Veterans’ Medical Care: FY2007 Appropriations
Released: 2007-02-28T00:00:00

Most Recent Developments

On February 15, 2007, the President signed into law the Revised Continuing Appropriations Resolution, 2007 ( H.J.Res. 20 , P.L. 110-5 ). P.L. 110-5 , among other things, funded several agencies including the Department of Veterans Affairs (VA). The Revised Continuing Appropriations Resolution provides $32.7 billion for the Veterans Health Administration (VHA) for FY2007, a $14.7 million increase over the President's request and $3.3 billion above the FY2006 enacted amount (see Table 1 ). This amount includes $25.5 billion for medical services, $3.2 billion for medical administration, $3.6 billion for medical facilities, and $413.7 million for medical and prosthetic research. These amounts are the same as the President's request except for the medical and prosthetic research account, which is $14.7 million above the President's request (see Table 5 ). The Revised Continuing Appropriations Resolution does not include any provisions that would give VA the authority to implement fee increases as requested by the Administration's budget proposal for VHA for FY2007.

Funding for the Defense and Veterans' Brain Injury Center1

During Senate floor consideration of the FY2007 Department of Defense Appropriations Act ( H.R. 5631 ), controversy erupted over the adequacy of funding for the Defense and Veterans' Brain Injury Center, a facility that coordinates treatment and research for traumatic brain injuries affecting active-duty military, their dependents, and veterans. Concerned about the incidence of traumatic and other brain injuries in Iraq and Afghanistan resulting from Improvised Explosive Device (IED) attacks, Congress increased DOD's funding request for this program in FY2006, and commissioned an extensive report that was due on October 6, 2006. In FY2007, the final funding level for this program will be set in the conference version of the Military Construction, Military Quality of Life, Veterans Affairs and Related Agencies bill ( H.R. 5385 ). Notwithstanding the controversy about the funding level for this particular program, military personnel are entitled to full medical coverage under the TRICARE program.

The Defense and Veterans' Brain Injury Center, funded within the Blast Injury Prevention, Mitigation and Treatment program, received $10.7 million of the $19.6 million appropriated from the program in FY2006 (see Table 2 ). Last year, Congress increased DOD's request for the blast injury program from $7 million to $19.6 million, including monies for both treatment and research and development (R&D), all funded under the Defense Health program.

In FY2007, the Administration again requested $7 million for the Blast Injury Prevention, Mitigation and Treatment program, including $4.9 million for the Defense and Veterans' Brain Injury Center (see Table 2 ). On September 6, 2007, the Senate unanimously adopted an amendment to the FY2007 DOD Appropriations bill ( H.R. 5631 ) offered by Senators Allen and Durbin (SA4883) that made $19 million available from monies for Defense Health for the Defense and Veterans' Brain Injury Center. The House did not change DOD's request for $7 million for the Blast Injury Prevention, Mitigation and Treatment program, and funded the program in a different bill, Military Construction, Military Quality of Life and Veterans Affairs Appropriations bill ( H.R. 5385 ).

During conference, the funding provision for the Defense and Veterans' Brain Injury Center was dropped from H.R. 5631 , and the final enacted Department of Defense Appropriations Act, 2007 ( H.R. 5631 , P.L. 109-289 ) did not include any funding for the Defense and Veterans' Brain Injury Center. The Revised Continuing Appropriations Resolution, 2007 ( H.J.Res. 20 , P.L. 110-5 ) has not explicitly delineated the amount of funding that will go to the Defense and Veterans' Brain Injury Center, although it is expected that it will be funded at the FY2007 requested level.

Background

The Department of Veterans Affairs (VA) provides a range of benefits and services to veterans who meet certain eligibility rules, including disability compensation and pensions, education, training and rehabilitation services, hospital and medical care, home lone guarantees, and death benefits that cover burial expenses. VA carries out its programs nationwide through three administrations and the board of veterans appeals (BVA). The Veterans Health Administration (VHA) is responsible for health care services and medical research programs. The Veterans Benefits Administration (VBA) is responsible, among other things, for providing compensations, pensions, and education assistance. The National Cemetery Administration (NCA) is responsible for maintaining national veterans cemeteries, providing grants to states for establishing, expanding or improving state veterans cemeteries, and providing headstones and markers for the graves of eligible persons, among other things.

VA's budget includes both mandatory and discretionary spending accounts. Mandatory funding supports disability compensation, pension benefits, vocational rehabilitation, and life insurance, among other benefits and services. Discretionary funding supports a broad array of benefits and services, including medical care. In FY2006, discretionary budget authority accounted for about 48% of the total VA budget authority, with most of this discretionary funding going toward supporting VA health care.

VHA operates the nation's largest integrated direct health care delivery system. VA's health care system is organized into 21 geographically defined Veterans Integrated Service Networks (VISNs). While policies and guidelines are developed at VA headquarters to be applied throughout the VA health care system, management authority for basic decision making and budgetary responsibilities are delegated to the VISNs. Congressionally appropriated medical care funds are allocated to the VISNs based on the Veterans Equitable Resource Allocation (VERA) system, which generally bases funding on patient workload. Prior to the implementation of the VERA system, resources were allocated to facilities primarily on the basis of their historical expenditures. Unlike other federally funded health insurance programs, such as Medicare and Medicaid, which finance medical care provided through the private sector, VHA provides care directly to veterans.

In FY2005, VHA operated 156 hospitals, 135 nursing homes, 43 residential rehabilitation treatment centers, and 711 community-based outpatient clinics (CBOCs). VHA also pays for care provided to veterans by independent providers and practitioners on a fee basis under certain circumstances. Inpatient and outpatient care is provided in the private sector to eligible dependents of veterans under the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). In addition, VHA provides grants for construction of state-owned nursing homes and domiciliary facilities, and collaborates with DOD in sharing health care resources and services.

During FY2005, VHA provided medical care to about 4.9 million unique veteran patients, a caseload that is estimated to increase by about 108,000, or 2.2% in FY2006 (see Table 3 ). According to VHA estimates, the number of unique veteran patients is estimated to increase by approximately 45,000 in FY2007. As shown in Table 3 , there would be a 3.6% increase in the total number of unique patients (both veterans and non-veterans), from 5.3 million in FY2005 to 5.5 million in FY2007.

The total number of outpatient visits reached 52.3 million during FY2005 and is projected to increase to 55.5 million in FY2006 and 58.5 million in FY2007. In FY2005, VHA spent approximately 61.7% of its medical care obligations on outpatient care.

Since 1946, VHA has been associated with training physicians and other health care professionals and has become an essential component of health care higher education in the United States. Veterans' health care facilities are affiliated with 107 of the nation's 126 medical schools, and participate in graduate medical education (GME) through integrated residency programs administered through medical schools and academic health centers. VHA is also affiliated with over 1,200 other schools offering students allied and associated education degrees and certificates in 40 health profession disciplines. In FY2005, about 31,000 physician residents and fellows—17,000 medical students, 24,000 nursing students, and 18,000 allied health residents and fellows—received some or all of their training in VA medical centers.

The rest of this report tracks VHA's FY2007 appropriations and provides a brief summary of funding levels for VHA for FY2006, including a discussion on supplemental appropriations for FY2005 and FY2006. It also discusses the Administration's budget proposal for FY2007, and the final enacted amounts for FY2007. The report begins with a brief overview of eligibility for VA health care, VHA's enrollment process, and its enrollment priority groups.

Eligibility for Veterans' Health Care and the Promise of Free Health Care

To understand VA's medical care appropriations and the Administration's major policy proposals discussed later in this report, it is important to understand eligibility for VA health care, VA's enrollment process, and its enrollment priority groups. Unlike Medicare or Medicaid, VA health care is not a entitlement program. Contrary to numerous claims made concerning "promises" to military personnel and veterans with regard to "free health care for life," not every veteran is automatically entitled to medical care from VA. Prior to eligibility reform in 1996, all veterans were technically eligible for some care, however, the actual provision of care was based on available resources.

The Veterans' Health Care Eligibility Reform Act of 1996, P.L. 104-262 , established two eligibility categories and required VHA to manage the provision of hospital care and medical services through an enrollment system based on a system of priorities. P.L. 104-262 authorized VA to provide all needed hospital care and medical services to veterans with service-connected disabilities, former prisoners of war, veterans exposed to toxic substances and environmental hazards such as Agent Orange, veterans whose attributable income and net worth are not greater than an established "means test", and veterans of World War I. These veterans are generally known as "higher priority" or "core" veterans. The other category of veterans are those with no service-connected disabilities and with attributable incomes above an established "means test."

P.L. 104-262 also authorized VA to establish a patient enrollment system to manage access to VA health care. As stated in the report language accompanying P.L. 104-262 , "the Act would direct the Secretary, in providing for the care of 'core' veterans, to establish and operate a system of annual patient enrollment and require that veterans be enrolled in a manner giving relative degrees of preference in accordance with specified priorities. At the same time, it would vest discretion in the Secretary to determine the manner in which such enrollment system would operate."

Furthermore, P.L. 104-262 was clear in its intent that the provision of health care to veterans was dependent upon the available resources. The Committee report accompanying P.L. 104-262 states that the provision of hospital care and medical services would be provided to "the extent and in the amount provided in advance in appropriations Acts for these purposes. Such language is intended to clarify that these services would continue to depend upon discretionary appropriations."

VHA Health Care Enrollment

As stated previously, P.L. 104-262 required the establishment of a national enrollment system to manage the delivery of inpatient and outpatient medical care. The new eligibility standard was created by Congress to "ensure that medical judgment rather than legal criteria will determine when care will be provided and the level at which care will be furnished."

For most veterans, entry into the veterans' health care system begins by completing the application for enrollment. Some veterans are exempt from the enrollment requirement if they meet special eligibility requirements. A veteran may apply for enrollment by completing the Application for Health Benefits (VA Form 10-10EZ) at any time during the year and submitting the form online or in person at any VA medical center or clinic, or mailing or faxing the completed form to the medical center or clinic of the veteran's choosing. Once a veteran is enrolled in the VA health care system the veteran remains in the system and does not have to re-apply for enrollment annually. However, those veterans who have been enrolled in Priority Group 5 based on income must submit a new VA Form 10-10EZ annually with updated financial information demonstrating inability to defray the expenses of necessary care.

Eligibility for VA health care is primarily based on "veteran's status" resulting from military service. Veteran's status is established by active-duty status in the military, naval, or air service and a honorable discharge or release from active military service. Generally, persons enlisting in one of the armed forces after September 7, 1980, and officers commissioned after October 16, 1981, must have completed two years of active duty or the full period of their initial service obligation to be eligible for VA health care benefits. Veterans discharged at any time because of service-connected disabilities are not held to this requirement. Furthermore, reservists who were called to active duty and who completed the term for which they were called, and who were granted an other than dishonorable discharge, or were National Guard members who were called to active duty by federal executive order, and who completed the term for which they were called, and who were granted an other than dishonorable discharge are also exempt from the 24 continuous months of active duty requirement.

When not activated to full-time federal service, members of the reserve components and National Guard have limited eligibility for VA health care services. Members of the reserve components may be granted service-connection for any injury they incurred or aggravated in the line of duty while attending inactive duty training assemblies, annual training, active duty for training, or while going directly to or returning directly from such duty. Additionally, reserve component servicemembers may be granted service-connection for a heart attack or stoke if such an event occurs during these same periods. The granting of service-connection makes them eligible to receive care from VA for those conditions. National Guard members are not granted service-connection for any injury, heart attack, or stroke that occurs while performing duty ordered by a governor for state emergencies or activities.

After veteran's status has been established ,VA next places applicants into one of two categories. The first group is composed of veterans with service-connected disabilities or with incomes below a established means test. These veterans are regarded by VA as "high priority" veterans, and they are enrolled in Priority Groups 1-6 (see Appendix A ). Veterans enrolled in Priority Groups 1-6 include:

veterans in need of care for a service-connected disability; veterans who have a compensable service-connected condition; veterans whose discharge or release from active military, naval or air service was for a compensable disability that was incurred or aggravated in the line of duty; veterans who are former prisoners of war (POWs); veterans awarded the purple heart; veterans who have been determined by VA to be catastrophically disabled; veterans of World War I; veterans who were exposed to hazardous agents (such as Agent Orange in Vietnam) while on active duty; and veterans who have an annual income and net worth below a VA-established means test threshold.

VA also looks at applicants' income and net worth to determine their specific priority category and whether they have to pay copayments for nonservice-connected care. In addition, veterans are asked to provide VA with information on any health insurance coverage they have, including coverage through employment or through a spouse. VA may bill these payers for treatment of conditions that are not a result of injuries or illnesses incurred or aggravated during military service. Appendix B provides information on what categories of veterans pay for which services.

The second group is composed of veterans who do not fall into one of the first six priority groups. These veterans are primarily those with nonservice-connected medical conditions and with incomes and net worth above the VA established means test threshold. These veterans are enrolled in Priority Group 7 or 8. Appendix C provides information on income thresholds for VA health care benefits.

Funding for VHA

VHA is funded through multiple appropriations accounts that are supplemented by other sources of revenue. Although the appropriations account structure has been subject to change from year to year, traditionally the appropriation accounts used to support VHA include medical care, medical and prosthetic research, and medical administration. In addition, Congress also appropriates funds for construction of medical facilities through a larger appropriations account for construction for all VA facilities. In FY2004, "to provide better oversight and [to] receive a more accurate accounting of funds," Congress changed VHA's appropriations structure. The Department of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act, 2004 ( P.L. 108-199 , H.Rept. 108-401 ) funded VHA through four accounts: (1) medical services; (2) medical administration; (3) medical facilities; and (4) medical and prosthetic research. Provided below are brief descriptions of these accounts.

Medical Services

The medical services account covers expenses for furnishing inpatient and outpatient care and treatment of veterans and certain dependents, including care and treatment in non-VA facilities; outpatient care on a fee basis; medical supplies and equipment; salaries and expenses of employees hired under Title 38, United States Code; and aid to state veterans homes.

Medical Administration

The medical administration account provides funds for the expenses in the administration of hospitals, nursing homes, and domiciliaries; billing and coding activities; quality of care oversight; legal services; and procurement.

Medical Facilities

The medical facilities account covers, among other things, expenses for the maintenance and operation of VHA facilities; administrative expenses related to planning, design, project management, real property acquisition and deposition, construction, and renovation of any VHA facility; leases of facilities; and laundry and food services.

Medical and Prosthetic Research

This account provides funding for VA researchers to investigate a broad array of veteran-centric health topics such as treatment of mental health conditions, rehabilitation of veterans with limb loss, traumatic brain injury and spinal cord injury, organ transplantation, and the organization of the health care delivery system. VA researchers receive funding not only through this account but also from DOD, the National Institutes of Health (NIH), and from private sources.

Medical Care Collections Fund (MCCF)

In addition to direct appropriations through the above accounts, the Committees on Appropriations include medical care cost recovery collections when considering the amount of resources needed to provide funding for VHA. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ), enacted into law in 1986, gave VHA the authority to bill some veterans and most health care insurers for nonservice-connected care provided to veterans enrolled in the VA health care system, to help defray the cost of delivering medical services to veterans.

The Balanced Budget Act of 1997 ( P.L. 105-33 ) gave VHA the authority to retain these funds in the Medical Care Collections Fund (MCCF). Instead of returning the funds to the Treasury, VA can use them for medical services for veterans without fiscal year limitations. To increase VA's third-party collections, P.L. 105-33 also gave VA the authority to change its basis of billing insurers from "reasonable costs" to "reasonable charges." This change in billing was intended to enhance VA collections to the extent that reasonable charges result in higher payments than reasonable costs. In FY2004, the Administration's budget requested consolidating several medical collections accounts into MCCF.

The conferees of the Consolidated Appropriations Act of 2004 ( H.Rept. 108-401 ) recommended that collections that would otherwise be deposited in the Health Services Improvement Fund (former name), Veterans Extended Care Revolving Fund (former name), Special Therapeutic and Rehabilitation Activities Fund (former name), Medical Facilities Revolving Fund (former name), and the Parking Revolving Fund (former name) should be deposited in MCCF. The Consolidated Appropriations Act of 2005, ( P.L. 108-447 , H.Rept. 108-792 ) provided VA with permanent authority to deposit funds from these five accounts into MCCF. The funds deposited in MCCF would be available for medical services for veterans. These collected funds do not have to be spent in any particular fiscal year and are available until expended.

As shown in Table 4 , MCCF collections increased by 56% from $1.2 billion in FY2002 to almost $1.9 billion in FY2005. During this same period, first-party collections increased by 59% from $485 million in FY2002 to $772 million in FY2005. In FY2005, first-party collections represented approximately 41% of total MCCF collections.

FY2006 Budget Summary36

During the past year, Congress considered several appropriation measures to provide funding for VHA. Aside from the regular FY2006 appropriations bill that provides funding for VHA, Congress passed several measures that included funding to bridge the shortfall for VHA for FY2005 and provided additional funding for FY2006. Given below is a brief description tracking Congressional action on FY2006 appropriations for VHA. Table 5 provides details of funding levels for the various accounts that comprise funding for VHA.

House Action

On May 23, 2005, the House Committee on Appropriations reported H.R. 2528 ( H.Rept. 109-95 ), making appropriations for Military Quality of Life and Veterans Affairs and Related Agencies for FY2006 (MilQual appropriations bill). The House passed H.R. 2528 on May 26, 2005. The MilQual appropriations bill appropriated $28.8 billion for VHA. Under the House-passed version of H.R. 2528 , the total amount of funds available for VHA was $31.0 billion, including $2.2 billion in collections (see Table 5 ).

Budget Shortfall

On June 23, 2005, at a hearing of the House Veterans Affairs Committee the Administration announced that the increased medical care cost for FY2005 was about $1 billion more than the FY2005 enacted amount. Moreover, at a subsequent hearing before the House Committee on Appropriations, Subcommittee on Military Quality of Life and Veteran Affairs, on June 28, 2005, the Secretary testified that for FY2006 veterans' health care programs would need $1.1 to $1.6 billion more than the FY2006 President's request. On June 30, 2005, and July 14, 2005, respectively, the President submitted to Congress a supplemental request to address the FY2005 shortfall and a budget amendment to address the additional funding needs of FY2006. These two requests totaled $2.9 billion.

On July 26, 2005, the conferees of the Department of the Interior, Environment and Related Agencies, Appropriations bill, 2006 ( H.R. 2361 , H.Rept. 109-188 ) provided $1.5 billion in supplemental appropriations for VA medical services for FY2005. The bill included language that would allow VA to carry over any unused funds into FY2006. The House passed H.R. 2361 on July 28, 2005, and the Senate passed the measure a day later. The FY2006 Department of the Interior, Environment, and Related Agencies appropriations bill was signed into law on August 2, 2005 ( P.L. 109-54 ).

Senate Action

On July 21, 2005, the Senate Committee on Appropriations reported out of committee H.R. 2528 ( S.Rept. 109-105 ) making appropriations for Military Construction and Veterans Affairs and Related Agencies for FY2006 (MilCon appropriations bill). This bill appropriated approximately $33.5 billion for VHA, including $2.2 billion in collections (see Table 5 ).

Conference Agreement

On November 18, 2005, the House voted to adopt the conference report ( H.Rept. 109-305 ) making appropriations for Military Quality of Life, Military Construction, Veterans Affairs, and Related Agencies for FY2006 (MilCon-Qual-VA Appropriations Act). The Senate adopted H.Rept. 109-305 by unanimous consent that same day. The MilCon-Qual-VA Appropriations Act was signed into law by the President on November 30, 2005 ( P.L. 109-114 ). The MilCon-Qual-VA Appropriations Act appropriated $ 29.1 billion for VHA ( not shown in Table 5 ). This amount included $22.5 billion for medical services, $2.9 billion for medical administration, $3.3 billion for medical facilities and $412 million for medical and prosthetic research. When Congress passed P.L. 109-114 , it designated $1.2 billion as an emergency requirement, and included bill language that required the President to declare the entire amount as an emergency. On January 28, 2006, the President designated $1.2 billion in funding for veterans' health care as an "emergency."

Defense Appropriations Bill FY2006

On October 28, 2005, President Bush submitted a reallocation request to Congress to transfer previously appropriated funds to several agencies, including the VA, to address various needs arising from the consequences of Hurricane Katrina. Congress responded to the President's proposed reallocation by attaching the reallocation request to the conference version of the FY2006 Defense Appropriations bill ( H.R. 2863 ).

The conference agreement includes $225.2 million for VA medical services, including $198.2 million to purchase medical equipment and supplies lost during the Gulf Coast hurricanes, and $27.0 million for Avian Flu pandemic preparation (shown in Table 5 ). H.R. 2863 also included $24.9 million for general operating expenses; $200,000 to clean up and repair national cemeteries (these amounts are not shown in Table 6 ); $368 million for construction major projects; and $1.8 million for the construction minor projects accounts (these amounts are shown in Table 6 ). The Department of Defense Appropriations Act, 2006, was signed into law on December 30, 2005 ( P.L. 109-148 ).

FY2006 Hurricane Supplemental for VA

On February 16, 2006, the Administration submitted two separate FY2006 supplemental appropriations requests. One of these supplemental requests would provide $19.8 billion for recovery and reconstruction activities in hurricane-affected Gulf Coast areas. In this request the Administration requested $600 million for VA's construction major projects account to be used for rebuilding the VA Medical Center in New Orleans, which was damaged by Hurricane Katrina. Proposed funding for this project was previously included in the October 28, 2005 reallocation request, but Congress provided only $75.0 million of the $368 million, for the purpose of advance planning and design of the VA Medical Center in New Orleans. The conference committee did not include the full amount of funding because it felt that there was insufficient information to determine the actual cost of the project. In the FY2006 conference report, H.Rept. 109-359 , VA was directed to report to the Committees on Appropriations of both houses of Congress by February 28, 2006, on the long-term plans for the replacement hospital construction. The report submitted by VA estimated that the cost of construction of a new VA Medical Center in New Orleans would be $636 million.

House Action

On March 17, 2006, the House passed the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 ( H.R. 4939 , H.Rept. 109-388 ). The House-passed bill provides $550 million for rebuilding the VA Medical Center in New Orleans, $50.0 million less than the Administration's request. In addition, the Secretary of Veterans Affairs is authorized to transfer up to $275 million of this amount to the medical services account, to be used only for unanticipated costs related to the global war on terror. Availability of the $550 million appropriation is made contingent on the enactment of authority for it by June 30, 2006.

Senate Action

On May 4, 2006, the Senate passed its version of H.R. 4939 ( S.Rept. 109-230 ). The Senate-passed bill provides $623 million for the construction major projects account, $73.0 million above the House-passed amount. This includes $561 million for the construction of a new VA Medical Center in New Orleans. Together with the previous appropriation of $75.0 million in P.L. 109-148 , the total amount of funding for reestablishing the VA Medical Center in New Orleans would be $636 million. During the Senate Appropriations Committee markup of H.R. 4939 , the Committee designated $62.0 million of the total amount provided for the construction major projects account to be used for the disposal and cleanup of land associated with the VA medical facility in Gulfport, Mississippi.

During floor consideration of H.R. 4939 , the Senate adopted an amendment offered by Senator Akaka to provide $430 million for the VHA medical services account for FY2006. Of this amount: $168 million was designated to address veterans' mental health care needs, including Post-Traumatic Stress Disorder (PTSD); and $80.0 million was designated for the provision of readjustment counseling services to veterans. The amendment also included language that requires the President to declare the entire amount of $430 million as an emergency requirement.

Conference Agreement

On June 13 and 15, 2006, the House and Senate, respectively, adopted the conference report to accompany the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 ( H.R. 4939 , H.Rept. 109-494 ). The bill was signed into law ( P.L. 109-234 ) on June 15. P.L. 109-234 provides $586 million for construction major projects account. Of this amount, $550 million would be for the construction of a new VA medical center in New Orleans, Louisiana, and $36.0 million would be for the removal of debris and cleanup of the former VA medical center in Gulf Port, Mississippi.

P.L. 109-234 did not include a provision to provide $430 million for the VHA medical services account for FY2006. Furthermore, it should be noted that the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006, included a provision to rescind $198.2 million appropriated under P.L. 109-148 to the medical services account, and to reappropriate this same amount under P.L. 109-234 (see Table 5 ).

FY2007 VHA Budget

Administration's Budget Request

On February 6, 2006, the President submitted his FY2007 budget proposal to Congress. The Administration requested $32.7 billion for VHA, an 11.3% increase over the FY2006 enacted amount of $29.3 billion, and a 10% increase over FY2005 enacted amount of $29.7 billion (see Table 5 ). The FY2007 request included $25.5 billion for medical services, a 12% increase over the FY2006 enacted amount; $3.2 billion for medical administration, an 11.2% increase over FY2006; $3.6 billion for medical facilities, an 8.2% increase over FY2006; and $399 million for medical and prosthetic research, a 3.2% decrease from the FY2006 enacted amount.

The President's FY2007 budget request also includes a set of legislative proposals that the Administration asserts "will continue to concentrate VA's health care resources to meet the needs of high priority core veterans—those with service-connected conditions, those with lower incomes, and veterans with special health care needs." These legislative proposals are discussed in detail under the key budget issues section of this report.

House and Senate Budget Resolutions

On March 31, 2006, the House Budget Committee reported H.Con.Res. 376 ( H.Rept. 109-402 ), providing $36.9 billion for VA's discretionary programs, which consist mainly of VA medical care. This amount includes an amendment offered by Representative Bradley increasing the discretionary budget authority by $795 million over the President's recommended level. According to the committee report language, the recommended amount does not assume the President's proposal to implement enrollment fees and increase drug copayments for Priority Group 7 and 8 veterans. H.Con.Res. 376 also calls for budget authority of $37.8 billion for VA's mandatory programs. In total, the committee-reported budget resolution calls for $74.6 billion for VA programs for FY2007. H.Con.Res. 376 was adopted by the House on May 18.

On March 9, 2006, the Senate Budget Committee marked up S.Con.Res. 83 , and the Senate passed it on March 16. On the Senate floor, $823 million was added to the committee-recommended amount to provide an additional $795 million to VA Medical Services, in lieu of enactment of the proposed pharmacy copayment increase and the new enrollment fee, and $28 million to increase VA's medical and prosthetic research funding. In total S.Con.Res. 83 calls for $74.8 billion for VA programs for FY2007. This includes approximately $37.0 billion for VA's discretionary programs, and approximately $37.8 billion for mandatory programs.

House Action

On May 10, 2006, the House Committee on Appropriations approved by voice vote its version of the Military Construction, Military Quality of Life, and Veterans Affairs Appropriations bill (MilCon-Qual-appropriations bill) for FY2007 ( H.R. 5385 , H.Rept. 109-464 ). The bill was reported out of committee on May 15, 2006. The House passed H.R. 5385 on May 19, 2006.

H.R. 5385 provided $32.7 billion for VHA, a $3.4 billion (11.4%) increase over the FY2006 enacted amount of $29.3 billion, and about the same as the President's request. This amount included $25.4 billion for medical services, $100 million less than the President's request and $2.6 billion (11.6%) over the FY2006 enacted amount of $22.8 billion (see Table 5 ). Of the amount provided for medical services, the committee included bill language designating that not less than $2.8 billion be used for specialty mental health care, which included funding for the treatment of Post-Traumatic Stress Disorder (PTSD), and funding for the three "Centers of Excellence" for mental health care treatment, established by last year's appropriations act ( P.L. 109-114 ). This was a $600 million increase in funding for mental health programs compared to FY2006.

The MilCon-Qual appropriations bill for FY2007 also provided $3.3 billion for medical administration, $100 million above the Administration's request of $3.2 billion, and $3.6 billion for medical facilities, $25 million above the budget request. As stated in H.Rept. 109-464 , this increase was provided for the establishment of at least 10 new Community-Based Outpatient Clinics (CBOCs) in FY2007. These 10 CBOCs would be in addition to the 27 CBOCs that VHA plans to activate in FY2007.

H.R. 5385 also provided $412 million for medical and prosthetic research, a 3.2% increase over the President's request of $399 million (see Table 5 ). During committee markup of H.R. 5385 , several amendments were offered to increase funding for veterans' health care; however, none of these amendments was adopted.

Construction Projects

H.R. 5385 provided $599 million for VA construction projects, including funding for Capital Asset Realignment and for Enhanced Services (CARES) projects (see Table 6 ). A large portion of this amount was for construction and building improvements of VA medical facilities. The committee-recommended amount was $83 million (12.2%) less than the President's request. The reason for this decrease was because the committee did not provide funding for several construction projects that were included in the President's budget request, including funding for refurbishment of the operating rooms at the Columbia, Missouri VA medical center, and for refurbishment of the Spinal Cord Injury Center at the Milwaukee, Wisconsin VA medical center. The committee believed that these are "low priority projects." In addition, the committee recommendation did not include funding for the replacement of the VA medical center in Denver, Colorado, because the estimate for construction of the new facility had almost doubled in less than two years, from $328 million to $621 million. According to the committee report, "this is a project at a stage where work can be halted before significant and irreversible financial damage is done." The Administration issued a statement on May 19, opposing the funding reduction for the CARES program. The Administration stated that "this reduction would slow CARES projects designed to renovate and modernize VA's health care infrastructure and provide greater access to high quality care for more veterans, closer to where they live."

However, H.R. 5385 included funding for the upgrade and modernization of VA research facilities. The committee expressed its concern that many VA research facilities have run out of adequate research space, and that some facilities frequently need upgrades of their ventilation, electrical supply, and plumbing systems. The committee directed VA to institute a process by which research infrastructure needs are given full and careful consideration.

The MilCon-Qual appropriations bill did not include any fee increases as requested by the Administration's budget proposal for VHA for FY2007.

Senate Action

On July 20, 2006, the Senate Appropriations Committee reported out of committee its version of the Military Construction and Veterans Affairs and Related Agencies Appropriations bill (MilCon-VA appropriations bill) for FY2007 ( H.R. 5385 ; S.Rept. 109-286 ). On November 14, the Senate passed H.R. 5385 , as amended, by voice vote. The Senate-passed version provided $32.7 billion for VHA. This amount was almost equivalent to the President's request and the House-passed amount (see Table 5 ).

H.R. 5385 , as amended, provided $28.7 billion for medical services, a 26.0% increase over the FY2006 enacted amount, a 12.5% increase over the President's request, and a 13.0% increase over the House-passed amount (see Table 5 ). The MilCon-VA appropriations bill combined the medical administration account into the medical services account. The Administration lauded the Senate-passed measure for merging the medical services account with the medical administration account. According to the Administration, "combining these appropriations into a single account would increase management flexibility to direct resources to best meet the overall health care needs of veterans."

The Senate-passed version of H.R. 5385 also provided $3.6 billion for medical facilities (which is the same as the Administration's request and $25.0 million less than the House-passed amount) and $412 million for medical and prosthetic research. This amount is the same as the House-passed amount and $13.0 million above the President's request (see Table 5 ).

Unlike the House-passed version of H.R. 5385 , the Senate bill did not earmark funding for mental health care programs, including PTSD. However, during committee markup of the bill, the Senate Appropriations Committee expressed interest in several areas related to veterans' health care. The committee indicated that it was keenly interested in knowing about progress made with the three Centers of Excellence specializing in mental health and PTSD, created by P.L. 109-114 , in Waco, Texas; San Diego, California; and Canandaigua, New York. It also directed the VA to begin implementing a plan to expand more outpatient blind rehabilitation services.

During floor debate, the Senate adopted an amendment offered by Senator Kerry to provide discretionary authority to the VA to use up to $18 million of the funds appropriated to the department, to provide additional mental health care services to veterans who served in combat in Iraq and Afghanistan. These services would be provided through readjustment counseling centers (commonly known as "Vet Centers").

Furthermore, during committee markup of H.R. 5385 , the committee voiced concern about the growing number of veterans returning from combat operations overseas who were not being properly screened for Traumatic Brain Injury (TBI). The committee included report language encouraging the VA, in coordination with the four Polytrauma Centers in Minneapolis, Minnesota; Palo Alto, California; Richmond, Virginia; and Tampa, Florida, to establish a separate education and diagnosis screening program for VA medical centers and Vet Centers.

The committee also indicated that it "recognizes the increased and ongoing pressures facing military families, and believes it is important to take a proactive, preemptive approach in helping veterans, particularly those in the National Guard and Reserves, and their families adjust to deployments and the transition home after the battlefield." Therefore, the committee directed the VA to look at a DOD program that has been successfully utilized by Army families, which "focuses on goals, family strengthening, and communication as tools to deal with stressful situations." According to S.Rept. 109-286 , "the program can be successfully facilitated by Vet Center staff and can help veterans and their families to deal with both the transition from active duty to civilian life and the call up to active duty for National Guardsmen and Reservists." The committee also included report language requesting VA to establish CBOCs in Bellingham and Centralia, Washington; Alpena, Michigan; and in rural Colorado.

Construction Projects

The Senate-approved version of H.R. 5385 provided $682 million for VA construction projects, including funding for CARES projects (see Table 6 ). This was a 14.0% increase over the House-passed amount, and the same as the President's request. A large portion of this amount would have been for the construction, alteration, and renovation of VA medical facilities.

Furthermore, during floor debate of H.R. 5385 , the Senate adopted an amendment offered by Senator Craig to amend Section 8104 (a)(3)(A) of Title 38 United States Codes (U.S.C.), to increase the threshold for major medical facility projects from $7 million to $10 million. , This amendment also authorized the VA Secretary to carry out major medical facility construction projects and leases for which funds have already been appropriated, and also to carry out major medical facility projects authorized by P.L. 108-170 through September 30, 2007.

During committee markup of the bill, the committee expressed concern about VA's construction schedule, and directed VA to provide reports on the delays in construction. It also included report language directing VA to provide a report on the Orlando, Florida, VA Medical Care Facility. According to S.Rept. 109-286 , "in FY2004, Congress appropriated $25 million for a medical care facility at Orlando, Florida. Since then, VA has made no progress on the design and construction of this hospital." Furthermore, the Senate Appropriations Committee urged VA to include $28.5 million in the FY2008 budget request for the construction of a 90-bed nursing home and adult day care center at the Beckley VA Medical Center in West Virginia, and to include $3.6 million for planning and design work associated with the renovation and expansion of primary, mental health, and specialty outpatient care facilities at the Martinsburg VA Medical Center, also in West Virginia.

The MilCon-VA appropriations bill for FY2007 did not include any fee increases as requested by the Administration's budget proposal for VHA for FY2007, and the Senate Appropriations Committee strongly expressed its displeasure about the Administration's fee proposals:

The [VA] continues to assume congressional approval of its policy and legislative proposals before the Congress has done so.... This practice of under-requesting the true needs of the Department to care for our veterans, with the mandate that the Congress either enact the fees, shortchange veterans healthcare, or make up the difference, is not responsible budgeting. In the strongest terms possible, this Committee directs [VA] not to submit another budget using assumed fees and copayments until such time as the Congress approves and authorizes the Department to implement new revenue enhancing policies.

Revised Continuing Appropriations Resolution, 2007

By the end of the 109 th Congress, Congress had not passed the MilCon-VA appropriations bill for FY2007 and funded most government agencies, including the VA, through a series of Continuing Appropriations Resolutions ( P.L. 109-289 , division B, as amended by P.L. 109-369 and P.L. 109-383 ). On January 31, 2007, the House passed the Revised Continuing Appropriations Resolution, 2007 ( H.J.Res. 20 , P.L. 110-5 ), and the Senate passed it without amendment on February 14. P.L. 110-5 provides $32.7 billion for VHA for FY2007. This is $3.3 billion above the FY2006 enacted amount and $14.7 million above the President's request. Under the VHA budget, the medical services account is funded at $25.5 billion, a $2.7 billion increase over the FY2006 enacted amount. The medical administration account is funded at $3.2 billion, and the medical facilities account is funded at $3.6 billion. The Revised Continuing Appropriations Resolution, 2007, provides $413.7 million for the medical and prosthetic research account, a $14.7 million increase over the Administration's request ( Table 5 ).

Construction Projects

P.L. 110-5 provides $683 million for VA construction projects, including funding for Capital Asset Realignment and for Enhanced Services (CARES) projects (see Table 6 ). A large portion of this amount is for construction and building improvements of VA medical facilities. The FY2007 enacted amount is slightly more than the President's request.

Key Budget Issues

In its FY2007 budget request, the Administration proposed several legislative changes that it asserts will "refocus the VA health care system to better meet the needs of highest priority veterans—those with service-connected conditions, those with lower incomes, and those with special health care needs." These proposals are similar to previous ones that were included in the Administration's budget requests for FY2003, FY2004, FY2005, and FY2006, and were rejected by Congress.

The President's budget request includes three major policy proposals:

assess an annual enrollment fee of $250 for all Priority 7 and 8 veterans; increase pharmaceutical copayments from $8 to $15 (for each 30-day prescription) for all enrolled veterans in Priority Groups 7 and 8; and bill veterans receiving treatment for nonservice-connected conditions for the entire copayment amount.

A detailed description of these legislative proposals follows.

Assess an Annual Enrollment Fee

The Administration proposes to establish an annual enrollment fee of $250 beginning October 1, 2006, for all Priority 7 and 8 veterans. Priority Group 7 veterans have incomes above $26,902 for a single veteran (see Appendix C for VA income thresholds) and below the Department of Housing and Urban Development (HUD) geographic means test level. Priority Group 8 veterans are those with incomes above $26,902 for a single veteran and above the HUD geographic means test amount. The HUD geographic means test is established at a local level such as county or city. For instance, a veteran with no dependents residing in Grant County, Arkansas, whose annual income in 2005 was $27,145, will be placed in Priority Group 7, because the veteran's annual income is above VA's means test threshold of $26,902 and below the FY2005 geographic means test threshold of $27,150 for that county. Similarly, a veteran with no dependents living in Orange County, California, whose annual income in 2005 was $42,250, will be placed in Priority Group 7, because the veteran's annual income is above VA's means test threshold of $26,902 and below the FY2005 geographic means test threshold for of $43,000 for Orange County. It should be noted that there is wide variation in annual incomes of veterans placed in Priority Groups 7 and 8.

In its FY2004, FY2005, and FY2006 budget submissions, the President requested authority from Congress to levy an annual enrollment fee on all Priority 7 and Priority 8 veterans. However, Congress did not approve imposing such a fee.

In its FY2007 Views and Estimates letter to the House Budget Committee, the House Veterans Affairs Committee did not support levying an enrollment fee. The letter states that "while the Committee understands the policy arguments providing the basis for the Administration's proposal for Priority 7 and 8 veterans to assume a greater share of the costs for their health care in the VA system, the majority of the Committee does not support these legislative proposals."

The Chairman of the Senate Veterans' Affairs Committee, in his FY2007 views and estimates letter to the Senate Budget Committee, did agree that "during a time of high deficits and restrained spending in every account unrelated to national security, the President's proposal to shift a small portion of the cost of funding record growth in VA's budget on to lower priority veterans is reasonable. I have no objection to the proposals he has chosen, but I am not necessarily wed to them." P.L. 110-5 does not include any language assessing an enrollment fee.

Increase Pharmacy Copayments

The Administration proposes increasing the pharmacy copayments from $8 to $15 for all enrolled Priority Group 7 and Priority Group 8 veterans, whenever they obtain medication from VA on an outpatient basis for the treatment of a nonservice-connected condition. The Administration put forward this proposal in its FY2004, FY2005, and FY2006 budget requests as well, but did not receive any approval from Congress. At present, veterans in Priority Groups 2-8 pay $8 for a 30-day supply of medication, including over-the-counter medications.

The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) authorized VA to charge most veterans $2 for each 30-day supply of medication furnished on an outpatient basis for treatment of a nonservice-connected condition. The Veterans Millennium Health Care and Benefits Act of 1999 ( P.L. 106-117 ) authorized VA to increase the medication copayment amount and establish annual caps on the total amount paid, to eliminate financial hardship for veterans enrolled in Priority Groups 2-6. When veterans reach the annual cap, they continue to receive medications without making a copayment.

On November 15, 2005, VHA issued a directive stating that effective January 1, 2006, the medication co-payment will be increased to $8 for each 30-day supply of medication furnished on an outpatient basis for treatment of a nonservice-connected condition, and that the annual cap for veterans enrolled in Priority Groups 2-6 will be $960. There is no cap for veterans in Priority Groups 7 and 8 (see Appendixes B and C ). P.L. 110-5 does not include any bill language that would give VA the authority to increase copayments.

Impact of the Annual Enrollment Fee and Increase in Pharmacy Copayments

VA estimates that about 200,000 veterans in Priority Groups 7 and 8 would be affected by the $250 annual enrollment fee and the increase in prescription drug copayments. According to VA's estimates, the enrollment fees and increased pharmacy copayments would generate $514 million in revenue and save VA an additional $251 million due to reduced demand, resulting in a decrease of $765 million in appropriations for FY2007.

Together two recent studies suggest that veterans may be impacted by increased pharmaceutical copayments. In one published study it was indicated that patients with access to the VA's prescription drug coverage had lower rates of cost-related adherence problems than patients with Medicare or no insurance coverage. This study also found that VA patients were also less likely than some non-VA patients to report other detrimental consequences of medication cost pressures, such as foregoing necessities to pay for their medication or worrying frequently about how they could pay for their treatments.

In another study that examined the impact of the increased copayment on veterans' use of antidepressant medication, VA researchers found that medication cost could be a prohibitive factor for veterans with copayment obligations. The researchers further state that veterans who had to pay copayments appear to fill the antidepressant prescriptions less frequently than veterans who are exempt from the copayment requirement.

Third-Party Offset of First-Party Debt

The Administration is requesting that Congress amend VA's statutory authority by eliminating the practice of reducing first-party copayment debts with third-party health insurance collections. VA asserts that this proposal would align VA with the DOD health care system for military retirees and with the private sector.

With the enactment of P.L. 99-272 in 1986, Congress authorized VA to collect payments from third-party health insurers for the treatment of veterans with nonservice-connected disabilities, and it also established copayments from veterans for this care. Under current law, VA is authorized to collect from third-party health insurers to offset the cost of medical care furnished to a veteran for the treatment of a nonservice-connected condition. If VA treats an insured veteran for a nonservice-connected disability, and the veteran is also determined by VA to have copayment responsibilities, VA will apply the payment collected from the insurer to satisfy the veteran's copayment debt related to that treatment.

Under the current copayment billing process, in cases where the cost of a veteran's medical care for a nonservice-connected condition appears to qualify for billing under reimbursable insurance and copayment, VA medical facilities sends the bill to the insurance provider. The veteran's copayment obligation is placed on hold for 90 days pending payment from the third-party payer. If no payment is received from the third-party payer within 90 days, then a bill is sent to the veteran for the full copayment amount. However, when insurers reimburse VA after the 90-day period, VA must absorb the cost of additional staff time for processing a refund if the veteran has already paid the bill. On all insurance policies, the entire amount of the claim payment is applied first to the copayment. The veteran is then billed only for the portion of the copayment not covered by the insurance reimbursement and the portion of the copayment for services not covered by the veteran's insurance plan (see Figure 1 ).

According to two reports released by the Government Accountability Office (GAO), the practice of satisfying copayment debt with recoveries made from third-party insurers has resulted in reduced overall cost recoveries and increased administrative expenses. Under the Administration's proposal, VA would bill and collect copayments from patients regardless of any amounts recovered from the veterans private health insurance plan. As the patient's bill is generated, VA would bill the insurer for the full cost of VA care provided to a veteran for a nonservice-connected condition (see Figure 2 ).

According to VA's estimates, if this proposal is enacted it would contribute approximately $31.0 million toward VA's collections. This issue was not addressed in the 109 th Congress.

Appendix A. Priority Groups and Their Eligibility Criteria

Appendix B. Veterans' Payments for Health Care Services by Priority Group

Appendix C. Financial Income Thresholds for VA Health Care Benefits