In fiscal year 1994, VA medical care cost over $15.6 billion. VA facilities served about 2.4 million veterans nationwide. VA services included 925,000 inpatient hospital stays and about 25 million outpatient visits. The VA health care system was established primarily to treat war-related injuries and help rehabilitate veterans with disabilities incurred or aggravated as a result of military service; such service-connected disabilities include blindness, paralysis, and loss of limb. Subsequently, the Congress expanded the system so that hospital services could be provided, to the extent space and resources were available, to veterans who did not have service-connected disabilities and who lacked the resources to pay. Today, all veterans are eligible for treatment at VA medical facilities, but few are entitled to the full range of services under the existing complex eligibility requirements. For example, veterans with service-connected disabilities are eligible for cost-free hospital care, while high-income veterans without such disabilities are eligible for such care but may receive it only if space and resources are available. Such high-income veterans are also subject to co-payments and, if insured, their insurers must be billed for services provided by VA facilities. When the VA health care system was established, there were no health insurance programs to help veterans pay for needed care. Private insurance began to emerge in the 1930s and expanded rapidly in the 1950s. In the 1960s, the Congress established the Medicare and Medicaid programs—public insurance programs that help the elderly and selected low-income individuals pay for health care. By 1990, 9 out of 10 veterans had one or more alternatives to VA health care for standard benefits (excluding such special services as psychiatric care and prescription drugs): about 81 percent had private health insurance, almost 26 percent were eligible for Medicare, and 1.6 percent had Medicaid coverage. The VA health care system is fundamentally different from private or public health insurance programs. VA generally delivers health care to patients directly using salaried physicians, nurses, and other professionals in VA facilities. Insurance programs, on the other hand, provide services on a fee-for-service basis or through contracts with private providers. VA does not charge veterans for services provided to treat service-connected disabilities, although veterans may be required to make co-payments for nonservice-connected conditions if their income exceeds prescribed thresholds. Insurance programs typically charge premiums to, impose deductibles on, and require co-payments from all enrollees. In addition, VA provides some services that insurance programs typically do not provide. For example, VA covers outpatient prescription drugs and dental care that are not covered by Medicare. Similarly, while Medicare and most private insurance programs provide short-term nursing home care following hospitalization, VA may, in some instances, offer more extensive, longer-term nursing home and domiciliary care. If cost and service differences between VA and insurance programs diminish, the importance of accessibility as a factor in veterans’ decisions on where to obtain health care could increase. VA surveyed the status of veterans in 1987 and found that distance to VA facilities was one of the reasons most frequently cited by veterans for not using VA facilities. VA’s survey of the status of veterans in 1992 also showed that about one-third of the responding veterans who received inpatient care did not choose a VA hospital because they were too far from the VA location. Similarly, over one-fourth of the veteran respondents to VA’s health care reform customer satisfaction survey said that, given a choice of health programs and assuming no difference in cost, they would choose private providers, in part, because the private providers were more accessible. In October 1995, VA began a major reorganization that will replace its four regional offices with 22 integrated service networks. Each network will include from 5 to 11 medical centers. The service networks will be the basic budgetary and planning units for delivering veterans’ health care. VA officials envision greater emphasis on integrated delivery systems of care and on outpatient and primary care services as a result of the reorganization. While many veterans received medical care during the early 1990s, relatively few obtained their care from VA facilities. Veterans who used VA facilities generally had lower incomes and were less likely to have private insurance than veterans who used non-VA facilities. Also, almost half the veterans who used VA facilities had service-connected disabilities. Most veterans lived over 25 miles from VA facilities, but veterans who lived within 5 miles of such facilities made greater use of the facilities. VA’s survey of the status of veterans in 1992 showed that 54.8 percent of the 27 million veterans nationwide received medical care in 1992 but few received care in VA facilities. About 90 percent of the veterans who received either inpatient or outpatient care got it from non-VA sources, as did over 80 percent of the veterans who received both types of care. The survey also showed that of the 10 percent of veterans who received care in VA facilities, 5.6 percent received VA care exclusively and 4.4 percent received both VA and non-VA care. VA officials said that, while only 10 percent of all veterans used VA facilities in 1992, a larger percentage of veterans used VA facilities over a 3-year period; the reason for this is that many veterans do not require medical services every year. The officials also said that some veterans who received both VA and non-VA care needed resource-intensive care and had been transferred for that purpose to VA facilities. Using VA patient treatment records and Internal Revenue Service information, we examined the incomes of the 2.2 million veterans who used VA medical facilities in 1991 and found that two-thirds had incomes under $20,000, and about one-third of these had incomes under $5,000.However, VA’s survey of veterans in 1992 showed that only about 32 percent of all veterans had gross family incomes below $20,000. This suggests that most VA facility users had lower incomes than non-VA facility users. VA’s survey also showed that veterans’ use of VA facilities decreased as incomes increased. For example, over 44 percent of veterans with incomes under $10,000 received inpatient care from VA facilities, compared with 2.5 percent of those with incomes over $50,000; and 32 percent of veterans with incomes under $10,000 received outpatient care in VA facilities, compared with 1.7 percent with incomes over $50,000. Moreover, cost was the reason most frequently cited by veterans who participated in VA’s survey for choosing a VA hospital for inpatient care: over 19 percent cited cost as a reason for choosing a VA hospital, while less than 1 percent cited cost as a reason for choosing private or public hospitals. Veterans who used VA facilities were also less likely than users of non-VA facilities to have insurance. VA’s survey of veterans in 1992 showed that about 49 percent of all veterans had private insurance alone, 12 percent had public insurance alone, 29 percent had both, and 9 percent had no insurance. The survey also showed that the availability of insurance increased as income increased. For example, about 27 percent of veterans with income under $10,000 had no insurance, compared with 1.3 percent with income over $50,000. Conversely, about 14 percent of veterans with income under $10,000 had private insurance, compared with over 76 percent with income over $50,000. Many veterans who used VA facilities had service-connected disabilities. In 1994, we reported that 1 million of the 2.2 million veterans who received care in VA facilities in 1991 had service-connected disabilities. In addition, VA’s survey of veterans in 1992 showed that veterans with service-connected disabilities were more likely than those without them to use VA facilities. Almost 72 percent of the veterans who reported they had a service-connected disability used medical facilities, compared with 53 percent who did not have such disabilities. About 24 percent of veterans with service-connected disabilities received inpatient care exclusively in VA facilities, compared with less than 7 percent who did not have such disabilities. Similarly, about 16 percent of veterans with service-connected disabilities received outpatient care exclusively in VA, compared with slightly over 3 percent who did not have such disabilities. Veterans’ use of VA facilities was influenced by the distances they had to travel to the facilities. Our analysis of 1990 census data showed that about 50 percent of all veterans lived over 25 miles from a VA hospital, including 6 percent who lived over 100 miles away, and 34 percent lived over 25 miles from a VA clinic. Many of those veterans traveled long distances to use VA facilities. For example, 44 percent of VA facility users lived over 25 miles from VA hospitals providing acute medical and surgical care, and 32 percent lived over 25 miles from outpatient clinics that provided such services. Living closer to a VA facility significantly increases the likelihood that a veteran will use VA health care and VA officials told us that some veterans move to be closer to VA medical facilities. For example, about 11 percent of all veterans lived within 5 miles of a VA hospital, and they accounted for 22 percent of the facility users. Similarly, 17 percent of veterans lived within 5 miles of a VA outpatient clinic and accounted for 26 percent of the clinic users. The likelihood and frequency of VA use decline significantly among veterans living more than 5 miles away. Veterans with service-connected disabilities and low-income veterans, however, are less sensitive to distance. VA medical facilities are located throughout the country and are outnumbered by private-sector facilities. Consequently, private-sector health care is usually more convenient to veterans than VA health care. In some urban areas, for example, VA operates one or two hospitals, while the private sector may have a dozen or more hospitals and hundreds of locations that provide primary and specialty care. While private-sector hospital and outpatient providers are less plentiful in rural areas than in urban areas, they still generally outnumber VA providers. VA hospital and outpatient clinics are often located hundreds of miles from each other, as shown in figure 1. Some areas of the United States have more extensive VA medical coverage than others.