Veterans' Medical Care: FY2006 Appropriations
Released: 2006-01-17T00:00:00

Most Recent Developments

On November 18, 2005, the House voted to adopt the conference report ( H.Rept. 109-305 )to accompany the Military Construction, Military Quality of Life and Veterans AffairsAppropriations Act, 2006. (1) The Senate adopted H.Rept. 109-305 by unanimous consent thatsame day. The Military Construction, Military Quality of Life and Veterans Affairs AppropriationsAct, 2006 (MIL-CON-QUAL-VA Appropriations Act, P.L.109-114 ) was signed into law by thePresident on November 30, 2005. The MIL-CON-QUAL-VA Appropriations Act appropriated$22.5 billion for medical services, of which $1.2 billion was designated as an emergencyappropriation. (2) Furthermore, P.L.109-114 appropriated $2.9 billion for medical administration, $3.3 billion formedical facilities, and $412 million for medical and prosthetic research. The MIL-CON-QUAL-VAAppropriations Act did not recommend any of the fee increases proposed by the President.

On December 19, 2005, the House adopted the conference report ( H.Rept. 109-359 ) toaccompany the FY2006 Department of Defense Appropriations bill ( H.R. 2863 ). TheSenate agreed to the conference report on December 21, 2005. The conference agreement includes$225 million for the Veterans Health Administration (VHA) to address recovery activities relatedto the hurricanes in the Gulf of Mexico, and to prepare for a possible pandemic influenza outbreak,and excludes the Department of Veterans Affairs (VA) programs from a 1% across-the-boardrescission for all non-emergency discretionary programs. (3) The Department of Defense Appropriations Act, 2006 ( P.L.109-148 ) was signed into law on December 30, 2005. With the enactment of P.L. 109-148 , the totalamount of funds appropriated for VHA is $29.3 billion. The total amount of funds available forVHA is $31.5 billion, including $2.2 billion in collections (copays and third-party insurancepayments).

Background

The Department of Veterans Affairs (VA) provides benefits to veterans who meet certaineligibility rules. Benefits to veterans range from disability compensation and pensions, education,training and rehabilitation services, hospital and medical care, and other benefits, such as home loanguarantees and death benefits that cover burial expenses. VA carries out its programs nationwidethrough three administrations and the Board of Veterans Appeals (BVA). The Veterans HealthAdministration (VHA) is responsible for health care programs. The Veterans BenefitsAdministration (VBA) is responsible for providing compensation, pensions, and education assistanceamong other things. The National Cemetery Administration (NCA) is responsible for maintainingnational veterans cemeteries.

VA's budget includes both mandatory and discretionary spending accounts. Mandatoryfunding supports disability compensation, pension benefits, vocational rehabilitation, and lifeinsurance, among other benefits and services. Discretionary funding supports a broad array ofbenefits and services, including medical care. In FY2005, discretionary budget authority accountedfor approximately 48% of the total VA budget authority, with most of this discretionary fundinggoing toward supporting VA medical care.

VHA operates the largest direct health care delivery system in the nation. (4) In FY2004, VHA operated157 hospitals, 134 nursing homes, 42 residential rehabilitation treatment centers, and 862 ambulatorycare and community-based outpatient clinics. VHA also pays for care provided to veterans byindependent providers and practitioners on a fee basis under certain circumstances. In addition,VHA provides grants for construction of state-owned nursing homes and domiciliary facilities, andcollaborates with the Department of Defense (DOD) in sharing health care resources and services.

During FY2004, VHA provided medical services to an estimated 4.7 million unique veteranpatients, a caseload that is expected to reach approximately 4.8 million in FY2005. According toVHA, this number will decrease to approximately 4.7 million by the end of FY2006. (5) The total number of outpatientvisits reached 49.9 million during FY2004, and is projected to increase to 52.8 million in FY2005and 55.8 million in FY2006. In FY2004, VHA spent approximately 56% of its medical careobligations on outpatient care.

In addition, VHA manages the largest medical education and health professions trainingprogram in the United States. Veterans' health care facilities are affiliated with 107 medical schools,55 dental schools and more than 1,000 other schools offering students allied and associatededucation degrees or certificates in 40 health profession disciplines. In FY2004, over 84,000 healthcare professionals received training in VA medical centers. (6)

This report provides: (1) a basic overview of the federal appropriation process; (2) a briefoverview of VHA's enrollment process and its enrollment priority groups; (3) a brief summary offunding levels for VHA for FY2005; (4) a discussion of the FY2005 and FY2006 budget shortfall;(5) a discussion of supplemental appropriations for expenses related to Gulf Coast hurricanes andavian flu preparation; and (6) an analysis of total VHA funding for FY2006, followed by a discussionof the Administration's major budget proposals for FY2006.

The Federal Budget

In general, the federal budget process begins with the submission of the President's budgetrequest to Congress. Following this submission, the Budget Committees of the House and Senatedevelop the annual budget resolution, which sets forth aggregate spending and revenue levels, byfunctional levels of spending, for the upcoming fiscal year and at least the following four fiscalyears. (7) The budgetresolution is not binding and does not allocate funds among specific programs or accounts, but themajor program assumptions underlying the functional amounts are often discussed in theaccompanying report. (8) The House and Senate Appropriations Committees subdivide their allocations among their respectivesubcommittees, which are each responsible for one of the regular appropriations acts. Authorizingcommittees for certain programs may also consider legislation that will affect spending under theirprograms. A committee has the discretion to decide on the legislative changes to be recommended. It is not bound by the program changes recommended or assumed by the Budget Committees in thereports accompanying the budget resolution.

Changes in Appropriation CommitteeJurisdictions. At the beginning of the 109th Congress, both the House and SenateAppropriations Committees reorganized their respective subcommittees. The House Committee onAppropriations reduced its number of subcommittees to ten from the original thirteensubcommittees. The Senate Committee on Appropriations reduced its number of subcommittees totwelve from the original thirteen subcommittees. The House Subcommittee on Military Quality ofLife and Veterans Affairs and Related Agencies received jurisdiction over funding for VA programs,among other things. Similarly, the Senate Subcommittee on Military Construction and VeteransAffairs received jurisdiction over appropriations for VA programs among other things. Prior to thisrestructuring, appropriations legislation for VA programs was the responsibility of the House andSenate Veterans Affairs, Housing and Urban Development, and Independent AgenciesSubcommittees.

VHA Health Care Enrollment

To understand VA's medical care appropriations and the Administration's major policyproposals discussed later in this report, it is important to understand VA's enrollment process andits enrollment priority groups. The Veterans' Health Care Eligibility Reform Act of 1996, P.L.104-262 required the establishment of a national enrollment system to manage the delivery ofinpatient and outpatient medical care. The new eligibility standard was instituted by Congress to"ensure that medical judgment rather than legal criteria will determine when care will be providedand the level at which care will be furnished." (9)

For most veterans, entry into the veterans' health care system begins with application forenrollment. (10) Aveteran may apply for enrollment at any time during the year. Eligibility for VA health care isprimarily based on "veteran's status" resulting from military service. "Veteran's status" is establishedby active-duty status in the military, naval, or air service and a honorable discharge or release fromactive military service.

After "veterans' status" has been established ,VA next places applicants into one of twocategories. The first group in general is composed of veterans with service-connected disabilitiesor with lower incomes. These veterans are regarded by VA as "high priority" veterans, and they areenrolled in Priority Groups 1-6 (see Appendix 1 ). Veterans enrolled in Priority Groups 1-6 include:

veterans in need of care for a service-connected disability; (11)

veterans who have a compensable service-connectedcondition;

veterans whose discharge or release from active military, naval or air servicewas for a compensable disability that was incurred or aggravated in the line ofduty;

veterans who are former prisoner of wars (POWs);

veterans awarded the purple heart;

veterans who have been determined by VA to be catastrophicallydisabled;

veterans of World War I;

veterans who were exposed to hazardous agents (such as Agent Orange inVietnam) while on active duty; and

veterans who have annual income and net worth below a VA- establishedmeans test threshold.

VA also looks at applicants' income and net worth to determine their specific prioritycategory 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 fortreatment of conditions that are not a result of injuries or illnesses incurred or aggravated duringmilitary service. Appendix 2 provides information on what categories of veterans pay for whichservices.

The second group is composed of veterans who do not fall into one of the first six prioritygroups. These veterans are primarily those with nonservice-connected conditions and with incomesand net worth above the VA established means test threshold, and in general these veterans areenrolled in Priority Group 7 or 8.

Funding for VHA

VHA is funded through multiple appropriations accounts that are supplemented by othersources of revenue. Although the appropriations account structure has been subject to change fromyear to year, traditionally the appropriation accounts used to support VHA include medical care,medical and prosthetic research, and medical administration. In addition, Congress also appropriatesfunds for construction of medical facilities through a larger appropriations account for constructionfor all VA facilities. Furthermore, the Committees on Appropriations include medical care costrecovery collections when considering the amount of resources needed to provide funding for VHA. VHA is authorized to bill some veterans and most health care insurers for nonservice-connected careprovided to veterans enrolled in the VA health care system, to help defray the cost of deliveringmedical services to veterans. The Balanced Budget Act of 1997 ( P.L. 105-33 ) gave VHA theauthority to retain these funds in the Medical Care Collections Fund (MCCF). Instead of returningthese funds to the Treasury, VA can use this for medical services for veterans without fiscal yearlimitations. (12)

FY2005 Budget Summary

The Consolidated Appropriations Act, 2005 ( P.L. 108-447 ) (13) (14) appropriated $28.1 billionin FY2005 for VHA. As shown in Table 1 , P.L. 108-447 appropriated $19.3 billion to financemedical services, $4.7 billion for medical administration, $3.7 billion for medical facilities, and $402million for medical and prosthetic research. The Consolidated Appropriations Act, 2005, alsoincluded $370 million from the construction major account and $182 million from the constructionminor account for Capital Asset Realignment for Enhanced Services (CARES)-relatedactivities. (15) It shouldbe noted that these amounts are not included in the total VHA budget since construction major andconstruction minor accounts are funded through separate construction accounts. The ConsolidatedAppropriations Act, 2005, did not approve the Administration's proposal to fund VHA through analternative account structure, and did not include any copayment changes that were proposed in thePresident's budget request. (16)

On October 13, 2004, the Military Construction Appropriations and Emergency HurricaneSupplemental Appropriations Act, 2005 ( P.L. 108-324 , H.Rept. 108-773 ) was signed into law. Asenumerated in Table 1 , this bill provided an additional $87 million for VHA for FY2005. OnAugust 2, 2005, the FY2006 Department of the Interior, Environment, and Related Agenciesappropriations bill ( P.L. 109-54 , H.Rept. 109-188 ) was signed into law. P.L.109-54 provided $1.5billion in supplemental appropriations for veterans medical services for FY2005, with carryoverauthority for FY2006 as well. This action was taken by Congress in response to the FY2005 budgetshortfall of more than $1 billion announced by the Administration (see discussion under FY2005 andFY2006 budget shortfall).

The total amount appropriated for VHA for FY2005 was $29.7 billion. As shown in Table1 , this included $20.9 billion for medical services, $4.7 billion for medical administration, $3.8billion for medical facilities, and $402 million to finance medical and prosthetic research. Furthermore, $2.0 billion in medical care cost collections (e.g., copays and third-party insurancepayments ) was available for the medical services account. Therefore, the total amount of fundsavailable for VHA for FY2005 was $31.7 billion.

FY2006 VHA Budget

President's FY2006 Budget

The President's FY2006 budget requested $30.4 billion for VHA: $22.2 billion for medicalservices, $4.5 billion for medical administration, $3.3 billion for medical facilities, and $393 millionfor medical and prosthetic research. VHA medical care collections (e.g., copays, third-partyinsurance payments) for FY2006 are expected to be $2.2 billion. (A description of each of theseaccounts is given in Appendix 3 ). (17)

House and Senate Budget Resolutions

On March 17, 2005 the House passed H.Con.Res. 95 ( H.Rept. 109-17 ),providing $31.7 billion for VA's discretionary programs and $37.1 billion for mandatory programs. The Senate approved its bill, S.Con.Res. 18 , on the same day and provided $68.9 billionfor both discretionary and mandatory programs. (18) The House-passed budget resolution included a directive to theHouse Committee on Veterans' Affairs to reduce the level of direct spending on veterans' programsby $155 million for FY2006, but the Senate version did not.

On April 28, 2005, House and Senate conferees concluded negotiations on H.Con.Res. 95 ( H.Rept. 109-62 ), the FY2006 budget resolution. The conferenceagreement includes $31.8 billion in budget authority for VA discretionary programs includingveterans' health care. This amount included $410 million over the President's recommended levelof $31.4 billion for VA's discretionary programs. The conference agreement did not include anylanguage directing the House and Senate Committees on Veterans' Affairs to reduce direct spendingfor veterans programs.

FY2006 House Appropriations Bill

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 andRelated Agencies for FY2006 (MIL-QUAL appropriations bill). The House passed H.R.2528 on May 26, 2005. The MIL-QUAL appropriations bill appropriated $28.8 billion for VHA. Under the House-passed version of H.R. 2528, the total amount of funds available forVHA would be $31.0 billion, including $2.2 billion in collections.

H.R. 2528 provided $21.0 billion for medical services. The Committeedesignated $2.2 billion of this recommended amount for speciality mental health care. Accordingto the committee report, the Committee took the unusual step of fencing off these funds for onecategory of treatment because the Committee recognizes the need to dedicate resources for thistreatment, and wants to be assured that funding for mental health care will not be used for otherpurposes. (19)

The MIL-QUAL appropriations bill also provided $4.1 billion for medical administration,a $534 million decrease from the FY2005 enacted level and $383 million less than theAdministration's request. Most of this reduction is from VHA's information technology programsincluding the Health e Vet-VistA project. (20) The House Appropriations Committee recommended $3.3billion for medical facilities, a decrease of $464 million from FY2005 and the same as the President'srequest. Furthermore, the committee recommended $393 million for medical and prosthetic research,the same as the Administration's request and $9.3 million less than the FY2005 enacted level (see Table 1 ). The committee report language stated that VA should dedicate at least 20% of its researchbudget towards mental health research programs. Furthermore, H.R. 2528 appropriated$607 million for construction major projects and $209 million for construction minor projects, thesame as the President's request for these accounts. The MIL-QUAL appropriations bill provided$25.0 million for Grants for Construction of State Extended Care Facilities. This is $79 million lessthan the FY2005 enacted amount. The Administration's budget did not request any funding for thisprogram (see discussion below). It should be noted that these amounts are not included in the totalVHA budget since construction major (21) , construction minor, and grants for construction of state extendedcare facilities accounts are funded through separate construction accounts.

FY2005 and FY2006 Budget Shortfall

On June 23, 2005, at a hearing of the House Veterans Affairs Committee the Administrationannounced that the increased medical care cost for FY2005 was about $1 billion more than theFY2005 enacted amount. At a hearing before the House Appropriations Subcommittee on MilitaryQuality of Life and Veteran Affairs on June 28, 2005, the Secretary testified that for FY2006veterans' health care programs would need $1.1 to $1.6 billion more than the FY2006 President's request. On June 29, 2005 the Senate passed H.R. 2361 ( H.Rept. 109-80 ) makingappropriations for the Department of the Interior, Environment and Related Agencies for FY2006. Included in this bill was $1.5 billion in "emergency appropriations" for veterans' medical servicesfor FY2005.

On June 30, 2005, the Administration submitted a supplemental appropriations request toCongress requesting an additional $975 million for medical services for FY2005. This amountincludes $273 million for increased workload due to new veterans returning from Iraq andAfghanistan. When developing its budget for FY2005 VA did not forecast the impact of theextended operations in Iraq and Afghanistan. The FY2005 budget assumed that only 23,533 veteranpatients from and Iraq and Afghanistan would be entering the VA health care system; VA nowestimates this number to be 103,000. Furthermore, the total requested amount includes $226 millionfor veterans long-term care, $200 million for increased workload in Priority Groups 1-6 veterans,$58 million for reducing the backlog of veterans on waiting lists, $39 million for health care needsof dependents of 100% service-connected veterans, $84 million for purchase of emergency medicalequipment, and $95 million for increased fuel and utility costs. Soon after the Administrationpresented its budget request, the House passed H.R. 3130 providing $975 million insupplemental FY2005 appropriations for veterans medical services, equal to the administration'srequest. Although the bill does not specifically direct how the money should be spent, it is expectedthat the $975 million would be distributed as recommended by the administration.

On July 14, 2005, the Administration submitted a budget amendment for FY2006 requestingan additional $1.97 billion for VA medical services. This amount includes $276 million forincreased workload due to returning veterans from Iraq and Afghanistan and $600 million forveterans long-term care services. When developing its FY2006 budget request the Administrationunderestimated the demand for long-term care services. The budget assumed that the average dailycensus level for long-term care would be 9,795; VA now estimates that this level should be11,500. (22) Moreover,the budget amendment includes $152 million for reducing the backlog of veterans on waiting listsfor medical appointments, $249 million to address increases in the number of patients, $400 millionto address increases in utilization of services by veterans already receiving care from VA, and $300million to replenish the carryover funds from FY2005. When developing its FY2006 budget requestthe Administration believed that it could carryover about $300 million from FY2005 into FY2006. It should be also noted that this budget amendment assumes the fee increases proposed in thePresident's FY2006 budget request. (23)

In response to the FY2005 budget shortfall for VA medical services, on July 26, 2005, theconferees 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 supplementalappropriations for VA medical services for FY2005. The bill included language that would allowVA to carryover any unused funds into FY2006. The House passed H.R. 2361 on July 28,2005, and the Senate passed the measure a day later. No further action was taken on H.R. 3130 during the first session of the 109th Congress because H.R. 2361provided the additional funding needed for FY2005. The FY2006 Department of the Interior,Environment, and Related Agencies appropriations bill ( P.L. 109-54 ) was signed into law on August2, 2005.

FY2006 Senate Appropriations Bill

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 andVeterans Affairs and Related Agencies for FY2006 (MIL-CON appropriations bill). This billappropriated approximately $31.3 billion for VHA, including collections ( Table 1 ). The totalamount recommended for VHA is composed of $23.3 billion for medical services including $1.97billion in "emergency appropriations" as requested by the President's budget amendment, (24) $2.9 billion for medicaladministration, $3.3 billion for medical facilities, $412 million for medical and prosthetic research,and $1.5 billion for information technology. Under the MIL-CON appropriations bill, the totalamount of funding available for VHA would be $33.5 billion, including $2.2 billion in collections. It should be noted here that the Committee has included bill language creating a separate accountfor information technology for the entire VA and not specifically for VHA. This would separateinformation technology from the medical administration account. According to the committee reportthis new account structure will help VA to better organize its entire information technology programand more accurately display and report VA's information technology efforts.

The MIL-CON appropriations bill has recommended $607 million for construction majorprojects and $209 million for construction minor projects, the same as the President's request andthe House-passed funding levels for these accounts. Moreover, the MIL-CON appropriations billprovides $104 million for grants for construction of state extended care facilities. This amount isthe same as the FY2005 enacted level and $79 million above the House-passed amount. TheAdministration's budget did not request any funding for this program (see discussion below). Itshould be noted that these amounts are not included in the total VHA budget because constructionmajor, construction minor, and grants for construction of state extended care facilities accounts arefunded through separate construction accounts.

Furthermore, the Committee did not approve any of the Administration's fee proposals. According to the committee report:

The Committee is not supportive of these new proposalswhich would force hundreds of thousands of needy veterans to leave the VA system. To this end,the Committee recommendation reflects the real fiscal needs of the VA without charging the veteranpopulation to make up the shortfall and has included direct appropriations to cover the differences. In future budget submissions, the VA should request a funding level that adequately represents thereal needs of the veterans in the VA system without devising new fees. Therefore, the Committeedirects that the VA not implement any of the new policy proposals, as submitted in the budgetrequest, without concurrence from the Committees on Appropriations in both Houses ofCongress. (25)

The Senate passed the MIL-CON appropriations bill on September 22, 2005. TheSenate-passed version of H.R. 2528 , among other things, included language that wouldrequire the VA to submit to the House and Senate Veterans' Affairs and Appropriations Committeesa report on any budget shortfall totaling 2% or more of VA's total discretionary budget in any fiscalyear.

FY2006 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, andRelated Agencies for FY2006 (MIL-CON-QUAL-VA Appropriations Act). The Senate adopted H.Rept. 109-305 by unanimous consent that same day. The MIL-CON-QUAL-VA AppropriationsAct ( P.L.109-114 ) was signed into law by the President on November 30, 2005.

The MIL-CON-QUAL-VA Appropriations Act appropriated $22.5 billion for medicalservices ( not shown in Table 1 ). According to the conference report language, this amount wouldbe available only if an official budget request is transmitted by the President to Congress that revisesthe President's budget amendment of July 14, 2005, and designates the entire $1.2 billion as anemergency requirement. (26) The President's budget amendment had requested almost $2.0billion for medical services (see the discussion under FY2005 and FY2006 budget shortfall). However, the conference committee provided $1.2 billion. This reduction could be attributed to the$525 million carryover appropriations from the FY2005 supplemental appropriations ( P.L.109-54 )and reductions from other VHA accounts. The conferees for the MIL-CON-QUAL-VAAppropriations Act included bill language that requires VA spend at least $2.2 billion of the VAmedical services budget for specialty mental health care. As stated in the conference report, theconferees are concerned that mental health care is one of the most critical needs of veterans returningfrom Operation Iraqi Freedom (OIF) and Operation Enduring Freedom(OEF). (27) It is estimated that of thetotal VHA budget for FY2006 approximately $464 million would be spent to treat about 110,000OIF and OEF veterans.

The conference report also includes language that requires VHA to designate certainspecialized medical treatment facilities for mental health and post traumatic stress disorder (PTSD)as "Centers of Excellence." According to the conference report, centers will be established at theWaco Veterans Administration Medical Center (VAMC), in Texas; San Diego VAMC, inCalifornia; and the Canandaigua VAMC, in New York. The conferees directed VA to submit areport to the Appropriations Committees outlining the progress made in this area. (28)

P.L.109-114 appropriated $2.9 billion for medical administration, a $1.8 billion decrease infunding compared to FY2005, and 36.7% less than the FY2006 request. Some proportion of thisdecrease could be attributed to the movement of $1.2 billion in information technology developmentfunding to a new information technology systems account, under the departmental administrationaccount ( not shown in Table 1 ). It should be noted here that the House version of the MIL-QUALappropriations bill, maintained information technology funding as part of the existing medicaladministration account.

The MIL-CON-QUAL-VA Appropriations Act provided $3.3 billion for medical facilities,a 12.3% decrease in appropriations when compared to FY2005, and provided $412 million formedical and prosthetic research, a 2.4% increase in funding over FY2005, and a 4.8% increase infunding over the FY2006 request ( Table 1 ). The conference committee directed VA to devote atleast $15 million of its research budget for Gulf War Illness research. (29)

P.L. 109-114 , provides $607 million for construction major projects, of which $532 millionis for CARES-related projects. The conferees included bill language that restricts VA's ability toreduce the mission, services or infrastructure, including land, of 18 facilities on the CARES listrequiring further study, without prior approval of the Appropriations Committees. (30) Furthermore, theMIL-CON-QUAL-VA Appropriations Act appropriated $199 million for construction minorprojects, of which $155 million is for implementing CARES recommendations. P.L.109-114 alsoappropriated $85.0 million for grants for construction of state extended care facilities. This is $60.0million above the House recommended amount and $19.0 million less than the Senate recommendedamount. It should be noted that these amounts are not included in the total VHA budget becauseconstruction major, construction minor, and grants for construction of state extended care facilitiesaccounts are funded through separate construction accounts.

The conferees for the MIL-CON-QUAL-VA Appropriations Act included language thatrequires the VA to submit quarterly reports on the financial status and service level status of VHA. The report would contain, among other things, both planned and actual expenditure rates,unobligated balances, potential financial shortfalls, the time required for new patients to get theirfirst appointment, the time required for established patients to get their next appointment, and thenumber of unique veterans and patients being served. (31)

Gulf Coast Hurricanes and Avian Flu Pandemic Preparation

On September 2, 2005, the Emergency Supplemental Appropriations Act to Meet ImmediateNeeds Arising From the Consequences of Hurricane Katrina, 2005 ( P.L.109-61 ) was signed into law. It provided $10.5 billion in emergency supplemental funds for hurricane-related disaster relief. OnSeptember 8, 2005, a Second Emergency Supplemental Appropriations Act to Meet ImmediateNeeds Arising From the Consequences of Hurricane Katrina, 2005 ( P.L.109-62 ) was signed into law,providing an $51.8 billion in emergency supplemental funds for hurricane-related disaster relief. OnOctober 28, 2005, President Bush submitted a reallocation request to Congress that would transferto other agencies $17.1 billion of the total $60 billion appropriated to the Federal EmergencyManagement Agency's (FEMA's) Disaster Relief Fund (DRF) to respond to Hurricanes Katrina, Rita,Wilma, and other disasters. Congress responded to the President's proposed reallocation by attachingthe reallocation request to the conference version of the FY2006 Defense Appropriations bill( H.R. 2863 ).

The President requested $1.4 billion, among other things, to replace the VA medical centerin New Orleans, Louisiana, and repair the medical center in Biloxi, Mississippi, destroyed byHurricane Katrina; replace pharmaceuticals, medical supplies, and equipment for VA hospitals andclinics in the hurricane-affected areas; cover costs to continue veterans' benefits processing; andclean up and repair damaged national cemeteries. (32) The President requested that of this amount, $198.3 million beallocated for medical services; $24.9 million for general operating expenses; $200,000 to clean upand repair national cemeteries; $1.2 billion for the construction major projects account to replacethe medical center in New Orleans, Louisiana, and to repair and add a bed tower to the medicalcenter in Biloxi, Mississippi; and $1.8 million for the construction minor projects account to repair damaged roadways and other damage to national cemeteries as a result of Hurricane Katrina.

Furthermore, on November, 1, 2005, the Administration requested $7.1 billion for theDepartments of Health and Human Services, Agriculture, Defense, Homeland Security, the Interior,State, and Veterans Affairs. (33) Of this amount, the President requested $27.0 million formedical services to increase VA's avian influenza surveillance programs and to establish real-timesurveillance data links with the Centers for Disease Control and Prevention (CDC). According tothe Administration's request, this level of funding would also assist with planning VA-widepreparations and responses to avian influenza involving other community and federal agencies.

On December 19, 2005, the House adopted the conference report ( H.Rept. 109-359 ) toaccompany the FY2006 Department of Defense Appropriations bill ( H.R. 2863 ). TheSenate agreed to the conference report on December 21, 2005. The conference agreement includes$225 million for medical services ( Table 1 ); $24.9 million for general operating expenses; $200,000to clean up and repair national cemeteries; $368 million for construction major projects; and $1.8million for the construction minor projects accounts ( these amounts are not shown in Table 1 ). The Department of Defense Appropriations Act, 2006 ( P.L. 109-148 ) was signed into law onDecember 30, 2005.

Analysis of Funding for VHA

For FY2006, $23.0 billion is appropriated for medical services, a 2.6% increase in fundingover the FY2006 request, and a 9.2% increase in funding over the FY2005 enacted amount ( Table1 ). As stated previously, $2.9 billion is appropriated for medical administration, a $1.8 billiondecrease in funding compared to FY2005, and 36.7% less than the FY2006 request. Someproportion of this decrease could be attributed to the movement of $1.2 billion in informationtechnology development funding to a new information technology systems account, under thedepartmental administration account ( not shown in Table 1 ). Furthermore, $3.3 billion isappropriated for medical facilities, a 12.3% decrease in appropriations when compared to FY2005,and $412 million is provided for medical and prosthetic research, a 2.4% increase in funding overFY2005, and a 4.8% increase in funding over the FY2006 request ( Table 1 ). The total amount offunding for VHA for FY2006 is $29.3 billion, a 3.5% decrease in funding compared to thePresident's budget request. The total amount of funding available for VHA for FY2006, includingcollections, is $31.5 billion.

The total amount of funding for construction major projects is $975 million, a $788 milliondecrease in funding from the total FY2006 request of $1.8 billion. As stated in H.Rept. 109-359 , theconferees of the FY2006 Department of Defense Appropriations bill ( H.R. 2863 )provided funding for the construction of a new hospital at Biloxi, Mississippi, to replace the facilitydestroyed at Gulfport, Mississippi. Furthermore, the conferees did not include the full amount of funding for a replacement hospital at New Orleans, Louisiana, because there is insufficientinformation to determine the actual cost. (34) The total amount of funding for construction minor projects forFY2006 is $201 million, a $10.0 million decrease compared to the FY2006 request and $28.0 millionless than the FY2005 enacted amount. It should be noted that these amounts are not included in thetotal VHA budget because construction major and construction minor accounts are funded throughseparate construction accounts.

Table 1. VHA Appropriations for FY2004, FY2005, and FY2006

($in thousands)

Source: Table prepared by the Congressional Research Service based on H.Rept. 108-674 ; S.Rept. 108-353 ; H.Rept. 109-95 ; S.Rept. 109-105 ; H.Rept.109-305 ; H. Rept.109-359 .

Note: Appropriation amounts for FY2005 adjusted to account for the 0.8% across-the-board reduction in most discretionary accounts as called for inDivision J, Section 122 (a)(1) of P.L. 108-447 . Supplemental appropriations for FY2005 are not subject to the 0.8% across-the-board reductions. Appropriation amounts for FY2006 are not subject to any cross-the-board reductions as stipulated in Division B, Title III, Section 3801(c)(2) of P.L.109-148 .

a. This amount includes $1.2 billion designated as an emergency requirement.

b. On June 30, 2005, the Administration requested an additional $975 million for medical services for FY2005.

c. On June 30, 2005, the House passed H.R. 3130 .

d. On June 29, 2005, the Senate passed an amendment to H.R. 2361 , the Department of the Interior, Environment, and Related AgenciesAppropriations bill, 2006 to add $1.5 billion in emergency funds for medical services.

e. On August 2, 2005, the FY2006 Department of the Interior, Environment, and Related Agencies appropriations bill ( H.R. 2361 , P.L.109-54 ) was signed into law.

f. On July 14, 2005, the Administration requested an additional $1.977 billion for medical services for FY2006.

g. On July 21, 2005, the Senate Committee on Appropriations reported H.R. 2528 favorably out of committee ( S.Rept. 109-105 ), anddesignated this amount as an emergency appropriation.

h. On November 18, 2005, the House and Senate adopted the conference report ( H.Rept.109-305 ) to accompany H.R. 2528 , and designatedthis amount as an emergency appropriation.

i. This amount includes funding for medical services, medical administration, and medical facilities.

j. Medical Care Cost Collection Fund (MCCF) receipts are restored to VHA as an indefinite budget authority equal to the revenue collected, estimatedto be $1.985 billion in FY2005 and $2.17 billion in FY2006.

Key Budget Issues

In its FY2006 budget proposal the Administration is recommending a set oflegislative and regulatory proposals. The Administration asserts that these proposalswill refocus the veterans' health care system to better meet the needs of high prioritycore veterans -- those with service-connected conditions, those with lower incomes,and veterans with special care needs. Some of these proposals were proposed inFY2004 and FY2005 as well, and were rejected by Congress. (35)

Changes in Cost-Sharing for Health Services

Assess an annual enrollment fee of $250 for all Priority 7 and8 veterans;

Increase the veterans' share of pharmaceutical copaymentsfrom $7 to $15 (for each 30-day prescription) for all enrolled veterans in PriorityGroups 7 and 8;

Eliminate copayments for hospice care;and

Authorize VA to pay for emergency care for enrolled veteransin non-VA medical facilities.

Changes in Long-Term Care Services

Revise eligibility criteria for VA sponsored long-term care andrestrict per-diem payments to state veterans nursing homes;

Place a one year moratorium on grants for state extended carefacilities;

Exempt former POWs from long-term care copayments;and

Eliminate mandatory long-term care daily censusrequirements.

A detailed description of the above legislative proposals follows:

Legislative Proposals to Change the Cost-Sharing Structure

Assess an Annual Enrollment Fee

The Administration proposes to establish an annual enrollment fee of $250beginning October 1, 2005, for all Priority 7 and 8 veterans. Priority Group 7veterans have incomes above $25,843 for a single veteran and below the Departmentof Housing and Urban Development (HUD) geographic means test level. (36) PriorityGroup 8 veterans are those with incomes above $25,843 for a single veteran andabove the HUD geographic means test. The HUD geographic means test isestablished at a local level such as county or city. For instance, a veteran with nodependents residing in Cleveland County, Arkansas, whose annual income in 2004was $26,149 will be placed in Priority Group 7, since the veteran's annual income isabove VA's means test threshold and below the geographic means test threshold forFY2004 of $26,150. Similarly, a veteran with no dependents living in Trenton, NewJersey, whose annual income in 2004 was $40,249 will be placed in Priority Group7, since the veteran's annual income is above VA's means test threshold and belowthe geographic means test threshold for FY2004 of $40,250. It should noted thatthere is wide variation in annual incomes of veterans placed in Priority Groups 7 and8.

In its FY2004 and FY2005 budget submissions, the President requestedauthority 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.

The MIL-QUAL appropriations bill passed by the House does not containany provision that would impose an enrollment fee. Likewise, the MIL-CONappropriations bill passed by the Senate does not contain any provision that wouldimpose an enrollment fee. The MIL-QUAL-VA Appropriations Act ( P.L. 109-114 ) does not include any provisions that would impose an enrollment fee on veterans.

Although the House Appropriations Committee did not approve imposing anannual enrollment fee, the House Veterans Affairs Committee (majority members)in its FY2006 views and estimates letter to the House Budget Committeerecommended a $230 enrollment fee for Priority Group 7 veterans, and a four tiredenrollment fee for Priority Group 8 veterans based on their income above the HUDgeographic means test. According to the Committee the fees would be: Tier 1 -- $230; Tier 2 -- $250; Tier 3 -- $350; Tier 4 -- $500. The Committee's views andestimates letter further states that these enrollment fees would apply to both veteranswho are currently enrolled and new enrollees.

Similarly, the majority members of the Senate Veterans Affairs Committeein its FY2006 views and estimates letter to the Senate Budget Committee did agreeto approve a $250 a year enrollment fee for higher income veterans who have noservice-connected injuries. It should be noted that at this time both the House andSenate Veterans Affairs Committees have not introduced any measures that will giveVA the authority to implement this proposal.

Increase Pharmacy Copayments

The Administration proposes to increase the pharmacy copayments from $7to $15 for all enrolled Priority Group 7 and Priority Group 8 veterans whenever theyobtain medication from VA on an outpatient basis for the treatment of anonservice-connected disability. At present, veterans in Priority Groups 2-8 pay $7for a 30-day supply of medication including over-the-counter medications. (37) TheAdministration put forward this proposal in its FY2004 and FY2005 budget requestsas well, but did not receive any approval from Congress.

Similar to the enrollment fee proposal, The MIL-QUAL appropriations billpassed by the House does not contain any provision that would authorize an increasein pharmacy copayments. Likewise, the MIL-CON appropriations bill passed by theSenate does not contain any provision that would that would authorize an increasein pharmacy copayments. The MIL-QUAL-VA Appropriations Act signed into lawby the President does not include any provisions that would authorize an increase inpharmacy copayments from $7 to $15.

The Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) authorizedVA to charge most veterans $2 for each 30-day supply of medication furnished ona outpatient basis for treatment of a nonservice-connected condition. The VeteransMillennium Health Care and Benefits Act of 1999 ( P.L. 106-117 ) authorized VA toincrease the medication copayment amount and to establish annual caps on themedication copayment amount. (38) An annual cap was established to eliminate financial hardship for veterans enrolled in Priority Groups 2-6. When veterans reachthe annual cap, they continue to receive medications without making a copayment.For calendar year 2005, the cap is $840. There is currently no cap for veterans inPriority Groups 7 and 8 (see Appendix 2 ).

On November 15, 2005, VHA issued a directive stating that effective January1, 2006, the medication co-payment will be increased to $8 for each 30-day supplyof medication furnished on a outpatient basis for treatment of a nonservice-connectedcondition, and that the annual cap for veterans enrolled in Priority Groups 2-6 willbe $960. (39) There would be no cap for veterans in PriorityGroups 7 and 8.

Impact of the Annual Enrollment Fee and Increasein Pharmacy Copayments. According to actuarial projections doneby VA, the $250 annual enrollment fee and the increase in prescription drugcopayments would reduce the number of unique veteran patients in FY2006 byapproximately 213,000, and 1.1 million veteran enrollees. The enrollment fees andincreased copayments would generate about $454 million in revenue and save VAan additional $202 million due to reduced demand.

The conferees for the MIL-QUAL-VA Appropriations Act ( P.L.109-114 )included report language that directs VA not to include policy proposals such as increased pharmacy copayments and annual enrollment fees in future budgetrequests, unless the proposals are enacted and savings are realized. The conferencereport further states that "for the last four years, there has been a proposal for anenrollment fee and an increase in pharmacy co-payments included in the budget withunrealistic savings. Every year the Congress has had to find resources to make up forsavings projections which do not materialize." (40)

Exempt Copayments for Hospice Care

The Administration is proposing to exempt hospice care provided in allsettings from inpatient and outpatient copayments. Under current law, veteransreceiving hospice care may be subject to copayment obligations depending upon thetype of VA facility or setting in which they receive care. Veterans are subject toinpatient copayments if they seek inpatient hospice care at facilities without nursinghome beds, or if the hospice care must be provided in an acute care setting as a resultof clinical complexity. Moreover, veterans choosing to remain at home for theirhospice care are subject to outpatient primary care copayments.

The Veterans Health Programs Improvement Act of 2004 ( P.L. 108-422 ),among other things, exempted veterans receiving hospice care at a nursing homefrom extended care copayments.

The Veterans Health Care Act of 2005 ( S. 1182 ), as introducedon June 7, 2005, contained a provision that would have authorized VA to exemptfrom copayment obligations veterans receiving hospice care from any VA facility orsetting. However, S. 1182, passed by the Senate on December 21, 2005, does not include this provision. This bill is awaiting House action.

Authorize VA to Pay for Emergency Care for Insured Veterans

The Administration is proposing to reimburse out-of-pocket expenses foremergency care treatment provided to certain insured veterans in non-VA facilities.Under current law, VA is authorized to reimburse all veterans for emergencytreatment furnished in non-VA facilities for nonservice-connected conditions if theymeet the following criteria: (1) they have enrolled in VA's health care system; (2)they have received care from VA within the 24-month period preceding the provisionof such emergency treatment; and (3) they are financially liable to the provider forthe emergency treatment. Veterans who have health insurance coverage foremergency care, or are entitled to other federal benefits care (i.e., under Medicare orMedicaid), or have other contractual or legal recourse are not eligible forreimbursement. (41) Currently, VA does not reimburse the veteran'sout-of-pocket expenses associated with nonservice-connected care. (42)

The Administration's proposal would give VA the authority to pay for insuredveteran patients' out-of-pocket expenses for emergency care services if emergencycare is obtained outside of the VA health care system for a nonservice-connectedcondition. VA would be a secondary payer to private insurance or Medicare foremergency care services. VA would cover the out-of-pocket expenses, that is theamount of the co-payment the veteran would have been required to pay if the veteranhad received the care from VA for a nonservice-connected condition. A similarproposal was included in the FY2005 budget request as well, however, there was no legislative action on this proposal.

Section 17 of the Veterans Health Care Act of 2005 ( S. 1182 ) if enacted, would authorize VA to reimburse an eligible veteran for expenses forwhich the veteran remains personally liable had the veteran received emergencytreatment in a non-VA facility. This bill was reported out of the Senate Veterans'Affairs Committee on September 15, 2005, with an amendment in the nature of asubstitute and passed by the Senate on December 21, 2005. This bill is awaitingHouse action.

Legislative Proposals to Change Long-Term Care Services

Revise Eligibility Criteria for Long-Term Care and Per-Diem Payments

VA's long-term care program includes a continuum of services for thedelivery of care to veterans needing assistance due to chronic illness or physical ormental disability. Long-term care services are provided in a variety of settings,including institutional care in nursing homes, or home and community-basednoninstitutional care, and respite care services that temporarily relieves a caregiverfrom the burden of caring for a chronically ill and disabled veteran in the home.

Nursing home care is provided through VA-operated nursing homes, VAcontracted community nursing homes, and state veterans nursing homes owned andoperated by individual states. VA pays a portion of the daily cost of care of veteransresiding in these homes, paying a per-diem ($59.36 in FY2005) for each eligibleveteran. VA does not directly place patients in state veterans homes as it does incontracted community nursing homes; veterans must apply to the homes foradmission, and eligibility and admission requirements vary by each state.

In general, under the Veterans Millennium Health Care and Benefits Act( P.L.106-117 ) VA provides nursing home care to: any veteran with aservice-connected disability rated 70% or greater; any veteran requiring nursing homecare because of a condition related to their military service who does not have aservice-connected disability rating of 70% or greater; and veterans who wereadmitted to VA nursing homes on or before enactment of P.L 106-117. VA alsoprovides nursing home care to veterans with 60% service-connected disability ratingswho are classified as unemployable or catastrophically disabled. (43) For allother veterans enrolled in VA's health care system, VA provides nursing home carein VA nursing homes or contract community nursing homes on a discretionary basisdepending on available resources.

In its FY2006 budget proposal the Administration proposes to revise VHA'seligibility criteria for long-term care services provided in VA, community, and statenursing homes. Under the President's proposal state veterans nursing homes wouldreceive per diem payments for Priority Groups 1-3 veterans and Priority Group 4veterans who have catastrophic disabilities and who need short-term care (less than90 days), or hospice or respite care. For Priority Group 4 veterans who are notcatastrophically disabled, and for Priority Groups 5-8 veterans, state veterans nursinghomes would be reimbursed only for short- term care subsequent to a hospital stay. VA asserts that this proposal would save the department $294 million in FY2006. The number of veterans in state nursing homes on whose behalf VA pays per-diempayments would decrease from 17,328 in FY2004 to 7,217 in FY2006.

The House Committee on Appropriations rejected the Administration'sproposal to restrict per diem payments to state veterans nursing homes. Thecommittee report states that "VA should with the National Association of StateVeterans Homes and other stakeholders develop and implement solutions that willgive veterans the best options for quality long-term care." (44) Accordingto the committee report, the amount of funding provided under the medical servicesaccount is sufficient for providing long-term care services in state veterans nursinghomes without revising current eligibility criteria for long-term care services.

Similarly, the Senate Committee on Appropriations did not accept theAdministrations proposals to revise the eligibility requirements for receiving perdiem payments for care in state veterans nursing homes. According to S.Rept.109-105 , "by adopting any proposal that restricts per diem payments, notably byinstituting rules that would make only priority level one, two, three, andcatastrophically disabled level four veterans eligible for per diem payments, the VAcould be placing state veterans homes in an untenable financial position." (45)

The conferees rejected this proposal to revise eligibility criteria for long-termcare provided in veterans nursing homes. The conference report further states thatsufficient resources have been provided "to maintain a policy of providing long-termcare to all veterans, utilizing VA-owned facilities, community nursing homes, statenursing homes, and other noninstitutional venues." (46)

Place a One-Year Moratorium on Grants for State Extended Care Facilities

VA provides grants to states to acquire or construct extended care facilities,and to expand, remodel, or alter existing buildings. A grant may not exceed 65% ofthe total cost of the project.

In its FY2006 budget proposal, the Administration is proposing a one-yearmoratorium on grants to state extended care facilities. During this one-year period VA intends to complete a review of its long-term care infrastructure, comparingprojected demand against capacity. As a result of this proposed study, VA has notrequested any funding for FY2006 for grants for state extended care facilities. Thisis a decrease of $104 million from FY2005.

The House Committee on Appropriations recommended $25 million for thegrant program. According to the committee report language, funds will be used forsafety improvements in existing state home facilities. Furthermore, the committeedirects VA to undertake an extensive analysis of veterans' long-term care needs.

The Senate Appropriations Committee recommended $104 million for thegrant program. According to the committee report:

The Committee was disappointed thatVA did not request any funding for this program, nor did it provide any explanationfor the action. The Committee believes the VA decision to "suspend" this programwas done solely to reduce the budget request and has no substantive merit. Therefore, the Committee recommendation includes a funding level that is equal tothe fiscal year 2005 enacted level. To do any less could potentially jeopardizeprojects currently awaiting funding as well as the welfare of deserving veterans (47)

P.L. 109-114 appropriated $85 million for the grant program. The confereesfor the MIL-QUAL-VA Appropriations Act requested VA to undertake a "rigorousand extensive" analysis of the long-term care needs of veterans and report to theCommittees of Appropriations by March 31, 2006.

Exempt Former Prisoners of War (POWs) from Long-Term Care Copayments

The Administration is proposing to exempt former POWs from payingcopayments for long-term care services. The Veterans Health Care, Capital Asset,and Business Improvement Act of 2003 ( P.L. 108-170 ) provided VA with theauthority to exempt former POWs from medication copayments. At present, formerPOWs have no copayment obligations for hospital and medical services, except forlong-term care services. This proposal would effectively end any remainingcopayment obligations on part of a former POW. It should be noted that theAdministration put forth a similar proposal in its FY2005 budget request as well,however, there was no legislative action on this proposal.

The Veterans Health Care Act of 2005 ( S. 1182 ) was introducedon June 7, 2005, by Senator Craig, Chairman of the Committee on Veterans Affairs. As introduced in the Senate, the bill contained a provision that would haveeliminated copayment obligations on part of former POWs for long-term careservices. The Committee held a hearing on this measure on June 9, 2005. However,S. 1182 , as passed by the Senate, does not include this provision.

Eliminate Mandatory Long-Term Care Daily Census Requirements

The Administration is requesting Congress to repeal the mandatory staffingand level of extended care service requirements under current law. The VeteransMillennium Health Care and Benefits Act of 1999 ( P.L. 106-117 ) required VA tomaintain its inpatient long-term care bed capacity at the 1998 level of 13,391. Thelaw specifically states:

The Secretary shall ensure that thestaffing and level of extended care services provided by the Secretary nationally infacilities of the Department during any fiscal year is not less than the staffing andlevel of such services provided nationally in facilities of the Department during fiscalyear 1998. (48)

VA asserts that it seeks to provide long-term care services in the leastrestrictive setting that is compatible with the veterans medical condition and personalcircumstances. VA believes that by repealing the mandatory staffing requirementsand requirements concerning the number of long-term care beds, it will be able toprovide veterans with home and community- based services (HCBS), while reservingnursing home care for situations in which the veteran can no longer be cared for ina home and community-based setting. According to VA, this proposal would reducethe average daily census of veterans residing in VA nursing homes from 12,354 atthe end of FY2004 to 9,795 in FY2006 and save $202 million in FY2006. VA isprojecting an increase in both work load and funding for HCBS programs. Thenumber of veterans in HCBS programs is projected to increase from 25,523 inFY2004 to 35,540 in FY2006. During this same period funding is projected toincrease from $287 million to $400 million. VA believes that projected increase inHCBS programs will serve to offset some of the reductions in nursing homecare. (49)

The Veterans Health Care Act of 2005 ( S. 1182 ), as introducedin the Senate, contained a provision that would have repealed the mandatory staffingand level of extended care requirements under current law. However, S.1182, as passed by the Senate, does not include this provision.

Appendix 1. Priority Groups and Their Eligibility Criteria

Source : Department of Veterans Affairs.

Note: Service-connected disability means with respect to disability, that such disabilitywas incurred or aggravated in the line of duty in the active military, naval or air service.

Appendix 2. Veterans' Payments for Health Care Services

Source: President's Task Force to Improve Health Care Delivery for Our Nation'sVeterans

Note: Veterans receiving a pension for a nonservice-connected disability from VA,veterans with incomes below $10,162 (if no dependents), and $13,309 (with onedependent plus $1,734 for each additional dependent ), veterans receiving care forconditions such as Agent Orange, Military Sexual Trauma and combat veterans withintwo years of discharge, and veterans who are former POWs are exempt from payingoutpatient prescription copayments for nonservice-connected conditions.

a. An annual medication copayment cap has been established for veterans enrolled inpriority groups 2-6. Medication will continue to be dispensed after copayment capis met. An annual copayment cap has not been established for veterans enrolledin Priority Groups 7 or 8.

b. Veterans in receipt of a Purple Heart are in Priority Group 3. This change occurredwith the enactment of the Veterans Millennium Health Care and Benefits Act( P.L. 106-117 ) on Nov. 30, 1999.

c. Priority Group 7 veterans who are determined to be catastrophically disabled and whoare placed in Priority Group 4 for treatment are still subject to the copaymentrequirements as a Priority Group 7 veteran.

d. Priority Group 6 -- health insurance and all applicable copayments will be billed whencare is for conditions not related to the veteran's experience or exposure. Veteransin this priority group could be subject to full medical care copayments or reducedinpatient copayments under means-test criteria for nonservice-connectedconditions. Combat veterans receiving care for a potential service relatedcondition within two years of discharge from the military are in Priority Group 6.

e. Priority Group 7 veterans -- For inpatient copayments only, veterans enrolled in thispriority group are responsible for 20% of the inpatient copayment (in traditionalinsurance this is known as a deductible) and 20% of the inpatient per diemcopayment. The means-tested copayment reduction does not apply to outpatientand medication copayments and veterans will be assessed the full applicablecopayment charges for nonservice-connected care.

f. Priority Group 8 veterans -- For inpatient copayments only, veterans enrolled in thispriority group are responsible for the full inpatient copayment (in traditionalinsurance this is known as a deductible) and the inpatient per diem copayment. Veterans in this priority group are also responsible for the full outpatient andmedication copayments for nonservice-connected care. There is no means-testedcopayment reduction.

Appendix 3. VHA's New Account Structure

Medical Services. This accountprovides funds for treatment of veterans and eligible beneficiaries in VA medical centers,nursing homes, outpatient clinic facilities, and contract hospitals. Hospital and out patientcare is also provided by the private sector for certain dependents and survivors of veteransunder the Civilian Health and Medical Program of VA (CHAMPVA). Funds are alsoused to train medical residents, interns, and other professional, paramedical andadministrative personnel in health science fields to support VA's medical programs. Overhead costs associated with medical and prosthetic research are also funded by thisaccount.

Medical Administration. This accountprovides funds for the management and administration of VA's health care system. Fundsare used for the costs associated with the operation of VA medical centers, other facilities,VHA headquarters, costs of Veterans Integrated Service Network (VISN) offices, billingand coding activities, and procurement.

Medical Facilities. This accountprovides funds for the operation and maintenance of VHA's infrastructure. Funds are usedfor costs associated with utilities, engineering, capital planning, leases, laundry, foodservices, groundskeeping, garbage disposal, facility repair, and selling and buying ofproperty.

Medical and Prosthetic Research. Thisaccount provides funds for medical, rehabilitative, and health services research. Themedical and prosthetic research program is an intermural program. In addition to fundsfrom this appropriation, reimbursements from the Department of Defense (DOD), grantsfrom the National Institutes of Health (NIH), and private sources supports VA researches. Medical research supports basic and clinical studies that advances knowledge so thatefficient, and rational interventions can be made to prevent, care or alleviate disease. Theprosthetic research program is involved in the development of prosthetic, orthopedic andsensory aids to improve the lives of disabled veterans. The health services researchprogram focuses on improving the outcome effectiveness and cost efficiency of healthcare delivery for the veterans population. Overhead costs associated with medical andprosthetic research are also funded by the medical services account.

Medical Care Collections Fund(MCCF). VA deposits copayments collected from veterans obligated tomake such payments for either medical services or inpatient pharmacy benefits foroutpatient medication, and third-party insurance payments from service-connectedveterans for nonservice-connected conditions into MCCF.

Previously copayments, third-party insurance payments, and fees for services otherthan medical services or inpatient pharmacy benefits were deposited in several medicalcollections accounts. In FY2004, the Administration's budget requested consolidatingseveral medical collections accounts into MCCF. The conferees of the ConsolidatedAppropriations Act of 2004 ( H.Rept. 108-401 ) recommended that collections that wouldotherwise be deposited in the Health Services Improvement Fund (former name), VeteransExtended Care Revolving Fund (former name), Special Therapeutic and RehabilitationActivities Fund (former name), Medical Facilities Revolving Fund (former name), and theParking Revolving Fund (former name) should be deposited in MCCF. (50) TheConsolidated Appropriations Act of 2005, ( P.L. 108-447 , H.Rept. 108-792 ) provided VAwith permanent authority to deposit funds from these accounts into MCCF. The fundsdeposited in MCCF would be available for medical services for veterans. These collectedfunds do not have to be spent in any particular fiscal year and are available until expended.