Veterans’ Medical Care: FY2007 Appropriations

Congressional research reportFeb 28, 2007

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Veterans’ Medical Care:

FY2007 Appropriations

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Analyst in Veterans Policy

February 28, 2007

Congressional Research Service

7-....

www.crs.gov

RL33409

CRS Report for Congress

Prepared for Members and Committees 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 May 19, 2006, the House passed the Military Construction, Military Quality of Life, and

Veterans Affairs Appropriations bill for FY2007 (H.R. 5385, H.Rept. 109-464). H.R. 5385

provides $32.7 billion for VHA for FY2007, an 11.4% increase over the FY2006 enacted amount.

On November 14, the Senate passed its version of H.R. 5385 (S.Rept. 109-286). H.R. 5385, as

amended by the Senate, provided $32.7 billion for VHA, about the same as the House-passed

amount and the President’s request. Neither version of H.R. 5385 included any provisions that

would have given VA the authority to implement fee increases as requested by the President’s

FY2007 budget proposal. The 109th Congress did not enact H.R. 5385 and funded most federal

government agencies through a series of Continuing Resolutions. The 110th Congress passed the

Revised Continuing Appropriations Resolution, 2007 (H.J.Res. 20, P.L. 110-5) providing funding

for the VHA for the rest of FY2007. P.L. 110-5 provides $32.7 billion for the VHA for FY2007, a

$14.7 million increase over the President’s request and $3.3 billion above the FY2006 enacted

amount.

This report will not be updated.

Congressional Research Service

Veterans’ Medical Care: FY2007 Appropriations

Contents

Most Recent Developments.........................................................................................................1

Funding for the Defense and Veterans’ Brain Injury Center....................................................1

Background ................................................................................................................................2

Eligibility for Veterans’ Health Care and the Promise of Free Health Care ...................................5

VHA Health Care Enrollment................................................................................................6

Funding for VHA........................................................................................................................8

Medical Services.............................................................................................................8

Medical Administration...................................................................................................8

Medical Facilities............................................................................................................8

Medical and Prosthetic Research .....................................................................................9

Medical Care Collections Fund (MCCF) ...............................................................................9

FY2006 Budget Summary......................................................................................................... 11

House Action ...................................................................................................................... 11

Budget Shortfall.................................................................................................................. 11

Senate Action...................................................................................................................... 11

Conference Agreement........................................................................................................ 12

Defense Appropriations Bill FY2006................................................................................... 12

FY2006 Hurricane Supplemental for VA ............................................................................. 12

House Action ................................................................................................................ 13

Senate Action................................................................................................................ 13

Conference Agreement.................................................................................................. 13

FY2007 VHA Budget................................................................................................................ 14

Administration’s Budget Request ........................................................................................ 14

House and Senate Budget Resolutions................................................................................. 14

House Action ...................................................................................................................... 15

Construction Projects .................................................................................................... 16

Senate Action...................................................................................................................... 16

Construction Projects .................................................................................................... 18

Revised Continuing Appropriations Resolution, 2007.......................................................... 19

Construction Projects .................................................................................................... 19

Key Budget Issues .................................................................................................................... 22

Assess an Annual Enrollment Fee........................................................................................ 23

Increase Pharmacy Copayments .......................................................................................... 24

Impact of the Annual Enrollment Fee and Increase in Pharmacy Copayments ...................... 25

Third-Party Offset of First-Party Debt ................................................................................. 25

Figures

Figure 1. Present Copayment Process ........................................................................................ 27

Figure 2. Copayment Process Under New Proposal ................................................................... 28

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Veterans’ Medical Care: FY2007 Appropriations

Tables

Table 1. VHA Appropriations FY2006-FY2007...........................................................................1

Table 2. Defense and Veterans’ Brain Injury Center Funding, FY2005-FY2007 ...........................2

Table 3. Number of Patients Receiving Care from VA .................................................................4

Table 4. Medical Care Collections, FY2002-FY2005................................................................. 10

Table 5. VHA Appropriations by Account, FY2005-FY2007 ..................................................... 20

Table 6. Appropriations for VA Construction Projects, FY2005-FY2007.................................... 22

Appendixes

Appendix A. Priority Groups and Their Eligibility Criteria ........................................................ 29

Appendix B. Veterans’ Payments for Health Care Services by Priority Group ............................ 31

Appendix C. Financial Income Thresholds for VA Health Care Benefits .................................... 33

Contacts

Author Contact Information ...................................................................................................... 33

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Veterans’ Medical Care: FY2007 Appropriations

Most Recent Developments

On February 15, 2007, the President signed into law the Revised Continuing Appropriations

Resolution, 2007 (H.J.Res. 20, P.L. 110-5). P.L. 110-5, among other things, funded several

agencies including the Department of Veterans Affairs (VA). The Revised Continuing

Appropriations Resolution provides $32.7 billion for the Veterans Health Administration (VHA)

for FY2007, a $14.7 million increase over the President’s request and $3.3 billion above the

FY2006 enacted amount (see Table 1). This amount includes $25.5 billion for medical services,

$3.2 billion for medical administration, $3.6 billion for medical facilities, and $413.7 million for

medical and prosthetic research. These amounts are the same as the President’s request except for

the medical and prosthetic research account, which is $14.7 million above the President’s request

(see Table 5). The Revised Continuing Appropriations Resolution does not include any

provisions that would give VA the authority to implement fee increases as requested by the

Administration’s budget proposal for VHA for FY2007.

Table 1.VHA Appropriations FY2006-FY2007

($ in thousands)

Veterans Health

Administration (VHA)

FY2006

Enacted

FY2007

Request

FY2007

House

FY2007

Senate

FY2007

Enacted

$29,340,517

$32,657,000

$32,695,000

$32,670,000

$32,671,700

Source: H.Rept. 109-464, S.Rept. 109-286, and P.L. 110-5.

Funding for the Defense and Veterans’ Brain Injury Center1

During Senate floor consideration of the FY2007 Department of Defense Appropriations Act

(H.R. 5631), controversy erupted over the adequacy of funding for the Defense and Veterans’

Brain Injury Center, a facility that coordinates treatment and research for traumatic brain injuries

affecting active-duty military, their dependents, and veterans.2 Concerned about the incidence of

traumatic and other brain injuries in Iraq and Afghanistan resulting from Improvised Explosive

Device (IED) attacks, Congress increased DOD’s funding request for this program in FY2006,

and commissioned an extensive report that was due on October 6, 2006.3 In FY2007, the final

funding level for this program will be set in the conference version of the Military Construction,

Military Quality of Life, Veterans Affairs and Related Agencies bill (H.R. 5385). Notwithstanding

the controversy about the funding level for this particular program, military personnel are entitled

to full medical coverage under the TRICARE program.

Contributed by (name redacted), Specialist in National Defense in the Foreign Affairs, Defense, and Trade Division of

the Congressional Research Service.

Treatment is provided at Walter Reed Army Medical Center, Washington, DC; Wilford Hall US Air Force Medical

Center, Lackland Air Force Base TX; Brooke Army Medical Center, Fort Sam Houston, TX; Naval Medical CenterSan Diego, San Diego, CA; Hunter McGuire VA Medical Center, Richmond, VA; James A Haley VA Hospital,

Tampa, FL; Veterans Affairs Medical Center, Minneapolis, MN; VA Palo Alto Health Care System, Palo Alto, CA;

and Lakeview Virginia NeuroCare, Charlottesville, VA (Civilian Partner Site).

See Sec. 255 in P.L. 109-163, H.Rept. 109-360, pp.47-50, and p. 622 for reporting requirement, and see H.Rept. 109359, Conference Report on FY2006 DOD Appropriations Bill for FY2006 Congressional action, p. 458.

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Veterans’ Medical Care: FY2007 Appropriations

The Defense and Veterans’ Brain Injury Center, funded within the Blast Injury Prevention,

Mitigation and Treatment program, received $10.7 million of the $19.6 million appropriated from

the program in FY2006 (see Table 2). Last year, Congress increased DOD’s request for the blast

injury program from $7 million to $19.6 million, including monies for both treatment and

research and development (R&D), all funded under the Defense Health program.

In FY2007, the Administration again requested $7 million for the Blast Injury Prevention,

Mitigation and Treatment program, including $4.9 million for the Defense and Veterans’ Brain

Injury Center (see Table 2). On September 6, 2007, the Senate unanimously adopted an

amendment to the FY2007 DOD Appropriations bill (H.R. 5631) offered by Senators Allen and

Durbin (SA4883) that made $19 million available from monies for Defense Health for the

Defense and Veterans’ Brain Injury Center.4 The House did not change DOD’s request for $7

million for the Blast Injury Prevention, Mitigation and Treatment program, and funded the

program in a different bill, Military Construction, Military Quality of Life and Veterans Affairs

Appropriations bill (H.R. 5385).5

During conference, the funding provision for the Defense and Veterans’ Brain Injury Center was

dropped from H.R. 5631, and the final enacted Department of Defense Appropriations Act, 2007

(H.R. 5631, P.L. 109-289) did not include any funding for the Defense and Veterans’ Brain Injury

Center. The Revised Continuing Appropriations Resolution, 2007 (H.J.Res. 20, P.L. 110-5) has

not explicitly delineated the amount of funding that will go to the Defense and Veterans’ Brain

Injury Center, although it is expected that it will be funded at the FY2007 requested level.

Table 2. Defense and Veterans’ Brain Injury Center Funding, FY2005-FY2007

FY2005

Enacted

FY2006

Enacted

FY2007

Request

FY2007

House

FY2007

Senate

FY2007

Enacted

$10,900,000

$10,700,000

$4,900,000

—

$4,900,000

Source: Table prepared by CRS based on information from the Department of Defense.

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.6 VA carries out its programs nationwide through three

See Congressional Record, vol 152, No.108 (September 6, 2006), pp. S8992 and. S9035.

For DOD request, see “Exhibit OP-5, In-House Care,” Defense Health Program, FY2007 Budget Estimates, February

2006, pp. 2-4, http://www.dod.mil/comptroller/defbudget/fy2007/budget_justification/pdfs/dhp/VOL_1/Vol_1_Sec_5__A_OP-5_IHC_07PB_DHP.pdf. Because this program is part of In-house Care and because the House did not change

DOD’s request, the House report does not specifically mention its funding.

At the beginning of the 109th Congress, the appropriations committees changed the jurisdictional responsibility of

various subcommittees. Funding for Defense Health is included in Military Construction bill in the House and in the

Defense Appropriations bill in the Senate. The appropriators follow the House rules in odd years (like FY2007) and the

Senate rules in even years.

For a detailed description on eligibility for veterans disability benefits programs, see CRS Report RL33113, Veterans

Affairs: Basic Eligibility for Disability Benefit Programs, by (name redacted).

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Veterans’ Medical Care: FY2007 Appropriations

administrations and the board of veterans appeals (BVA). The Veterans Health Administration

(VHA) is responsible for health care services and medical research programs.7 The Veterans

Benefits Administration (VBA) is responsible, among other things, for providing compensations,

pensions, and education assistance.8 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.

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. 9 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.10 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.11 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).12 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).13 In addition, VHA provides grants for construction of state7

For a detailed description of veterans’ health care issues, see CRS Report RL32961, Veterans’ Health Care Issues in

the 109th Congress, by (name redacted).

For a detailed description of veterans’ benefits issues, see CRS Report RL33216, Veterans’ Benefits Issues in the

109th Congress, by (name redacted) and (name redacted).

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.

Jian Gao, Ying Wang and Joseph Engelhardt, “Logistic Analysis of Veterans’ Eligibility-Status Change,” Health

Services Management Research, vol. 18, (Aug. 2005), p. 175.

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.

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.

For further information on CHAMPVA, see CRS Report RS22483, Health Care for Dependents and Survivors of

(continued...)

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Veterans’ Medical Care: FY2007 Appropriations

owned nursing homes and domiciliary facilities, and collaborates with DOD in sharing health

care resources and services.

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 (see Table 3).

According to VHA estimates, the number of unique veteran patients is estimated to increase by

approximately 45,000 in FY2007.14 As shown in Table 3, 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 FY2007.15 In FY2005, VHA spent

approximately 61.7% of its medical care obligations on outpatient care.

Table 3. Number of Patients Receiving Care from VA

FY2005

Actual

FY2006

Estimate

FY2007

Estimate

Priority Groups 1-6 Veterans

3,561,709

3,733,496

3,813,457

Priority Groups 7 and 8 Veterans

1,301,283

1,237,144

1,202,345

Total Unique Veteran Patientsa

4,862,992

4,970,640

5,015,802

445,322

471,312

482,588

5,308,314

5,441,952

5,498,390

Non-Veteransb

Total Unique Patients

Source: Table prepared by CRS, based on data from the Department of Veterans Affairs.

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.

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 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.16

(...continued)

Veterans, by (name redacted) and Susan Janeczko.

Based on information provided by VA to the House Committee on Veterans’ Affairs, Subcommittee on Health, Feb.

14, 2006.

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.

U.S. Department of Veterans Affairs, FY2007 Congressional Budget Submissions, Medical Programs, vol. 1 of 4, p.

(continued...)

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Veterans’ Medical Care: FY2007 Appropriations

The rest of 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 the

final enacted amounts for FY2007. The 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. 17 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.18

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. 19 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.20 The other category of veterans are 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.”21

(...continued)

9-8.

For a detailed discussion of “promised benefits,” see CRS Report 98-1006, Military Health Care: The Issue of

“Promised” Benefits, by (name redacted).

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_3-2598.pdf.

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.

Ibid. p.5.

Ibid. p.6.

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Veterans’ Medical Care: FY2007 Appropriations

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.”22

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.”23

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. 24 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 medical center or clinic of the veteran’s choosing. 25 Once a veteran is

enrolled in the VA health care system the veteran remains in the system and does not have to reapply 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.26

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.

Ibid. p.5.

Ibid. p.4.

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%).

VA Form 10-10EZ is available at https://www.1010ez.med.va.gov/sec/vha/1010ez/#Process.

38 C.F.R. §17.36 (d)(3)(iv) (2005).

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Veterans’ Medical Care: FY2007 Appropriations

When not activated to full-time federal service, members of the reserve components and National

Guard have limited eligibility for VA health care services. Members of the reserve components

may be granted service-connection for any injury they incurred or aggravated in the line of duty

while attending inactive duty training assemblies, annual training, active duty for training, or

while going directly to or returning directly from such duty. Additionally, reserve component

servicemembers may be granted service-connection for a heart attack or stoke if such an event

occurs during these same periods. The granting of service-connection makes them eligible to

receive care from VA for those conditions. National Guard members are not granted serviceconnection for any injury, heart attack, or stroke that occurs while performing duty ordered by a

governor for state emergencies or activities.27

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 A). Veterans enrolled in Priority

Groups 1-6 include:

•

veterans in need of care for a service-connected disability;28

•

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

•

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 B 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

38.U.S.C. §101(24); 38 C.F.R. §3.6(c).

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’ Medical Care: FY2007 Appropriations

in Priority Group 7 or 8.29 Appendix C 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. In FY2004, “to provide better oversight and [to] receive a more accurate

accounting of funds,” Congress changed VHA’s appropriations structure.30 The Department of

Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations

Act, 2004 ( P.L. 108-199, H.Rept. 108-401) funded VHA through four accounts: (1) medical

services; (2) medical administration; (3) medical facilities; and (4) medical and prosthetic

research. Provided below are brief descriptions of these accounts.

Medical Services

The medical services account covers expenses for furnishing inpatient and outpatient care and

treatment of veterans and certain dependents, including care and treatment in non-VA facilities;

outpatient care on a fee basis; medical supplies and equipment; salaries and expenses of

employees hired under Title 38, United States Code; and aid to state veterans homes.

Medical Administration

The medical administration account provides funds for the expenses in the administration of

hospitals, nursing homes, and domiciliaries; billing and coding activities; quality of care

oversight; legal services; and procurement.

Medical Facilities

The medical facilities account covers, among other things, expenses for the maintenance and

operation of VHA facilities; administrative expenses related to planning, design, project

management, real property acquisition and deposition, construction, and renovation of any VHA

facility; leases of facilities; and laundry and food services.

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 C.F.R. § 17.36(b)(7) (2005).

U.S. Congress, Conference Committees, Consolidated Appropriations Act, 2004, conference report to accompany

H.R. 2673, 108th Cong., 1st sess., H.Rept. 108-401, p. 1036.

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Medical and Prosthetic Research

This account provides funding for VA researchers to investigate a broad array of veteran-centric

health topics such as treatment of mental health conditions, rehabilitation of veterans with limb

loss, traumatic brain injury and spinal cord injury, organ transplantation, and the organization of

the health care delivery system. VA researchers receive funding not only through this account but

also from DOD, the National Institutes of Health (NIH), and from private sources.

Medical Care Collections Fund (MCCF)

In addition to direct appropriations through the above accounts, 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.31

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 veterans without fiscal year limitations.32 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.”33 This change in billing was intended to

enhance VA collections to the extent that reasonable charges result in higher payments than

reasonable costs.34 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.35 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 4, 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

Veterans’ Health-Care and Compensation Rate Amendments of 1985, 100 Stat. 372, 373, 383.

For a detailed history of funding for VHA from FY1995 to FY2004, see CRS Report RL32732, Veterans’ Medical

Care Funding: FY1995-FY2004, by (name redacted).

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.

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.

For a detailed description of these former accounts, see CRS Report RL32548, Veterans’ Medical Care

Appropriations and Funding Process, by (name redacted).

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$485 million in FY2002 to $772 million in FY2005. In FY2005, first-party collections

represented approximately 41% of total MCCF collections.

Table 4. Medical Care Collections, FY2002-FY2005

($ in thousands)

FY2002

Actual

FY2003

Actual

FY2004

Actual

FY2005

Actual

First-party pharmacy copaymentsa

$377,440

$576,554

$623,215

$648,204

First-party copayments for inpatient and

outpatient care

108,392

104,994

113,878

118,626

First-party long-term care copaymentsb

3,461

5,077

5,411

689,767

804,141

960,176

1,055,597

Third-party insurance collections

553

234

459

26,861

Compensated work therapy collectionse

35,275

38,834

40,488

36,516

Parking feesf

3,283

3,296

3,349

3,443

788

376

634

2,431

$1,215,498

$1,531,890

$1,747,276

$1,897,089

Enhanced use leasing revenued

Compensation and pension living expensesg

MCCF Total

Source: Table prepared by CRS based on data provided by the Department of Veterans Affairs.

Notes: 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.

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.

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.

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.

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.

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 providing temporary

staffing to a private firm. Funds collected from the sale of these products and/or services are deposited in

the MCCF.

Parking program provides funds for construction, and acquisition of parking garages at VA medical facilities.

VA collects fees for use of these parking facilities.

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.

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FY2006 Budget Summary36

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 5 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 (MilQual appropriations bill). The House passed H.R. 2528 on May 26, 2005. The

MilQual 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 (see Table 5).

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 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

For a detailed description of VA Medical Care Appropriations for FY2006, see CRS Report RL32975, Veterans’

Medical Care: FY2006 Appropriations, by (name redacted).

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Related Agencies for FY2006 (MilCon appropriations bill). This bill appropriated approximately

$33.5 billion for VHA, including $2.2 billion in collections (see Table 5).

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 (MilCon-Qual-VA Appropriations Act). The Senate adopted

H.Rept. 109-305 by unanimous consent that same day. The MilCon-Qual-VA Appropriations Act

was signed into law by the President on November 30, 2005 (P.L. 109-114). The MilCon-QualVA Appropriations Act appropriated $ 29.1 billion for VHA (not shown in Table 5). 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 5). H.R. 2863 also included

$24.9 million for general operating expenses; $200,000 to clean up and repair national cemeteries

(these amounts are not shown in Table 6); $368 million for construction major projects; and $1.8

million for the construction minor projects accounts (these amounts are shown in Table 6). The

Department of Defense Appropriations Act, 2006, was signed into law on December 30, 2005

(P.L. 109-148).

FY2006 Hurricane Supplemental for VA

On February 16, 2006, the Administration submitted two separate FY2006 supplemental

appropriations requests.37 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

For further information see CRS Report RL33298, FY2006 Supplemental Appropriations: Iraq and Other

International Activities; Additional Hurricane Katrina Relief, by (name redacted) et al.

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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 Senatepassed 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 markup 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 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.

Conference Agreement

On June 13 and 15, 2006, the House and Senate, respectively, adopted the conference report to

accompany the Emergency Supplemental Appropriations Act for Defense, the Global War on

Terror, and Hurricane Recovery, 2006 (H.R. 4939, H.Rept. 109-494). The bill was signed into law

(P.L. 109-234) on June 15. P.L. 109-234 provides $586 million for construction major projects

account. Of this amount, $550 million would be for the construction of a new VA medical center

in New Orleans, Louisiana, and $36.0 million would be for the removal of debris and cleanup of

the former VA medical center in Gulf Port, Mississippi.

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Veterans’ Medical Care: FY2007 Appropriations

P.L. 109-234 did not include a provision to provide $430 million for the VHA medical services

account for FY2006. Furthermore, it should be noted that the Emergency Supplemental

Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006,

included a provision to rescind $198.2 million appropriated under P.L. 109-148 to the medical

services account, and to reappropriate this same amount under P.L. 109-234 (see Table 5).

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 (see

Table 5). 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.”38 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.39 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 $74.6 billion for

VA programs for FY2007. H.Con.Res. 376 was adopted by the House on May 18.

On March 9, 2006, the Senate Budget Committee marked up S.Con.Res. 83, and the Senate

passed it on March 16. On the Senate floor, $823 million was added to the committeerecommended 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

million to increase VA’s medical and prosthetic research funding. In total S.Con.Res. 83 calls for

Office of Management and Budget, Budget of the United States Government, Fiscal Year 2007, Appendix, p. 956.

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.

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$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 Action

On May 10, 2006, the House Committee on Appropriations approved by voice vote its version of

the Military Construction, Military Quality of Life, and Veterans Affairs Appropriations bill

(MilCon-Qual-appropriations bill) for FY2007 (H.R. 5385, H.Rept. 109-464). The bill was

reported out of committee on May 15, 2006. The House passed H.R. 5385 on May 19, 2006.

H.R. 5385 provided $32.7 billion for VHA, a $3.4 billion (11.4%) increase over the FY2006

enacted amount of $29.3 billion, and about the same as the President’s request. This amount

included $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 (see Table 5). Of the

amount provided for medical services, the committee included bill language designating that not

less than $2.8 billion be used for specialty mental health care, which included funding for the

treatment of Post-Traumatic Stress Disorder (PTSD), and funding for the three “Centers of

Excellence” for mental health care treatment, established by last year’s appropriations act (P.L.

109-114).40 This was a $600 million increase in funding for mental health programs compared to

FY2006.41

The MilCon-Qual appropriations bill for FY2007 also provided $3.3 billion for medical

administration, $100 million above the Administration’s request of $3.2 billion, and $3.6 billion

for medical facilities, $25 million above the budget request. As stated in H.Rept. 109-464, this

increase was provided for the establishment of at least 10 new Community-Based Outpatient

Clinics (CBOCs) in FY2007.42 These 10 CBOCs would be in addition to the 27 CBOCs that VHA

plans to activate in FY2007.43

H.R. 5385 also provided $412 million for medical and prosthetic research, a 3.2% increase over

the President’s request of $399 million (see Table 5). During committee markup of H.R. 5385,

several amendments were offered to increase funding for veterans’ health care; however, none of

these amendments was adopted. 44

For further details about these “Centers of Excellence,” see CRS Report RL32975, Veterans’ Medical Care: FY2006

Appropriations, by (name redacted).

U.S. Congress, House Committee on Appropriations, Military Quality Of Life and Veterans Affairs, and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Congress, 2nd session, H.Rept. 109-464, p.

50.

Ibid. p. 58.

On June 23, 2006, VA announced plans to open 25 new CBOCs in 17 states and American Somoa. The following

facilities would become operational in CY2006: Bessemer, Alabama; Tafuna, American Samoa; Miami-Globe,

Northwest Tucson and Southeast Tucson, Arizona; South Orange County, California; Dover, Delaware; Athens,

Georgia; Canyon County, Idaho; Spirit Lake, Iowa; Hazard and Florence, Kentucky; Bemidji, Minnesota; Holdrege,

Nebraska; Fallon, Nevada; Franklin, Hamlet, and Hickory, North Carolina; Cambridge and Newark, Ohio; Hamblen,

Tennessee; Conroe, Texas; Lynchburg and Norfolk, Virginia; Rice Lake, Wisconsin.

For a tally of roll call votes on these amendments, see U.S. Congress, House Committee on Appropriations, Military

Quality Of Life and Veterans Affairs, and Related Agencies Appropriations Bill, 2007, report to accompany H.R. 5385,

109th Congress, 2nd session, H.Rept. 109-464, pp. 80-81.

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Construction Projects

H.R. 5385 provided $599 million for VA construction projects, including funding for Capital

Asset Realignment and for Enhanced Services (CARES) projects (see Table 6).45 A large portion

of this amount was for construction and building improvements of VA medical facilities. The

committee-recommended amount was $83 million (12.2%) less than the President’s request. The

reason for this decrease was because the committee did not provide funding for several

construction projects that were included in the President’s budget request, including funding for

refurbishment of the operating rooms at the Columbia, Missouri VA medical center, and for

refurbishment of the Spinal Cord Injury Center at the Milwaukee, Wisconsin VA medical center.

The committee believed that these are “low priority projects.” In addition, the committee

recommendation did not include funding for the replacement of the VA medical center in Denver,

Colorado, because the estimate for construction of the new facility had almost doubled in less

than two years, from $328 million to $621 million. According to the committee report, “this is a

project at a stage where work can be halted before significant and irreversible financial damage is

done.”46 The Administration issued a statement on May 19, opposing the funding reduction for

the CARES program. The Administration stated that “this reduction would slow CARES projects

designed to renovate and modernize VA’s health care infrastructure and provide greater access to

high quality care for more veterans, closer to where they live.”47

However, H.R. 5385 included funding for the upgrade and modernization of VA research

facilities. The committee expressed its concern that many VA research facilities have run out of

adequate research space, and that some facilities frequently need upgrades of their ventilation,

electrical supply, and plumbing systems. The committee directed VA to institute a process by

which research infrastructure needs are given full and careful consideration. 48

The MilCon-Qual appropriations bill did not include any fee increases as requested by the

Administration’s budget proposal for VHA for FY2007.

Senate Action

On July 20, 2006, the Senate Appropriations Committee reported out of committee its version of

the Military Construction and Veterans Affairs and Related Agencies Appropriations bill

(MilCon-VA appropriations bill) for FY2007 (H.R. 5385; S.Rept. 109-286). On November 14, the

Senate passed H.R. 5385, as amended, by voice vote. The Senate-passed version provided $32.7

billion for VHA. This amount was almost equivalent to the President’s request and the Housepassed amount (see Table 5).

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 (name redacted).

U.S. Congress, House Committee on Appropriations, Military Quality Of Life and Veterans Affairs, and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Congress, 2nd session, H.Rept. 109-464,

p.62.

Executive Office of the President, Office of Management and Budget, Statement of Administration Policy, H.R.

5385—Military Construction, Military Quality of Life and Veterans Affairs Appropriations Bill, FY2007, May 19,

2006, p. 2, http://www.whitehouse.gov/omb/legislative/sap/109-2/hr5385sap-h.pdf, visited August, 28, 2006.

U.S. Congress, House Committee on Appropriations, Military Quality Of Life and Veterans Affairs, and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Congress, 2nd session, H.Rept. 109-464,

pp.63-64.

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Veterans’ Medical Care: FY2007 Appropriations

H.R. 5385, as amended, provided $28.7 billion for medical services, a 26.0% increase over the

FY2006 enacted amount, a 12.5% increase over the President’s request, and a 13.0% increase

over the House-passed amount (see Table 5). The MilCon-VA appropriations bill combined the

medical administration account into the medical services account. The Administration lauded the

Senate-passed measure for merging the medical services account with the medical administration

account. According to the Administration, “combining these appropriations into a single account

would increase management flexibility to direct resources to best meet the overall health care

needs of veterans.”49

The Senate-passed version of H.R. 5385 also provided $3.6 billion for medical facilities (which is

the same as the Administration’s request and $25.0 million less than the House-passed amount)

and $412 million for medical and prosthetic research. This amount is the same as the Housepassed amount and $13.0 million above the President’s request (see Table 5).

Unlike the House-passed version of H.R. 5385, the Senate bill did not earmark funding for mental

health care programs, including PTSD. However, during committee markup of the bill, the Senate

Appropriations Committee expressed interest in several areas related to veterans’ health care. The

committee indicated that it was keenly interested in knowing about progress made with the three

Centers of Excellence specializing in mental health and PTSD, created by P.L. 109-114, in Waco,

Texas; San Diego, California; and Canandaigua, New York. It also directed the VA to begin

implementing a plan to expand more outpatient blind rehabilitation services.50

During floor debate, the Senate adopted an amendment offered by Senator Kerry to provide

discretionary authority to the VA to use up to $18 million of the funds appropriated to the

department, to provide additional mental health care services to veterans who served in combat in

Iraq and Afghanistan. These services would be provided through readjustment counseling centers

(commonly known as “Vet Centers”).51

Furthermore, during committee markup of H.R. 5385, the committee voiced concern about the

growing number of veterans returning from combat operations overseas who were not being

properly screened for Traumatic Brain Injury (TBI). The committee included report language

encouraging the VA, in coordination with the four Polytrauma Centers in Minneapolis,

Minnesota; Palo Alto, California; Richmond, Virginia; and Tampa, Florida, to establish a separate

education and diagnosis screening program for VA medical centers and Vet Centers.52

The committee also indicated that it “recognizes the increased and ongoing pressures facing

military families, and believes it is important to take a proactive, preemptive approach in helping

veterans, particularly those in the National Guard and Reserves, and their families adjust to

deployments and the transition home after the battlefield.”53 Therefore, the committee directed the

VA to look at a DOD program that has been successfully utilized by Army families, which

Executive Office of the President, Office of Management and Budget, Statement of Administration Policy, H.R.

5385—Military Construction, and Veterans Affairs Appropriations Bill, FY2007, November 14, 2006, p. 2,

http://www.whitehouse.gov/omb/legislative/sap/109-2/hr5385sap-s.pdf, visited November, 16, 2006.

U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Cong., 2nd sess., S.Rept. 109-286, p. 53.

Congressional Record, daily edition, vol. 152 (November 14, 2006), pp. S10898-S10899.

U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Cong., 2nd sess., S.Rept. 109-286, p.50.

Ibid. p.53.

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“focuses on goals, family strengthening, and communication as tools to deal with stressful

situations.”54 According to S.Rept. 109-286, “the program can be successfully facilitated by Vet

Center staff and can help veterans and their families to deal with both the transition from active

duty to civilian life and the call up to active duty for National Guardsmen and Reservists.”55 The

committee also included report language requesting VA to establish CBOCs in Bellingham and

Centralia, Washington; Alpena, Michigan; and in rural Colorado.

Construction Projects

The Senate-approved version of H.R. 5385 provided $682 million for VA construction projects,

including funding for CARES projects (see Table 6). This was a 14.0% increase over the Housepassed amount, and the same as the President’s request. A large portion of this amount would

have been for the construction, alteration, and renovation of VA medical facilities.

Furthermore, during floor debate of H.R. 5385, the Senate adopted an amendment offered by

Senator Craig to amend Section 8104 (a)(3)(A) of Title 38 United States Codes (U.S.C.), to

increase the threshold for major medical facility projects from $7 million to $10 million.56,57 This

amendment also authorized the VA Secretary to carry out major medical facility construction

projects and leases for which funds have already been appropriated, and also to carry out major

medical facility projects authorized by P.L. 108-170 through September 30, 2007.58

During committee markup of the bill, the committee expressed concern about VA’s construction

schedule, and directed VA to provide reports on the delays in construction. It also included report

language directing VA to provide a report on the Orlando, Florida, VA Medical Care Facility.

According to S.Rept. 109-286, “in FY2004, Congress appropriated $25 million for a medical care

facility at Orlando, Florida. Since then, VA has made no progress on the design and construction

of this hospital.”59 Furthermore, the Senate Appropriations Committee urged VA to include $28.5

million in the FY2008 budget request for the construction of a 90-bed nursing home and adult day

care center at the Beckley VA Medical Center in West Virginia, and to include $3.6 million for

planning and design work associated with the renovation and expansion of primary, mental

health, and specialty outpatient care facilities at the Martinsburg VA Medical Center, also in West

Virginia.

The MilCon-VA appropriations bill for FY2007 did not include any fee increases as requested by

the Administration’s budget proposal for VHA for FY2007, and the Senate Appropriations

Committee strongly expressed its displeasure about the Administration’s fee proposals:

Ibid. p.54.

Under current law, a “major medical facility project” is one that involves the construction, alteration, or acquisition

of a medical facility involving a projected total expenditure of more than $7 million. The threshold for major medical

facility construction projects was increased from $4 million to $7 million by P.L. 108-170.

Congressional Record, daily edition, vol.152 (November 14, 2006), p.S1092.

The Veterans Health Care, Capital Asset, and Business Improvement Act of 2003 (P.L. 108-170), authorized the VA

Secretary to carry out major construction projects as specified in the final report of the Capital Asset Realignment for

Enhanced Services (CARES) Commission and approved by the Secretary without receiving congressional authorization

on an individual project basis. This blanket authority expired on September 30, 2006, and this provision would extend

this authority through FY2007.

U.S. Congress, Senate Committee on Appropriations, Military Construction and Veterans Affairs and Related

Agencies Appropriations Bill, 2007, report to accompany H.R. 5385, 109th Cong., 2nd sess., S.Rept. 109-286, p. 62.

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Veterans’ Medical Care: FY2007 Appropriations

The [VA] continues to assume congressional approval of its policy and legislative proposals

before the Congress has done so.... This practice of under-requesting the true needs of the

Department to care for our veterans, with the mandate that the Congress either enact the fees,

shortchange veterans healthcare, or make up the difference, is not responsible budgeting. In

the strongest terms possible, this Committee directs [VA] not to submit another budget using

assumed fees and copayments until such time as the Congress approves and authorizes the

Department to implement new revenue enhancing policies.60

Revised Continuing Appropriations Resolution, 2007

By the end of the 109th Congress, Congress had not passed the MilCon-VA appropriations bill for

FY2007 and funded most government agencies, including the VA, through a series of Continuing

Appropriations Resolutions (P.L. 109-289, division B, as amended by P.L. 109-369 and P.L. 109383). On January 31, 2007, the House passed the Revised Continuing Appropriations Resolution,

2007 (H.J.Res. 20, P.L. 110-5), and the Senate passed it without amendment on February 14. P.L.

110-5 provides $32.7 billion for VHA for FY2007.61 This is $3.3 billion above the FY2006

enacted amount and $14.7 million above the President’s request. Under the VHA budget, the

medical services account is funded at $25.5 billion, a $2.7 billion increase over the FY2006

enacted amount. The medical administration account is funded at $3.2 billion, and the medical

facilities account is funded at $3.6 billion. The Revised Continuing Appropriations Resolution,

2007, provides $413.7 million for the medical and prosthetic research account, a $14.7 million

increase over the Administration’s request (Table 5).

Construction Projects

P.L. 110-5 provides $683 million for VA construction projects, including funding for Capital

Asset Realignment and for Enhanced Services (CARES) projects (see Table 6). A large portion of

this amount is for construction and building improvements of VA medical facilities. The FY2007

enacted amount is slightly more than the President’s request.

Ibid. p.44.

In order to calculate the total funding level remaining for VA in FY2007, the Department would subtract the funding

provided in the previously enacted FY2007 Continuing Resolutions from the amount provided in P.L. 110-5.

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Table 5.VHA Appropriations by Account, FY2005-FY2007

($ in thousands)

FY2005

Enacted

FY2006

Request

FY2006

House

FY2006

Senate

FY2006

Enacted

FY2007

Request

FY2007

House

FY2007

Senate

FY2007

Enacted

$19,316,995

$19,995,141

$20,995,141

$21,331,011

$21,322,141

$25,512,000

$25,412,000

$28,689,000

$25,512,000

38,283

—

Supplemental

appropriations

1,500,000a

—

Emergency

appropriations

—

1,977,000b

—

1,977,000c

1,225,000d

—

Emergency

appropriations—

Defense, the Global

War on Terror, and

Hurricane Recovery

(P.L. 109-234)

—

198,265

—

198,265e

—

Emergency

appropriations—Avian

Flu Pandemic (P.L. 109148)

—

27,000

—

27,000

—

20,855,278

22,197,406

20,995,141

23,308,011

22,772,406

25,512,000

25,412,000

28,689,000f

25,512,000

4,667,360

4,517,874

4,134,874

2,858,442

3,177,000

3,277,000

—

3,177,000

Supplemental

appropriations (P.L.

108-324)

1,940

—

Subtotal medical

administration

4,669,300

4,517,874

4,134,874

2,858,442

3,177,000

3,277,000

—

3,177,000

Medical facilities

3,715,040

3,297,669

3,569,000

3,594,000

3,569,000

Supplemental

appropriations (P.L.

108-324)

46,909

—

Program

Medical services

Supplemental

appropriations (P.L.

108-324)

Subtotal medical

services

Medical administration

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Veterans’ Medical Care: FY2007 Appropriations

FY2005

Enacted

FY2006

Request

FY2006

House

FY2006

Senate

FY2006

Enacted

FY2007

Request

FY2007

House

FY2007

Senate

FY2007

Enacted

3,761,949

3,297,669

3,569,000

3,594,000

3,569,000

Medical and prosthetic

research

402,348

393,000

412,000

399,000

412,000

413,700

Subtotal medical and

prosthetic research

402,348

393,000

412,000

399,000

412,000

413,700

Information technology

—

1,456,821

—

Total VHA

appropriations

(without collections)

29,688,875

30,405,949

28,820,684

31,332,943

29,340,517

32,657,000

32,695,000

32,670,000

32,671,700

1,985,984

2,170,000

2,329,000

$31,674,859

$32,575,949

$30,990,684

$33,502,943

$31,510,517

$34,986,000

$35,024,000

$34,999,000

$35,000,700

Program

Subtotal medical

facilities

Medical care cost

collection (MCCF)g

Total: VHA

(appropriations and

collections)

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; H.Rept. 109-464; H.Rept. 109-494; S.Rept. 109-286; and P.L. 110-5.

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.

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.

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

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.

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.

This amount was previously appropriated under the FY2006 Defense Appropriations Act (P.L. 109-148).

The Senate Appropriations Committee combined the medical administration account into the medical services account.

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.

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Veterans’ Medical Care: FY2007 Appropriations

Table 6. Appropriations for VA Construction Projects, FY2005-FY2007

($ in thousands)

FY2005

Enacted

FY2006

Enacted

FY2007

Request

FY2007

House

FY2007

Senate

FY2007

Enacted

Construction, major projectsa

$455,130

$607,100

$399,000

$283,670

$429,000

$399,000

Emergency Appropriations—

Gulf Coast Hurricanes (P.L.

109-148)

—

367,500

—

Emergency Appropriations—

Defense, the Global War on

Terror, and Hurricane

Recovery (P.L 109-234)

—

585,919

—

Subtotal construction,

major projects

455,130

1,560,519

399,000

283,670

429,000

399,000

Construction, minor projectsb

228,933

198,937

198,000

210,000

168,000

199,000

Supplemental Appropriations

(P.L. 108-324)

36,343

—

Emergency Appropriations—

Gulf Coast Hurricanes (P.L.

109-148)

—

1,800

—

Subtotal construction,

minor projects

265,276

200,737

198,000

210,000

168,000

199,000

Grants for construction of

state extended care facilitiesc

104,322

85,000

105,000

85,000

$824,728

$1,846,256

$682,000

$598,670

$682,000

$683,000

Total

Source: Table prepared by CRS based on H.Rept. 109-95; H.Rept. 109-464; H.Rept. 109-494; S.Rept. 109-286;

and P.L. 110-5.

Note: This table excludes grants for construction of state veterans cemeteries.

This account provides funds for constructing, altering, extending, and improving any VA facility, including

planning, assessments of needs, architectural and engineering services, CARES projects, and site acquisition,

where the estimated cost of a project is $7 million or more or where funds for a project were made

available in a previous major project appropriation. Emphasis is placed on correction of safety code

deficiencies in existing VA medical facilities.

This account provides funds for constructing, altering, extending and improving any VA facility, including

planning, architectural and engineering services, CARES projects, and site acquisition, where the estimated

cost of a project is less than $7 million. VA medical center projects that need minor improvements

costing $500,000 or more are funded from this account.

This account provides grants to states to acquire or construct state nursing home and domiciliary facilities,

and to remodel, modify, or alter existing hospitals, nursing homes, and domiciliary facilities in state homes.

A grant may not exceed 65% of the total cost of the project. P.L. 102-585 granted permanent authority for

this program, and P.L. 104-262 added Adult Day Health Care as another level of care that may be provided

by state homes. This is a no-year account.

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

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Veterans’ Medical Care: FY2007 Appropriations

veterans—those with service-connected conditions, those with lower incomes, and those with

special health care needs.”62 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.63

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 C for VA income thresholds) and below the Department of

Housing and Urban Development (HUD) geographic means test level.64 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 FY2005 geographic 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, 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.

U.S. Department of Veterans Affairs, FY2007 Congressional Budget Submissions, Medical Programs, vol. 1 of 4,

pp. 3-9.

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 (name redacted), and CRS Report RL32975,

Veterans’ Medical

Care: FY2006 Appropriations, by (name redacted).

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.

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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.”65

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.”66 P.L. 110-5 does not include any language assessing an enrollment fee.

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 30day supply of medication, including over-the-counter medications.67

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 2-6.68 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

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.

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.

The following veterans are exempt from paying copayments: Veterans receiving a pension for a nonserviceconnected 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 POWs.

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.

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Veterans’ Medical Care: FY2007 Appropriations

veterans enrolled in Priority Groups 2-6 will be $960.69 There is no cap for veterans in Priority

Groups 7 and 8 (see Appendixes B and C). P.L. 110-5 does not include any bill language that

would give VA the authority to increase copayments.

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. 70

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.71

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.72 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 a nonservice-connected condition.73 If VA treats an insured

VHA Directive 2005-052, Implementation of Medication Copayment Changes, Nov. 15, 2005.

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.

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).

Consolidated Omnibus Budget Reconciliation Act of 1985, 100 Stat. 372, 373, 383.

38 U.S.C. §1729; 38 U.S.C. §1710; and 38 U.S.C. 1722A.

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Veterans’ Medical Care: FY2007 Appropriations

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 (see Figure 1).

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Veterans’ Medical Care: FY2007 Appropriations

Figure 1. Present Copayment Process

Source: Department of Veterans Affairs.

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Veterans’ Medical Care: FY2007 Appropriations

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.74 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 (see Figure 2).

Figure 2. Copayment Process Under New Proposal

Source: Chart prepared by CRS.

According to VA’s estimates, if this proposal is enacted it would contribute approximately $31.0

million toward VA’s collections. This issue was not addressed in the 109th Congress.

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.

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Appendix A. 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

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—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.

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Appendix B. Veterans’ Payments for Health Care

Services by Priority Group

Copayments

Inpatient

Geographic

Means Test

Copayment

Priority

Group 1

Priority

Groups

2, 3,b 4c

Priority

Group 5

Priority

Group 6

(WWI, and

0% serviceconnected

compensable)

Priority

Group 6

(Veterans

receiving care

for exposure

experience)d

Priority

Group 7a

Means

Test

Yes

Congressional Research Service

Nod

Outpatient

Medicationa

Insurance

Billing

Humanitarian

Emergency

Billing

Yes, but only

if care was

for

nonserviceconnected

condition

Yes, but only for

veterans with less

than 50% service

connected disability

and medication is for

nonservice-connected

condition. Former

POWs are exempt

from all medications

copayments

Yes, but only

if care was

for

nonserviceconnected

condition

Yes

Yes, but only

if care was

for

nonserviceconnected

condition

Yes

Yes, but only

if care was

for

nonserviceconnected

condition

Nod

Yes, but only

if care was

for

nonserviceconnected

condition

Yes, but only if care

was for nonserviceconnected condition

Yes, but only

if care was

for

nonserviceconnected

condition

Nod

Yes

Veterans’ Medical Care: FY2007 Appropriations

Copayments

Insurance

Billing

Humanitarian

Emergency

Billing

Yes, but only if care

was for nonserviceconnected condition

Yes, but only

if care was

for

nonserviceconnected

condition

Yes, but only if care

was for nonserviceconnected condition

Yes, but only

if care was

for

nonserviceconnected

condition

Yes, but only if care

was for nonserviceconnected condition

Yes, but only

if care was

for

nonserviceconnected

condition

Inpatient

Geographic

Means Test

Copayment

Priority

Group 7c

Priority

Group 8a

Priority

Group 8c

Means

Test

Yes

Outpatient

Yes

Medicationa

Source: Table prepared by CRS based on information from the Department of Veterans Affairs.

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 nonserviceconnected conditions.

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.

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.

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.

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.

Congressional Research Service

Veterans’ Medical Care: FY2007 Appropriations

Appendix C. Financial Income Thresholds for VA

Health Care Benefits

Veterans with:

Free VA Prescriptions and

Travel Benefits for veterans

with incomes of:

Free VA Inpatient and

Outpatient care for veterans

with incomes 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

$1,806

For each additional dependent, add:

Source: Department of Veterans Affairs.

Author Contact Information

(name redacted)

Analyst in Veterans Policy

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

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