Order Code RL33409
CRS Report for Congress
Received through the CRS Web
Veterans’ Medical Care:
FY2007 Appropriations
May 8, 2006
Sidath Viranga Panangala
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Veterans’ Medical Care: FY2007 Appropriations
Summary
The Department of Veterans Affairs (VA) provides benefits to veterans who
meet certain eligibility rules. Benefits to veterans range from disability compensation
and pensions to hospital and medical care. VA provides these benefits to veterans
through three major operating units: the Veterans Health Administration (VHA), the
Veterans Benefits Administration (VBA), and the National Cemetery Administration
(NCA). VHA is primarily a direct service provider of primary care, specialized care,
and related medical and social support services to veterans through an integrated
health care system.
The President’s FY2007 budget proposal to Congress requested $32.7 billion
for VHA, an 11.3% increase over the FY2006 enacted amount of $29.3 billion, and
a 10% increase over the FY2005 enacted amount of $29.7 billion. As in previous
budget proposals, the President’s FY2007 budget request also includes a set of
legislative proposals. The Administration is requesting authorization from Congress
to assess an annual enrollment fee of $250 for all Priority 7 and 8 veterans, increase
veterans’ share of pharmaceutical copayments from $8 to $15 (for each 30-day
prescription) for all enrolled veterans in Priority Groups 7 and 8, and bill veterans
receiving treatment for nonservice-connected conditions for the entire copayment
amount.
On March 9, 2006, the Senate Budget Committee marked up the FY2007
Concurrent Resolution on the Budget (S.Con.Res. 83), and the Senate passed it on
March 16. On the Senate floor, $823 million was added to the committee-
recommended amount to provide an additional $795 million to VA Medical Services,
in lieu of enactment of the proposed pharmacy copayment increase and the new
enrollment fee, and $28.0 million to increase VA’s medical and prosthetic research
funding. In total, S.Con.Res. 83 calls for $74.8 billion for VA programs for FY2007.
This includes approximately $37.0 billion for VA’s discretionary programs, which
consists mainly of VA medical care, and $37.8 billion for VA’s mandatory
programs. On March 31, 2006, the House Budget Committee reported its version
of the FY2007 Concurrent Resolution on the Budget (H.Con.Res. 376, H.Rept.
109-402), providing $36.9 billion for VA’s discretionary programs, and $37.8 billion
for VA’s mandatory programs. In total, H.Con.Res. 376 calls for $74.7 billion for
VA programs for FY2007. The committee-recommended amount does not assume
the President’s proposal to implement enrollment fees and increase drug copayments
for Priority Group 7 and 8 veterans. The House budget resolution is awaiting floor
action.
On May 4, 2006, the House Appropriations Committee, Subcommittee on
Military Quality of Life and Veterans Affairs, and Related Agencies recommended
$32.7 billion for VHA for FY2007, an 11.4% increase over the FY2006 enacted
amount. The subcommittee did not recommend any fee increases as requested by
the President’s FY2007 budget proposal.
This report tracks the VHA’s FY2007 appropriations process, and will be
updated as legislative events warrant.

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Eligibility for Veterans Health Care and the Promise
of Free Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
VHA Health Care Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Funding for VHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Medical Care Collections Fund (MCCF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FY2006 Budget Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
House Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Budget Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Senate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conference Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Defense Appropriations Bill FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FY2006 Hurricane Supplemental for VA . . . . . . . . . . . . . . . . . . . . . . . . . . 12
House Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Senate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
FY2007 VHA Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Administration’s Budget Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
House and Senate Budget Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
House Subcommittee Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Key Budget Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Assess an Annual Enrollment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Increase Pharmacy Copayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Impact of the Annual Enrollment Fee and Increase
in Pharmacy Copayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Third-Party Offset of First-Party Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Impact of Third-Party Offset of First-Party Debt . . . . . . . . . . . . . . . . . . . . 23
Appendix 1. Priority Groups
and Their Eligibility Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Appendix 2. Veterans’ Payments
for Health Care Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix 3. Financial Income Thresholds
for VA Health Care Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
List of Figures
Figure 1. Present Copayment Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure 2. Copayment Process Under New Proposal . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. Number of Patients Receiving Care from VA . . . . . . . . . . . . . . . . . . . . 3
Table 2. Medical Care Collections, FY2002-FY2005 . . . . . . . . . . . . . . . . . . . . . 9
Table 3. VHA Appropriations for FY2005, FY2006,
FY2007 Request, and FY2007 Subcommittee Recommendation . . . . . . . . 15
Appendix 1. Priority Groups
and Their Eligibility Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix 2. Veterans’ Payments
for Health Care Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix 3. Financial Income Thresholds for VA Health Care Benefits . . . . . 27

Veterans’ Medical Care:
FY2007 Appropriations
Most Recent Developments
On May 4, 2006, the House Appropriations Committee, Subcommittee on
Military Quality of Life and Veterans Affairs, and Related Agencies recommended
$32.7 billion for the Veterans Health Administration (VHA) for FY2007, almost the
same amount as the President’s request. This includes $25.4 billion for medical
services, a $2.6 billion (11.6%) increase over the FY2006 enacted amount and $100
million less than the President’s requested amount of $25.5 billion. The
subcommittee recommendation also includes $3.3 billion for medical administration,
a $100 million increase over the President’s request; $3.6 billion for medical
facilities; and $412 million for medical and prosthetic research, a $13.0 million
increase over the Administration’s request. The subcommittee did not recommend
any fee increases as requested by the Administration’s budget proposal for VHA for
FY2007.
Background
The Department of Veterans Affairs (VA) provides a range of benefits and
services to veterans who meet certain eligibility rules, including disability
compensation and pensions, education, training and rehabilitation services, hospital
and medical care, home lone guarantees, and death benefits that cover burial
expenses.1 VA carries out its programs nationwide through three administrations and
the board of veterans appeals (BVA). The Veterans Health Administration (VHA)
is responsible for health care services and medical research programs. 2 The Veterans
Benefits Administration (VBA) is responsible, among other things, for providing
compensations, pensions, and education assistance.3 The National Cemetery
Administration (NCA) is responsible for maintaining national veterans cemeteries,
providing grants to states for establishing, expanding or improving state veterans
cemeteries, and providing headstones and markers for the graves of eligible persons,
among other things.
1 For a detailed description on eligibility for veterans disability benefits programs, see CRS
Report RL33113 Veterans Affairs: Basic Eligibility for Disability Benefit Programs, by
Douglas Reid Weimer.
2 For a detailed description of veterans’ health care issues, see CRS Report RL32961,
Veterans’ Health Care Issues in the 109th Congress, by Sidath Viranga Panangala.
3 For a detailed description of veterans’ benefits issues, see CRS Report RL33216, Veterans
Benefits Issues in the 109th Congress
by Paul J. Graney.

CRS-2
VA’s budget includes both mandatory and discretionary spending accounts.
Mandatory funding supports disability compensation, pension benefits, vocational
rehabilitation, and life insurance, among other benefits and services. Discretionary
funding supports a broad array of benefits and services, including medical care. In
FY2006, discretionary budget authority accounted for about 48% of the total VA
budget authority, with most of this discretionary funding going toward supporting
VA health care.
VHA operates the nation’s largest integrated direct health care delivery system.4
VA’s health care system is organized into 21 geographically defined Veterans
Integrated Service Networks (VISNs). While policies and guidelines are developed
at VA headquarters to be applied throughout the VA health care system, management
authority for basic decision making and budgetary responsibilities are delegated to
the VISNs.5 Congressionally appropriated medical care funds are allocated to the
VISNs based on the Veterans Equitable Resource Allocation (VERA) system, which
generally bases funding on patient workload.6 Prior to the implementation of the
VERA system, resources were allocated to facilities primarily on the basis of their
historical expenditures. Unlike other federally funded health insurance programs,
such as Medicare and Medicaid, which finance medical care provided through the
private sector, VHA provides care directly to veterans.
In FY2005, VHA operated 156 hospitals, 135 nursing homes, 43 residential
rehabilitation treatment centers, and 711 community-based outpatient clinics
(CBOCs).7 VHA also pays for care provided to veterans by independent providers
and practitioners on a fee basis under certain circumstances. Inpatient and outpatient
care is provided in the private sector to eligible dependents of veterans under the
Civilian Health and Medical Program of the Department of Veterans Affairs
(CHAMPVA). In addition, VHA provides grants for construction of state-owned
nursing homes and domiciliary facilities, and collaborates with the Department of
Defense (DOD) in sharing health care resources and services.
4 Established on Jan. 3, 1946, as the Department of Medicine and Surgery by P.L. 79-293,
succeeded in 1989 by the Veterans Health Services and Research Administration, renamed
the Veterans Health Administration in 1991. This report will use VA and VHA
interchangeably to refer to the Veterans Health Administration (VHA).
5 Jian Gao, Ying Wang and Joseph Engelhardt, “Logistic Analysis of Veterans’ Eligibility-
Status Change,” Health Services Management Research, vol.18, (Aug. 2005), p.175.
6 About 90% of the VHA appropriation is allocated through VERA. Networks also receive
appropriated funds not allocated through VERA for such things as prosthetics, homeless
programs, readjustment counseling, and clinical training programs. VA facilities could also
retain collections from insurance reimbursements and copayments, and use these funds for
the care of veterans.
7 Data on the number of hospitals and nursing homes includes facilities damaged by
Hurricane Katrina. Data on the number of CBOCs differ from source to source. Some
count clinics located at VA hospitals while others count only freestanding CBOCs. The
number represented in this report excludes clinics located in VA hospitals. The data are
current as of Dec. 1, 2005.

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During FY2005, VHA provided medical care to about 4.9 million unique
veteran patients, a caseload that is estimated to increase by about 108,000, or 2.2%
in FY2006 (Table 1). According to VHA estimates, the number of unique veteran
patients is estimated to increase by approximately 45,000 in FY2007.8 As shown in
Table 1, there would be a 3.6% increase in the total number of unique patients (both
veterans and non-veterans) from 5.3 million in FY2005 to 5.5 million in FY2007.
The total number of outpatient visits reached 52.3 million during FY2005 and
is projected to increase to 55.5 million in FY2006 and 58.5 million in FY2007.9 In
FY2005, VHA spent approximately 61.7% of its medical care obligations on
outpatient care.
Table 1. Number of Patients Receiving Care from VA
FY2005
FY2006
FY2007
Actual
Estimate
Estimate
Priority Groups 1-6 Veterans
3,561,709
3,733,496
3,813,457
Priority Groups 7and 8
1,301,283
1,237,144
1,202,345
Veterans
Total Uunique Veteran
4,862,992
4,970,640
5,015,802
Patientsa
Non-Veteransb
445,322
471,312
482,588
Total Unique Patients
5,308,314
5,441,952
5,498,390
Source: Table prepared by CRS, based on data from the Department of Veterans Affairs.
a. Unique veteran patients include Operation Iraqi Freedom (OIF) and Operation Enduring Freedom
(OEF) veteran patients. These patients number : 100,808 in FY2005; 110,566 in FY2006; and 109,191
in FY2007.
b. Non-veterans include CHAMPVA patients, reimbursable patients with VA affiliated hospitals and
clinics, care provided on a humanitarian basis, and employees receiving preventive occupational
immunizations.
Since 1946, VHA has been associated with training physicians and other health
care professionals and has become an essential component of health care higher
education in the United States. Veterans’ health care facilities are affiliated with 107
of the nation’s 126 medical schools, and participate in graduate medical education
(GME) through integrated residency programs administered through medical schools
and academic health centers. VHA is also affiliated with over 1,200 other schools
offering students allied and associated education degrees and certificates in 40 health
8 Based on information provided by VA to the House Committee on Veterans’ Affairs,
Subcommittee on Health, Feb. 14, 2006.
9 This number excludes outpatient care provided on a contract basis and outpatient visits to
readjustment counseling centers. U.S. Department of Veterans Affairs, FY2007
Congressional Budget Submissions, Medical Programs
, vol.1 of 4, p.3-17.

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profession disciplines. In FY2005, about 31,000 physician residents and fellows —
17,000 medical students, 24,000 nursing students, and 18,000 allied health residents
and fellows — received some or all of their training in VA medical centers.10
This report tracks VHA’s FY2007 appropriations and provides a brief summary
of funding levels for VHA for FY2006, including a discussion on supplemental
appropriations for FY2005 and FY2006. It also discusses the Administration’s
budget proposal for FY2007, and other major budget issues. This report begins with
a brief overview of eligibility for VA health care, VHA’s enrollment process and its
enrollment priority groups.
Eligibility for Veterans Health Care
and the Promise of Free Health Care

To understand VA’s medical care appropriations and the Administration’s major
policy proposals discussed later in this report, it is important to understand eligibility
for VA health care, VA’s enrollment process, and its enrollment priority groups.
Unlike Medicare or Medicaid, VA health care is not a entitlement program. Contrary
to numerous claims made concerning “promises” to military personnel and veterans
with regard to “free health care for life,” not every veteran is automatically entitled
to medical care from VA.11 Prior to eligibility reform in 1996, all veterans were
technically eligible for some care, however, the actual provision of care was based
on available resources.12
The Veterans’ Health Care Eligibility Reform Act of 1996, P.L. 104-262,
established two eligibility categories and required VHA to manage the provision of
hospital care and medical services through an enrollment system based on a system
of priorities.13 P.L 104-262 authorized VA to provide all needed hospital care and
medical services to veterans with service-connected disabilities, former prisoners of
war, veterans exposed to toxic substances and environmental hazards such as Agent
Orange, veterans whose attributable income and net worth are not greater than an
established “means test”, and veterans of World War I. These veterans are generally
known as “higher priority” or “core” veterans.14 The other category of veterans are
10 U.S. Department of Veterans Affairs, FY2007 Congressional Budget Submissions,
Medical Programs
, vol.1 of 4, p. 9-8.
11 For a detailed discussion of “promised benefits,” see CRS Report 98-1006F, Military
Health Care: The Issue of “Promised” Benefits,
by David F. Burrelli.
12 Barbara Sydell, Restructuring the VA Health Care System: Safety Net, Training and Other
Considerations
, National Health Policy Forum, Issue Brief no. 716, March 1998. Available
at [http://www.nhpf.org/pdfs_ib/IB716_VA_3-25-98.pdf].
13 U.S. Congress, House Committee on Veterans Affairs, Veterans’ Health Care Eligibility
Reform Act of 1996,
report to accompany H.R. 3118, 104th Cong. 2nd sess., H.Rept. 104-690
p.2.
14 Ibid. p.5.

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those with no service-connected disabilities and with attributable incomes above an
established “means test.”
P.L.104-262 also authorized VA to establish a patient enrollment system to
manage access to VA health care. As stated in the report language accompanying
P.L.104-262, “the Act would direct the Secretary, in providing for the care of “core”
veterans, to establish and operate a system of annual patient enrollment and require
that veterans be enrolled in a manner giving relative degrees of preference in
accordance with specified priorities. At the same time, it would vest discretion in the
Secretary to determine the manner in which such enrollment system would
operate.”15
Furthermore, P.L.104-262 was clear in its intent that the provision of health care
to veterans was dependent upon the available resources. The Committee report
accompanying P.L.104-262 states that the provision of hospital care and medical
services would be provided to “the extent and in the amount provided in advance in
appropriations Acts for these purposes. Such language is intended to clarify that
these services would continue to depend upon discretionary appropriations.”16
VHA Health Care Enrollment
As stated previously, P.L. 104-262 required the establishment of a national
enrollment system to manage the delivery of inpatient and outpatient medical care.
The new eligibility standard was created by Congress to “ensure that medical
judgment rather than legal criteria will determine when care will be provided and the
level at which care will be furnished.”17
For most veterans, entry into the veterans’ health care system begins by
completing the application for enrollment. Some veterans are exempt from the
enrollment requirement if they meet special eligibility requirements.18 A veteran may
apply for enrollment by completing the Application for Health Benefits (VA Form
10-10EZ) at any time during the year and submitting the form online or in person at
any VA medical center or clinic, or mailing or faxing the completed form to the
15 Ibid. p.6.
16 Ibid. p.5.
17 Ibid. p.4.
18 Veterans do not need to apply for enrollment in VA’s health care system if they fall into
one of the following categories: veterans with a service-connected disability rated 50% or
more (percentage ratings represent the average impairment in earning capacity resulting
from diseases and injuries encountered as a result of or incident to military service; those
with a rating of 50% or more are placed in Priority Group 1); less than one year has passed
since the veteran was discharged from military service for a disability that the military
determined was incurred or aggravated in the line of duty, but the VA has not yet rated; or
the veteran is seeking care from VA for only a service-connected disability (even if the
rating is only 10%).

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medical center or clinic of the veteran’s choosing.19 Once a veteran is enrolled in the
VA health care system the veteran remains in the system and does not have to re-
apply for enrollment annually. However, those veterans who have been enrolled in
Priority Group 5 based on income must submit a new VA Form 10-10EZ annually
with updated financial information demonstrating inability to defray the expenses of
necessary care.20
Eligibility for VA health care is primarily based on “veteran’s status” resulting
from military service. Veteran’s status is established by active-duty status in the
military, naval, or air service and a honorable discharge or release from active
military service. Generally, persons enlisting in one of the armed forces after
September 7, 1980, and officers commissioned after October 16, 1981, must have
completed two years of active duty or the full period of their initial service obligation
to be eligible for VA health care benefits. Veterans discharged at any time because
of service-connected disabilities are not held to this requirement. Furthermore,
reservists who were called to active duty and who completed the term for which they
were called, and who were granted an other than dishonorable discharge, or were
National Guard members who were called to active duty by federal executive order,
and who completed the term for which they were called, and who were granted an
other than dishonorable discharge are also exempt from the 24 continuous months
of active duty requirement.
After veteran’s status has been established ,VA next places applicants into one
of two categories. The first group is composed of veterans with service-connected
disabilities or with incomes below a established means test. These veterans are
regarded by VA as “high priority” veterans, and they are enrolled in Priority Groups
1-6 (see Appendix 1). Veterans enrolled in Priority Groups 1-6 include:
! veterans in need of care for a service-connected disability;21
! veterans who have a compensable service-connected condition;
! veterans whose discharge or release from active military, naval or air
service was for a compensable disability that was incurred or
aggravated in the line of duty;
! veterans who are former prisoners of war (POWs);
! veterans awarded the purple heart;
! veterans who have been determined by VA to be catastrophically
disabled;
! veterans of World War I;
! veterans who were exposed to hazardous agents (such as Agent
Orange in Vietnam) while on active duty; and
19 VA Form 10-10EZ is available at [https://www.1010ez.med.va.gov/sec/vha/1010ez/
#Process].
20 38 C.F.R. §17.36 (d)(3)(iv) (2005).
21 The term “service-connected” means, with respect to disability, that such disability was
incurred or aggravated in line of duty in the active military, naval, or air service. VA
determines whether veterans have service-connected disabilities, and for those with such
disabilities, assigns ratings from 0 to 100% based on the severity of the disability.
Percentages are assigned in increments of 10%.

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! veterans who have an annual income and net worth below a VA-
established means test threshold.
VA also looks at applicants’ income and net worth to determine their specific
priority category and whether they have to pay copayments for nonservice-connected
care. In addition, veterans are asked to provide VA with information on any health
insurance coverage they have, including coverage through employment or through
a spouse. VA may bill these payers for treatment of conditions that are not a result
of injuries or illnesses incurred or aggravated during military service. Appendix 2
provides information on what categories of veterans pay for which services.
The second group is composed of veterans who do not fall into one of the first
six priority groups. These veterans are primarily those with nonservice-connected
medical conditions and with incomes and net worth above the VA established means
test threshold. These veterans are enrolled in Priority Group 7 or 8.22 Appendix 3
provides information on income thresholds for VA health care benefits.
Funding for VHA
VHA is funded through multiple appropriations accounts that are supplemented
by other sources of revenue. Although the appropriations account structure has been
subject to change from year to year, traditionally the appropriation accounts used to
support VHA include medical care, medical and prosthetic research, and medical
administration. In addition, Congress also appropriates funds for construction of
medical facilities through a larger appropriations account for construction for all VA
facilities. Furthermore, the Committees on Appropriations include medical care cost
recovery collections when considering the amount of resources needed to provide
funding for VHA. The Consolidated Omnibus Budget Reconciliation Act of 1985
(P.L. 99-272), enacted into law in 1986, gave VHA the authority to bill some
veterans and most health care insurers for nonservice-connected care provided to
veterans enrolled in the VA health care system, to help defray the cost of delivering
medical services to veterans.23
Medical Care Collections Fund (MCCF)
The Balanced Budget Act of 1997 (P.L. 105-33) gave VHA the authority to
retain these funds in the Medical Care Collections Fund (MCCF). Instead of
returning the funds to the Treasury, VA can use them for medical services for
22 VA considers a veteran’s previous year’s total household income (both earned and
unearned income as well as his/her spouse’s and dependent children’s income). Earned
income is usually wages received from working. Unearned income can be interest earned,
dividends received, money from retirement funds, Social Security payments, annuities, or
earnings from other assets. The number of persons in the veterans family will be factored
into the calculation to determine the applicable income threshold. 38.CFR. § 17.36(b)(7)
(2005).
23 Veterans’ Health-Care and Compensation Rate Amendments of 1985, 100 Stat. 372, 373,
383.

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veterans without fiscal year limitations.24 To increase VA’s third-party collections,
P.L. 105-33 also gave VA the authority to change its basis of billing insurers from
“reasonable costs” to “reasonable charges.”25 This change in billing was intended to
enhance VA collections to the extent that reasonable charges result in higher
payments than reasonable costs.26 In FY2004, the Administration’s budget requested
consolidating several medical collections accounts into MCCF. The conferees of the
Consolidated Appropriations Act of 2004 (H.Rept. 108-401) recommended that
collections that would otherwise be deposited in the Health Services Improvement
Fund (former name), Veterans Extended Care Revolving Fund (former name),
Special Therapeutic and Rehabilitation Activities Fund (former name), Medical
Facilities Revolving Fund (former name), and the Parking Revolving Fund (former
name) should be deposited in MCCF.27 The Consolidated Appropriations Act of
2005, (P.L. 108-447, H.Rept. 108-792) provided VA with permanent authority to
deposit funds from these five accounts into MCCF. The funds deposited in MCCF
would be available for medical services for veterans. These collected funds do not
have to be spent in any particular fiscal year and are available until expended.
As shown in Table 2, MCCF collections increased by 56% from $1.2 billion in
FY2002 to almost $1.9 billion in FY2005. During this same period, first-party
collections increased by 59% from $485 million in FY2002 to $772 million in
FY2005. In FY2005, first-party collections represented approximately 41% of total
MCCF collections.
24 For a detailed history of funding for VHA from FY1995 to FY2004, see CRS Report
RL32732, Veterans’ Medical Care Funding FY1995-FY2004, by Sidath Viranga Panangala.
25 Under “reasonable costs” VA billed insurers based on its average cost to provide a
particular episode of care. Under “reasonable charges” VA bills insurers based on market
pricing for health care services.
26 U.S. Government Accountability Office(GAO),VA Health Care: Third-Party Charges
Based on Sound Methodology; Implementation Challenges Remain
, GAO/HEHS-99-124,
June 1999.
27 For a detailed description of these former accounts, see CRS Report RL32548, Veterans’
Medical Care Appropriations and Funding Process
, by Sidath Viranga Panangala.

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Table 2. Medical Care Collections, FY2002-FY2005
($ in thousands)
FY2002
FY2003
FY2004
FY2005
Actual
Actual
Actual
Actual
First-party pharmacy
$377,440
$576,554
$623,215
$648,204
copaymentsa
First-party copayments
108,392
104,994
113,878
118,626
for inpatient and
outpatient care
c
First-party long-term
3,461
5,077
5,411
care copaymentsb
Third-party insurance
689,767
804,141
960,176
1,055,597
collections
Enhanced use leasing
553
234
459
26,861
revenued
Compensated work
35,275
38,834
40,488
36,516
therapy collectionse
Parking feesf
3,283
3,296
3,349
3,443
Compensation and
788 376
634
2,431
pension living
expensesg
MCCF Total
$1,215,498
$1,531,890
$1,747,276
$1,897,089
Source: Table prepared by CRS based on data provided by the Department of Veterans Affairs.
Note: The following accounts were not consolidated into MCCF until FY2004: enhanced use leasing
revenue; compensated work therapy collections; parking fees; and compensation and pension living
expenses. Collection figures for these accounts for FY2002 and FY2003 are provided for comparison
purposes.
a. In FY2002, Congress created the Health Services Improvement Fund (HSIF) to collect increases
in pharmacy copayments (from $2 to $7 for a 30-day supply of outpatient medication) 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 MCCF and granted permanent authority to recover
copayments for outpatient medications.
b. Authority to collect long-term care copayments was established by the Millennium Health Care and
Benefits Act (P.L. 106-117). Certain veteran patients receiving extended care services from VA
providers or outside contractors are charged copayments.
c. VA started collecting long-term care copayments in June 2002; however, system changes weren’t
put in place until FY2003 to reflect them under long-term care copayments in FY2002.
d. Under the enhanced-used lease authority, VA may lease land or buildings to the private sector for
up to 75 years. In return VA receives fair consideration in cash and/or in-kind. Funds received as
monetary considerations may be used to provide care for veterans.
e. The compensated work therapy program is a comprehensive rehabilitation program that prepares
veterans for competitive employment and independent living. As part of their work therapy, veterans
produce items for sale or undertake subcontracts to provide certain products and/or services such as

CRS-10
providing temporary staffing to a private firm. Funds collected from the sale of these products and/or
services are deposited in the MCCF.
f. Parking program provides funds for construction, and acquisition of parking garages at VA medical
facilities. VA collects fees for use of these parking facilities.
g. Under the compensation and pension living expenses program, veterans who do not have either a
spouse or child, would have their monthly pension reduced to $90 after the third month a veteran is
admitted for nursing home care. The difference between the veteran’s pension and the $90 is used for
the operation of the VA medical facility.
FY2006 Budget Summary28
During the past year, Congress considered several appropriation measures to
provide funding for VHA. Aside from the regular FY2006 appropriations bill that
provides funding for VHA, Congress passed several measures that included funding
to bridge the shortfall for VHA for FY2005 and provided additional funding for
FY2006. Given below is a brief description tracking Congressional action on
FY2006 appropriations for VHA. Table 3 provides details of funding levels for the
various accounts that comprise funding for VHA.
House Action
On May 23, 2005, the House Committee on Appropriations reported H.R. 2528,
(H.Rept. 109-95) making appropriations for Military Quality of Life and Veterans
Affairs and Related Agencies for FY2006 (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 for VHA was $31.0 billion, including $2.2 billion
in collections (Table 3).
Budget Shortfall
On June 23, 2005, at a hearing of the House Veterans Affairs Committee the
Administration announced that the increased medical care cost for FY2005 was about
$1 billion more than the FY2005 enacted amount. Moreover, at a subsequent hearing
before the House Committee on Appropriations, Subcommittee on Military Quality
of Life and Veteran Affairs, on June 28, 2005, the Secretary testified that for FY2006
veterans’ health care programs would need $1.1 to $1.6 billion more than the
FY2006 President’s request. On June 30, 2005, and July 14, 2005, respectively, the
President submitted to Congress a supplemental request to address the FY2005
shortfall and a budget amendment to address the additional funding needs of
FY2006. These two requests totaled $2.9 billion.
On July 26, 2005, the conferees of the Department of the Interior, Environment
and Related Agencies, Appropriations bill, 2006 (H.R. 2361, H.Rept. 109-188)
provided $1.5 billion in supplemental appropriations for VA medical services for
28 For a detailed description of VA Medical Care Appropriations for FY2006, see CRS
Report RL32975, Veterans’ Medical Care: FY2006 Appropriations, by Sidath Viranga
Panangala.

CRS-11
FY2005. The bill included language that would allow VA to carry over any unused
funds into FY2006. The House passed H.R. 2361 on July 28, 2005, and the Senate
passed the measure a day later. The FY2006 Department of the Interior,
Environment, and Related Agencies appropriations bill was signed into law on
August 2, 2005 (P.L. 109-54).
Senate Action
On July 21, 2005, the Senate Committee on Appropriations reported out of
committee H.R. 2528 (S.Rept. 109-105) making appropriations for Military
Construction and Veterans Affairs and Related Agencies for FY2006 (MIL-CON
appropriations bill). This bill appropriated approximately $33.5 billion for VHA,
including $2.2 billion in collections (Table 3).
Conference Agreement
On November 18, 2005, the House voted to adopt the conference report
(H.Rept. 109-305) making appropriations for Military Quality of Life, Military
Construction, Veterans Affairs, and Related Agencies for FY2006 (MIL-CON-
QUAL-VA Appropriations Act). The Senate adopted H.Rept. 109-305 by unanimous
consent that same day. The MIL-CON-QUAL-VA Appropriations Act was signed
into law by the President on November 30, 2005 (P.L.109-114). The
MIL-CON-QUAL-VA Appropriations Act appropriated $ 29.1 billion for VHA (not
shown in Table 3
). This amount included $22.5 billion for medical services, $2.9
billion for medical administration, $3.3 billion for medical facilities and $412 million
for medical and prosthetic research. When Congress passed P.L.109-114, it
designated $1.2 billion as an emergency requirement, and included bill language that
required the President to declare the entire amount as an emergency. On January 28,
2006, the President designated $1.2 billion in funding for veterans health care as an
“emergency.”
Defense Appropriations Bill FY2006
On October 28, 2005, President Bush submitted a reallocation request to
Congress to transfer previously appropriated funds to several agencies, including the
VA, to address various needs arising from the consequences of Hurricane Katrina.
Congress responded to the President’s proposed reallocation by attaching the
reallocation request to the conference version of the FY2006 Defense Appropriations
bill (H.R. 2863).
The conference agreement includes $225.2 million for VA medical services,
including $198.2 million to purchase medical equipment and supplies lost during the
Gulf Coast hurricanes, and $27.0 million for Avian Flu pandemic preparation (shown
in Table 3
). H.R. 2863 also included $24.9 million for general operating expenses;
$200,000 to clean up and repair national cemeteries; $368 million for construction
major projects; and $1.8 million for the construction minor projects accounts (these
amounts are not shown in Table 3
). The Department of Defense Appropriations
Act, 2006 was signed into law on December 30, 2005 (P.L. 109-148).

CRS-12
FY2006 Hurricane Supplemental for VA
On February 16, 2006, the Administration submitted two separate FY2006
supplemental appropriations requests.29 One of these supplemental requests would
provide $19.8 billion for recovery and reconstruction activities in hurricane-affected
Gulf Coast areas. In this request the Administration requested $600 million for VA’s
construction major projects account to be used for rebuilding the VA Medical Center
in New Orleans, which was damaged by Hurricane Katrina. Proposed funding for
this project was previously included in the October 28, 2005 reallocation request, but
Congress provided only $75.0 million of the $368 million, for the purpose of advance
planning and design of the VA Medical Center in New Orleans. The conference
committee did not include the full amount of funding because it felt that there was
insufficient information to determine the actual cost of the project. In the FY2006
conference report, H.Rept. 109-359, VA was directed to report to the Committees on
Appropriations of both Houses of Congress by February 28, 2006, on the long term
plans for the replacement hospital construction. The report submitted by VA
estimated that the cost of construction of a new VA Medical Center in New Orleans
would be $636 million.
House Action. On March 17, 2006, the House passed the Emergency
Supplemental Appropriations Act for Defense, the Global War on Terror, and
Hurricane Recovery, 2006 (H.R. 4939, H.Rept. 109-388). The House-passed bill
provides $550 million for rebuilding the VA Medical Center in New Orleans, $50.0
million less than the Administration’s request. In addition, the Secretary of Veterans
Affairs is authorized to transfer up to $275 million of this amount to the medical
services account, to be used only for unanticipated costs related to the global war on
terror. Availability of the $550 million appropriation is made contingent on the
enactment of authority for it by June 30, 2006.
Senate Action. On May 4, 2006, the Senate passed its version of H.R. 4939
(S.Rept. 109-230). The Senate-passed bill provides $623 million for the construction
major projects account, $73.0 million above the House-passed amount. This includes
$561 million for the construction of a new VA Medical Center in New Orleans.
Together with the previous appropriation of $75.0 million in P.L.109-148, the total
amount of funding for reestablishing the VA Medical Center in New Orleans would
be $636 million. During the Senate Appropriations Committee mark up of H.R.
4939, the Committee designated $62.0 million of the total amount provided for the
construction major projects account to be used for the disposal and cleanup of land
associated with the VA medical facility in Gulfport, Mississippi.
During floor consideration of H.R. 4939, the Senate adopted an amendment
offered by Senator Akaka to provide $430 million for the VHA medical services
account for FY2006. Of this amount: $168 million was designated to address
veterans’ mental health care needs, including Post-Traumatic Stress Disorder
(PTSD); and $80.0 million was designated for the provision of readjustment
29 For further information see CRS Report RL33298, FY2006 Supplemental Appropriations:
Iraq and Other International Activities; Additional Katrina Hurricane Relief,
coordinated
by Paul M. Irwin, and Larry Nowels.

CRS-13
counseling services to veterans. The amendment also included language that requires
the President to declare the entire amount of $430 million as an emergency
requirement. H.R. 4939 is awaiting conference committee action.
FY2007 VHA Budget
Administration’s Budget Request
On February 6, 2006, the President submitted his FY2007 budget proposal to
Congress. The Administration requested $32.7 billion for VHA, an 11.3% increase
over the FY2006 enacted amount of $29.3 billion, and a 10% increase over FY2005
enacted amount of $29.7 billion. (Table 3). The FY2007 request included $25.5
billion for medical services, a 12% increase over the FY2006 enacted amount; $3.2
billion for medical administration, an 11.2% increase over FY2006; $3.6 billion for
medical facilities, an 8.2% increase over FY2006; and $399 million for medical and
prosthetic research, a 3.2% decrease from the FY2006 enacted amount.
The President’s FY2007 budget request also includes a set of legislative
proposals that the Administration asserts “will continue to concentrate VA’s health
care resources to meet the needs of high priority core veterans — those with
service-connected conditions, those with lower incomes, and veterans with special
health care needs.”30 These legislative proposals are discussed in detail under the key
budget issues section of this report.
House and Senate Budget Resolutions
On March 31, 2006, the House Budget Committee reported H.Con.Res. 376
(H.Rept. 109-402), providing $36.9 billion for VA’s discretionary programs, which
consist mainly of VA medical care. This amount includes an amendment offered by
Representative Bradley increasing the discretionary budget authority by $795 million
over the President’s recommended level. According to the Committee Report
language, the recommended amount does not assume the President’s proposal to
implement enrollment fees and increase drug copayments for Priority Group 7 and
8 veterans.31 H.Con.Res. 376 also calls for budget authority of $37.8 billion for VA’s
mandatory programs. In total, the Committee reported budget resolution calls for
$74.7 billion for VA programs for FY2007. H.Con.Res. 376 is awaiting House
action.
On March 9, 2006, the Senate Budget Committee marked up S.Con.Res. 83, and
the Senate passed it on March 16, 2006. On the Senate floor, $823 million was
added to the Committee recommended amount to provide an additional $795 million
30 Office of Management and Budget, Budget of the United States Government, Fiscal Year
2007, Appendix
, p. 956.
31 U.S. Congress, House Committee on the Budget, Concurrent Resolution on the Budget-
Fiscal Year 2007,
report to accompany H.Con.Res. 376, 109th Cong., 2nd sess., H.Rept. 109-
402, p. 45.

CRS-14
to VA Medical Services, in lieu of enactment of the proposed pharmacy copayment
increase and the new enrollment fee, and $28 million to increase VA’s medical &
prosthetic research funding. In total S.Con.Res. 83 calls for $74.8 billion for VA
programs for FY2007. This includes approximately $37.0 billion for VA’s
discretionary programs, and approximately $37.8 billion for mandatory programs.
House Subcommittee Action
On May 4, 2006, the House Committee on Appropriations, Subcommittee on
Military Quality of Life and Veterans Affairs, and Related Agencies approved by
voice vote a draft bill providing appropriations for Military Quality of Life, Military
Construction, and Veterans Affairs for FY2007. The subcommittee-approved bill
provides $32.7 billion for VHA, a $3.4 billion (11.4%) increase over the FY2006
enacted amount of $ 29.3 billion, and almost the same as the President’s request.
This amount includes $25.4 billion for medical services, $100 million less than the
President’s request and $2.6 billion (11.6%) over the FY2006 enacted amount of
$22.8 billion (Table 3). The draft bill also provides $3.3 billion for medical
administration, $100 million above the Administration’s request of $3.2 billion; $3.6
billion for medical facilities; and $412 million for medical and prosthetic research,
a 3.2% increase over the President’s request of $399 million (Table 3). The
subcommittee did not recommend any fee increases as requested by the
Administration’s budget proposal for VHA for FY2007. The draft bill now moves
to the full House Appropriations Committee for markup.

CRS-15
Table 3. VHA Appropriations for FY2005, FY2006, FY2007 Request, and FY2007 Subcommittee Recommendation
($ in thousands)
FY2005
FY2005
FY2005
FY2005
FY2006
FY2006
FY2006
FY2006
FY2007
FY2007 House
Program
request
House
Senate
enacted
request
House
Senate
enacted
request
Subcommittee
Medical services

$19,498,600
$19,498,600a $19,316,995
$19,995,141
$20,995,141
$21,331,011
$21,322,141
$25,512,000
$25,412,000
Supplemental appropriations
(P.L. 108-324)
$38,283


38,283






Supplemental appropriations
975,000b
975,000c 1,500,000d
1,500,000e






Emergency appropriations




1,977,000f

1,977,000g
1,225,000h


Emergency appropriations- Gulf
Coast Hurricanes (P.L. 109-148)




198,265


198,265


Emergency appropriations-
Avian Flu Pandemic
(P.L.109-148)




27,000


27,000


Subtotal medical services
1,013,283
20,473,600
20,998,600
20,855,278
22,197,406
20,995,141
23,308,011
22,772,406
25,512,000
25,412,000
Medical administration

4,705,000
4,705,000
4,667,360
4,517,874
4,134,874
2,858,442
2,858,442
3,177,000
3,277,000
Supplemental appropriations
(P.L. 108-324)
1,940


1,940






Subtotal medical
administration

1,940
4,705,000
4,705,000
4,669,300
4,517,874
4,134,874
2,858,442
2,858,442
3,177,000
3,277,000
Medical facilities

3,745,000
3,745,000
3,715,040
3,297,669
3,297,669
3,297,669
3,297,669
3,569,000
3,594,000
Supplemental appropriations
(P.L. 108-324)
46,909


46,909






Subtotal medical facilities
46,909
3,745,000
3,745,000
3,761,949
3,297,669
3,297,669
3,297,669
3,297,669
3,569,000
3,594,000
Medical and prosthetic research
384,770
384,770
405,593
402,348
393,000
393,000
412,000
412,000
399,000
412,000
Information technology






1,456,821



Medical carei
26,748,600









Total VHA appropriations
(without collections)

28,195,502
28,308,370
28,854,193
29,688,875
30,405,949
28,820,684
31,332,943
29,340,517
32,657,000
32,695,000
Medical care cost collection
(MCCF)j
2,002,000
2,002,000
2,002,000
1,985,984
2,170,000
2,170,000
2,170,000
2,170,000
2,329,000
2,329,000
Total: VHA (appropriations
and collections)

$30,197,502
$31,310,370
$30,856,193 $31,674,859
$32,575,949
$30,990,684
$33,502,943
$31,510,517
$34,986,000
$35,024,000

CRS-16
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;
and House Appropriations Committee data.
Note: Appropriation amounts for FY2005 adjusted to account for the 0.8% across-the-board reduction in most discretionary accounts as called for in Division 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 Agencies Appropriations 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), and designated 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 designated this 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, estimated to be $1.985 billion in FY2005,
$2.17 billion in FY2006, and $2.33 billion in FY2007.

CRS-17
Key Budget Issues
In its FY2007 budget request, the Administration proposed several legislative
changes that it asserts will “refocus the VA health care system to better meet the
needs of highest priority veterans — those with service-connected conditions, those
with lower incomes, and those with special health care needs.”32 These proposals are
similar to previous ones that were included in the Administration’s budget requests
for FY2003, FY2004, FY2005, and FY2006, and were rejected by Congress.33
The President’s budget request includes three major policy proposals:
! assess an annual enrollment fee of $250 for all Priority 7 and 8
veterans;
! increase pharmaceutical copayments from $8 to $15 (for each 30-day
prescription) for all enrolled veterans in Priority Groups 7 and 8; and
! bill veterans receiving treatment for nonservice-connected
conditions for the entire copayment amount.
A detailed description of these legislative proposals follows.
Assess an Annual Enrollment Fee
The Administration proposes to establish an annual enrollment fee of $250
beginning October 1, 2006, for all Priority 7 and 8 veterans. Priority Group 7
veterans have incomes above $26,902 for a single veteran (see Appendix 3 for VA
income thresholds) and below the Department of Housing and Urban Development
(HUD) geographic means test level.34 Priority Group 8 veterans are those with
incomes above $26,902 for a single veteran and above the HUD geographic means
test amount. The HUD geographic means test is established at a local level such as
county or city. For instance, a veteran with no dependents residing in Grant County,
Arkansas, whose annual income in 2005 was $27,145, will be placed in Priority
Group 7, because the veteran’s annual income is above VA’s means test threshold
of $26,902 and below the FY2005geographic means test threshold of $27,150 for that
county. Similarly, a veteran with no dependents living in Orange County, California,
whose annual income in 2005 was $42,250, will be placed in Priority Group 7,
32 U.S. Department of Veterans Affairs, FY2007 Congressional Budget Submissions,
Medical Programs
, vol.1 of 4, p.3-9.
33 In FY2003, VA proposed a $1,500 deductible for all Priority Group 7 veterans for
nonservice-connected disabilities. For proposals included in FY2004, FY2005, and
FY2006, see CRS Report RL32548, Veterans’ Medical Care Appropriations and Funding
Process
, by Sidath Viranga Panangala, and CRS Report R.L.32975, Veterans’ Medical
Care: FY2006 Appropriations,
by Sidath Viranga Panangala.
34 Geographic means test figures are available at [http://www.va.gov/
healtheligibility/DOCS/GMTIncomeThresholds2005.pdf]. Also note that when determining
if the veterans should be placed in Priority Group 7 or Priority Group 8 based on income,
the veteran’s income from the previous year is compared with the appropriate geographic
means test threshold for the previous fiscal year. For example, annual income for 2005 is
compared to the geographic means test threshold for FY2005.

CRS-18
because the veteran’s annual income is above VA’s means test threshold of $26,902
and below the FY2005 geographic means test threshold for of $43,000 for Orange
County. It should be noted that there is wide variation in annual incomes of veterans
placed in Priority Groups 7 and 8.
In its FY2004, FY2005, and FY2006 budget submissions, the President
requested authority from Congress to levy an annual enrollment fee on all Priority 7
and Priority 8 veterans. However, Congress did not approve imposing such a fee.
In its FY2007 Views and Estimates letter to the House Budget Committee, the
House Veterans Affairs Committee did not support levying an enrollment fee. The
letter states that “while the Committee understands the policy arguments providing
the basis for the Administration’s proposal for Priority 7 and 8 veterans to assume a
greater share of the costs for their health care in the VA system, the majority of the
Committee does not support these legislative proposals.”35
The Chairman of the Senate Veterans’ Affairs Committee, in his FY2007 views
and estimates letter to the Senate Budget Committee, did agree that “during a time
of high deficits and restrained spending in every account unrelated to national
security, the President’s proposal to shift a small portion of the cost of funding record
growth in VA’s budget on to lower priority veterans is reasonable. I have no
objection to the proposals he has chosen, but I am not necessarily wed to them.”36
It should be noted that at this time both the House and Senate Veterans Affairs
Committees have not introduced any legislation to give VA the authority to assess
an enrollment fee. Furthermore, the House Appropriations Committee,
Subcommittee on Military Quality of Life and Veterans Affairs, and Related
Agencies, did not recommend assessing an enrollment fee.
35 House Committee on Veterans Affairs, Views and Estimates of the Committee on
Veterans’ Affairs regarding the Administration’s FY2007 budget request for veterans’
programs, Feb 23, 2006. Available at [http://veterans.house.gov/legislation/109/
budrep07.pdf].
36 Senate Committee on Veterans’ Affairs, Views and Estimates of the Committee on
Veterans’ Affairs regarding the Administration’s FY2007 budget request for veterans’
programs, March 2, 2006. Available at [http://veterans.senate.gov/index.cfm?FuseAction=
Newsroom.PressReleases&month=3&year=2006&id=484].

CRS-19
Increase Pharmacy Copayments
The Administration proposes increasing the pharmacy copayments from $8 to
$15 for all enrolled Priority Group 7 and Priority Group 8 veterans, whenever they
obtain medication from VA on an outpatient basis for the treatment of a nonservice-
connected condition. The Administration put forward this proposal in its FY2004,
FY2005, and FY2006 budget requests as well, but did not receive any approval from
Congress. At present, veterans in Priority Groups 2-8 pay $8 for a 30-day supply of
medication, including over-the-counter medications.37
The Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) authorized VA
to charge most veterans $2 for each 30-day supply of medication furnished on an
outpatient basis for treatment of a nonservice-connected condition. The Veterans
Millennium Health Care and Benefits Act of 1999 (P.L. 106-117) authorized VA to
increase the medication copayment amount and establish annual caps on the total
amount paid, to eliminate financial hardship for veterans enrolled in Priority Groups
2-6.38 When veterans reach the annual cap, they continue to receive medications
without making a copayment.
On November 15, 2005, VHA issued a directive stating that effective January
1, 2006, the medication co-payment will be increased to $8 for each 30-day supply
of medication furnished on an outpatient basis for treatment of a nonservice-
connected condition, and that the annual cap for veterans enrolled in Priority Groups
2-6 will be $960.39 There is no cap for veterans in Priority Groups 7 and 8 (see
Appendixes 2 and 3).
It should be noted that at this time, both the House and Senate Veterans Affairs
Committees have not introduced any legislation to giving VA the authority to
increase copayments. Furthermore, the House Appropriations Committee,
Subcommittee on Military Quality of Life and Veterans Affairs, and Related
Agencies, did not recommend an increase in copayments.
37 The following veterans are exempt from paying copayments: Veterans receiving a
pension for a nonservice-connected disability from VA; veterans with incomes below
$10,579 (if no dependents), and $13,855 (with one dependent plus $1,806 for each
additional dependent ); veterans receiving care for conditions such as Agent Orange,
Military Sexual Trauma, and combat veterans within two years of discharge; and veterans
who are former POW’s.
38 This law allowed VA to increase the copayment amount for each 30-day or less supply
of medication provided on an outpatient basis (other than medication administered during
treatment) for treatment of a nonservice-connected condition. Accordingly, VA increased
the copayment amount from $2 to $7. The medication copayment charge for each
subsequent calendar year after 2002 is established by using the prescription drug component
of the Medical Consumer Price Index. When an increase occurs, the copayment will
increase in whole dollar amounts. The amount of the annual cap increases $120 for each $1
increase in the copayment amount.
39 VHA Directive 2005-052, Implementation of Medication Copayment Changes, Nov. 15,
2005.

CRS-20
Impact of the Annual Enrollment Fee
and Increase in Pharmacy Copayments

VA estimates that about 200,000 veterans in Priority Groups 7 and 8 would be
affected by the $250 annual enrollment fee and the increase in prescription drug
copayments. According to VA’s estimates, the enrollment fees and increased
pharmacy copayments would generate $514 million in revenue and save VA an
additional $251 million due to reduced demand, resulting in a decrease of $765
million in appropriations for FY2007.
Together two recent studies suggest that veterans may be impacted by increased
pharmaceutical copayments. In one published study it was indicated that patients
with access to the VA’s prescription drug coverage had lower rates of cost-related
adherence problems than patients with Medicare or no insurance coverage. This
study also found that VA patients were also less likely than some non-VA patients
to report other detrimental consequences of medication cost pressures, such as
foregoing necessities to pay for their medication or worrying frequently about how
they could pay for their treatments. 40
In another study that examined the impact of the increased copayment on
veterans’ use of antidepressant medication, VA researchers found that medication
cost could be a prohibitive factor for veterans with copayment obligations. The
researchers further state that veterans who had to pay copayments appear to fill the
antidepressant prescriptions less frequently than veterans who are exempt from the
copayment requirement.41
Third-Party Offset of First-Party Debt
The Administration is requesting that Congress amend VA’s statutory authority
by eliminating the practice of reducing first-party copayment debts with third-party
health insurance collections. VA asserts that this proposal would align VA with the
DOD health care system for military retirees and with the private sector.
With the enactment of P.L. 99-272 in 1986, Congress authorized VA to collect
payments from third-party health insurers for the treatment of veterans with
nonservice-connected disabilities, and it also established copayments from veterans
for this care.42 Under current law, VA is authorized to collect from third-party health
insurers to offset the cost of medical care furnished to a veteran for the treatment of
40 John D. Piette, and Michele Heisler, Problems Due to Medication Costs Among VA and
Non-VA Patients With Chronic Illnesses, American Journal of Managed Care, vol. 10, no.
11, (November 2004), p.867.
41 M.Zimmer, L.Petersen, M. Kubeler, and J.Cully, Effects of Increased Copayment on
Antidepressant Prescription Fill Rates in VA Patients, poster presented at the 24th Annual
VA Health Services Research and Development (HSR&D) Meeting, Washington, DC, Feb.
15-17, 2006 (this study has not been published yet).
42 Consolidated Omnibus Budget Reconciliation Act of 1985, 100 Stat. 372, 373, 383.

CRS-21
a nonservice-connected condition.43 If VA treats an insured veteran for a
nonservice-connected disability, and the veteran is also determined by VA to have
copayment responsibilities, VA will apply the payment collected from the insurer to
satisfy the veteran’s copayment debt related to that treatment.
Under the current copayment billing process, in cases where the cost of a
veteran’s medical care for a nonservice-connected condition appears to qualify for
billing under reimbursable insurance and copayment, VA medical facilities sends the
bill to the insurance provider. The veteran’s copayment obligation is placed on hold
for 90 days pending payment from the third-party payer. If no payment is received
from the third-party payer within 90 days, then a bill is sent to the veteran for the full
copayment amount. However, when insurers reimburse VA after the 90-day period,
VA must absorb the cost of additional staff time for processing a refund if the veteran
has already paid the bill. On all insurance policies, the entire amount of the claim
payment is applied first to the copayment. The veteran is then billed only for the
portion of the copayment not covered by the insurance reimbursement and the portion
of the copayment for services not covered by the veteran’s insurance plan (Figure 1).
43 38 U.S.C. §1729; 38 U.S.C. §1710; and 38, U.S.C. 1722A.

CRS-22
Figure 1. Present Copayment Process
Off
Sets
Run Claims
Claims
Insurance
Matching Report
Go to “Release
Matching
Review 3rd
1st Party
Start
Payment
Using Payment
No
Charges on
Report
Party Payment
Claim?
Posted
Date from Previous
Hold” Options
Days Deposits
Yes
Release 1st
No
No
Full
No
Partial
No
Review
Go into “Full
Party Charges
Payment?
Payment?
Payment?
Account
Account”
on Hold
Yes
Yes
Determine If There
Is Enough of 3rd
Patient
Yes
No
Party Check to Off-
Insurance?
Payment
Set the Amount of
the Co-Pay
Yes
Determine If There Is
Enough of 3rd Party
Enough?
Check to Off-Set the
Amount of the Co-Pay
No
Yes
Yes
Statement
Decrease 1st Party
Released to the
Co-Pay by 3rd
Apply
Enter 1st Party
Go to “Decrease
Patient for
Party Payment
Insurance
Claim Number
Menu”
Remaining
Amount (NTE Co-
Payment to
Balance
Pay Amount)
Account
Refund
End
Proc 1
Source: Department of Veterans Affairs.


CRS-23
According to two reports released by the Government Accountability Office
(GAO), the practice of satisfying copayment debt with recoveries made from
third-party insurers has resulted in reduced overall cost recoveries and increased
administrative expenses.44 Under the Administration’s proposal, VA would bill and
collect copayments from patients regardless of any amounts recovered from the
veterans private health insurance plan. As the patient’s bill is generated, VA would
bill the insurer for the full cost of VA care provided to a veteran for a nonservice-
connected condition (Figure 2).
Figure 2. Copayment Process Under New Proposal
Source: Chart prepared by CRS.
Impact of Third-Party Offset of First-Party Debt
According to VA’s estimates, if this proposal is enacted it would contribute
approximately $31.0 million toward VA’s collections. It should be noted that at this
time that the House and Senate Veterans Affairs Committees have not introduced
any legislation to give VA the authority to implement this proposal.
44 U.S. Government Accountability Office (GAO) , VA Medical Care: Increasing Recoveries
From Private Health Insurers Will Prove Difficult
, GAO/HEHS-98-4, Oct. 17 1997; and
VA Health Care: Guidance Needed for Determining the Cost to Collect from Veterans and
Private Health Insurers,
GAO-04-938, July 2004.

CRS-24
Appendix 1. Priority Groups
and Their Eligibility Criteria
Priority Group 1
Veterans with service-connected disabilities rated 50% or more disabling
Priority Group 2
Veterans with service-connected disabilities rated 30% or 40% disabling
Priority Group 3
Veterans who are former POWs
Veterans awarded the Purple Heart
Veterans whose discharge was for a disability that was incurred or aggravated in the line of duty
Veterans with service-connected disabilities rated 10% or 20% disabling
Veterans awarded special eligibility classification under Title 38, U.S. C., Section 1151,
“benefits for individuals disabled by treatment or vocational rehabilitation”
Priority Group 4
Veterans who are receiving aid and attendance or housebound benefits
Veterans who have been determined by VA to be catastrophically disabled
Priority Group 5
Nonservice-connected disabled veterans and noncompensable service-connected veterans rated
0% disabled whose annual income and net worth are below the established VA Means Test
thresholds
Veterans receiving VA pension benefits
Veterans eligible for Medicaid benefits
Priority Group 6
Compensable 0% service-connected disabled veterans
World War I veterans
Mexican Border War veterans
Veterans solely seeking care for disorders associated with
— exposure to herbicides while serving in Vietnam; or
— ionizing radiation during atmospheric testing or during the occupation of Hiroshima and
Nagasaki; or
— for disorders associated with service in the Gulf War; or
— for any illness associated with service in combat in a war after the Gulf War or during a
period of hostility after November 11, 1998.
Priority Group 7
Veterans who agree to pay specified copayments who have income and/or net worth above the
VA Means Test threshold and income below the HUD geographic index
— Subpriority a: Noncompensable 0% service-connected disabled veterans who were enrolled
in the VA Health Care System on a specified date and who have remained enrolled since that
date
— Subpriority c: Nonservice-connected disabled veterans who were enrolled in the VA Health
Care System on a specified date and who have remained enrolled since that date.
— Subpriority e: Noncompensable 0% service-connected disabled veterans not included in
Subpriority a above
— Subpriority g: Nonservice-connected disabled veterans not included in Subpriority c above
Priority Group 8
Veterans who agree to pay specified copayments with income and/or net worth above the VA
Means Test threshold and the HUD geographic index
— Subpriority a: Noncompensable 0% service-connected disabled veterans enrolled as of
January 16, 2003 and who have remained enrolled since that date
— Subpriority c: Nonservice-connected disabled veterans enrolled as of January 16, 2003 and
who have remained enrolled since that date
— Subpriority e: Noncompensable 0% service-connected disabled veterans applying for
enrollment after January 16, 2003
Source: Department of Veterans Affairs.
Note: Service-connected disability means with respect to disability, that such disability was
incurred or aggravated in the line of duty in the active military, naval or air service

CRS-25
Appendix 2. Veterans’ Payments
for Health Care Services
Copayments
Humanitarian
Insurance
Emergency
Billing
Inpatient
Outpatient
Medicationa
Billing
Geographic
VA
Means Test
Means
Copayment
Test
Priority
Yes, but only if
Group 1
care was for
No
No
No
No
nonservice-
No
connected
condition
Priority
Yes, but only
Groups
for veterans
2, 3,b 4c
with less than
50% service
connected
disability and
medication is
Yes, but only if
for
care was for
No
No
No
nonservice-
nonservice-
No
connected
connected
condition.
condition
Former
POWs are
exempt from
all
medications
copayments
Priority
Yes, but only if
Group 5
care was for
No
No
No
Yes
nonservice-
No
connected
condition
Priority
Yes, but only if
Group 6
care was for
(WWI, and
No No
No
Yes
nonservice-
No
0% service-
connected
connected
condition
compensable)
Priority
Group 6
Yes, but only if
(Veterans
care was for
receiving
No
Nod
Nod
Nod
nonservice-
No
care for
connected
exposure or
condition
experience)d
Priority
Yes, but only
Yes, but only if
Group 7a
if care was
care was for
for
Yes
No
Yes
nonservice-
No
nonservice-
connected
connected
condition
condition

CRS-26
Copayments
Humanitarian
Insurance
Emergency
Billing
Inpatient
Outpatient
Medicationa
Billing
Geographic
VA
Means Test
Means
Copayment
Test
Priority
Yes, but only
Yes, but only if
Group 7c
if care was
care was for
for
Yes
No
Yes
nonservice-
No
nonservice-
connected
connected
condition
condition
Priority
Yes, but only
Yes, but only if
Group 8a
if care was
care was for
for
No
Yes
Yes
nonservice-
No
nonservice-
connected
connected
condition
condition
Priority
Yes, but only
Yes, but only if
Group 8c
if care was
care was for
for
No
Yes
Yes
nonservice-
No
nonservice-
connected
connected
condition
condition
Source: Table prepared by CRS based on information from the Department of Veterans Affairs.
a. An annual medication copayment cap has been established for veterans enrolled in priority groups
2-6. Medication will continue to be dispensed after copayment cap is met. An annual copayment cap
has not been established for veterans enrolled in Priority Groups 7 or 8.
b. Veterans in receipt of a Purple Heart are in Priority Group 3. This change occurred with 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 who are placed
in Priority Group 4 for treatment are still subject to the copayment requirements as a Priority
Group 7 veteran.
d. Priority Group 6 — veterans claiming exposure to Agent Orange; veterans claiming exposure to
environmental contaminants; veterans exposed to Ionizing Radiation; combat veterans within
two years of discharge from the military; veterans who participated in Project 112/SHAD;
veterans claiming military sexual trauma; and veterans with head and neck cancer who received
nasopharyngeal radium treatment while in the military are subject to copayments when their
treatment or mediation is not related to their exposure or experience. The initial registry
examination and follow-up visits to receive results of the examination are not billed to the health
insurance carrier and are not subject to copayments. However, care provided not related to
exposure, if it is nonservice-connected will be billed to the insurance carrier and copayments
can apply.
Notes: Priority Group 7a and 7c veterans have income above the VA Means Test threshold but below
the Geographic Means Test threshold and are responsible for 20% of the inpatient copayment and
20% of the inpatient per diem copayment . The geographic means test copayment reduction does not
apply to outpatient and medication copayment and veterans will be assessed the full applicable
copayment charges. Note that reduced inpatient copayments can apply to veterans in Priority Groups
4 and 6 based upon the income of the veteran.
Priority Group 8a and 8c veterans have income above the VA Means Test threshold and above the
Geographic Means Test threshold. Veterans enrolled in this priority group are responsible for the full
inpatient copayment and the inpatient per diem copayment for care of their nonservice-connected
conditions. Veterans in this priority group are also responsible for outpatient and medication
copayments for care of their nonservice-connected conditions.

CRS-27
Appendix 3. Financial Income Thresholds
for VA Health Care Benefits

Veterans with:
Free VA Prescriptions
Free VA Inpatient and
and Travel Benefits for
Outpatient care for
veterans with incomes
veterans with incomes of:
of:
No dependents
$10,579 or less
$26,902 or less
1 dependent
$13, 855 or less
$32,285 or less
2 dependents
$15, 661 or less
$34,285 or less
3 dependents
$17,467 or less
$34,091 or less
4 dependents
$19,273 or less
$37,703 or less
For each
additional
dependent, add:

$1,806
$1,806
Source: Department of Veterans Affairs.