VA struggles to balance vets' health care demands, rising costs

Veterans' health care is one of the most politically popular programs in Washington-and one of the most expensive. With a 2003 budget that tops $23 billion, the Veterans Affairs Department nevertheless struggles to serve its 4.5 million regular patients, who make up less than a fifth of the nation's 25 million eligible veterans.

In the funding crunch, disabled and low-income vets "are not getting the care that they traditionally looked to VA to receive," said Gail Wilensky at a June 3 congressional hearing. Wilensky, who is co-chair of a presidential task force examining how to improve health care delivery to veterans, added: "There is a mismatch between the demand for services in the VA and the funding."

But attempts to bridge that gap fall short, year after year. VA appropriations rise an average 7 percent annually but still cannot catch up with medical inflation, increases in benefits voted by Congress, or an aging veteran population. Forty percent of all veterans are now eligible for Medicare; the proportion is 55 percent among those enrolled for VA care. But unlike county hospitals or private physicians, the VA cannot bill Medicare for the services it provides for VA patients over 65. And defenders of the overburdened Medicare Trust Fund have shot down every bid to let the VA do so. Left to itself then, the VA must ration care: As of January, 236,000 veterans had been waiting six months or more for their first VA appointment. And in January, an estimated 164,000 would-be enrollees in "Priority Group 8"-veterans without disabilities and with annual incomes above $25,000-were told they could not enroll for VA care at all.

To end this annual gap between demand and a limited supply of funds, activists want to make veterans' health care an entitlement, similar to Medicare, with an automatic claim on the Treasury for however much the VA needs every year. But budget hawks stand firm against new mandatory spending. And veterans' groups will fight any proposed cuts in benefits. So the VA appears to be boxed in on four sides: It can't get more money out of the federal budget; it can't get reimbursed by Medicare; it can't win entitlement status; and it can't control spiraling health care costs.

In recent months, however, three new ideas have sprouted, in Congress and in the executive branch, that just might help the VA break out of its box. None of these innovations is a silver bullet for all of the VA's problems. But precisely because they are more modest than past plans, they just might have a shot at being enacted.

The first and most basic insight is that most veterans deluging the VA don't want all the services the VA provides. Although the poorest and most-disabled veterans depend completely on the VA for care, a majority of vets have other health coverage, either from private-sector jobs or from Medicare, that they are pretty happy with-except for the lack of prescription drug coverage. But the VA offers enrolled veterans a 30-day supply of most drugs for only $7. That generous benefit attracts hundreds of thousands of veterans and swamps the system. An estimated 20 percent of regular VA patients use the department primarily as a pharmacy; that figure is higher among new enrollees.

But the VA isn't a drugstore. It prides itself on offering comprehensive, managed care, and it does not fill prescriptions written by outside doctors without examining each patient for itself. So any veteran who wants to use the VA for any reason has to enroll and wait, perhaps for months, for an introductory appointment with a VA physician, who then may order tests and specialist referrals before writing prescriptions that the VA will fill-even if the veteran walked in the door with a prescription for the exact same drug. The department's inspector general estimated in 2000 that the VA was spending a billion dollars a year redoing medical workups for prescriptions written by outside doctors-many of whom billed Medicare.

"The American people don't win, because they've just paid double," VA Secretary Anthony J. Principi told National Journal. "The veteran doesn't win, because he's had to see two physicians [for the same prescription]. We are wasting scarce medical resources."

In response, several bills now circulating in Congress would create a second, fast-track benefit for medicines only. A veteran who had not enrolled for the whole VA benefit could still get drugs from the VA just by bringing in a prescription. But VA officials, veterans' groups, and even task force Co-Chair Wilensky all worry about breaking up the VA's comprehensive care package into different benefits for different types of vets, in the process weakening current controls on costs. Even today, with a strict drug formulary that favors generics and other low-cost options, the VA currently spends an average of $13 per prescription-and charges veterans $7. If the 20 million veterans who do not use the VA regularly today all came in with multiple prescriptions every month, those $6 subsidies would add up to billions of dollars in a hurry.

To control the flood of potential beneficiaries, the two leading proposals in Congress both limit eligibility for the new benefit to veterans over 65: the Medicare-eligibles. In the bill (H.R. 1309) authored by the top Democrat on the House Veterans' Affairs Committee, Illinois's Lane Evans, the higher costs would be made up by charging a higher co-payment to veterans-and by seeking reimbursement from Medicare, a political long shot to say the least. More realistic is a bill, S. 1153, by Senate Veterans' Affairs Committee Chairman Arlen Specter, R-Pa., and Christopher "Kit" Bond, R-Mo., chairman of the Senate Appropriations subcommittee on veterans. The two senators would require veterans in this prescriptions-only track to pay for drugs at VA's cost-which, at about $13 for 30 days of drugs, still beats almost any private-sector plan or proposal for Medicare drug benefits.

"I think that [idea] has potential, I really do," said Principi, who has testified against less-constrained drug benefits in the past. "That way, it would not be a drain on our budget."

Principi himself is advancing a different innovation for Medicare-eligible veterans. For the first time, the VA has gotten the Health and Human Services Department to agree to pay for services the VA provides for veterans over 65 in VA hospitals and clinics-albeit under strictly limited conditions. Previous attempts to get "Medicare Subvention" (to use the term of art) were crushed: The defenders of the Medicare Trust Fund-the House Ways and Means and the Senate Finance committees-argued that the federal government was paying for the dual-eligible veterans' care already, through annual appropriations to VA, and that seeking reimbursement from the already-besieged trust fund was robbing poor Peter to pay impoverished Paul.

In January, however, a strapped VA closed its doors to the estimated 164,000 Priority Group 8 veterans, most of whom were also Medicare-eligible. This decision created a clearly defined, strictly limited pool of veterans who were not getting their care out of the VA budget-and whose alternative was to seek more-costly outside care at Medicare's expense. That gave Medicare, for the first time, a financial incentive to seek change.

Under Principi's plan, the two departments hope sometime next year to start a pilot program called "VA Plus Choice." Under this plan, the Veterans Affairs health system would essentially act as a Medicare HMO. The Priority 8 veterans would not receive the full richness of the regular VA benefit they were denied in January, but they would get a lot more than basic Medicare. Medicare would still have to pay for their care, but at the VA's below-market costs. The VA would be reimbursed only for some of its dual-eligible patients, but that's more than the nothing it gets now. Although this plan is no one's ideal, VA Plus Choice seems acceptable to everyone.

All of this scrounging for cash to care for vets, of course, would be moot if the VA were guaranteed full funding for its needs, as Medicare is. Activists have long pushed for VA health care funding to be mandatory, set by some inflation-adjusted per-patient formula that neither the president nor Congress could mess with in the annual budget process. The task force itself cautiously suggested mandatory funding for VA medicine. And no less a figure than Senate Minority Leader Tom Daschle, D-S.D., has introduced a mandatory funding bill-S. 19-whose language is largely identical to a 2002 proposal in the House that Lane Evans has reintroduced (H.R. 2318).

Last year, Evans had House Veterans' Affairs Committee Chairman Chris Smith, R-N.J., as his co-sponsor. But this year, Smith has turned away from mandatory funding. Instead, Smith has embraced a more complex mechanism also suggested by the task force: an independent board, charged to analyze the entire VA health system, using a full array of actuarial models, to come up with its best estimate of the next year's costs. The board's number would then have to go into the president's budget request, without being trimmed back by the Office of Management and Budget.

Congress would still have full discretion to fund the board's figure-or more, or less-but "the political and moral pressures would be overwhelming," Smith told National Journal. "I can't imagine that we would decrease it."

The Smith bill (forthcoming) would fall far short of full mandatory funding-perhaps far enough to fly under the radar of opponents. "The committee opposes making veterans' medical care a mandatory program," said House Appropriations spokesman John Scofield. But on the independent board proposal, "we wouldn't have a strong feeling either way."

Naturally, the Bush administration will object to outsiders setting part of its budget request-"That's my responsibility," Principi pointed out. But a good start in Congress may be enough for Smith's bill. And the very modesty of the board proposal-like the self-funding drug benefit, like making VA a Medicare HMO-is what gives it a real political chance.