates have varied from the actual 

amounts to varying degrees. VA estimates the amount of reimbursements it expects 

to receive by adjusting its most recent full year data on actual reimbursements to 

reflect anticipated increases due to inflation and other factors. While VA’s 

reimbursement estimates for fiscal years 2005 through 2007 were relatively 

consistent with actual amounts, in subsequent years, VA’s estimates have been less 

than actual amounts.

Collections Projection Model Estimates

VA uses a projection model to estimate most of the collections—first-party payments 

and third-party payments—the agency is likely to receive each fiscal year. To 

estimate its collections for fiscal years 2005 through 2012, VA used a projection 

model based on data reflecting VA’s past workload and the amounts that VA has 

billed and collected for nonservice-connected health care services in the past. 

During this period, VA made a number of changes intended to improve the 

projection model it used to estimate collections. For example,

• In fiscal year 2007, VA began using data on patient demographics in the model, 

including patient age, gender, and income level. VA officials explained that the 

agency included these data to more accurately account for differences in VA’s 

ability to collect first-party payments from patients and third-party payments from 

their health insurance companies. VA officials said that higher income patients 

are more likely to have health insurance that VA can bill and collect for services 

provided when compared with lower income patients.

• Beginning in fiscal year 2010, VA incorporated additional data into its projection 

model to account for regional differences in the rate patients use medical 

services at each VA medical center and for differences in the average cost of 

health care across VA medical centers. For VA medical centers where the 

average cost per service is higher—due to regional differences in cost of health 

care or to differences in the frequency with which more expensive types of 

medical services are provided—VA can potentially collect more in third-party 

payments.

To estimate its collections for fiscal year 2013 and subsequent years, VA developed 

and began using a second projection model, known as the Integrated Collections 

Forecasting Model (ICFM). VA officials told us that the agency developed the new 

model to provide a more transparent and easily understood approach to forecasting 
9 GAO-12-383R VA Budget Resources

collections. The ICFM relies on many of the same factors from VA’s previous 

projection model, such as patient age, gender, and income level. However, instead 

of using historical workload data, the new model uses workload projections 

developed by VA’s Enrollee Health Care Projection Model (EHCPM), which VA uses 

to develop its annual health care budget estimate.20 The ICFM also incorporates 

information such as veterans’ Priority Group status and insurance coverage; 

economic and medical care market conditions in the region surrounding each VA 

medical center; and each medical center’s historical performance in billing and 

collecting for the medical services provided by the medical centers. VA officials told 

us that this medical center-specific information should improve the new model’s 

ability to forecast collections.

When comparing VA’s collection estimates to the amounts it has actually collected, 

we found that VA has both overestimated and underestimated these collections, 

depending on the fiscal year. For example, for fiscal years 2005 through 2007, VA 

overestimated the amount of collections it would receive by an average of about 

$570 million, or 22 percent. VA overestimated the amount of collections it would 

receive for fiscal years 2005, 2006, and 2007 by about $522 million, $581 million, 

and $606 million respectively. For fiscal years 2006 and 2007, VA estimated that it 

would increase its collections by over $400 million per year based on legislative 

proposals that, if enacted, would have increased certain pharmacy copayments and 

implemented an enrollment fee for some veterans. Congress, however, did not pass 

these proposals. By contrast, for fiscal years 2008 through 2010, VA underestimated 

the amount of its collections by an average of about 6 percent. (See fig. 1.) For the 

most recent fiscal year for which data on actual collection amounts are available, 

fiscal year 2011, VA overestimated the amount of collections by about $582 million 

or 17 percent.

 

20VA used the EHCPM to estimate the resources needed to meet expected demand for 61 health 

care services that accounted for 83 percent of VA’s health care budget estimate for fiscal year 2011 

and similarly for fiscal year 2012.
10 GAO-12-383R VA Budget Resources

Figure 1: Comparison of VA’s Estimated and Actual Collections, Fiscal Years 2005-2011

For fiscal year 2011, VA officials attributed the difference between VA’s estimated 

and actual collections to the following four factors:

• Fewer new Priority 8 veterans enrolled in VA health care through fiscal year 2011 

than VA projected using its EHCPM. As a result, VA received less in third-party 

collections than the collections model projected. On June 15, 2009, VA began 

enrolling new Priority 8 veterans21 after a 6-year suspension.22

 

21A committee report accompanying the Consolidated Security, Disaster Assistance, and Continuing 

Appropriations Act, 2009 stated that funding had been provided within VA’s Medical Services; 

Medical Support and Compliance; Medical Facilities; Construction, Minor Projects; and Information 

Technology Systems accounts to support increased enrollment for Priority 8 veterans whose income

exceeded the current thresholds by 10 percent or less, including $375 million within VA’s Medical 

Services account. Accordingly, VA raised the income thresholds, effective June 15, 2009. See Pub. L. 

No. 110-329, 122 Stat. 3574, 3704-08 (2008); House Comm. on Appropriations, 110th Cong., 

Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, div. E, 750 

(Comm. Print 2008); 38 C.F.R. § 17.36; 74 Fed. Reg. 22,832 (May 15, 2009).

VA’s fiscal year 

2011 estimates for collections assumed that about 270,000 new Priority 8 

veterans would enroll for care by the end of fiscal year 2011 and, as a result of 

this change, VA would receive an additional $144 million in third-party collections 

attributable to care provided to these new enrollees. However, fewer than 30,000 

22The Secretary of Veterans Affairs announced on January 17, 2003, that VA would suspend 

enrolling Priority 8 veterans. Under a statutory provision added by the Veterans Health Care Eligibility 

Reform Act of 1996 the Secretary is required to make an annual decision concerning enrollment in 

VA health care in order to ensure that medical services are timely and acceptable in quality. The 

enrollment system is necessary because VA health care can be provided only to the extent that 

appropriations are available. In its announcement, VA stated that, in recent months, it had been 

unable to provide all enrolled veterans with timely access to medical services because of the increase 

in the number of veterans seeking care from VA. See 38 U.S.C. § 1705; 68 Fed. Reg. 2670 (Jan. 17, 

2003).
11 GAO-12-383R VA Budget Resources

new Priority 8 veterans actually enrolled through fiscal year 2011 and the 

associated increase in collections was only about $18.5 million. As a result, VA 

received approximately $122 million less in third-party collections than the 

collections model estimated. VA officials told us that EHCPM Priority 8 

enrollment projections used for the fiscal year 2012 collections estimate and 

beyond will better reflect the historical experience with the actual number of new 

Priority 8 enrollees. According to VA officials, VA’s EHCPM model developed the 

fiscal year 2011 Priority 8 enrollment projections using less than 6 months of 

actual data—from June 15, 2009, when VA began enrolling new Priority 8 

veterans to January 2010 when VA’s collections estimates for fiscal year 2011 

were finalized. For fiscal years 2012 and beyond, the EHCPM’s enrollment 

projections will be developed using 18 months or more of actual Priority 8 

enrollment data.

• The unemployment rate for veterans was likely higher than VA’s projections—

which were based on economic data for the general population—and thus fewer 

veterans had employer-provided health insurance than projected. VA assumed 

that the average unemployment rate for enrolled veterans for fiscal year 2011 

would be about 8.9 percent nationally and consistent with the unemployment 

projected for the general population that year.23 However, VA officials said that 

the actual average national unemployment rate for the general population for 

fiscal year 2011 was somewhat higher than projected at 9.2 percent, according to 

Bureau of Labor Statistics data.24 Further, although data on veteran 

unemployment are not available for fiscal year 2011, VA officials believe that the 

actual unemployment rate for enrolled veterans that year was likely higher than 

the rate for the general population. VA officials said that they base this view, in 

part, on data from a calendar year 2009 survey, which indicated that the 

unemployment rate for the enrolled veteran population was approximately 

13 percent.25

 

23According to VA officials, VA used unemployment estimates for metropolitan areas that correspond 

to locations of VA medical facilities—developed by Moody’s Analytics 

(https://www.economy.com/default.asp)—for the fiscal year 2011 collections estimate. The 

8.9 percent national unemployment estimate for fiscal year 2011 is an aggregate of these estimates.

VA officials said that they believe a higher actual unemployment 

rate than projected among enrolled veterans resulted in fewer veterans having 

employer–provided third-party insurance than the model projected. As a result, 

VA officials believe that this contributed to VA receiving approximately 

$114 million less in third-party collections than the model estimated for fiscal year 

2011. VA officials said that they have made changes in the collections model 

projections to better account for the higher unemployment rate for enrolled 

veterans, and that these changes were implemented in developing the 

24Bureau of Labor Statistics, Current Population Survey. Report E-1: Employment status of the 

civilian noninstitutional population by sex and age, seasonally adjusted. Accessed January 12, 2012, 

at http://www.bls.gov/web/empsit/cpsee_e01.pdf.

25VA officials said that they used data from the U.S. Census Bureau’s calendar year 2009 American 

Community Survey to develop the unemployment rate for the enrolled veteran population. See 

http://www.census.gov/acs/www/. 
12 GAO-12-383R VA Budget Resources

collections estimates which will appear in the President’s budget request for

fiscal year 2013, including the advance appropriations request for 2014.26

• VA received fewer collections when VA billed veterans’ third-party insurance 

plans than VA’s collections model projected—using historical billing data. 

According to VA officials, this was mainly due to shifts in third-party insurance 

plan benefits. In recent years, according to VA officials, insurance plans have 

shifted costs by increasing the out-of-pocket expenses of patients and by 

decreasing the amount paid to medical providers. VA officials told us that the 

collections model assumed that VA would be reimbursed for about 41 percent of 

the total costs VA billed to third-party insurance plans, known as the third-party 

collections to billing ratio. Instead, during fiscal year 2011, VA’s actual third-party 

collections to billing ratio was approximately 36 percent. This difference resulted 

in VA receiving about $250 million less in collections than VA’s model estimated.

• VA amended its rules regarding herbicide exposure-related conditions and 

implemented changes to veterans’ eligibility for health care. VA amended its 

regulations to classify certain conditions as presumptively service-connected for 

veterans exposed to certain herbicides, which reduced VA’s ability to collect 

payments because VA cannot collect first- or third-party payments for treatment 

of service-connected conditions.27 VA’s collections were also estimated to 

decrease as a result of VA’s implementation of changes to veterans’ eligibility for 

VA health care made by the Caregivers and Veterans Omnibus Health Services 

Act of 2010.28 According to VA officials, VA received $67 million less in 

collections than the model estimated because these changes occurred after the 

collections estimates were made.

Estimates Less than Actual Reimbursements

For fiscal years 2005 through 2013, VA estimated the amount of reimbursements—

fees for services provided under service agreements with DOD—it would likely 

receive in each of the fiscal years using one of two general methods, depending on 

the year. For fiscal years 2005 through 2011, VA officials told us that the agency 

estimated the amount of reimbursements it would likely receive each fiscal year by 

applying a growth rate to its most recent full year data on actual reimbursement 

amounts received in order to reflect increases due to anticipated rates of inflation 

 

26VA officials stated that the agency did not use this new methodology when developing the fiscal 

year 2013 advance appropriations request which appeared in the President’s budget request for fiscal 

year 2012. 

27On August 31, 2010, VA amended its regulations to add ischemic heart disease, hairy cell leukemia 

and other chronic B-cell leukemias, and Parkinson’s disease to the list of diseases presumed to be 

related to exposure to certain herbicides. As a result, VA stopped collecting payments from eligible 

veterans who were exposed to certain herbicides and subsequently diagnosed with these conditions. 

See 75 Fed. Reg. 53,202 (Aug. 31, 2010) (amending 38 C.F.R. § 3.309).

28The law (1) exempted catastrophically disabled veterans from copayments for hospital care and 

medical services (estimated $6.6 million reduction in collections); (2) classified veterans who received 

the Medal of Honor into Priority Group 3 (estimated $4,000 reduction in collections); and (3) removed 

the expiration date for the authority to provide treatment to veterans who were exposed to herbicides 

in Vietnam and redefined the time period that constitutes the Persian Gulf War (estimated $9.9 million 

reduction in collections). See Pub. L. No. 111-163, §§ 511-513, 124 Stat. 1130, 1164-65 (2010).
13 GAO-12-383R VA Budget Resources

and other factors.29 To develop its estimates for reimbursements for fiscal years 

2012 and 2013, VA relied on individual reimbursement estimates provided by each 

of VA’s 21 Veterans Integrated Service Networks.

While VA’s estimates of reimbursements were relatively consistent with actual 

amounts in fiscal years 2005 through 2007, in subsequent years, VA’s estimates 

have been less than the actual amounts. VA underestimated reimbursements by 

about $17 million, or 8 percent, in fiscal year 2005, and overestimated 

reimbursements by $4 million in fiscal year 2006 and $35 million in fiscal year 2007, 

or by 2 percent and 13 percent respectively. However, in fiscal years 2008 through 

2011, VA underestimated reimbursements by an average of $74 million, or 

26 percent annually. (See fig. 2.) VA officials attributed the differences between its 

estimated and actual reimbursements to factors such as an increase in the number 

of VA’s sharing agreements with the Department of Defense, which has led to actual 

reimbursements exceeding estimates.

Figure 2: Comparison of VA’s Estimated and Actual Reimbursements, Fiscal Years 2005-2011

 

29To develop its estimates for reimbursements for fiscal year 2011, VA used the aggregate growth 

rate the agency uses to develop its overall budget estimates. Agency officials referred to this as the 

EHCPM aggregate growth rate, and it is the growth rate incorporated into the EHCPM and used to 

inform the President’s annual budget request for VA.
14 GAO-12-383R VA Budget Resources

VA Estimates Its Unobligated Balances Based on Anticipated Spending, and 

These Estimates Have Been Generally Less than Actual Amounts for Various 

Reasons

VA estimates unobligated balances of appropriations available for more than 1 fiscal 

year—that is, amounts that may be carried over from one fiscal year to the next—

based on an estimate of its anticipated spending—that is, obligations—in the 

previous fiscal year, relative to those available resources. VA estimates about 

83 percent of its obligations for that previous fiscal year using the EHCPM, which 

incorporates actual data from the most recent fiscal year. This estimate is developed 

about 10 months before the President’s request is made and about 18 months 

before the fiscal year begins for which the appropriations are requested30 and for 

which VA is estimating the availability of an unobligated balance. For example, VA 

developed its estimates of the unobligated balances available at the beginning of 

fiscal year 2012 by developing estimates for its likely obligations for fiscal year 2011, 

which were based on EHCPM output in fiscal year 2009. VA also uses other data for 

the remaining portion of obligations (17 percent), which includes long-term care, 

special initiatives, and other services.

Since fiscal year 2005, VA’s estimates of its unobligated balances have been less 

than the actual amounts available to carry over into the next fiscal year, with the 

exception of amounts carried over from fiscal year 2011 into fiscal year 2012, the 

most recent year for which data on actual amounts are available. For example, VA 

initially estimated it would have unobligated balances of $510 million to carry over 

into fiscal year 2010 and nothing into 2011. However, the actual amounts available 

to be carried over were $1.9 billion and $1.4 billion, respectively, for those years. In 

contrast, VA’s estimated and actual unobligated balances carried over into fiscal 

year 2012 were about the same—$1.1 billion and $1.16 billion, respectively. Figure 3 

shows the comparison of estimated and actual unobligated balances that were 

available to be carried over into fiscal years 2005 through 2012.

 

30The President’s budget request for VA for fiscal year 2011 also included an advance appropriations

request for fiscal year 2012. VA develops estimates for a request for advance appropriations about 

30 months prior to the fiscal year for which the request is made. One year later, VA develops 

estimates again for the same fiscal year. These estimates are made about 18 months prior to the 

fiscal year and are incorporated into the President’s budget request for the fiscal year, including 

revisions to estimates of unobligated balances to be carried over.
15 GAO-12-383R VA Budget Resources

Figure 3: Comparison of Estimated and Actual Unobligated Balances, Fiscal Years 2005-2012

Note: The bars in the figure represent the estimated and actual unobligated balances carried over into each fiscal year. For 

example, for fiscal year 2005, the bars represent the estimated and actual unobligated balances on October 1, 2004.

VA policy helps explain the relationship between VA’s estimates and its actual 

unobligated balances. VA officials told us that for fiscal year 2012, VA made a policy 

decision in advance to assume it would carry over an unobligated balance of 

$1.1 billion from fiscal year 2011 into 2012 to help lower the amount of new 

appropriations requested for this year. As a result, VA’s estimated and actual 

unobligated balances were about the same in fiscal year 2012. According to VA 

officials, this assumption was made for fiscal year 2012 in the context of a more 

challenging fiscal environment. In March 2012, VA officials informed us that the 

actual $1.16 billion unobligated balance VA carried over into fiscal year 2012 

resulted from what the agency identified as three unique events: a federal pay freeze 

($237 million), savings from operational improvements ($746 million), and updated 

estimates of program requirements ($117 million). However, VA officials did not 

provide documentation to support VA’s assertion that these events accounted for the 

agency’s unobligated balance that year. In regard to VA’s estimate of $746 million in 

savings from operational improvements, in particular, we have previously reported 

our concerns with some of the estimates of savings from operational improvements 

provided in the request for appropriations for fiscal year 2012 and advance 

appropriations for fiscal year 2013.31 It is unclear whether VA used the same 

methods to estimate this $746 million because VA did not provide documentation.

 

31See GAO, VA Health Care: Methodology for Estimating and Process for Tracking Savings Need 

Improvement, GAO-12-305 (Washington, D.C.: Feb. 27, 2012).
16 GAO-12-383R VA Budget Resources

In contrast, VA officials also told us that for fiscal years 2008 through 2011, VA’s 

policy was for its annual budget estimate to assume that VA would not have 

unobligated balances available that would help reduce the new appropriations 

requested.32 In order to implement this policy, VA assumed that it would obligate all 

of its available resources during this period. However, VA did not obligate all of its 

available resources as projected, and this largely accounts for the differences 

between VA’s estimates and actual unobligated balances. For example, according to 

VA officials, in fiscal years 2008-2010, VA was not able to obligate all of its 

resources due to the following factors:

• Longer-than-expected award process for planned service contracts. According to 

VA officials, when VA is in the process of finalizing its award of a contract for 

medical services, the agency reserves the full amount of funds associated with 

that contract; however, if VA receives concurrent bids from competing entities, 

the award process takes longer. Specifically, if VA is in the process of evaluating 

bids near the end of the fiscal year, VA may not be able to complete its 

evaluation and award the contract before the end of the fiscal year. As a result, 

VA does not incur an obligation and carries over the associated funds into the 

next fiscal year and awards the contract in the new fiscal year.

• Delays in planned hiring. According to VA officials, given that the agency has an 

average 16 percent turnover rate each year, VA often experiences delays 

associated with filling these vacancies that range from 90 to 180 days. As a 

result, VA carries over amounts planned for these positions from one fiscal year 

to the next when the vacancies are filled.

• Multiyear appropriations designated for specific initiatives. For any given fiscal 

year, VA typically receives multiyear appropriations that allow VA to carry over 

unobligated amounts beyond that fiscal year. Additionally, in some instances, 

Congress designates amounts for specific projects or initiatives. If VA does not 

implement the specific project or initiative during the fiscal year, it can use its 

multiyear appropriations to fund the project or initiative in the next fiscal year. For 

example, for fiscal year 2009, Congress appropriated $250 million for the 

establishment and implementation of a new rural health outreach and delivery 

initiative, but VA was not able to establish and implement the rural health 

initiative in fiscal year 2009. Because Congress authorized VA to carry over up to 

$1.6 billion into fiscal year 2010, VA was able to carry over the designated 

amount—that is, $250 million—into fiscal year 2010 for the establishment of the 

rural health initiative.

In addition, differences between VA’s estimated and actual amounts of unobligated 

balances for certain fiscal years can be attributed to unanticipated resources—that 

is, supplemental appropriations—that VA has received. For example, in May 2007, 

Congress appropriated over $1.3 billion in supplemental funds to VA, as part of the 

U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability 

 

32VA officials told us that, for fiscal year 2010, VA included an estimate of the unobligated balance to 

reflect funds made available through the American Recovery and Reinvestment Act of 2009, which 

were available for 2 fiscal years—2009 and 2010. See Pub. L. No. 111-5, 123 Stat. 115, 199 (2009).
17 GAO-12-383R VA Budget Resources

Appropriations Act, 2007.33 VA carried over about $830 million of these funds, which 

were to remain available until expended, into fiscal year 2008. This amount 

accounted for over 60 percent of the difference between VA’s estimated and actual 

unobligated balances carried over into fiscal year 2008. In addition, in February 

2009, Congress appropriated $1 billion in supplemental funds for VA health care, as 

part of the American Recovery and Reinvestment Act of 2009.34 VA carried over 

about $740 million of these funds into fiscal year 2010. This amount accounted for 

40 percent of VA’s actual unobligated balance carried over into fiscal year 2010. 

These supplemental appropriations were provided by Congress after the President’s 

budget request was submitted in February; therefore, VA could not have accounted 

for these additional resources when developing its estimates of the unobligated 

balances.

Agency Comments and Our Evaluation

We provided a draft of this report to VA for comment. In its written comments, 

reproduced in enclosure I, VA requested that we replace some of the wording we 

used to describe and compare VA’s estimate and the actual amount of the 

unobligated balance carried over into fiscal year 2012 with alternative wording VA 

suggested. VA also provided technical comments, which we incorporated as 

appropriate. 

In its written comments, VA requested that we remove language from our report that 

stated that according to VA officials, VA changed its policy when estimating a 

$1.1 billion unobligated balance to be carried over into fiscal year 2012, in order to 

help lower the amount of new appropriations VA requested for that year. VA also 

requested that we remove language explaining that this change in policy helped 

account for the consistency between VA’s estimate and the actual amount of the 

unobligated balance carried over into fiscal year 2012. In place of the language VA 

suggested removing, VA requested that we insert language explaining that three 

unique events contributed to the unobligated balance of approximately $1.1 billion 

carried over into fiscal year 2012. VA said that these events were a federal pay 

freeze, savings from operational improvements, and updated estimates that reduced 

program funding requirements. 

We did not delete the language VA requested because VA officials consistently told 

us throughout the course of our work that VA changed its policy for estimating the 

amount of its unobligated balance to be carried over into fiscal year 2012 and that 

this change in policy accounted for VA’s budget justification showing an estimated 

amount of $1.1 billion to be carried over into that year. VA officials also told us that in 

prior years VA’s policy was to estimate smaller unobligated balances to be carried 

over or even a balance of zero for fiscal year 2011, for example, because VA’s intent 

was to obligate all of the agency’s available resources. The new policy for fiscal year 

2012 resulted in a substantially larger estimate than in recent years and helped 

 

33See Pub. L. No. 110-28, 121 Stat. 112, 167-68 (2007). The funds were to remain available until 

expended.

34See Pub. L. No. 111-5, 123 Stat. 115, 199 (2009). These funds, appropriated to VA’s Medical 

Facilities account, remained available until September 30, 2010. 
18 GAO-12-383R VA Budget Resources

account for the consistency that year between VA’s estimate and the actual amount 

carried over, VA officials told us during our review.

Although we did not remove the language as VA suggested, we revised our report to 

include VA’s assertion that the amount of VA’s unobligated balance carried over into 

fiscal year 2012 resulted from the three unique events VA identified in its written 

comments. However, we also revised our report to note that VA did not provide 

documentation to support this statement. During the course of our work, we asked if 

VA officials could provide us with a breakdown of the unobligated carryover amount 

by program activity and were told that they could not. Finally, regarding VA’s 

asserted $746 million in savings from operational improvements, we have previously 

reported our concerns with some of the estimates of savings from operational 

improvements provided in the request for appropriations for fiscal year 2012 and 

advance appropriations for fiscal year 2013.35

– – – – – 

We are sending copies of this report to appropriate congressional committees and

the Secretary of Veterans Affairs. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

Should you or your staff have questions concerning this report, please contact me at 

(206) 287-4860 or WilliamsonR@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this 

report. Key contributors to this report are listed in enclosure II.

Randall B. Williamson

Director, Health Care

Enclosures – 2 

 

35GAO-12-305. 
Enclosure I

19 GAO-12-383R VA Budget Resources

Comments from the Department of Veterans Affairs

Note: Page numbers in 

the draft report may differ 

from those in this report.
Enclosure I

20 GAO-12-383R VA Budget Resources
Enclosure II

21 GAO-12-383R VA Budget Resources

GAO Contact and Staff Acknowledgments

GAO Contact

Randall B. Williamson, (202) 512-7114 or williamsonr@gao.gov

Staff Acknowledgments

In addition to the contact named above, James C. Musselwhite, Assistant Director; 

Melissa Wolf, Assistant Director; Matthew Byer; Krister Friday; Lisa Motley; and Said

Sariolghalam made key contributions to this report.

(290960)
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