Veterans' Medical Care Appropriations and Funding Process
Released: 2004-12-27T00:00:00

Recent Developments

On September 9, 2004, the House Committee on Appropriations reported a bill makingappropriations for the Departments of Veterans Affairs and Housing and Urban Development, andIndependent Agencies for FY2005 (VA-HUD appropriations bill) ( H.R. 5041 ). (1) Under H.R. 5041,the Veterans Health Administration (VHA) would receive $30.3 billion in FY2005. This is a $1.9billion increase from FY2004 and $1.2 billion more than the President's request. It includes $19.5billion for medical services, $4.7 billion for medical administration, $3.7 billion for medical facilities,$385 million for the medical and prosthetic research, and $2 billion in medical care collections. Furthermore, the Committee recommended approximately $370 million from the Construction Majoraccount, and nearly $162 million from the Construction Minor account for Capital Asset Realignmentfor Enhanced Services (CARES) activities. The Committee rejected the Administration's proposalto fund VHA through an alternative appropriations structure, in which the VHA budget would havebeen consolidated into two business lines: medical care, and medical and prosthetic research. It alsodisregarded the Administration's proposal to increase copayments and fees for lowest-priorityveterans.

The Senate Committee on Appropriations reported its version of the VA-HUD appropriationsbill for FY2005 ( S. 2825 ) on September 21, 2004. (2) Under S. 2825VHA would receive $30.4 billion in FY2005. This is a $2 billion increase from FY2004, and $1.2billion more than the President's request. It includes $19.5 billion for medical services, (3) $4.7 billion for medicaladministration, $3.7 billion for medical facilities, $405 million for the medical and prosthetic research,and $2 billion in medical care collections. The Committee also recommended $370 million from theConstruction Major account, and $182 million from the Construction Minor account for CARESactivities. The Committee also rejected the Administration's proposal to fund VHA through analternate account structure and did not include any copayment changes that were proposed in thebudget.

On November 20, 2004, both the House and Senate adopted the conference agreement toaccompany the Consolidated Appropriations Act, 2005 ( H.R. 4818 , P.L. 108-447 ). (4) Under P.L.108-447 VHAwould receive $30.3 billion in FY2005 an increase of $1.2 billion over the FY2005 appropriationrequest, and $1.9 billion over FY2004. None of the funds would be contingent upon an emergencydeclaration as proposed by the Senate Appropriations Committee ( S. 2825 ). P.L.108-447 provides $19.5 billion to finance medical services. Furthermore, it appropriates $4.7billion for medical administration, $3.7 billion for medical facilities, and $405 million for medical andprosthetic research. Funding for VHA includes $2 billion in medical care collections (MCCF). Theconference agreement also includes $370 million from the Construction Major account, and $182million from the Construction Minor account for CARES related activities. It should be noted thatthese amounts are not included in the total VHA budget since Construction Major and ConstructionMinor accounts are funded through separate construction accounts. The conferrees of theConsolidated Appropriations Act, 2005 rejected the Administration's proposal to fund VHA throughan alternative account structure, and did not include any copayment changes that were proposed inthe President's budget request.

This report will first provide a brief summary of the FY2004 budget for VHA care alongwith a general discussion of the budget process in order to provide a context for this summary. Second, the report will provide information on the President's FY2005 budget request for VHA. (5) Third, it will discuss theAdministration's major legislative and regulatory proposals for VA medical care for FY2005. Thisreport has been updated to show the amounts recommended by the House and Senate, and enactedby Congress and signed into law by the President.

Veterans Health Administration (VHA)

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 (including burial expenses). VA provides these benefits to veteransthrough three major operating units: the Veterans Health Administration (VHA), the VeteransBenefits Administration (VBA) and the National Cemetery Administration (NCA). VA's budgetincludes both mandatory and discretionary spending accounts. Mandatory funding supports disabilitycompensation, pension benefits, vocational rehabilitation, and life insurance, among other benefits andservices. Discretionary funding supports a broad array of benefits and services, including medicalcare. In FY2004, discretionary budget authority accounted for approximately 47% of the total VAbudget authority, with most of this discretionary funding going toward supporting VA medical care.

VHA operates the largest direct health care delivery system in the nation. (6) In FY2003, VHA operated160 hospitals, 134 nursing homes, 42 residential rehabilitation treatment centers, and 847 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, VHAprovides 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 FY2003, VHA provided medical services to an estimated 4.5 million unique veteranpatients, a caseload that is expected to reach approximately 4.7 million in FY2004 and approximately4.9 million by the end of FY2005. (7) The total number of outpatient visits reached 49.7 million duringFY2003, and is projected to increase to 53.1 million in FY2004 to 56.4 million in FY2005. InFY2003, VHA spent approximately 50% of its medical care obligations 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 1,200 other schools across the country. Each year, about 81,000health professionals are trained in VA medical centers.

VA 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 and itsenrollment 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 of inpatient andoutpatient medical care. The new eligibility standard was instituted by Congress to "ensure thatmedical judgment rather than legal criteria will determine when care will be provided and the levelat which care will be furnished." (8)

For most veterans, entry into the veterans' health care system begins with application forenrollment. (9) A veteranmay apply for enrollment at any time during the year. Eligibility for VA health care is primarily basedon "veteran status" resulting from military service. "Veteran status" is established by active-dutystatus in the military, naval, or air service and a honorable discharge or release from active militaryservice.

After "veteran status" has been established ,VA next places applicants into one of twocategories. The first is composed of the following veterans:

veterans in need of care for a service-connected disability (10) ;

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 POWs;

veterans awarded the Purple Heart;

veterans who have been determined by VA to be catastrophicallydisabled;

veterans of World War I;

veterans seeking care for disorders associated with exposure to hazardousagents (such as Agent Orange in Vietnam) while on active duty; and

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

In general, the above-mentioned veterans are regarded as "high priority" veterans, and theyare enrolled automatically in one of the first six priority groups. (A detailed list of priority enrollmentgroups is provided in Appendix 1 .) VA also looks at applicants' income and net worth to determinetheir specific priority category and whether they have to pay copayments for nonservice-connectedcare. In addition, veterans are asked to provide VA with information of any health insurancecoverage they have -- including coverage through employment or through a spouse. These payerswill be the primary payer for nonservice-connected conditions only.

The second group is composed of veterans who do not fall into one of the first six categoriesabove. These veterans are primarily those with nonservice-connected conditions and with incomesand net worth above the VA-established means test threshold. In general, these veterans are enrolledin Priority Group 7 or 8, and must agree to pay copayments for the care they receive fornonservice-connected conditions. ( Table 1 provides information on what categories of veterans payfor which services.)

Table 1. Veterans' Payments for Health CareServices

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

Note: All veterans receiving prescriptions for nonservice-connected conditions who meet the low-income criteria (established by the means test), and veterans who are former POWs are exempt frommedication copayments.

a. An annual medication copayment cap has been established for veterans enrolled in Priority Groups2-6. Medication will continue to be dispensed after copayment cap is met. An annualcopayment cap has not been established for Priority Groups 7 or 8 veterans.

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

c. Priority Group 7 veterans who are determined to be catastrophically disabled and who are placedin Priority Group 4 for treatment are still subject to the copayment requirements as a PriorityGroup 7 veteran.

d. Priority Group 6 -- health insurance and all applicable copayments will be billed when care is forconditions not related to the veteran's experience or exposure. Veterans in this priority groupcould be subject to full medical care copayments or reduced inpatient copayments undermeans-test criteria for nonservice-connected conditions. Combat veterans receiving care fora potential service-related condition within two years of discharge from the military are inPriority Group 6.

e. Priority Group 7 veterans -- For inpatient copayments only, veterans in this priority group areresponsible for 20% of the inpatient copayment (in traditional insurance this is known as adeductible) and 20% of the inpatient per diem copayment. The means-tested copaymentreduction does not apply to outpatient and medication copayments and veterans will beassessed the full applicable copayment charges for nonservice-connected care.

f. Priority Group 8 veterans -- For inpatient copayments only, veterans in this priority group areresponsible for the full inpatient copayment (in traditional insurance this is known as adeductible) and the inpatient per-diem copayment. Veterans in this priority group are alsoresponsible for the full outpatient and medication copayments for nonservice-connected care. There is no means-tested copayment reduction.

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 constructionapplicable to all VA facilities. Furthermore, the Committees on Appropriations include medical carecost-recovery collections when considering the amount of resources needed to provide funding forVHA. VHA is authorized to bill some veterans and most health care insurers fornonservice-connected care provided to veterans enrolled in the VA health care system, to help defraythe 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). Insteadof returning these funds to the Treasury, VA can use this for medical services for veterans withoutfiscal year limitations.

FY2004 VHA Budget Highlights

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. (11) 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. (12) The House and Senate Appropriations Committees subdivide their allocations among their respective13 subcommittees, each of which is responsible for one of the regular appropriations acts. Authorizing committees for certain programs may also consider legislation that will affect spendingunder their programs. A committee has the discretion to decide on the legislative changes to berecommended. It is not bound by the program changes recommended or assumed by the BudgetCommittees in the reports accompanying the budget resolution. (13) Enumerated below aremajor highlights of the congressional budget process, beginning with the President's request to enactspending levels for VA medical care for FY2004.

The Administration requested approximately $27.5 billion for VHA for FY2004; this includedapproximately $1.8 billion in medical care collections (see Table 2 ). The House Veterans Affairs,Housing and Urban Development, and Independent Agencies FY2004 appropriations bill (FY2004VA-HUD appropriations bill) recommended a new account structure for VHA. (14) The FY2004 VA-HUDappropriations bill proposed establishing four new accounts: medical services, medicaladministration, (15) medical facilities, (16) andmedical and prosthetic research. The FY2004 VA-HUD appropriations bill included approximately$16.4 billion for medical services, which included nearly $1.5 billion from the Medical CareCollections Fund (MCCF) (the bill language did not provide the $1.5 billion as a separate line item,and it is not shown under the MCCF line on Table 2 ). In addition, the FY2004 VA-HUDappropriations bill included approximately $4.9 billion for medical administration, $4 billion formedical facilities, and $408 million for medical and prosthetic research. In total, the House FY2004VA-HUD appropriations bill provided VHA approximately $25.7 billion.

The Senate's appropriations bill ( S. 1584 ) did not propose modifying the FY2003account structure (17) and the Senate approved approximately $25.7 billion for medical care. In addition, S.1584 provided approximately $413 million for medical and prosthetic research, andprovided approximately $80 million for medical administration and miscellaneous operating expenses. In total, the Senate bill provided VHA approximately $28.6 billion for FY2004, includingapproximately $1.6 billion from MCCF.

The Consolidated Appropriation Act, 2004 ( P.L. 108-199 ) (18) provided funding for VHAbased on the account structure proposed in H.R. 2861 . The new accounts that arefunded are medical services, medical administration, medical facilities, and medical prostheticresearch. According to the Conference Committee, this account structure will provide for "betteroversight and a more accurate accounting of funds." P.L. 108-199 provided approximately $17.9billion for medical services, $5 billion for medical administration, $4 billion for medical facilities, and$408 million for medical and prosthetic research. In total, P.L.108-199 provided $28.6 billion for theVeterans Health Administration, including a separate amount for MCCF.

The following table shows appropriations to VA medical care programs for FY2003, and forFY2004, the Administration's request (based on the Conference Committee's account structure), theamounts recommended by the House and the Senate, and the amounts ultimately approved byCongress and signed into law by the President.

Table 2. VHA AppropriationsFY2003-FY2004

($ in thousands)

Source: H.Rept. 108-401 .

Note: Totals may not add due to rounding. FY2004 amounts do not include effects of the 0.59%across-the-board rescission in most discretionary accounts, as called for in P.L. 108-199 .

a. This amount includes $1.3 billion in emergency funding for medical care.

b. The Senate Committee on Appropriations included bill language delaying availability of $1.1 billionfor medical care to provide flexibility to VA to implement significant program changes.

c. The Senate Committee on Appropriations included bill language that canceled budget authority of $270 million, representing prior years recoveries for medical care.

d. Medical Care Collections Fund (MCCF) receipts are restored to the VHA as an indefinite budgetauthority equal to the revenue collected, estimated to be $1.386 billion in FY2003. Theamount initially projected for FY2004 was $1.8 billion; the conferees on the VA-HUDportion of the Consolidated Appropriations Act ( P.L. 108-199 ) used a later estimate of$1.564 billion.

FY2005 VHA Budget

Changes in the VA Medical Care Account Structure

The Administration proposed a new account structure for VHA for FY2005, consolidatingseveral accounts under a medical care business line, and two accounts under a medical researchbusiness line. A brief description of the accounts consolidated into the two business lines is providedin Appendix 2 .

On July 22, 2004, the House Committee on Appropriations approved by voice vote theFY2005 VA-HUD appropriations bill ( H.R. 5041 ). This bill was reported out ofcommittee on September 9, 2004 ( H.Rept.108-674 ). As reported, H.R. 5041 recommended $30.3 billion for VA medical programs for FY2005. This is an increase of $1.2 billionover the President's request and $1.9 billion over FY2004. The Committee did not adopt theAdministration's alternative appropriations structure and provided funding using the FY2004 accountstructure. According to the committee report, this was because the Administration's proposedaccount structure "does not address the needs of Congress in its role of reviewing and allocatingfederal budgetary resources." (19) Furthermore, the Committee asserts that the FY2004 accountstructure provides better oversight and a more accurate accounting of funds.

The Senate Committee on Appropriations reported its version of the FY2005 VA-HUDappropriations bill ( S. 2825 ) ( S.Rept. 108-353 ) on September 21, 2004. The Committeealso did not adopt the Administration's account structure and provided funding using the FY2004account structure. In its report, the Committee advised the Administration "to be sensitive to theadministrative burden on VA staff in implementing major account changes, and to take this concerninto mind when exploring future account changes." (20)

As reported, S. 2825 recommended $30.4 billion for VA medical programs forFY2005. This is an increase of $1.2 billion over the President's request and $2 billion over FY2004. Of the total amount appropriated for medical programs, the Committee designated $1.2 billion asan emergency requirement. (21) According to the committee report, this was due to"unanticipated and urgent need of veterans seeking medical treatment and services." (22)

On November 20, 2004, both the House and Senate adopted the conference agreement toaccompany the Consolidated Appropriations Act, 2005 ( H.R. 4818 , P.L. 108-447 ). (23) The bill was signed intolaw by the President on December 8, 2004. Under P.L.108-447 , VHA would receive $30.3 billionin FY2005 -- an increase of $1.2 billion over the FY2005 appropriation request and $1.9 billion overFY2004. None of the funds would be contingent upon an emergency declaration as proposed by theSenate Appropriations Committee ( S. 2825 ). The conferees rejected theAdministration's proposal to fund VHA through an alternative account structure. According to theconference report, the conferees continue to believe the current account structure started in FY2004,composed of four accounts -- medical services, medical administration, medical facilities, and medicaland prosthetic research -- "will provide better oversight and achieve a more accurate accounting offunds." (24)

Table 3 presents the President's FY2005 budget request as well as the amounts recommendedby the House Committee on Appropriations, the Senate Committee on Appropriations, and thecommittee of conference for FY2005. Note that the medical care total in the President's budgetrequest includes spending for medical services, medical administration, and construction of facilities.

Table 3. VHA FY2004 Appropriation, FY2005 Budget Request,and Amounts Recommended

($ in thousands)

Source : H.Rept. 108-674 ; S.Rept.108-353 ; H.Rept. 108-792

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

Note: Appropriation amounts for FY2004 adjusted to account for the 0.59% across-the boardreduction in most discretionary accounts, as called for in P.L.108-199 . Includes rescission of $270million in unobligated balances remaining from prior year recoveries and reappropriated to MedicalCare in FY2004. FY2005 budget estimates are not adjusted to account for the 0.8%across-the-board rescission in most discretionary accounts as called for in P.L.108-447 .

Capital Asset Realignment for Enhanced Services (CARES) Program-Related Construction

Much of VA's physical infrastructure was built decades ago when the agency's focus wasproviding inpatient care. VA has been shifting from a hospital-based system providing inpatient careto one that emphasizes outpatient care in outpatient hospital settings and community-based clinics. Today, more than 80% of the services that VA provides to veterans are on a outpatient basis. VA'sCARES initiative is an attempt to create a strategic framework to upgrade the health care-deliverycapital infrastructure and ensure that scarce resources are placed in the types of facilities and locationsthat would best serve the needs of the veteran population. In August 2003, VA released the DraftNational CARES Plan. Following the release of the draft plan, the VA Secretary appointed a16-member independent commission to evaluate the draft plan. The CARES Commission submittedits recommendations to the Secretary in February 2004. After reviewing the recommendations, theSecretary announced the final details of the CARES plan in May 2004. The plan proposes newhospitals in Orlando, FL, and Las Vegas, NV, 156 new community-based outpatient clinics, four newspinal cord injury centers, two rehabilitation centers for the blind, and expanded mental healthoutpatient services nationwide. In some cases, the plan also calls for transferring care fromantiquated facilities to more modern or better- situated VA facilities or contracting for care in localcommunities. By opening health care access to more veterans, VA expects to increase thepercentage of enrolled veterans from 28% of the veteran population today, to 30% in 2012 and 33%in 2022.

The Secretary's final decision on the CARES Commissions Report deferred action on ninefacilities, pending completion of feasibility and/or cost-benefit studies. (25) Further study was directedto facilitate more specific conclusions about the regional health care requirements associated witheach facility.

VA has developed a seven-year funding model to estimate the additional capital required toimplement the CARES program. The model was based on the preliminary data from the VeteransIntegrated Services Network (VISN) 12 CARES study. To assess capital requirements at a macrolevel, CARES used projections of beds and outpatient primary care, mental health, and speciality care. VA plans to revise the funding model as additional CARES data are available. It should be noted thatany CARES-related major construction project would still need to receive a specific appropriationfrom Congress.

In the Administration's budget request for FY2005, a portion of the funds from theConstruction Major and Construction Minor accounts that are part of the medical care account in Table 3 (see Appendix 2 ) would be used to begin implementing recommendations stemming fromstudies associated with the Capital Asset Realignment for Enhanced Services (CARES) program.

The House Committee on Appropriations recommended approximately $371 million fromthe Construction Major account, and nearly $162 million from the Construction Minor account forCARES program activities. In its report, the House Appropriations Committee expressed concernabout " the limited consultation by VA with local communities during some aspects of the CARESprograms." In addition, the Committee "directs VA to defer final action on any facility undergoinga feasibility study, as directed by the Secretary's final decision on the CARES Commission Report,until affected stakeholders have been given adequate opportunity to consult with the feasibility studytask forces and VA on the future of these facilities." (26)

The Senate Committee on Appropriations recommended approximately $371 million from theConstruction Major account, and $182 million from the Construction Minor account for CARESprogram activities. In its report, the Committee strongly urges VA to establish an independent bodyto advise and monitor the progress of CARES in order to ensure that the implementation of theCARES program is "objective and not vulnerable to subjective changes." (27) The Committee also urgedVA to develop a plan for disposing of its vast inventory of vacant and unneeded infrastructure.

The Consolidated Appropriations Act, 2005 ( P.L.108-447 ) provides $370 million from theConstruction Major account, and $182 million from the Construction Minor account forCARES-related activities. The accompanying conference report agrees with language in the Senatereport ( S.Rept. 108-353 ) urging the Secretary of Veterans Affairs to establish an independentCARES advisory body.

Note that the Construction Major and Construction Minor accounts are funded throughseparate construction accounts, and not through the VA health care budget. These accounts do notappear on Table 3 .

Changes in the Cost-Sharing Structure

In its FY2005 budget request, the Administration proposed several regulatory and legislativechanges to VA's cost-sharing structure. According to the VA, these changes would have allowedthe agency to refocus the VA health care system to better serve the highest-priority core veterans. These veterans are those with service-connected conditions, those with lower incomes and those withspecial health care needs. Among the most significant legislative and regulatory proposals in thebudget are:

Increasing veterans' share of pharmaceutical copayments from $7 to $15 (foreach 30-day prescription) for all enrolled veterans in Priority Groups 7 and 8;

Increasing veterans' share of copayments for outpatient primary care from $15to $20 (for each medical appointment) for all enrolled veterans in Priority Groups 7 and8;

Establishing an annual user fee of $250 for all enrolled veterans in PriorityGroups 7 and 8;

Ending pharmacy copayments for veterans in Priority Groups 2 through 5 withincomes between $9,894 and $16,509; this would allow approximately 394,000 veterans to receiveoutpatient medications without having to make a copayment; (28)

Ending long-term care copayments for former prisoners ofwar;

Authorizing the department to pay for emergency room care or urgent care forenrolled veterans in non-VA medical facilities;

Ending hospice copayments.

A brief description of each of the above proposals follows.

Increase Veterans' Share of PharmacyCopayments. The Administration proposed to increase the pharmacy copaymentsfrom $7 to $15 for all enrolled Priority Group 7 and Priority Group 8 veterans whenever they obtainmedication from VA on an outpatient basis for the treatment of a nonservice-connected disability. At present, veterans in Priority Groups 2-8 pay $7 for a 30-day supply of medication, includingover-the-counter medications. (29)

The Veterans Millennium Health Care and Benefits Act of 1999 (P. L. 106-117) authorizedVA to increase the medication copayment amount and to establish annual caps on the medicationcopayment amount. (30) An annual cap was established to eliminate financial hardship for veterans enrolled in Priority Groups2-6. When veterans reach the annual cap, they will continue to receive medications without makinga copayment. For calendar year 2004, the cap is $840. There is currently no cap for veterans inPriority Groups 7 and 8. According to the VA's actuarial projections, the increase in prescriptiondrug copayments would have resulted in a reduction of $83 million in prescription drug costs andgenerated an additional $135 million in copayment revenue, allowing Congress to reduce the VAappropriation by $218 million.

Increase Veterans' Share of Copayments for Outpatient PrimaryCare. The President's budget proposed increasing the primary care copaymentamount from $15 to $20 for a basic outpatient visit. This would have applied to all enrolled PriorityGroup 7 and 8 veterans.

The current copayment rates of $15 for a primary care visit and $50 for nonservice-connectedspecialty care visit went into effect on December 6, 2001. (31) The new regulation implemented a three-tier copayment systemfor outpatient care. Services such as preventive screening and immunizations are free. Primary carevisits, which include diagnosis and management of acute and chronic conditions, and the largemajority of personal health care needs, cost $15. Specialty care, such as ambulatory surgery, MRIs,audiology, optometry, and care by specialists, which can be provided only through a referral from aprimary care provider, costs $50. According to VA's actuarial projections, the increase in theprimary care copayment would have resulted in a reduction of $8 million in health care costs andwould have generated an additional $7 million in copayment revenue, allowing Congress to reducethe VA appropriation by $15 million. Furthermore, VA asserted that the increase in the primary carecopayment from $15 to $20 would have had a minimal impact on utilization of VA health care.

The Veterans Millennium Health Care and Benefits Act of 1999 ( P.L. 106-117 ), gave VA theauthority to change copayment amounts. Therefore VA does not need congressional approval toincrease the primary care copayment amount from $15 to $20 for an outpatient visit.

Assess an Annual User Fee of $250. TheAdministration proposed to assess an annual user fee of $250 for all enrolled Priority Group 7 and8 veterans. According to the VA Secretary, the user fee would have been assessed only when aveteran sought care. VA believes that veterans with higher incomes rely less on VA for health careand have other health care options; therefore, it believes the fee will not have an impact on manyveterans.

In its FY2004 budget submission, the Administration requested authority from Congress tolevy an annual "enrollment fee" on nonservice-connected Priority Group 7 and all Priority Group 8veterans. However, Congress did not approve imposing such a fee. In its FY2005 budgetsubmission, the Administration has once again proposed charging all Priority Group 7 and 8 veteransan "annual enrollment" fee. However, in subsequent testimony before Congress, Secretary Principidescribed this as an annual "user fee" that will be collected only when a veteran seeks medicalservices.

According to the actuarial projections done by VA, the $250 initial user fee was expected toreduce the number of Priority Group 7 and 8 patients in FY2005 by approximately 211,000. Theinitial user fee would have resulted in a reduction of $141 million in health care costs and would havegenerated an additional $268 million in copayment revenue, allowing Congress to reduce the VAappropriation by $409 million.

Pharmacy Copayment Relief for Some Veterans. The Administration proposed to eliminate the pharmacy copayment burden for nonservice-connectedconditions of Priority Group 2-Priority Group 5 veterans by raising the income threshold from $9,894 (if single) to $16,509 (if single). VA maintained that by using this rate it will be able to furtherfocus its resources on its core constituency -- that is, low-income veterans with service-relatedconditions.

Ending Copayments for Former Prisoners of War(POWs). The Veterans Health Care, Capital Asset, and Business Improvement Actof 2003 ( P.L. 108-170 ) required VA to exempt former POWs from medication copayments for treatment of both service-connected and nonservice-connected conditions. With the passage of thislegislation, former POWs do not have to pay copayments for hospital and medical services (includingcopayments for medications). This applies to treatment of both service-connected andnonservice-connected conditions. However, former POWs do have to pay copayments for long-termcare services. The Administration asked Congress to exempt former POWs from copaymentobligations for long-term care services as well. This would have effectively ended any remainingcopayments obligations among former POWs for VA health care.

Emergency Care for Insured Veterans. Undercurrent law, VA is authorized to reimburse all veterans for emergency treatment furnished in non-VAfacilities for nonservice-connected conditions if they meet the following criteria: (1) they haveenrolled in VA's health care system; (2) they have received care from VA within the 24-month-periodpreceding the provision of such emergency treatment; and (3) they are financially liable to theprovider for the emergency treatment. Veterans who have health insurance coverage for emergencycare, or are entitled to other federal benefits care (i.e., under Medicare or Medicaid), or have othercontractual or legal recourse are not eligible for reimbursement. (32) However, VA does notreimburse out-of-pocket expenses associated with such care. (33)

In its FY2005 budget request, the Administration proposed that VA would pay insuredveterans' out-of-pocket expenses for emergency care services if emergency care is obtained outsidethe VA health care system. VA would have been a secondary payer to private insurance or Medicarefor emergency care services. VA would have paid for the out-of-pocket expenses, less the amountof the copayment the veteran would have been required to pay if the veteran had received care fromVA.

Copayment Exemption for Hospice Care. Undercurrent law, veterans receiving hospice care for a terminal illness may be subject to copaymentobligations depending upon the type of VA facility in which they receive care. Hospice care receivedin a nursing home is exempt from extended-care copayments. Those veterans who seek hospice careat a hospital (not in a nursing home) are subject to an inpatient copayment. If veterans receivehospice care at home, they are subject to outpatient copayments for their hospice care. TheAdministration proposed that hospice care provided in all settings should be exempt from all inpatientand outpatient copayments.

The FY2005 VA-HUD appropriations bills reported by the House and Senate Committeeson Appropriations and the final conference agreement to accompany the ConsolidatedAppropriations Act, 2005, did not include any of the copayment changes that had been proposed inthe President's budget request.

Continue to Suspend Enrollment

On January 17, 2003, the Secretary of Veterans Affairs announced that VA would temporarilysuspend enrolling Priority Group 8 veterans. This was included as a policy proposal in theAdministration's FY2004 budget request. The FY2005 budget request continued this policy ofsuspending enrollment of new Priority Group 8 veterans.

According to this policy proposal, those who enrolled in the VA health care system beforeJanuary 17, 2003 would not be affected by this suspension. VA justified suspending enrollment ofPriority Group 8 veterans by asserting that even with budgetary increases, the agency will be unableto provide all enrolled veterans with timely access to health care services because of the tremendousgrowth in the number of veterans seeking VA health care.

In January 2003, VA estimated that there were almost 236,000 enrolled veterans who havebeen unable to schedule an appointment within less than six months of the desired date. (34) At present, VA isreporting that this number has been reduced to approximately 36,000. (35) VA contends thatresources should be focused on VA's core population -- those veterans with service-connecteddisabilities, with lower incomes, and special needs such as the blind and those with spinal cordinjuries. Although the Administration included this proposal in the budget request, VA does not needcongressional approval to implement it. The Veterans' Health Care Eligibility Reform Act of 1996( P.L. 104-262 ) gives the Secretary the authority to suspend enrollment when there are insufficientresources to provide quality health care.

Suspending enrollment of Priority Group 8 veterans affected approximately 164,000 veteransfor FY2003. If this suspension continues, it would affect an estimated 360,000 veterans by the endof FY2004, and 522,000 veterans by the end of FY2005. According to VA, it will continue to enrollveterans in Priority Groups 1 through 7, adding approximately 380,000 veterans during FY2003 intothese categories.

A veteran who is not enrolled will still be eligible for hospital and outpatient care for certainconditions, including the following: (1) conditions related to military sexual trauma, (2) head or neckcancer related to nose or throat radium treatment while in the military, (3) readjustment counselingservices, (4) treatment related to service-connected conditions. Moreover, recently dischargedveterans who have served in combat theaters such as Afghanistan and Iraq can receive health care forconditions potentially related to their services for up to two years.

Appendix 1. Priority Groups and Their Eligibility Criteria

Source : Department of Veterans Affairs

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

Appendix 2. Medical Care Business Line and the Medical Research Business Line Accounts in the Administration's FY2005 VHA Budget

Medical Care Business Line

Medical Care. The medical care appropriationwould provide for medical care and treatment of eligible veterans, and certain dependents andsurvivors of veterans. In addition, this appropriation would also provide for training of medicalresidents and interns and other professional paramedical and administrative personnel in the healthcare field.

Medical Care Collections Fund (MCCF). VAdeposits copayments collected from veterans obligated to make such payments for either medicalservices or inpatient pharmacy benefits for outpatient medication, (36) and third- party insurancepayments from service-connected veterans for nonservice-connected conditions into the MCCF. (37) However, copayments,third-party insurance payments, and fees for services other than medical services or inpatientpharmacy benefits were deposited in several medical collections accounts.

In FY2004, the Administration's budget proposed consolidating several medical collectionsaccounts into the MCCF. The conferees of the Consolidated Appropriations Act [ H.Rept.108-401 ] (38) recommended that collections which would otherwise be deposited in the entities formerly known asthe Health Services Improvement Fund, the Veterans Extended Care Revolving Fund, the SpecialTherapeutic and Rehabilitation Activities Fund, the Medical Facilities Revolving Fund, and theParking Revolving Fund be deposited in the MCCF. The funds deposited in the MCCF would beavailable for medical services for veterans. These collected funds do not have to be spent in anyparticular fiscal year and are available until expended. The following describes former collectionaccounts now consolidated under the MCCF, and current programs.

Pharmacy Copayments (formerly collected in the Health Services Improvement Fund --HSIF). In FY2002, Congress created a new fund (the Health Services ImprovementFund) to collect increases in pharmacy copayments (from $2 to $7 for a 30-day supply of outpatientmedication) that went into effect on February 4, 2002. The Consolidated Appropriations Resolution,2003 ( P.L. 108-7 ) granted VA the authority to consolidate the HSIF with the MCCF and grantedpermanent authority to recover copayments for outpatient medications.

Long-Term Care Copayments (formerly Veterans Extended Care RevolvingFund). (39) This fund received per diems and copayments from certain veteran patients receiving extended careservices from VA providers or outside contractors. According to the Administration's budgetdocuments, extended care services are defined as geriatric evaluation, nursing home care, domiciliaryservices, respite care, adult day health care, and other noninstitutional alternatives to nursing homecare. (40)

Compensated Work Therapy Program (formerly the Special Therapeutic andRehabilitation Activities Fund). (41) The Compensated Work Therapy (CWT) program is acomprehensive rehabilitation program that prepares veterans for competitive employment andindependent living. The major goals of the program are: (1) to use remunerative work to maximizea veteran's level of functioning; (2) to prepare veterans for successful reentry into the community asproductive citizens, and; (3) to provide a structured daily activity to those veterans with severe andchronic disabling physical and/or mental conditions. As part of their work therapy, veterans produceitems for sale or undertake subcontracts to provide certain products and/or services (such asproviding temporary staffing to a private firm). Funds collected from the sale of these productsand/or services were used to fund the program.

Compensation and Pension Living Expenses Program (formerly the Medical FacilitiesRevolving Fund). (42) Under this program, veterans who do not have either a spouseor child would have their monthly pension reduced to $90 after the third month he or she is admittedfor nursing home care. The difference between the veteran's pension and the $90 was used for theoperation of the VA medical facility.

Parking Program (formerly the Parking Revolving Fund). The programprovided funds for construction and acquisition of parking garages at VA medical facilities. VAcollects fees for use of these parking facilities.

National Program Administration (Formerly MedicalAdministration and Miscellaneous Operating Expenses, MAMOE). The NationalProgram Administration provides support to VA's comprehensive and integrated health care systemby headquarters staff. Specific activities include the development and implementation of policies,plans, and broad program activities; assistance for the networks in attaining their objectives andnecessary follow-up action to ensure complete accomplishment of goals including the capital facilitiesmanagement and development functions.

Construction Major. Funds from this accountwould be for construction, altering, extending and improving any of the facilities used by VA. Anyproject that costs more than $7 million falls under this category.

Construction Minor. Funds from this accountwould be used for construction, altering, extending and improving any of the facilities used by VA.Any project that costs $500,000 or more, and less than $7 million falls under this category.

Grants for Construction of Extended-CareFacilities. Under this program grants are provided to states to acquire or constructstate owned and/or funded nursing home and domiciliary facilities, and to remodel, modify, or alterexisting buildings for furnishing domiciliary or nursing home care for veterans in state nursing homes. The Veterans Health Care Act of 1992 ( P.L. 102-585 ) granted permanent authority for this program. The Millennium Health Care and Benefits Act ( P.L. 106-117 ) reformed the construction grantprogram by giving higher priority to critically needed renovations, such as projects involving fire- andlife-safety improvements in existing state homes. Prior to the enactment of this law, such projectswere given lower priority than grants for constructing new state nursing homes.

VA/ DOD Health Care Sharing Incentive Fund. The National Defense Authorization Act for FY2003 ( P.L. 107-314 ) directed the Secretaries ofDefense and Veterans Affairs to enter into agreements and contracts for the mutually beneficialcoordination, use, or exchange of use of health care resources with the goal of improving access to, and the quality and cost-effectiveness of, the health care provided to beneficiaries. Under this act,VA and the Department of Defense must establish a joint incentive fund, with each Departmentcontributing a minimum of $15 million to the fund. At present, the two Departments are in theprocess of establishing the fund and developing criteria for its use. The program is set to expire in2007. (43)

Medical Research Business Line

Medical and Prosthetic Research. In addition toproviding medical care, VA conducts medical, rehabilitative, and health services research. Themedical and prosthetic research program is an intramural program. Funds from this appropriation are allocated to support VA employees conducting research projects. In addition to funds from thisappropriation, reimbursements from DOD, grants from the National Institutes of Health, and privatesources support VA researchers. Medical research supports both basic and advanced clinical studies.

The prosthetic research program is involved in the development of prosthetic, orthopedic, andsensory aides to improve the lives of disabled veterans. The health services research program focuseson improving the outcome effectiveness and cost efficiency of health care delivery for veterans.

Medical Care Research Support. Prior to theproposed new account structure, funds appropriated under the medical care account were used forthe indirect cost of VA research. These indirect costs include costs of heating, lighting, and otherutilities associated with laboratory space, administrative costs associated with human resourcesneeded for research, and supply services attributed to research.