Veterans' Medical Care: FY2006 Appropriations

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 FY2006 budget requested $30.4 billion for VHA: $20.0 billion for medical services, $4.5 billion for medical administration, $3.3 billion for medical facilities, and $393 million for medical and prosthetic research. VHA medical care collections (e.g., copays, third-party insurance payments) for FY2006 are expected to be $2.2 billion.

On May 26, 2005, the House passed its version of H.R. 2528 , the Military Quality of Life and Veterans Affairs and Related Agencies appropriations bill for FY2006. This bill provided $28.8 billion for VHA. On June 23, 2005, VA announced a budget shortfall of more than $1 billion from its FY2005 enacted level for veterans health programs. On August 2, 2005, the Department of the Interior, Environment, and Related Agencies Appropriations Act ( P.L. 109-54 ) was signed into law, providing $1.5 billion in supplemental appropriations for veterans medical services for FY2005.

On September 22, 2005, the Senate passed its version of H.R. 2528 , the Military Construction and Veterans Affairs and Related Agencies appropriations bill for FY2006. The Senate appropriated a total of $31.3 billion for VHA.

On November 30, 2005, the Military Construction, Military Quality of Life and Veterans Affairs Appropriations Act, 2006 ( P.L.109-114 ) was signed into law. This act provided $22.5 billion for medical services, of which $1.2 billion was designated as an emergency appropriation. P.L. 109-114 also appropriated $2.9 billion for medical administration, $3.3 billion for medical facilities, and $412 million for medical and prosthetic research. On December 30, 2005, the Department of Defense Appropriations Act, 2006 ( P.L.109-148 , H.Rept. 109-359 ) was signed into law, providing an additional $225 million for VHA for FY2006 and excluding VA programs from a 1% across-the-board rescission for all non-emergency discretionary programs. The total amount of funds appropriated for VHA for FY2006 is $29.3 billion. The total amount of funds available for VHA is $31.5 billion, including $2.2 billion in collections.

In its FY2006 budget submission to Congress, the Administration proposed several legislative and regulatory changes to increase certain copayments and other cost-sharing charges for certain veterans. P.L.109-114 did not include any of the Administration’s cost-sharing proposals for VHA. This report will be not be updated.

RL32975 -- Veterans' Medical Care: FY2006 Appropriations


Updated January 17, 2006






CONTENTS

<font size="+1">List of Tables</font>



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 FY2006 budget requested $30.4 billion for VHA: $20.0 billion for medical services, $4.5 billion for medical administration, $3.3 billion for medical facilities, and $393 million for medical and prosthetic research. VHA medical care collections (e.g., copays, third-party insurance payments) for FY2006 are expected to be $2.2 billion.

On May 26, 2005, the House passed its version of H.R. 2528, the Military Quality of Life and Veterans Affairs and Related Agencies appropriations bill for FY2006. This bill provided $28.8 billion for VHA. On June 23, 2005, VA announced a budget shortfall of more than $1 billion from its FY2005 enacted level for veterans health programs. On August 2, 2005, the Department of the Interior, Environment, and Related Agencies Appropriations Act (P.L. 109-54) was signed into law, providing $1.5 billion in supplemental appropriations for veterans medical services for FY2005.

On September 22, 2005, the Senate passed its version of H.R. 2528, the Military Construction and Veterans Affairs and Related Agencies appropriations bill for FY2006. The Senate appropriated a total of $31.3 billion for VHA.

On November 30, 2005, the Military Construction, Military Quality of Life and Veterans Affairs Appropriations Act, 2006 (P.L.109-114) was signed into law. This act provided $22.5 billion for medical services, of which $1.2 billion was designated as an emergency appropriation. P.L. 109-114 also appropriated $2.9 billion for medical administration, $3.3 billion for medical facilities, and $412 million for medical and prosthetic research. On December 30, 2005, the Department of Defense Appropriations Act, 2006 (P.L.109-148, H.Rept. 109-359) was signed into law, providing an additional $225 million for VHA for FY2006 and excluding VA programs from a 1% across-the-board rescission for all non-emergency discretionary programs. The total amount of funds appropriated for VHA for FY2006 is $29.3 billion. The total amount of funds available for VHA is $31.5 billion, including $2.2 billion in collections.

In its FY2006 budget submission to Congress, the Administration proposed several legislative and regulatory changes to increase certain copayments and other cost-sharing charges for certain veterans. P.L.109-114 did not include any of the Administration's cost-sharing proposals for VHA. This report will be not be updated.




Most Recent Developments

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

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

Background

The Department of Veterans Affairs (VA) provides benefits to veterans who meet certain eligibility 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 loan guarantees and death benefits that cover burial expenses. VA carries out its programs nationwide through three administrations and the Board of Veterans Appeals (BVA). The Veterans Health Administration (VHA) is responsible for health care programs. The Veterans Benefits Administration (VBA) is responsible for providing compensation, pensions, and education assistance among other things. The National Cemetery Administration (NCA) is responsible for maintaining national veterans cemeteries.

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 FY2005, discretionary budget authority accounted for approximately 48% of the total VA budget 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.(4) In FY2004, VHA operated 157 hospitals, 134 nursing homes, 42 residential rehabilitation treatment centers, and 862 ambulatory care and community-based outpatient clinics. VHA also pays for care provided to veterans by independent providers and practitioners on a fee basis under certain circumstances. In addition, VHA provides grants for construction of state-owned nursing homes and domiciliary facilities, and collaborates with the Department of Defense (DOD) in sharing health care resources and services.

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

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

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

The Federal Budget

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

Changes in Appropriation Committee Jurisdictions. At the beginning of the 109th Congress, both the House and Senate Appropriations Committees reorganized their respective subcommittees. The House Committee on Appropriations reduced its number of subcommittees to ten from the original thirteen subcommittees. The Senate Committee on Appropriations reduced its number of subcommittees to twelve from the original thirteen subcommittees. The House Subcommittee on Military Quality of Life and Veterans Affairs and Related Agencies received jurisdiction over funding for VA programs, among other things. Similarly, the Senate Subcommittee on Military Construction and Veterans Affairs received jurisdiction over appropriations for VA programs among other things. Prior to this restructuring, appropriations legislation for VA programs was the responsibility of the House and Senate Veterans Affairs, Housing and Urban Development, and Independent Agencies Subcommittees.

VHA Health Care Enrollment

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

For most veterans, entry into the veterans' health care system begins with application for enrollment.(10) A veteran may apply for enrollment at any time during the year. 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.

After "veterans' status" has been established ,VA next places applicants into one of two categories. The first group in general is composed of veterans with service-connected disabilities or with lower incomes. 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;(11)

  • 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 prisoner of wars (POWs);

  • veterans awarded the purple heart;

  • veterans who have been determined by VA to be catastrophically disabled;

  • veterans of World War I;

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

  • veterans who have 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 conditions and with incomes and net worth above the VA established means test threshold, and in general these veterans are enrolled in Priority Group 7 or 8.

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. VHA is authorized to bill some veterans and most health care insurers for nonservice-connected care provided to veterans enrolled in the VA health care system, to help defray the cost of delivering medical services to veterans. The Balanced Budget Act of 1997 (P.L. 105-33) gave VHA the authority to retain these funds in the Medical Care Collections Fund (MCCF). Instead of returning these funds to the Treasury, VA can use this for medical services for veterans without fiscal year limitations.(12)

FY2005 Budget Summary

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

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

The total amount appropriated for VHA for FY2005 was $29.7 billion. As shown in Table 1, this included $20.9 billion for medical services, $4.7 billion for medical administration, $3.8 billion for medical facilities, and $402 million to finance medical and prosthetic research. Furthermore, $2.0 billion in medical care cost collections (e.g., copays and third-party insurance payments ) was available for the medical services account. Therefore, the total amount of funds available for VHA for FY2005 was $31.7 billion.

FY2006 VHA Budget

President's FY2006 Budget

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

House and Senate Budget Resolutions

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

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

FY2006 House Appropriations Bill

On May 23, 2005, the House Committee on Appropriations reported H.R. 2528, (H.Rept. 109-95) making appropriations for Military Quality of Life and Veterans Affairs 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 would be $31.0 billion, including $2.2 billion in collections.

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

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

FY2005 and FY2006 Budget Shortfall

On June 23, 2005, at a hearing of the House Veterans Affairs Committee the Administration announced that the increased medical care cost for FY2005 was about $1 billion more than the FY2005 enacted amount. At a hearing before the House 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 29, 2005 the Senate passed H.R. 2361 (H.Rept. 109-80) making appropriations for the Department of the Interior, Environment and Related Agencies for FY2006. Included in this bill was $1.5 billion in "emergency appropriations" for veterans' medical services for FY2005.

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

On July 14, 2005, the Administration submitted a budget amendment for FY2006 requesting an additional $1.97 billion for VA medical services. This amount includes $276 million for increased workload due to returning veterans from Iraq and Afghanistan and $600 million for veterans long-term care services. When developing its FY2006 budget request the Administration underestimated the demand for long-term care services. The budget assumed that the average daily census level for long-term care would be 9,795; VA now estimates that this level should be 11,500.(22) Moreover, the budget amendment includes $152 million for reducing the backlog of veterans on waiting lists for medical appointments, $249 million to address increases in the number of patients, $400 million to address increases in utilization of services by veterans already receiving care from VA, and $300 million to replenish the carryover funds from FY2005. When developing its FY2006 budget request the Administration believed that it could carryover about $300 million from FY2005 into FY2006. It should be also noted that this budget amendment assumes the fee increases proposed in the President's FY2006 budget request.(23)

In response to the FY2005 budget shortfall for VA medical services, on July 26, 2005, the conferees of the Department of the Interior, Environment and Related Agencies, Appropriations bill, 2006 (H.R. 2361, H.Rept. 109-188) provided $1.5 billion in supplemental appropriations for VA medical services for FY2005. The bill included language that would allow VA to carryover any unused funds into FY2006. The House passed H.R. 2361 on July 28, 2005, and the Senate passed the measure a day later. No further action was taken on H.R. 3130 during the first session of the 109th Congress because H.R. 2361 provided the additional funding needed for FY2005. The FY2006 Department of the Interior, Environment, and Related Agencies appropriations bill (P.L. 109-54) was signed into law on August 2, 2005.

FY2006 Senate Appropriations Bill

On July 21, 2005, the Senate Committee on Appropriations reported out of committee H.R. 2528 (S.Rept. 109-105) making appropriations for Military Construction and Veterans Affairs and Related Agencies for FY2006 (MIL-CON appropriations bill). This bill appropriated approximately $31.3 billion for VHA, including collections (Table 1). The total amount recommended for VHA is composed of $23.3 billion for medical services including $1.97 billion in "emergency appropriations" as requested by the President's budget amendment,(24) $2.9 billion for medical administration, $3.3 billion for medical facilities, $412 million for medical and prosthetic research, and $1.5 billion for information technology. Under the MIL-CON appropriations bill, the total amount of funding available for VHA would be $33.5 billion, including $2.2 billion in collections. It should be noted here that the Committee has included bill language creating a separate account for information technology for the entire VA and not specifically for VHA. This would separate information technology from the medical administration account. According to the committee report this new account structure will help VA to better organize its entire information technology program and more accurately display and report VA's information technology efforts.

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

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

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

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

FY2006 Conference Agreement

On November 18, 2005, the House voted to adopt the conference report (H.Rept. 109-305) making appropriations for Military Quality of Life, Military Construction, Veterans Affairs, 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 (P.L.109-114) was signed into law by the President on November 30, 2005.

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

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

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

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

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

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

Gulf Coast Hurricanes and Avian Flu Pandemic Preparation

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

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

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

On December 19, 2005, the House adopted the conference report (H.Rept. 109-359) to accompany the FY2006 Department of Defense Appropriations bill (H.R. 2863). The Senate agreed to the conference report on December 21, 2005. The conference agreement includes $225 million for medical services (Table 1); $24.9 million for general operating expenses; $200,000 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 1). The Department of Defense Appropriations Act, 2006 (P.L. 109-148) was signed into law on December 30, 2005.

Analysis of Funding for VHA

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

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

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

($ in thousands)

Program  FY2004 enacted FY2005 request FY2005 House FY2005 Senate FY2005 enacted FY2006 request FY2006 House FY2006 Senate FY2006 enacted
Medical services $17,762,054 -- $19,498,600 $19,498,600a  $19,316,995 $19,995,141 $20,995,141 $21,331,011 $21,322,141
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  17,762,054  1,013,283  20,473,600  20,998,600  20,855,278  22,197,406  20,995,141  23,308,011  22,772,406 
Medical administration 4,970,500 -- 4,705,000 4,705,000 4,667,360 4,517,874 4,134,874 2,858,442 2,858,442
Supplemental appropriations (P.L. 108-324) -- 1,940 -- -- 1,940 -- -- -- --
Subtotal medical administration  4,970,500  1,940  4,705,000   4,705,000  4,669,300  4,517,874  4,134,874  2,858,442  2,858,442 
Medical facilities 3,976,400 -- 3,745,000 3,745,000 3,715,040 3,297,669 3,297,669 3,297,669 3,297,669
Supplemental appropriations (P.L. 108-324) -- 46,909 -- -- 46,909 -- -- -- --
Subtotal medical facilities  3,976,400  46,909  3,745,000  3,745,000  3,761,949  3,297,669  3,297,669  3,297,669  3,297,669 
Medical and prosthetic research 405,593 384,770 384,770 405,593 402,348 393,000 393,000 412,000 412,000
Information technology -- -- -- -- -- -- -- 1,456,821 --
Medical carei  -- 26,748,600 -- -- -- -- -- -- --
rescission -270,000 -- -- -- -- -- -- -- --
Total VHA appropriations (without collections) 26,844,547  28,195,502  28,308,370  28,854,193  29,688,875  30,405,949  28,820,684  31,332,943  29,340,517 
Medical care cost collection (MCCF)j  1,554,772 2,002,000 2,002,000 2,002,000 1,985,984 2,170,000 2,170,000 2,170,000 2,170,000
Total: VHA (appropriations and collections) $28,399,319  $30,197,502  $31,310,370  $30,856,193  $31,674,859  $32,575,949  $30,990,684  $33,502,943  $31,510,517 

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

Note: Appropriation amounts for FY2005 adjusted to account for the 0.8% across-the-board reduction in most discretionary accounts as called for 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 and $2.17 billion in FY2006.

Key Budget Issues

In its FY2006 budget proposal the Administration is recommending a set of legislative and regulatory proposals. The Administration asserts that these proposals will refocus the veterans' health care system to better meet the needs of high priority core veterans -- those with service-connected conditions, those with lower incomes, and veterans with special care needs. Some of these proposals were proposed in FY2004 and FY2005 as well, and were rejected by Congress.(35)

Changes in Cost-Sharing for Health Services

  • Assess an annual enrollment fee of $250 for all Priority 7 and 8 veterans;

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

  • Eliminate copayments for hospice care; and

  • Authorize VA to pay for emergency care for enrolled veterans in non-VA medical facilities.

Changes in Long-Term Care Services

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

  • Place a one year moratorium on grants for state extended care facilities;

  • Exempt former POWs from long-term care copayments; and

  • Eliminate mandatory long-term care daily census requirements.

A detailed description of the above legislative proposals follows:

Legislative Proposals to Change the Cost-Sharing Structure

Assess an Annual Enrollment Fee

The Administration proposes to establish an annual enrollment fee of $250 beginning October 1, 2005, for all Priority 7 and 8 veterans. Priority Group 7 veterans have incomes above $25,843 for a single veteran and below the Department of Housing and Urban Development (HUD) geographic means test level.(36) Priority Group 8 veterans are those with incomes above $25,843 for a single veteran and above the HUD geographic means test. 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 Cleveland County, Arkansas, whose annual income in 2004 was $26,149 will be placed in Priority Group 7, since the veteran's annual income is above VA's means test threshold and below the geographic means test threshold for FY2004 of $26,150. Similarly, a veteran with no dependents living in Trenton, New Jersey, whose annual income in 2004 was $40,249 will be placed in Priority Group 7, since the veteran's annual income is above VA's means test threshold and below the geographic means test threshold for FY2004 of $40,250. It should noted that there is wide variation in annual incomes of veterans placed in Priority Groups 7 and 8.

In its FY2004 and FY2005 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.

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

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

Similarly, the majority members of the Senate Veterans Affairs Committee in its FY2006 views and estimates letter to the Senate Budget Committee did agree to approve a $250 a year enrollment fee for higher income veterans who have no service-connected injuries. It should be noted that at this time both the House and Senate Veterans Affairs Committees have not introduced any measures that will give VA the authority to implement this proposal.

Increase Pharmacy Copayments

The Administration proposes to increase the pharmacy copayments from $7 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 disability. At present, veterans in Priority Groups 2-8 pay $7 for a 30-day supply of medication including over-the-counter medications.(37) The Administration put forward this proposal in its FY2004 and FY2005 budget requests as well, but did not receive any approval from Congress.

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

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 a 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 to establish annual caps on the medication copayment amount.(38) An annual cap was established to eliminate financial hardship for veterans enrolled in Priority Groups 2-6. When veterans reach the annual cap, they continue to receive medications without making a copayment. For calendar year 2005, the cap is $840. There is currently no cap for veterans in Priority Groups 7 and 8 (see Appendix 2).

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 a 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 would be no cap for veterans in Priority Groups 7 and 8.

Impact of the Annual Enrollment Fee and Increase in Pharmacy Copayments. According to actuarial projections done by VA, the $250 annual enrollment fee and the increase in prescription drug copayments would reduce the number of unique veteran patients in FY2006 by approximately 213,000, and 1.1 million veteran enrollees. The enrollment fees and increased copayments would generate about $454 million in revenue and save VA an additional $202 million due to reduced demand.

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

Exempt Copayments for Hospice Care

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

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

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

Authorize VA to Pay for Emergency Care for Insured Veterans

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

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

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

Legislative Proposals to Change Long-Term Care Services

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

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

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

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

In its FY2006 budget proposal the Administration proposes to revise VHA's eligibility criteria for long-term care services provided in VA, community, and state nursing homes. Under the President's proposal state veterans nursing homes would receive per diem payments for Priority Groups 1-3 veterans and Priority Group 4 veterans who have catastrophic disabilities and who need short-term care (less than 90 days), or hospice or respite care. For Priority Group 4 veterans who are not catastrophically disabled, and for Priority Groups 5-8 veterans, state veterans nursing homes would be reimbursed only for short- term care subsequent to a hospital stay. VA asserts that this proposal would save the department $294 million in FY2006. The number of veterans in state nursing homes on whose behalf VA pays per-diem payments would decrease from 17,328 in FY2004 to 7,217 in FY2006.

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

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

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

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

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

In its FY2006 budget proposal, the Administration is proposing a one-year moratorium on grants to state extended care facilities. During this one-year period VA intends to complete a review of its long-term care infrastructure, comparing projected demand against capacity. As a result of this proposed study, VA has not requested any funding for FY2006 for grants for state extended care facilities. This is a decrease of $104 million from FY2005.

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

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

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

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

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

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

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

Eliminate Mandatory Long-Term Care Daily Census Requirements

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

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

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

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

Appendix 1. Priority Groups and Their Eligibility Criteria

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.

Appendix 2. Veterans' Payments for Health Care Services

  Copayments  Insurance billing 
Inpatient  Outpatient  Medicationa 
Priority Group 1 No No No Yes, but only if care was for nonservice-connected condition
Priority Groups 2, 3,b 4c No No Yes, but only for veterans with less than 50% service connected disability and medication is for nonservice-connected condition Yes, but only if care was for nonservice-connected condition
Priority Group 5 No No Yes Yes, but only if care was for nonservice-connected condition
Priority Group 6 (WWI, and 0% service-connected compensable) No No Yes Yes, but only if care was for nonservice-connected condition
Priority Group 6 (Veterans receiving care for exposure or experienced) Nod  Nod  Nod  Yes, but only if care was for nonservice-connected condition
Priority Group 7e  Yes Yes Yes Yes, but only if care was for nonservice-connected condition
Priority Group 8f  Yes Yes Yes Yes, but only if care was for nonservice-connected condition

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

Note: Veterans receiving a pension for a nonservice-connected disability from VA, veterans with incomes below $10,162 (if no dependents), and $13,309 (with one dependent plus $1,734 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 POWs are exempt from paying outpatient prescription copayments for nonservice-connected conditions.

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

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

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

Appendix 3. VHA's New Account Structure

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

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

Medical Facilities. This account provides funds for the operation and maintenance of VHA's infrastructure. Funds are used for costs associated with utilities, engineering, capital planning, leases, laundry, food services, groundskeeping, garbage disposal, facility repair, and selling and buying of property.

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

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

Previously copayments, third-party insurance payments, and fees for services other than medical services or inpatient pharmacy benefits were deposited in several medical collections accounts. 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.(50) The Consolidated Appropriations Act of 2005, (P.L. 108-447, H.Rept. 108-792) provided VA with permanent authority to deposit funds from these 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.




Footnotes

1. (back) The House and Senate Appropriations Committees agreed that in FY2006 the conference agreement would fund the programs contained in the Senate version of the bill, and that next year the conference agreement would fund programs in the House version of the bill. In the conference report it stated "This Act may be cited as the Military Construction, Military Quality of Life and Veterans Affairs Appropriations Act, 2006." However, the enrolled version of the bill had the title as "Military Quality of Life and Veterans Affairs Appropriations Act, 2006." The conference report (H.Rept. 109-359) to accompanying Department of Defense Appropriations bill (H.R. 2863, P.L. 109-148) made a technical correction to reflect the correct title of the bill.

2. (back) By designating funding as an emergency requirement, it is not subject to enforcement procedures under the congressional budget process.

3. (back) VHA and VA will be used interchangeably throughout this report to refer to VHA.

4. (back) Established in 1946 as the Department of Medicine and Surgery, succeeded in 1989 by the Veterans Health Services and Research Administration, renamed the Veterans Health Administration in 1991.

5. (back) These are unduplicated veteran patients; this number and projections exclude Readjustment Counseling, State Home, Civilian Health and Medical Program of VA (CHAMPVA), Spina Bifida, Foreign Medical Program and non-veterans. Data provided by VA.

6. (back) For a detailed description of veterans' health care issues, see CRS Report RL32961, Veterans' Health Care Issues in the 109th Congress, by [author name scrubbed].

7. (back) Specifically, budget function 700 includes funding for VA benefits and services.

8. (back) For more information on the formulation of the budget resolution, see CRS Report 98-512, Formulation and Content of the Budget Resolution, by Bill Heniff, Jr.

9. (back) H.Rept. 104-690.

10. (back) 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%).

11. (back) 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 percent based on the severity of the disability. Percentages are assigned in increments of 10 percent.

12. (back) For a detailed history of funding for VHA from FY1995 to FY2004, see CRS Report RL32732, Veterans' Medical Care Funding FY1995-FY2004, by [author name scrubbed].

13. (back) U.S. Congress, Conference Committees, Consolidated Appropriations Act, 2005, conference report to accompany H.R. 4818, 108th Cong., 2nd sess., H.Rept. 108-792.

14. (back) The Consolidated Appropriations Act, 2005, was signed into law on Dec. 8, 2004.

15. (back) For a detailed description of the Capital Asset Realignment for Enhanced Services (CARES) program, see CRS Report RL32961, Veterans' Health Care Issues in the 109th Congress, by [author name scrubbed].

16. (back) For a detailed description of the FY2005 appropriations for VHA, see CRS Report RL32548, Veterans' Medical Care Appropriations and Funding Process, by [author name scrubbed].

17. (back) The terms "President's budget request" and the "Administration's budget request" will be used interchangeably throughout this report to refer to the same document.

18. (back) There is no Senate report to accompany S.Con.Res. 18.

19. (back) U.S. Congress, House Committee on Appropriations, Military Quality of Life and Veterans Affairs and Related Agencies Appropriations Bill, 2006, report to accompany H.R. 2528, 109th Congress, 1st session, H.Rept. 109-95, p. 53.

20. (back) HealtheVet-VistA is a next generation computerized outpatient and inpatient information system based on VA's current Veterans Health Information Systems and Technology Architecture (VistA). In general, VistA is an electronic medical record.

21. (back) Construction major projects are capital projects, where the estimated cost of a project is $7 million or more, and Construction minor projects are capital projects, which have a minor improvement component greater than $500,000 and total project costs less than $7 million.

22. (back) Average daily census is the average number of people served on an inpatient basis on a single day during the reporting period.

23. (back) At a House Veterans Affairs Committee Hearing on July 21, 2005, the Under Secretary for Health, Department of Veterans Affairs testified that "the total monetary effect of those -- or appropriation effect of the fee increases -- was approximately $1 billion. And, in absence of that, in addition to the $1.977 billion that we've come forward with the presidential budget amendment request for, an additional $1 billion would be necessary."

24. (back) By designating funding as an emergency requirement it is not subject to enforcement procedures under the congressional budget process.

25. (back) U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related Agencies Appropriations Bill, 2006, report to accompany H.R. 2528, 109th Cong., 1st sess., S.Rept. 109-105, p. 48.

26. (back) U.S. Congress, Conference Committees, Military Quality of Life and Veterans Affairs Appropriations Act, 2006, conference report to accompany H.R. 2528, 109th Cong., 1st sess., H.Rept. 109-305, p.13.

27. (back) Ibid.p.39.

28. (back) Ibid.p.39.

29. (back) Ibid. p.14.

30. (back) Ibid. p.47.

31. (back) Ibid.p.50.

32. (back) OMB, FY2006 Estimate No. 13, Reallocation package for Hurricane Katrina Relief and

Recovery (Various Agencies) Oct. 28, 2005 http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf.

33. (back) OMB, FY2006 Estimate No. 15, Emergency Requests: Departments of Health and Human Services; Agriculture; Defense; Homeland Security; the Interior; State; Veterans Affairs; and International Assistance Programs (Avian and Pandemic Influenza Preparedness), Nov 1, 2005 http://www.whitehouse.gov/omb/budget/amendments/supplemental_11_01_05.pdf.

34. (back) U.S. Congress, Conference Committees, Department of Defense Appropriations Act , 2006, conference report to accompany H.R. 2863, 109th Cong., 1st sess., H.Rept. 109-359, p.513

35. (back) See CRS Report RL32548, Veterans' Medical Care Appropriations and Funding Process, by [author name scrubbed].

36. (back) Geographic means test figures are available at http://www.va.gov/healtheligibility/costs/docs/GMT_Income_Thresholds_2004.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 2004 is compared to the geographic means test threshold for FY2004.

37. (back) Veterans receiving a pension for a nonservice-connected disability from VA, veterans with incomes below $10,162 (if no dependents), and $13,309 (with one dependent plus $1,734 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 are exempt from paying copayments.

38. (back) 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 co-payment 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 co-payment will increase in whole dollar amounts. The amount of the annual cap increases $120 for each $1 increase in the co-payment amount.

39. (back) VHA Directive 2005-052, Implementation of Medication Co-payment Changes, Nov. 15, 2005.

40. (back) U.S. Congress, Conference Committees, Military Quality of Life and Veterans Affairs Appropriations Act, 2006, conference report to accompany H.R. 2528, 109th Cong., 1st sess., H.Rept. 109-305, p.42.

41. (back) Veterans Millennium Health Care and Benefits Act (P.L. 106-117).

42. (back) VA fully reimburses veterans for emergency treatment obtained in non-VA medical facilities for service-connected disabilities (38 U.S.C. § 1728).

43. (back) Veterans are considered to be catastrophically disabled if they have a permanent severely disabling injury, disorder, or disease that compromises the ability to carry out the activities of daily living (ADL) such as eating, dressing, bathing, to such a degree that the individual requires personal or mechanical assistance to leave home or bed or requires constant supervision to avoid physical harm to self or others.

44. (back) U.S. Congress, House Committee on Appropriations, Military Quality of Life and Veterans Affairs and Related Agencies Appropriations Bill, 2006, report to accompany H.R. 2528, 109th Congress, 1st session, H.Rept. 109-95, p. 52.

45. (back) U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related Agencies Appropriations Bill, 2006, report to accompany H.R. 2528, 109th Congress, 1st session, H.Rept. 109-105, p. 55.

46. (back) U.S. Congress, Conference Committees, Military Quality of Life and Veterans Affairs Appropriations Act, 2006, conference report to accompany H.R. 2528, 109th Cong., 1st sess., H.Rept. 109-305, p.42.

47. (back) U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related Agencies Appropriations Bill, 2006, report to accompany H.R. 2528, 109th Cong., 1st sess., S.Rept. 109-105, p. 65.

48. (back) P.L. 106-117, 113 STAT. 1548.

49. (back) U.S. Department of Veterans Affairs, FY2006 Budget Submissions, Medical Programs, vol. 2, pp. 8-18.

50. (back) For a detailed description of these former accounts, see CRS Report RL32548, Veterans' Medical Care Appropriations and Funding Process, by [author name scrubbed].




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