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First, both proposals would allow some VA medical care to be financed through direct, or mandatory, spending rather than by annual appropriations. In the case of H.R. 1362, VA would be given authority to spend the amounts it received from Medicare. In the case of the other proposal, VA would be allowed to spend the amounts it received from certain nongovernmental sources.
Second, the additional mandatory resources provided to the VA health care system could either supplement or supplant discretionary spending, with the outcome depending on the results of future appropriation action. The receipts from Medicare subvention are intended to finance the care of veterans who would otherwise not have access to VA facilities, but that result cannot be assured.
Third, even if additional mandatory spending allows for lower discretionary
appropriations, the current budget enforcement rules do not allow a reduction
in one category of spending to offset an increase in the other. Mandatory
spending is governed by pay-as-you-go procedures, which require increases
in mandatory spending to be paid for by reductions in other mandatory programs
or by increases in receipts. Discretionary spending is limited by statutory
caps on budget authority and outlays.
MEDICARE SUBVENTION
H.R. 1362 would establish a demonstration project in which Medicare would reimburse VA for the care that VA provides to certain veterans who are also eligible for Medicare. The demonstration project would have the following characteristics:
Assuring budget neutrality for Medicare would be difficult to achieve in practice, however, for three reasons. First, although VA provides some services (for examples, drugs and long-term care) that are not covered by Medicare, the bill nevertheless includes those services in calculating VA's effort. Second, even if that oversight were corrected, VA could understate the amount of its current workload that is attributable to targeted veterans. Third, adjustments to the required level of effort could allow further shifting of costs from VA to Medicare in later years.
Under the bill, the required maintenance-of-effort level is based on the total amount of VA medical expenditures for targeted veterans in 1997. However, Medicare does not cover all medical services that VA provides. If VA increased its noncovered services and decreased its provision of covered services by the same amount, it would shift costs to Medicare without reducing its level of effort.
But again, even if that problem was corrected, VA could still shift costs to Medicare by underestimating the level of care that it has been providing. Data for 1997 are not yet available, but VA informally estimates that in 1996 it saw fewer than 35,000 targeted veterans who were eligible for Medicare and provided about one-third of the total health care services that those veterans received. If those figures were correct, assuring budget neutrality would require that the maintenance-of-effort level equal about 22 percent of the Medicare-covered services provided to those veterans. CBO's analysis of data from the 1992 Survey of Veterans and the 1997 Patient Treatment Files indicates, however, that VA provides about 52 percent of covered services for targeted veterans who are eligible for Medicare.
The provisions for adjusting VA's maintenance-of-effort amount could also lead to higher spending for Medicare. According to CBO estimates, the services VA provides to targeted veterans would not fall in proportion to any drop in appropriations as specified in the bill. CBO also expects that the services provided to targeted veterans would decline less than VA would estimate as a result of changes in their priority for services. Those adjustments enable VA to reduce its required level of effort for targeted veterans and thereby increase its payments from Medicare.
As Table 1 shows, the likely outcome would be higher Medicare costs.
Knowing how many Medicare beneficiaries will receive care from VA is difficult
enough to determine in the short term. But that uncertainty only grows
over time as populations change and the availability of discretionary funding
for VA's health care programs varies. VA and HHS also face different incentives
and access to information.
TABLE 1. MONETARY FLOWS UNDER MEDICARE SUBVENTION |
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Medicare (Health Care
Financing Administration) |
Department of
Veterans Affairs |
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Legislative Goal | |||
Payments to VA under subvention
Less: forgone payments to private providers Equals: no net change in Medicare costs |
Receipts from Medicare
Less: outlays for incremental medical care Equals: no net change in VA's spending |
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Likely Outcome |
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Payments to VA under subvention
Plus: unintended payments to VA because of:
Equals: net increase in Medicare spending |
Receipts from Medicare
Less: outlays for incremental medical care Less: outlays for other purposes Equals: no net change in VA's spending |
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SOURCE: Congressional Budget Office. NOTE: VA = Department of Veterans Affairs.
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As introduced, the bill would probably raise Medicare's costs by $50
million or more. Because VA could count services that are not covered by
Medicare toward its maintenance-of-effort, the costs could exceed the cap
set in the bill for Medicare's expenditures. Under that scenario, VA's
expenditures to care for targeted veterans may equal the maintenance of
effort, but Medicare would not cover that care. Medicare would pay to private
providers or VA the costs for covered services that are provided and funded
through VA under current law. If the bill's language was modified to focus
the maintenance-of-effort requirements on services covered by Medicare,
the bill would cost roughly half as much.
SPENDING FROM FEES AND COLLECTIONS
The Committee also asked CBO to address the budgetary impact of legislation to give VA the authority to spend amounts that it collects from third parties and user fees. Under current law, VA's net collections are estimated to total $485 million in 1998, but only about $300 million a year after that because the collections authorized by the Omnibus Budget Reconciliation Act of 1993 will expire.
Through 1998, VA will collect per diem payments for hospital stays and
copayments for outpatient visits and prescription drugs, but it has no
authority to spend those funds. After 1998, VA will continue to collect
about $400 million a year from third parties, and it will spend about $100
million a year from those receipts to cover the related costs of administration.
Thus, the costs of legislation giving VA the authority to spend whatever
it collects would be $485 million in 1998 and about $300 million a year
after that.
CONCLUSION
Both proposals would increase mandatory spending and would be subject to the pay-as-you-go procedures established in the Budget Enforcement Act. Those increases in mandatory spending would allow discretionary authorizations to decline by the same amount. Whether discretionary savings would actually occur, however, would depend on annual appropriation actions.