Veterans Medical Care Funding: FY1995-FY2004

CRS Report for Congress
Veterans’ Medical Care Funding:
FY1995-FY2004
January 14, 2005
Sidath Viranga Panangala
Analyst in Social Legislation
Domestic Social Policy Division


Congressional Research Service ˜ The Library of Congress

Veterans’ Medical Care Funding:
FY1995-FY2004
Summary
The Department of Veterans Affairs (VA) provides services and benefits such
as hospital and medical care, rehabilitation services, and pensions, among other
things, to veterans who meet certain eligibility criteria. VA provides these benefits
and services through four administrative units: the Veterans Health Administration
(VHA), the Veterans Benefits Administration (VBA), the National Cemetery
Administration (NCA), and the Board of Veterans’ Appeals. 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.
Funding for VHA is an issue of perennial interest to Congress, especially with
the increasing demand for VA medical services and with some veterans increasingly
having to wait more than six months for a primary care or speciality care
appointment. VHA is funded through multiple appropriation accounts, which are
supplemented by other sources of revenue. Over the past decade, the composition
of VHA’s funding has changed. Not only has VA’s appropriation account structure
been modified, but also VA’s ability to retain nonappropriated funds has increased.
These changes present challenges in comparing VHA funding over a period of time.
Between FY1995 and FY2004, appropriations for VA medical care grew by

63%. For the first four years of this time period, from FY1995 through FY1999,


appropriations for VA medical care grew by 6.7%, from $16.2 billion in FY1995 to
$17.3 billion in FY1999. In comparison, during the last five years of this time
period, from FY1999 through FY2004, VA medical care appropriations grew by
52.7%, from $17.3 billion in FY1999 to $26.4 billion in FY2004. These amounts do
not include appropriations for medical research, medical administration and
miscellaneous operating expenses (MAMOE), and funds from nonappropriated
funding sources.
The total number of veteran enrollees has grown by 76.9% from FY1999, the
first year VHA instituted an enrollment system, to FY2004. During this same period
the number of veterans receiving medical care has grown by almost 50%, from 3.2
million veterans in FY1999 to an estimated 4.7 million veterans in FY2004.
This report will not be updated.



Contents
Legislation to Supplement Appropriations..........................2
Changes in Account Structure....................................4
Changes in Appropriations for Capital Investments...................5
Trends in Funding and Enrollment................................6
Trends in Funding for Medical Care...........................6
Veteran Enrollment.......................................11
Trends in Enrollment......................................12
Methodology and Data Limitations...............................15
Concluding Observations.......................................15
Appendix 1. Revenue Accounts That Constitute the Medical Care Collections Fund
(MCCF) for FY2004..........................................17
Pharmacy Co-payments (formerly collected in the Health Services
Improvement Fund — HSIF)............................17
Long-Term Care Co-payment Account (formerly the Veterans’ Extended
Care Revolving Fund).................................17
Compensated Work Therapy Program (formerly the Special Therapeutic
and Rehabilitation Activities Fund).......................17
Compensation and Pension Living Expenses Program (formerly the
Medical Facilities Revolving Fund).......................17
Parking Program (formerly the Parking Revolving Fund)..........17
Sale of Assets (formerly the Nursing Home Revolving Fund)......18
Appendix 2. VHA’s New Account Structure...........................19
Medical Services.........................................19
Medical Administration....................................19
Medical Facilities.........................................19
Medical and Prosthetic Research.............................19
Appendix 3. VHA’s Appropriation for Capital Investments...............20
Medical Administration....................................20
Medical Facilities.........................................20
Construction Major.......................................20
Construction Minor Projects................................20
Grants for Construction of State Extended Care Facilities.........20
Appendix 4. Priority Groups and Their Eligibility Criteria................21



List of Tables
Table 1. Appropriations for Veterans’ Health Care, FY1995-FY1999........8
Table 2. Appropriations for Veterans’ Health Care, FY2000-FY2004........9
Table 3. Medical Care Collections Fund (MCCF) as a Percent of VHA
Appropriations ...............................................10
Table 4. Appropriations for Construction of VHA Facilities FY1995-FY2004
...........................................................11
Table 5. Veteran Population, Veteran Enrollees, and Veterans Receiving Care
FY1995-FY2004 .............................................14



Veterans’ Medical Care Funding:
FY1995-FY2004
The Department of Veterans Affairs (VA) provides services and benefits such
as hospital and medical care, rehabilitation services, and pensions, among other
things, to veterans who meet certain eligibility criteria. VA provides these benefits
and services through four administrative units: the Veterans Health Administration
(VHA), the Veterans Benefits Administration (VBA), the National Cemetery
Administration (NCA), and the Board of Veterans’ Appeals.
Funding for the VHA in particular has been an issue of perennial interest to
Congress, especially in the context of increasing demand for its services. Enrollment
in VHA increased from 4.9 million to 7.6 million between FY1999 and FY2004. VA
has stated that it has been unable to provide services in a timely manner to all
enrolled veterans who are seeking care.1 In January 2003, VA announced suspension
of enrollment of veterans with high incomes and without military-related disabilities.2
VA estimated that as of January 2003, 212,000 enrolled veterans were on waiting
lists, sometimes for six months or more for a nonemergency clinic visit. VA
estimates that since December 2004, almost 31,000 enrolled veterans were on
waiting lists for six months or more for a nonemergency clinic visit.
This report provides information on trends in VHA appropriations. To provide
some context, it is important to understand the difference between appropriations
and spending. When Congress appropriates money, it provides budget authority, that
is, authority for an agency to enter into obligations. Obligations occur when agencies
enter into contracts, employ personnel, and so forth. Outlays or spending occur when
obligations are liquidated, primarily through issuance of checks, transfer of funds,
and so forth. It should be noted that not all budget authority in a given year becomes
outlays in the year for which it is provided; a portion of each year’s outlays derives
from “carryover” budget authority provided in prior years. The total new budget
authority in a year typically exceeds total outlays for a fiscal year. Particularly for
programs with long lead times, such as construction, it may take years for the funds
provided by Congress to be spent. Furthermore, in certain instances, Congress
explicitly establishes multiyear appropriation accounts, which are budget authorities
that can be expended over several years. This report will specifically provide an
overview of trends in appropriations or budget authority for VA health care, as well


1 U.S. Department of Veterans Affairs, “Medication Prescribed by Non-VA Physicians,” 68
Federal Register 43927-43930 (July 25, 2003).
2 U.S. Department of Veterans Affairs, “Annual Enrollment Level Decision,” 68 Federal
Register 2669-2673 (Jan. 17, 2003). “High-income veterans” are those whose incomes are
above a statutory threshold, for example, a veteran with no dependents with an income of
$25,163 or more for 2004. Income thresholds are higher for veterans with dependents.

as data on the number of veterans, veteran enrollees, and unique veteran patients
from FY1995 through FY2004.3 The report will use the terms “appropriations” and
“funding” interchangeably.
VHA is funded through multiple appropriation accounts that are supplemented
by other sources of revenue. Over the past two decades, Congress has passed
legislation to increase VHA’s ability to supplement its appropriations. The
composition of these supplemental revenues, as well as their use by VA has been
modified periodically. Historically, the House and Senate Appropriations
Committees and the Office of Management and Budget (OMB) have used the
following appropriation accounts for VA (the larger entity) to describe funding for
VHA: medical care, medical and prosthetic research, and medical administration and
miscellaneous operating expenses (MAMOE). These accounts have constituted the
majority of VHA’s appropriations. However, over the past decade VA’s account
structure has changed. In recent years in its budget submissions to Congress, VA
proposed different account structures to fund VHA, and Congress adopted a different
account structure during enactment of appropriations. Also Congress appropriates
funds for constructing, altering, extending, and improving all VA facilities, and a
significant and changing portion of these sums are expended on VA medical
facilities. These changes present challenges in comparing VHA funding over a
period of time.
Legislation to Supplement Appropriations
Beginning in 1986 Congress enacted several major pieces of legislation to
increase VA’s ability to supplement its appropriations.
In 1986 Congress passed the Veterans’ Health-Care Amendments of 1986 (P.L.
99-272) and gave VA the authority to seek reimbursement from third-party health
insurers for the cost of medical care furnished to insured nonservice-connected
(NSC) veterans. This law also authorized VA to assess a means test copayment to
certain NSC veterans based on the veteran’s income and assets. The Omnibus
Budget Reconciliation Act of 1990 (P.L. 101-508) expanded VA’s cost recovery
program by providing VA the authority to seek reimbursement from third-party
payers for the cost of medical care provided to insured service-connected veterans
treated for NSC conditions.4
However, VA was not initially allowed to use these funds to supplement its
medical care appropriations; instead, the collections were returned to the Treasury.
With the passage of the Balanced Budget Act of 1997 (BBA 97, P.L. 105-33),


3 For a detailed description of funding for VA medical care for FY2004 and FY2005, see
CRS Report RL32548, Veterans’ Medical Care Appropriations and Funding Process, by
Sidath V. Panangala. For details on funding for other VA programs, see CRS Report
RL32304, Appropriations for FY2005: VA, HUD, and Independent Agencies, by Richard
Bourdon and Paul Graney.
4 A “service-connected” disability is one that results from an injury or disease or other
physical or mental impairment incurred or aggravated in the line of duty in the active
military, naval, or air service.

Congress provided VA the authority to retain funds from third-party collections in
the Medical Care Collections Fund (MCCF). VA has the authority to collect
inpatient, outpatient, medication, and nursing home copayments from veterans and
authority to recover third-party payments from veterans’ insurers. By statute, subject
to appropriations, MCCF funds must be spent on providing VA medical care and
services and on VA’s expenses associated with MCCF program operations.5 Since
FY1998, VA has used these funds to supplement its medical care appropriations.
Unlike appropriations for VHA, which must be expended in a given fiscal year(s),
MCCF funds are available indefinitely and may be spent without any fiscal year
limitation.
In 1999 Congress once again enacted legislation to improve VA’s ability to
enhance its nonappropriated revenues. The Veterans Millennium Health Care and
Benefits Act of 1999 (P.L. 106-117) authorized VA to increase the medication
copayment amount and to establish annual caps on the medication copayment
amount. This act also established the Health Services Improvement Fund (HSIF) to
reduce waiting times for receiving care and to reduce the burden of cost sharing for
drugs and prosthetics on veterans.6 Monies in this fund were available without fiscal
year limitation. Revenues for the fund came from increases in medication
copayments from $2 to $7,7 revenue from enhanced-use lease agreements,8 and
reimbursement from Department of Defense (DOD) for TRICARE-eligible military
retirees.9 The Consolidated Appropriation Resolution, FY2003 (P.L. 108-7),
consolidated this account with MCCF and granted VA permanent authority to collect
prescription copayments.10
More recently in 2004, Congress authorized consolidating several revenue
accounts into MCCF to augment these revenues. The FY2004 Departments of
Veterans Affairs and Housing and Urban Development, and Independent Agencies
Appropriations Act (FY2004 VA-HUD Appropriations Act, P.L. 108-199)
authorized consolidating the following accounts into MCCF: long-term care
copayments, Compensated Work Therapy Program revenues, Compensation and
Pension Living Expenses Program collections, and Parking Program fees (formerly
known as the Parking Revolving Fund), and collections from sale of assets that had


5 These are expenses incurred in the identification, billing, auditing, and collecting of
amounts owed to VA by reason of furnishing medical care services.
6 H.Rept. 106-470, Veterans Millennium Health Care and Benefits Act of 1999,Conference
Report to accompany H.R. 2116, 106th Cong., 1st sess., p. 68.
7 On Feb. 4, 2002, the medication copayment was increased from $2 to $7 for veterans with
nonservice-connected conditions and higher incomes. The $5 difference was deposited into
the account. U.S. Department of Veterans Affairs “Copayments for Medications,” 66
Federal Register 234 (Dec. 6, 2001).
8 Enhanced-use leases allow VA to enter into long-term agreements under which VA real
property may be leased and improved for use that is not inconsistent with VA’s mission.
9 This legislation contains other important provisions affecting VA health care. This
description summarizes changes that affect VA’s collection authority and revenues.
10 H.Rept. 108-10, Conference Report to accompany H.J.Res 2, Making Further Continuing
Appropriations for FY2003 and for Other Purposes, 108th Cong., 1st sess., p. 475.

been deposited in the Nursing Home Revolving Fund. This consolidation was valid
only for FY2004, and not for successive fiscal years. The Consolidated
Appropriations Act, 2005 (P.L. 108-447) authorized consolidating these accounts in
future fiscal years as well. According to the VA, funds in the above-mentioned
accounts have not yet been deposited into MCCF. VA plans to transfer all the funds
in these accounts into MCCF during the course of FY2005.11 A detailed listing of
revenue accounts that constitute MCCF for FY2004 is given in Appendix 1.
It should be noted that MCCF collections are estimated by VA when developing
a budget proposal for the forthcoming fiscal year. These VA estimates incorporate
the changes associated with the implementation of the Administration’s legislative
proposals, such as an increase in cost-sharing charges. However, the House and
Senate Appropriations Committees may reject these legislative proposals and include
a more conservative estimate for MCCF collections. For example, in its FY2004
budget request to Congress, VA projected MCCF collections for FY2004 at $1.8
billion, an amount that included revenue from increased cost-sharing charges. The
House and Senate Appropriations Committees rejected these cost-sharing proposals
and used a lower MCCF estimate of $1.6 billion in deciding that year’s VA
appropriation recommendation.
Changes in Account Structure
Another challenge in comparing funding from one year to the next is the
changes in appropriation accounts that constitute funding for VHA. The following
examples illustrate the inherent complexities when trying to compare funding.
Historically, the House and Senate Appropriations Committees have funded VHA
using the following accounts: medical care, medical and prosthetic research, and
MAMOE accounts. However, in some years VA as well as the Committees on
Appropriations have restructured appropriation accounts that constitute funding for
VHA.
For instance, the FY1991 VA-HUD Appropriations Act (P.L. 101-501)
established the Health Professional Scholarship Program as a separate appropriation12
account. From FY1991 through FY1995, VA included the Health Professional
Scholarship Program under the VHA budget.13 About $10 million was appropriated
for this program in each fiscal year during this period. Beginning in FY1996 the
account received no appropriation from Congress and was not included as a separate
appropriation account under the VHA budget. VA made its last award under this
program at the end of FY1995. Although the Health Professional Scholarship
program was funded as a separate account, VA funded several programs for training
of health professionals through the medical care account. In FY1995 VA spent
approximately $408 million for education and training of health professionals; in
FY2003 VA spent $841 million.


11 Personal communication with VA budget staff, Oct. 13, 2004.
12 The Health Professional Scholarship Program was initially authorized by the Veterans’
Administration Health Care Amendments of 1980, P.L. 96-330.
13 The administrative cost of this program was supported from the MAMOE account.

Similarly, the FY1991 VA-HUD Appropriations Act (P. L. 101-507), authorized
an annual appropriation to replace and upgrade equipment and to rehabilitate the
plant and facilities of the Veterans Memorial Medical Center [VMMC] in Manila,
Philippines as a separate account under the VHA budget. Beginning in FY1996,
Congress discontinued providing U.S. funds to maintain and upgrade the physical
plant at this facility. This was due to the suspension of U.S. veteran admissions to
the VMMC. About $500,000 was provided for each of the fiscal years from FY1991
through FY1995.
More recently in FY2004, VA submitted its budget request for VHA using an
account structure based on “business lines.” The new medical care business line, in
addition to the medical care appropriation, included the following appropriation
accounts that were previously funded separately: MAMOE, which funds
headquarters VHA staff; the VHA portion of the major projects construction
appropriation; VHA portion of the minor projects construction appropriation; and
grants for construction of state extended care facilities. Medical care cost recovery
collections (MCCF) were also included in this business line. Historically considered
a VHA funding account, the medical and prosthetic research account was excluded
from this business line and was proposed as a separate business line.
However, during the FY2004 congressional appropriation process, both the
House and Senate Appropriations Committees chose not to use the Administration’s
new budget account structure and funded VHA under four accounts: medical
services, medical administration, medical facilities, and medical and prosthetic
research (a description of these accounts is given in Appendix 2).14 The Conferees
also included MCCF in calculating the total amount available for VHA.
Changes in Appropriations for Capital Investments
VA holds a substantial inventory of real property and facilities throughout the
country. A majority of these buildings and property supports VHA’s mission.
Therefore, funding for capital investments should also be examined when trying to
understand VHA’s funding trends. VHA uses various sources to fund capital
investments. Prior to the restructuring of accounts in FY2004, most of VHA’s
capital investments were funded from three major appropriation accounts: medical
care, major construction, and minor construction. VHA also had several smaller
funding sources for capital investments, including the parking revolving fund, the
nursing home revolving fund, and grants for the construction of state extended-care
facilities.
Aside from costs associated with providing direct medical services to veterans
such as spending on salaries and benefits of VHA physicians and nurses, the medical
care appropriations account also covers VHA expenses on equipment purchases and
spending on land and structures. Equipment purchases include those for durable
property such as medical diagnostic equipment, data processing and
telecommunications equipment, software, furniture, and vehicles. Spending on land


14 H.Rept. 108-401, Conference Report to accompany H.R. 2673, Consolidated
Appropriations Act, 2004 (P.L. 108-199), p. 1036.

and structures includes nonrecurring maintenance expenses and leasing of building
space. Nonrecurring maintenance involves repairs or modifications to existing
buildings, including upgrades or replacements of major building systems or minor
improvements to add space or to make other minor structural changes. As an added
complication, although these amounts were included in the total appropriations for
VHA, major construction and minor construction appropriations as well as grants to
states for construction of state extended-care facilities were not included under the
VHA budget, although these amounts were expended on medical facilities.
At present, VHA’s capital investment initiatives are funded by the following
accounts: medical administration, medical facilities, major construction, minor
construction, and grants for the construction of state extended care facilities. The
medical administration and medical facilities accounts are included under the VHA
budget. The major construction and minor construction accounts, as well as grants
to states for the construction of state extended-care facilities, are funded under
separate construction appropriations accounts for VA as a whole. Appendix 3
provides details on these accounts.
Maintaining VA’s vast capital infrastructure has substantial costs. GAO found
in 1999 that one in four medical care dollars is spent on maintaining and operating
its buildings and land. GAO also estimated that VA has over 5 million square feet
of vacant space, which can cost as much as $35 million a year to maintain.15 Since
this finding, VA has taken steps to reduce the funds used to operate and maintain its
capital infrastructure, through the implementation of its Capital Asset and16
Realignment and Enhanced Services (CARES). This process is still in progress.
The Consolidated Appropriations Act, 2004 (P.L. 108-199) provided funding
for VHA based on a new account structure: medical services, medical administration,
medical facilities, and medical prosthetic research. According to the Conference
Committee, this action was taken to provide better oversight and a more accurate
accounting of funds. Table 1 and Table 2 provide amounts requested by the
Administration and finally enacted by Congress. Please note that to ease comparison
between years, for FY2004 the medical services, medical administration, and medical
facilities accounts have been combined into the medical care account to reflect the
historic account structure, and not the account structure ultimately passed by
Congress.
Trends in Funding and Enrollment
Trends in Funding for Medical Care. Between FY1995 and FY2004
appropriations for VA medical care grew by 63%. As shown in the subtotal for


15 U.S. General Accounting Office, VA Health Care: Capital Asset Planning and Budgeting
Need Improvement, GAO/T-HEHS-99-83, Mar. 10, 1999, pp. 1 and 6.
16 The Capital Asset Realignment for Enhanced Services (CARES) is VA’s attempt to create
a strategic framework to upgrade the health care delivery capital infrastructure, and ensure
that scarce resources are placed in the types of facilities and locations that would best serve
the needs of the veteran population. See U.S. General Accounting Office, High-Risk Series:
Federal Real Property, GAO-03-122, Jan. 2003, p. 37.

medical care in Table 1, in FY1995 appropriations for VA medical care was $16.2
billion. As indicated in Table 2, by FY2004 this amount was $26.4 billion.17 For the
first four years of this time period, from FY1995 through FY1999, appropriations for
medical care grew by 6.7% — from $16.2 billion in FY1995 to $17.3 billion in 1999.
In comparison, during the last five years of this time period, VA medical care
appropriations grew by 52.7% — from $17.3 billion in FY1999 to $26.4 billion in
FY2004. It should be also noted that appropriations for medical care excluds funds
for medical research, MAMOE, and MCCF, as well as funds appropriated by
Congress for capital investment concerning VHA facilities under separate major and
minor construction appropriations. If the effect of medical research and MAMOE
are considered, between FY1999 and FY2004 appropriations for total medical
programs grew by 52% — from $17.7 billion in FY1999 to $26.8 billion in FY2004.
It should be emphasized that these trend data should be viewed with care, especially
in light of changes in VHA’s account structure in FY1996 and FY2004. The effect
of MCCF collections as well as appropriations for capital investment on funding for
medical care is discussed below.


17 For ease of presentation Table 1 provides enacted appropriations from FY1995 through
FY1999, and Table 2 provides enacted appropriations from FY2000 through FY2004.

CRS-8
Table 1. Appropriations for Veterans’ Health Care, FY1995-FY1999
(dollars in thousands)
FY1995 FY1996 FY1997 FY1998 FY1999
Request Ena c t e d R equest Ena c t e d R equest Ena c t e d R equest Ena c t e d R e que st Ena c t e d
care$16,121,756$16,214,684$16,961,487$15,775,000$16,438,447$16,313,447$16,958,846$16,487,396$16,392,975$16,528,000
layed equipment obligation 789,000570,000700,000 570,000635,000778,000
Subtotal medical care16,121,75616,214,68416,961,48716,564,00017,008,44717,013,44716,958,84617,057,39617,027,97517,306,000
and prosthetic research211,000251,743257,000257,000257,000262,000234,374272,000300,000316,000
dministration and
laneous Operating Expenses 69,25869,78972,26263,60262,20761,20760,16059,86060,00063,000
OE)
iki/CRS-RL32732 Professional Scholarship
g/wm10,38610,38610,386
s.or
leak the Republic of Philippines500500
://wikiedical programs (VHA)$16,412,900$16,547,102$17,301,135$16,884,602$17,327,654$17,336,654$17,253,380$17,389,256$17,387,975$17,685,000
httpare Collections Fund 604,000543,000558,000583,000
edical programs with MCCF$17,857,380$17,932,256$17,945,975$18,268,000
Table prepared by CRS, based on funding figures from the House Appropriations Committee Reports to accompany the VA-HUD and Independent Agencies Appropriations Bills
1995-FY2005. H.Rept. 103-555; H.Rept. 104-201; H.Rept. 104-628; H.Rept. 105-175; H.Rept. 105-610; H.Rept. 106-286; H.Rept. 106-674; H.Rept. 107-159; H.Rept. 107-740;108-
.Rept. 108-674.



CRS-9
Table 2. Appropriations for Veterans’ Health Care, FY2000-FY2004
(dollars in thousands)
FY2000 FY2001 FY2002 FY2003 FY2004
Request Ena c t e d R equest Ena c t e d R equest Ena c t e d R equest Ena c t e d R e que st Ena c t e d
cal care$16,671,000$18,106,000$19,381,587$19,381,587$20,304,742$20,656,164$22,243,761$23,889,304$25,218,080$26,708,954b
elayed equipment635,000900,000900,000900,000675,000675,000500,000
atio n
escission -79,519a -270,000c
upplemental 142,000
.107-206)
edical care17,306,00018,926,48120,281,58720,281,58720,979,74221,473,16422,743,76123,889,30425,218,08026,438,954
iki/CRS-RL32732cal and prosthetic
g/w316,000 321,000 321,000 351,000 360,237 371,000 394,373 397,400 408,000 405,593
s.or
leakd ministration
cellaneous61,20059,70364,88462,00067,62866,73169,71674,23079,140
://wikirating Expenses
httpMOE)
l medical17,683,20019,307,18420,667,47120,694,58721,407,60721,910,89523,207,85024,360,93425,705,22026,844,547
s (VHA)
are
n Fund608,000608,000639,000639,000691,000691,000752,0001,386,0001,800,0001,554,772
l medical
ams with MCCF$18,291,200$19,915,184$21,306,471$21,333,587$22,098,607$22,601,895$23,959,850$25,746,934$27,505,220$28,399,319
)
Table prepared by CRS, based on funding figures from the House Appropriations Committee Reports to accompany the VA-HUD and Independent Agencies Appropriations
from FY1995-FY2005. H.Rept. 103-555; H.Rept. 104-201; H.Rept. 104-628; H.Rept. 105-175; H.Rept. 105-610; H.Rept. 106-286; H.Rept. 106-674; H.Rept. 107-159; H.Rept.
H.Rept. 108-235; H.Rept. 108-674.
is represents an across-the-board rescission of 0.38%
o ease comparison between years, for FY2004 the medical services, medical administration, and medical facilities accounts have been combined into the medical care account to
reflect the historic account structure, and not the account structure ultimately used to fund VHA.
e Senate Committee on Appropriations included bill language that cancelled budget authority of $270 million, representing prior year recoveries from medical care.



MCCF Collections. Aside from direct appropriations for medical care, VA
has been able to supplement its appropriations through MCCF collections. Since
FY1998 (the first year VA started retaining these collections) VA has utilized these
collections to provide medical services to veterans. In FY1998, approximately 3%
of the VA medical care budget comprised MCCF collections; by FY2004, this
amount had increased to nearly 5.5% of the VA medical care appropriation (Table

3).


MCCF collections increased substantially from FY2002 and FY2003 and then
significantly from FY2003 to FY2004. From FY2002 through FY2003, the increase
was due to the passage of the Veterans Millennium Health Care and Benefits Act of
1999 (P.L. 106-117), which, among other things, authorized VA to increase the
medication copayment amount; as discussed earlier, the Consolidated Appropriations
Resolution, 2003 (P.L. 108-7) granted VA authority to consolidate HSIF with MCCF.
Between FY2003 and FY2004 VA was able to increase its MCCF funds by $170
million, from approximately $1.4 billion in FY2003 to almost $1.6 billion in FY2004.
This was due to the enactment of the FY2004 VA-HUD Appropriations Act, which,
among other things, authorized consolidating the several other revenue accounts into
MCCF.18 This growth reflects the consolidation that has not yet occurred (see previous
discussion under Legislation to Supplement Appropriations).
Table 3. Medical Care Collections Fund (MCCF) as a Percent of
VHA Appropriations
(dollars in thousands)
MCCF as a % of VHA
VHA appropriation MCCFappropriations
FY1995 $16,547,102
FY1996 16,884,602
FY1997 17,336,654
FY1998 17,932,256 $543,000 3.03
FY1999 18,268,000 583,000 3.19
FY2000 19,915,184 608,000 3.05
FY2001 21,333,587 639,000 3.00
FY2002 22,601,895 691,000 3.06
FY2003 25,746,934 1,386,000 5.38
FY2004 $28,399,319 $1,554,772 5.47
Source: Table prepared by CRS, based on funding figures from the House Appropriations Committee
Reports to accompany the VA-HUD and Independent Agencies Appropriations Bills from FY1995-
FY2005
Appropriations for Construction and Capital Improvement. Although
not included in the VA medical care appropriation, a large proportion of VA’s


18 Starting in FY2004 other revenue accounts have been consolidated into MCCF including
long-term care co-payments, compensated work therapy program funds, compensation and
pension living expenses program funds, and parking program fees. See Appendix 1 for
further details on these accounts.

construction and capital improvement dollars are spent in support of the health care
delivery system. In FY1995, 92% of VA’s construction appropriation went toward
capital improvement of VA’s medical infrastructure. In FY2004, 89% of VA’s
construction budget was for VA’s medical facilities (Table 4). During the past 10-
year period (FY1995 through FY2004), VHA’s construction budget averaged about
$335 million. This figure excludes funds from the medical care appropriation, which
funds nonrecurring maintenance projects, equipment and leases, and grants to states
for the construction of state extended care facilities. Furthermore, during this same
period, appropriations for VHA construction grew by approximately 75% — from
$468 million in FY1995 to $817 million in FY2004.
Table 4. Appropriations for Construction of VHA Facilities
FY1995-FY2004
(dollars in thousands)
Total major
Major Minorand minorTotal majorTotal VHA
constructionconstructionconstructionand minor VAconstruction as
appropriationappropriationappropriationconstructiona % of VA
for VHA for VHAfor VHAappropriationconstruction
FY1995 $341,379 $126,934 $468,313 $507,228 92.3
FY1996 125,775 169,800 295,575 325,969 90.6
FY1997 200,658 142,800 343,458 393,758 87.2
FY1998 174,133 146,200 320,333 385,000 83.2
FY1999 122,387 157,000 279,387 317,287 88.0
FY2000 52,610 137,670 190,280 225,140 84.5
FY2001 18,330 129,255 147,585 232,119 63.5
FY2002 111,450 161,560 273,010 394,331 69.2
FY2003 43,941 176,444 220,385 323,909 68.0
FY2004 $612,738 $205,082 $817,820 $921,737 88.7
Source: Table prepared by CRS based on unpublished data provided by VA.
Note: Total VA construction excludes Grants for Construction of State Extended Care Facilities, and
funds for nonrecurring maintenance projects, equipment, and leases, which are funded under medical
care appropriations.
Veteran Enrollment. Before discussing trends in veteran enrollment, it is
important to understand VA’s enrollment process. The Veterans’ Health Care
Eligibility Reform Act of 1996 (P.L. 104-262) required that VA establish a national
enrollment system to manage the delivery of inpatient hospital care and outpatient
medical care, within the available appropriated resources. The law provided that
starting in FY1999 most veterans had to enroll in the VA health care system as a
condition of receiving VA hospital and outpatient care. Enrollment is in effect a
registration system for veterans who want to receive care. The law established seven
priority groups, with Priority Group 1 being the highest level of need, and Priority
Group 7 being the lowest. Subsequently, Congress enacted the Department of
Veterans Affairs Health Care Program Enhancement Act of 2001 (P.L. 107-135)
further amending the law governing enrollment. It altered the enrollment system by
establishing effective FY2003 an additional Priority Group 8. Therefore, at present



Priority Group 1 is the highest and Priority Group 8 is the lowest. Currently, VA has
suspended enrolling veterans in Priority Group 8.19
Priority Group 1 includes those veterans with the most severe service-connected
disabilities; Priority Group 8 includes veterans whose incomes and assets exceed a
specified level and who do not qualify for VA payments for a service-connected
disability. Priority Group 8 veterans must agree to make copayments for health
services (see Appendix 4 for a detailed list of priority enrollment groups).20
Not all veterans are enrolled in VA’s health care system. Some veterans are
exempt from the enrollment requirement. Veterans who do not have to enroll include
veterans who: (1) have a service-connected compensation rating of 50% or greater;21
(2) have been discharged in the past year for a compensable disability that VA has
not yet rated; or (3) want care for a service-connected disability. This means that
although VA generally requires all veterans to enroll in the VA health care system
in order to receive health care, veterans who meet the above-mentioned special
eligibility criteria are exempt from the enrollment requirement. However, it should
be noted that for planning and budgeting purposes VA encourages all veterans who
wish to receive health care from VA to enroll.
Trends in Enrollment. From FY1995 through FY2004 the total number of
individual “unique” veterans receiving medical care has grown by 88.2%. The total
number of veteran enrollees has grown by 76.9% from FY1999, the first year of
enrollment, to FY2004 (Table 5). During this same period the number of unique
veterans receiving medical care has grown by 49.2% — from 3.2 million veterans in
FY1999 to an estimated 4.7 million veterans in FY2004. This number excludes
Readjustment Counseling, the State Home, Civilian Health and Medical Program of22
VA (CHAMPVA), Spina Bifida, Foreign Medical Program, and nonveterans. In
FY2003, VA provided care to around 417,000 nonveterans. There was a large surge
in enrollment between FY2000 and FY2001. During this time period VA saw a 23%
increase in enrollment (Table 5).
Veterans may be attracted to VA because many older veterans may lack or have
limited prescription drug coverage from other sources. A study done by VA in 2003
on uninsured veterans, found that among all the priority enrollment groups, Priority
Group 7 veterans have shown the largest increase in enrollment (29% of all enrolled


19 U.S. Department of Veterans Affairs, “Annual Enrollment Level Decision,” 68 Federal
Register 2669-2673 (Jan. 17, 2003).
20 For a detailed description of VA health care enrollment, see CRS Report RL32548
Veterans’ Medical Care Appropriations and Funding Process, by Sidath V. Panangala.
21 Percentage ratings represent the average impairment in earning capacity resulting from
diseases and injuries encountered as a result of or incident attributed to military service;
those with a rating of 50% or more are placed in Priority Group 1.
22 Under CHAMPVA, VA is authorized to furnish medical care to the spouse or the child
of a veteran who has a total and permanent service connected disability and the widowed
spouse or child of a veteran who (a) died as a result of a service-connected disability or (b)
at the time of death had a total disability permanent in nature, resulting from a service-
connected disability.

veterans), and many may be coming to VA to bridge gaps in their insurance coverage
or to reduce their out-of-pocket costs.23 The General Accounting Office (renamed
the Government Accountability Office in 2004) found that between FY1999 and
FY2001, Priority Group 7 users age 65 and over as a proportion of total users in this
age group grew from 52% to 65%.24 According to GAO, older veterans might be
attracted to VA because many in this age group lack or have limited prescription drug
coverage from other sources.25 Furthermore, GAO reported that VA’s outpatient
pharmacy expenditures for Priority Group 7 veterans have increased from $178
million in FY1999 to $418 million in FY2001, a growth rate four times that of other
veterans 26
There has been considerable interest in understanding the impact of the recently
passed Medicare Prescription Drug, Improvement and Modernization Act of 2003
(P.L. 108-173) on future demand for VA medical services. VA contracted an outside
consultant to estimate the impact of this legislation on VA enrollment. The study
estimated that approximately 2 million retirees with employment-based prescription
drug coverage will lose that coverage. Applying these results to the veteran
population, approximately 35,000 additional new veterans will enroll in VA; nearly
half of these enrollees will be in Priority Group 7. Thus a majority of the new
enrollees would not use VA’s health care system beyond its prescription drug
benefit.27
It should be emphasized that not all enrolled veterans seek care during any given
year. In FY1999 74% of enrolled veterans received care from VA; in FY2003 about

63% of all enrolled veterans received care from VA (Table 5).


23 Donald Stockford, Mary Martindale, and Gregg Pane, Uninsured Veterans and the
Veterans Health Administration Enrollment System, 2003, U.S. Department of Veterans
Affairs.
24 U.S. General Accounting Office, VA Health Care: Expanded Eligibility Has Increased
Outpatient Pharmacy Use and Expenditures, GAO-03-161, Nov. 2002, p. 5. This study was
done before Congress established a new Priority Group 8.
25 Ibid, p. 5.
26 According to GAO, Priority Group 7 veterans now constitute 14% of VA pharmacy
benefit spending. See U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Veterans Affairs, GAO-03-110, Jan. 2003, pp. 14-15.
27 U.S. Congress, House Committee on Appropriations, Subcommittee on VA, HUD, and
Independent Agencies, Hearings on the Department of Veterans Affairs (VA) and Housing
and Urban Development (HUD), and Independent Agencies Appropriations for FY2005.thnd

108 Cong., 2 sess., Mar. 31, 2004, pp. 24-34.



CRS-14
Table 5. Veteran Population, Veteran Enrollees, and Veterans Receiving Care FY1995-FY2004
FY2004
F Y 1995 F Y 1996 F Y 1997 F Y 1998 F Y 1999 F Y 2000 F Y 2001 F Y 2002 F Y 2003 Estimate
al number of27,901,00027,661,00027,404,00027,122,00026,830,00026,475,00026,053,00025,618,00025,179,00024,737,000
al number ofNotNotNotNot
available available available available 4,314,528 4,936,259 6,073,264 6,882,488 7,186,643 7,632,416
al number of
iki/CRS-RL32732que veterans
g/w2,519,892 2,562,345 2,692,862 2,945,837 3,177,216 3,427,925 3,843,832 4,246,084 4,544,430 4,741,611
s.or
leak
://wiki Table Prepared by CRS. Data provided by the Office of the Actuary, Department of Veterans Affairs (VA) using the following databases: FY1991-FY1998 — VSSC
httpF/OPC files); FY1999-FY2003 — VHA ADUSH annual enrollment files; FY2003 and FY2004 unique veteran patient data and FY2004 enrollment data from FY2005 Congressional
et Submission.
Vetpop2001 (internal VA database) modified for smoothness at 2000; Vetpop2001 adjusted to Census 2000. Data adjustments done by VA.



Methodology and Data Limitations
Total appropriations for VA medical care was obtained from the House
Appropriations Committee reports to accompany the Department of Veterans Affairs
and Housing and Urban Development, and Independent Agencies Appropriations
Bills for FY1995-FY2005.28 For example, to obtain the FY2004 enacted amount we
used the FY2005 House Appropriations Committee report to accompany the FY2005
VA-HUD Appropriations Bill (H.R. 5041). We believe that using the appropriation
figures as reported after one year provides a more accurate estimates because any
necessary adjustments will have been made. Budget request estimates for a given
fiscal year were obtained from the House Appropriations Committee report for that
year. For example, to obtain the FY2004 request we used the FY2004 House
Appropriations Committee report to accompany the FY2004 VA-HUD
Appropriations Bill (H.R. 2861). It should be again emphasized that we have
provided appropriations for VHA and not spending or outlays for VHA programs.
It should be noted that not all budget authority becomes outlays in the year for which
is provided, and a portion of each year’s outlays derives from “carryover” budget
authority provided in prior years.
Data on the total number of veterans and the number of enrolled veterans were
obtained from VA, except for FY2003 and FY2004, where data were obtained from
the VA’s FY2005 budget submission to Congress. However, as mentioned earlier
VA did not implement its enrollment system until FY1999; therefore, enrollment data
are only available from FY1999 onwards. Although VA enrolls only veterans, its
employees, as well as those in CHAMPVA, also use the VA health system.
Concluding Observations
Due to the overwhelming demand of new veterans seeking VA medical services,
some veterans waiting more than six months for a primary care or speciality care
appointment, and the suspension of enrolling new Priority Group 8 veterans in
January 2003 by VA, Congress has been particularly interested in funding for VHA,
in general, and trends in funding over time.
As described earlier, between FY1995 and FY2004 appropriations for VA
medical care grew by 63%. For the first four years of this period, from FY1995
through FY1999, appropriations for VA medical care grew by 6.7% — from $16.2
billion in FY1995 to $17.3 billion in FY1999. Whereas, for the last five years of this
period, from FY1999 through FY2004, VA medical care appropriations grew by
52.7% — from $17.3 billion in FY1991 to $26.4 billion in FY2004. However, the
number of veterans receiving health care also grew during this time period — from
2.5 million in FY1995 to an estimated 4.7 million in FY2004 — and the total number
of veteran enrollees grew by 76.9% from FY1999, the first year of enrollment, to
FY2004. Although these trend data indicate a growth in appropriations during the
past decade, these data need to be viewed with care, particularly as a result of


28 H.Rept. 103-555; H.Rept. 104-201; H.Rept. 104-628; H.Rept. 105-175; H.Rept. 105-610;
H.Rept. 106-286; H.Rept. 106-674; H.Rept. 107-159; H.Rept. 107-740; H.Rept. 108-235;
H.Rept. 108-674.

changes to VHA’s account structure, VA’s increased access to nonappropriated
funding sources, and appropriations for construction and capital improvement spent
in support of the health care delivery system that are not included when describing
funding for VHA. These factors make it challenging to compare appropriations from
one year to the next.



Appendix 1. Revenue Accounts That Constitute the
Medical Care Collections Fund (MCCF) for FY2004
Pharmacy Co-payments (formerly collected in the Health Services
Improvement Fund — HSIF). In FY2002, Congress created a new fund (Health
Services Improvement Fund) 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.
Long-Term Care Co-payment Account (formerly the Veterans’
Extended Care Revolving Fund). The Millennium Health Care and Benefits
Act (P.L.106-117) provided VA authority to collect long-term care copayments.
These out-of- pocket payments include per diem amounts and copayments from
certain veteran patients receiving extended care services. These funds are used to
provide extended care services, which according to the Administration’s budget
documents, are defined as geriatric evaluation, nursing home care, domiciliary
services, respite care, adult day health care, and other noninstitutional alternatives to29
nursing home care.
Compensated Work Therapy Program (formerly the Special
Therapeutic and Rehabilitation Activities Fund). The program was created
by the Veterans’ Omnibus Health Care Act of 1976 (P.L. 94-581) to provide
rehabilitative services to certain veteran beneficiaries receiving medical care and
treatment from VA. Funds collected in this program are derived from goods and
services produced and sold by patients and members in VA health care facilities.
Compensation and Pension Living Expenses Program (formerly the
Medical Facilities Revolving Fund). The program was established by the
Veterans’ Benefits Act of 1992 (P.L.102-568). Under this program, veterans who do
not have either a spouse or child may 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.
Parking Program (formerly the Parking Revolving Fund). The
program provides funds for construction and acquisition of parking garages at VA
medical facilities. VA collects fees for use of these parking facilities. The
Consolidated Appropriations Act, 2004 authorized collections from the Parking
Program to be deposited in MCCF and be used for medical services. Funds for
construction or alterations of parking facilities will now be included under the30


construction major projects and construction minor projects accounts.
29 U.S. Department of Veterans Affairs, FY2005 Budget Submissions, Medical Programs,
vol. 2 of 4, pp. 2A-32.
30 H.Rept. 108-401, Conference Report to accompany H.R. 2673, Consolidated
Appropriations Act, 2004 (P.L. 108-199).

Sale of Assets (formerly the Nursing Home Revolving Fund). This
fund provides for construction, alteration, and acquisition (including site acquisition)
of nursing home facilities as provided for in appropriation acts. Collections to this
revolving fund are realized from the transfer on any interest in real property that is
owned by VA and has an estimated value in excess of $50,000. No budget authority
is required for this revolving fund, and funds are available without fiscal year
limitation.



Appendix 2. VHA’s New Account Structure
Medical Services. Provides funds for treatment of veterans and eligible
beneficiaries in VA medical centers, nursing homes, outpatient clinic facilities, and
contract hospitals. Hospital and outpatient care is also provided by the private sector
for certain dependents and survivors of veterans under the Civilian Health and
Medical Program of VA (CHAMPVA). Funds are also used to train medical
residents, interns, and other professional, paramedical and administrative personnel
in health science fields to support VA’s medical programs. Overhead costs
associated with medical and prosthetic research is also funded by this account.
Medical Administration. Provides funds for the management and
administration of VA’s health care system. Funds are used for the costs associated
with the operation of VA medical centers, other facilities, VHA headquarters, costs
of Veterans Integrated Service Network (VISN) offices, billing and coding activities,
and procurement.31
Medical Facilities. Provides funds for the operation and maintenance of
VHA’s infrastructure. Funds are used for costs associated with utilities, engineering,
capital planning, leases, laundry, food services, groundskeeping, garbage disposal,
facility repair, and selling and buying of property.
Medical and Prosthetic Research. Provides funds for medical,
rehabilitative, and health services research. The medical and prosthetic research
program is an intermural program. In addition to funds from this appropriation,
reimbursements from the Department of Defense (DOD), grants from the National
Institutes of Health (NIH), and private sources supports VA researches. Medical
research supports basic and clinical studies that advances knowledge so that efficient,
and rational interventions can be made to prevent, care for, or alleviate disease. The
prosthetic research program is involved in the development of prosthetic, orthopedic
and sensory aids to improve the lives of disabled veterans. The health services
research program focuses on improving the outcome effectiveness and cost-efficiency
of health care delivery for the population of veterans. Overhead costs associated with
medical and prosthetic research are also funded by the medical services account.


31 VHA has divided its health care delivery locations into 21 geographic regions. Each
region is known as a Veterans Integrated Service Network (VISN) and has director and
small staff, who perform a wide range of activities, including asset planning and budgeting.

Appendix 3. VHA’s Appropriation
for Capital Investments
Medical Administration. Provides funds for costs associated with operation
of medical centers, other facilities and VHA headquarters as well as VISN offices.
It also funds all the medical information technology, including patient records,
computer equipment and software development, which are considered capital assets
by VA.
Medical Facilities. Provides funds for the operation and maintenance of
VHA’s infrastructure. Funds are used for costs associated with utilities, engineering,
capital planning, leases, laundry, food services, groundskeeping, garbage disposal,
facility repair, and selling and buying of property.
Construction Major. Provides funds for capital projects costing $7 million
or more that are intended to design, build, alter, extend or improve a VHA facility.
As part of VA’s budget process, Congress reviews, approves, and funds major
construction on a project by project basis. Typical major construction projects are
replacements of hospital buildings, addition of large ambulatory care centers, and
new hospitals or nursing homes.
Construction Minor Projects. Provides funds for capital projects costing
$500,000 or more and less than $7 million that are intended to design, build, alter,
extend or improve a VHA facility. Minor construction projects are approved at the
Veterans Integrated Service Network (VISN) level.
Grants for Construction of State Extended Care Facilities. Provides
grants to states for construction or acquisition of state home facilities, including
funds to remodel, modify or alter existing buildings used for furnishing domiciliary,
nursing home or hospital care to veterans. A grant may not exceed 65% of the total
cost of the project.



Appendix 4. 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 38 U.S. C. § 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 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 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 with income and/or net worth above the VA
Means Test threshold and income below the HUD geographic index
Subpriority a: Noncompensable 0% service-connected 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 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 veterans not included in Subpriority a
above
Subpriority g: Nonservice-connected 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 veterans enrolled as of January 16, 2003
and who have remained enrolled since that date
Subpriority c: Nonservice-connected veterans enrolled as of January 16, 2003 and who have
remained enrolled since that date
Subpriority e: Noncompensable 0% service-connected veterans applying for enrollment after
January 16, 2003
Subpriority g: Nonservice-connected veterans applying for enrollment after January 16, 2003.