Health Independence for Veterans
On September 28, 2013, Thomas Breen, a 71-year-old Navy veteran, was rushed to the emergency room of his local Veterans Affairs hospital in Phoenix, Arizona, by his son and daughter-in-law. A cancer survivor, he had discovered blood in his urine. The ER staff examined Breen and wrote that he urgently needed to see a urologist or a primary-care physician. They then sent him home.
Despite numerous calls by Breen's daughter-in-law, Sally, to the VA, it took nearly ten weeks for the medical center to offer him a physician's appointment. "We finally have that appointment," said the VA official. "We have a primary for him." Sally responded, "Really, you're a little too late, sweetheart." Breen had died the previous week of Stage 4 bladder cancer.
Phoenix VA officials, it turned out, were producing two patient waiting lists: an "official" list to send to VA headquarters in Washington that described timely care for veterans, and a secret, but more accurate, list showing that ailing veterans waited more than a year to see a doctor. It soon became apparent that the problem of officials manipulating patient waiting lists was not isolated to Phoenix. VA medical centers in Colorado, Illinois, Missouri, North Carolina, Texas, Wyoming, and elsewhere were doing the same things. A public outcry ensued as Americans asked: How could this have happened?
The scandal cut deep. There are few promises made by the United States government more sacred than the ones made to its soldiers. Since the nation's earliest days, the federal government has provided compensation and care to those injured while risking their lives to defend their country. But this promise has come under increased strain. Last year's waiting-list scandal, and others like it in recent years, have highlighted the inconsistent quality of health care for veterans — and the long, checkered history of federal veterans' programs.
But from scandal and tragedy arises an opportunity — the opportunity to offer injured veterans the kind of health care enjoyed by most Americans. Rather than searching for ways to make the VA's closed monopoly model last just a little longer, policymakers need to look for a fresh, new approach to meeting the nation's obligations to its veterans with a modern and effective new system of flexible, portable health coverage and ready access to care.
Today, the Veterans Health Administration is the largest non-defense employer in the federal government, with more than 275,000 workers. Its closest analogue among Western health-care systems is the British National Health Service. Like the NHS, the VHA is a socialized system, in which the government owns the hospitals, employs the physicians, and functions as the insurer. Complaints about the VA — long wait times, inconsistent quality, bureaucratic care — are akin to those commonly lodged at the NHS. But the VA evolved into such a system under different circumstances and for reasons that are worth reviewing if we are to understand how best to improve veterans' health care.
On June 20, 1776, the Continental Congress created a committee "to consider what provision ought to be made for such as are wounded or disabled in the land or sea service, and report a plan for that purpose." The idea was that disabled veterans could not work for a living and needed a form of compensation and support in the event of a disabling injury.
John Adams declared, in a letter to a colleague, that "the equity and the policy of making provision for the unfortunate officer or soldier, is extremely just." Eight weeks after the Declaration of Independence, the Congress passed the nation's first federal pension law, promising half pay for life to any officer, soldier, or sailor disabled in the service of the United States.
Despite repeated pleadings from General George Washington, that promise was not initially kept, however. When the war ended in 1783, the fledgling federal government was drowning in debt. Instead of providing half pay for life, disabled veterans received interest-bearing "commutation certificates" whose cash value dwindled over time.
But federal finances gradually stabilized, and in 1828, President John Quincy Adams signed a law granting full pay for life to surviving veterans of the Revolutionary War, whether disabled or able-bodied. It was the first of many instances of the federal government expanding compensation beyond those with service-connected injuries.
Congress expanded the scope of veterans' benefits during the Civil War. In 1862, President Lincoln signed a law providing pensions not only to disabled veterans of past wars, but also to veterans of all future military actions undertaken by the United States, so long as the claimant could demonstrate that his disability was the direct consequence of his military duty. And throughout the remainder of the 19th century, both federal and state governments sought to expand their roles in the care of disabled veterans. As a supplement to providing financial compensation, for instance, policymakers sought to provide an early form of long-term care to veterans with service-connected injuries.
In 1827, architect William Strickland was hired by the U.S. Navy to make "the necessary contracts for materials, and superintend the building of a 'permanent asylum for decrepid navy officers, seamen, and marines,' at Philadelphia." What became known as "old soldiers' homes" proliferated after the Civil War, to care for disabled and elderly veterans and the widows and orphans of those who died in battle.
This approach to care for veterans persisted into the early 20th century, but it proved inadequate once the First World War began. Roughly 4.7 million Americans were mobilized for that war, out of which 116,000 died and 204,000 returned wounded. American involvement in the war had drawn up and down so quickly that the government could not adequately prepare.
World War I made clear that veterans needed more than homes: They needed hospital care. The War Risk Insurance Act Amendments of 1917 provided federal financing for care of all service-connected injuries, whether through government-owned or private hospitals. Prior to that time, because civilian hospital beds were scarce, veterans needing hospital care received it from active-duty military hospitals. Furthermore, World War I veterans had health-care needs that previous generations had not had; many of them came home with tuberculosis and "shell shock" from the unprecedented use of artillery and trench warfare. Complicating the matter, veterans' financial and health-care needs were by this time being managed by five different government agencies: the Bureau of War Risk Insurance, the Public Health Service, the Federal Board of Vocational Education, the Bureau of Pensions, and the National Homes for Disabled Volunteer Soldiers.
This set of problems — the sudden burst of wartime activity, the unique medical problems of World War I veterans, the uncoordinated and overlapping administration of veterans' benefits, outdated civil-service laws, and the slow-moving nature of government agencies — combined to yield a renewed outcry about the way veterans were treated after they returned home. In 1921, one witness told a Senate committee that care for veterans with tuberculosis and psychiatric conditions had become "so wholly inadequate as to amount to practically nothing." In addition, veterans faced substantial delays in receiving compensation for hospital care. One senator charged that veterans were being cared for by "incompetent political doctors" in the Public Health Service, appointed for their political connections rather than their competence. Almost from the very moment that the federal government committed to nationwide hospital care for veterans, there were complaints about the conditions at veterans' facilities.
THE BACKWATERS OF MEDICINE
Driven by these concerns, Congress folded the veterans' portion of the Public Health Service into a new U.S. Veterans' Bureau in 1921. The new agency was designed to provide a single source of responsibility for the health care of wounded and disabled veterans. It also consolidated the government's risk-insurance, public-health, and vocational programs into one agency.
President Warren Harding appointed Colonel Charles Forbes, a manager of a construction company in Washington State, to serve as the first director of the Veterans' Bureau. The Bureau was assigned a substantial budget to build hospitals for veterans around the country, in order to ensure that soldiers and sailors would receive high-quality health care.
But the project was rife with fraud from the start, and few of the hospitals were completed. A congressional investigation found that Forbes had massively overpaid for land to build veterans' hospitals and provisions to supply them in exchange for kickbacks from landowners and manufacturers. The total taxpayer cost of Forbes' waste, fraud, and abuse amounted to $200 million, or $2.8 billion in 2015 dollars. He was sentenced to two years in Leavenworth Penitentiary.
Bureau officials did strive to improve the quality of veterans' health care. In 1925, Frank Hines prompted a collaboration with the American College of Surgeons to improve the performance of veterans' hospitals. The Bureau established a section on medical research and set up two residency programs for training in the neuropsychiatric disorders common among World War I veterans.
Despite these efforts, the Charles Forbes corruption scandal and the continuing outrage at the treatment of veterans led to a second round of consolidation in 1930, when Congress formed the Veterans Administration. But that new agency had trouble from the start, too. As Ronald Hamowy of the Independent Institute notes, "[W]idespread criticism of the quality of medical care accorded veterans continued through the 1930s and 1940s. Complaints during this period were most often directed at the quality of medical facilities and at the poor qualifications of VA personnel."
World War II introduced an even larger generation of veterans — nearly 20 million — into the VA system. Once again, observers soon began to complain of inadequate conditions, describing veterans' health care as the "back waters of medicine," in "physical and scientific isolation." Albert Maisel, writing in Reader's Digest, decried the state of VA health care as "third-rate treatment of first-rate men."
In one of the first attempts at comparing VA health outcomes to those in voluntary hospitals, Maisel found that the civilian facilities were 11 times more effective than VA hospitals at treating tuberculosis. The VA categorized physicians with one year of internship and four months' orientation as "tuberculosis specialists," in contrast to the American Medical Association's stricter standards for residencies in thoracic surgery or infectious disease.
By this time — in part as a reaction to the Forbes-era scandals — the Veterans' Bureau had developed a thick layer of bureaucracy designed to prevent corruption and waste. "By November 1949," notes Hamowy, "the agency was operating under the authority accorded it by more than 300 laws that provided benefits to nearly 19,000,000 living veterans and to dependents of deceased veterans," amounting to approximately 40% of the adult U.S. population. But the bureaucracy wasn't as effective or as efficient as everyone hoped.
In 1945, New York Post columnist Albert Deutsch testified before Congress that Frank Hines, Charles Forbes's successor at the Veterans' Bureau and also the first director of the VA, "placed excessive stress on paper work. Bureaucratic procedures were developed, which tied up the organization in needless red tape. Avoidance of scandal became the main guide of official action. Anything new was discouraged: 'It might get us into trouble.' Routineers and mediocrities rose to high office by simple process of not disturbing the status quo. Good men were frozen out or quit....The agency increasingly was controlled by old men with old ideas." In response to these concerns, later that year President Harry Truman replaced Hines with General Omar Bradley. In the two years following, the VA's employee headcount went from 65,000 to over 200,000. Its annual budget increased from $744 million in 1944 to $7.5 billion in 1946.
The sudden expansion did relieve the problem of overcrowding in VA hospitals. But a federal commission led by former President Hoover found that the government was not planning its new hospital construction in a systematic fashion but rather a political one. As a result, some areas had far too many hospital beds and other areas too few; 81% of VA hospital beds in the San Francisco Bay area were unoccupied, as were 86% in the New York City area. The Hoover Commission recommended that the VA close 20 veterans' hospitals and construct no new ones. These recommendations were ignored.
General Bradley did install several consequential changes at the VA. He created a Department of Medicine and Surgery within the VA, and severed the VA's medical staff from the federal civil service, with all its restrictions and regulations. These two reforms significantly improved the quality of care in VA facilities as the VA began to draw from the same labor pool as voluntary hospitals.
Soon enough, however, a new and extended foreign war would begin to place new strain on the system. While Vietnam veterans were fewer in number relative to the World War II generation, advances in battlefield medicine meant that a larger proportion of them survived the war, albeit with injuries and disabilities. In Vietnam, the ratio of veterans injured to those who died was 2.6 to 1, versus 1.7 to 1 in World War II.
The quality of VA-based care for Vietnam veterans also received critical treatment in the press, in Congress, and in the culture at large (one of the most notable examples being Vietnam veteran Ron Kovic's 1976 memoir, Born on the Fourth of July). Congress asked the National Research Council to form a blue-ribbon panel, organized by the National Academy of Sciences and led by Saul Farber of New York University, to study the VA's health-care operations. The Academy's 313-page report, published in 1977, noted that the dramatic increase in the VA's budget had not solved the perception of poor quality at VA facilities.
The panel found that the VA's post-World War II emphasis on hospital construction had had a particularly problematic unintended consequence: the substitution of inpatient hospital care for outpatient doctors' office visits. The VA had comparatively few outpatient facilities, but an excess of inpatient hospital beds. This led VA facilities to hospitalize veterans who would normally be treated in doctors' offices, resulting in poorer outcomes and higher costs.
In addition, the VA's excess hospital capacity led the agency to seek to expand the number of veterans eligible for VA care, leading to comparatively less emphasis on those with service-connected injuries. That problem has clearly persisted. Today, 70% of the patients using VA facilities were not injured in the course of their military service.
The panel raised concerns about the "scarcity and geographic distribution of outpatient facilities," finding that "only 36% [of veterans] lived within 30 minutes of a clinic." In addition, the panel found that "there are strong indications that utilization of outpatient facilities is correlated with a hospital's inpatient admission and retention policies more closely than with the medical needs of the patients who apply for care."
In response to these and many other concerns, the panel recommended that veterans' health care be integrated into the broader civilian health-care system, which had grown substantially since World War I. "VA policies and programs should be designed to permit the VA system ultimately to be phased in to the general delivery of health service in communities across the country," by utilizing "third-party insurers, both private and governmental, wherever such coverage is available." Veterans' service organizations opposed these recommendations, and Congress did not take them up.
Without major structural changes, criticism of VA health outcomes and quality continued into the 1980s. In 1988, the Veterans Administration was elevated to a cabinet-level department called the Department of Veterans Affairs. The VA's health-care programs were consolidated into the Veterans Health Administration within this new department.
But cabinet status did not measurably improve the quality of VA health care. Meanwhile, the aging of the World War II generation meant that the veteran population was declining in size, and as the U.S. population moved south and west, older VA facilities in the Northeast were further underutilized while VA hospitals in the younger parts of the country faced overcrowding. In the New York Times, fiscal scholar Richard Cogan wrote, "The real question is whether there should be a veterans health care system at all."
THE KIZER REFORMS
An instructive bright spot for the VA emerged in 1994, when President Bill Clinton appointed Kenneth Kizer of the University of Southern California as Under Secretary for Health in the Department of Veterans Affairs. "There was universal consensus," Kizer told Phillip Longman, "that if there was one agency that was the most politically hidebound and sclerotic, it's the VA." But where others saw sclerosis, Kizer saw opportunity. "The basic thesis...was that we have to be able to demonstrate that we have an equal or better value than the private sector, or frankly we should not exist."
Kizer introduced a substantial restructuring of the VA's operations despite considerable internal resistance. He forced the elimination of more than half of the VA's hospital beds between 1994 and 1998, emphasizing outpatient physician care over hospitalization. As a result, inpatient hospital admissions declined by 31%, and the number of hospitalization days decreased from 3,530 per 1,000 patients in 1995 to 1,333 in 1998, a decline of 62%.
In the 1970s, a group of entrepreneurial VA employees began secretly developing an early version of electronic patient records. Their effort was intensely resisted by the VA's leadership in the 1970s and 1980s, but the entrepreneurs eventually prevailed, establishing a free, open-source system called Veterans Health Information Systems and Technology Architecture, or VistA. Kizer took advantage of VistA to reorganize the VA around Veterans Integrated Service Networks and improve the coordination of veterans' care. VistA and other modern tools ensured that care was delivered based on the best available scientific evidence.
Research by Kizer and others indicated that by the late 1990s, the VA was engaging in evidence-based medicine — implementing policies such as providing aspirin to heart-attack victims after they left the hospital — at higher rates than the Medicare program, which worked mostly through private hospitals. One study of diabetic care comparing five VA medical centers to their commercially insured counterparts suggested that the VA patients enjoyed better rates of blood-glucose and cholesterol management.
While these studies were limited in scope, they represented the first meaningful instances of research indicating that VA health care could be the equal of private health care on some quality measures. In 2007, Phillip Longman published a book entitled Best Care Anywhere, arguing not merely that VA health care was no longer inferior, but that the VA was the model that the rest of American health care should follow.
Kenneth Kizer stepped down as director of the Veterans Health Administration in 1999. In the ensuing years, problems once again began to crop up with the delivery of VA care, culminating in the waiting-list scandal of 2014. The VA's Acting Inspector General noted in a 2014 review that significant problems had developed: "Since 2005, the VA Office of Inspector General (OIG) has issued 18 reports that identified, at both the national and local levels, deficiencies in scheduling resulting in lengthy waiting times and the negative impact on patient care."
While the VA did improve the delivery of care at its facilities during Kizer's tenure, those improvements were more temporary than many had hoped. "VA officials have not been as closely focused on data, results, and metrics — performance measurement — as they once were," Kizer told the New York Times in 2014. "The culture of the VA has become rather toxic, intolerant of dissenting views and contradictory opinions. They have lost their commitment to transparency."
IMPEDIMENTS AND PRINCIPLES
The VA has served an important role in offering health-care services to veterans, especially those with service-connected disabilities and those without the means to afford private health coverage. Its involvement in long-term care for injured veterans dates back to the 19th century, and it is a role that meets a real need, given the woefully thin private market for long-term-care insurance.
There are many options for other health-care needs, however; the VHA itself estimates that veterans enrolled in the VA health-care system receive approximately three-quarters of their care outside the VA, with funding from private insurance or their own money. In 1921, when the Veterans Bureau was created, civilian health-care infrastructure was sparse. But today, the U.S. has the most developed health-care infrastructure in the world. VA care may remain the equal of private care — for those who manage to get in the door. But the comparison of VA care to private care is not meaningful if veterans have to wait for months, or even years, to see a doctor. There is no legitimate reason for veterans to wait in line for access to care; there are many ways for veterans to gain that access, if they are given the means to do so. It is therefore unclear why veterans should be denied the opportunity to seek care outside the VA system, if that is what they wish to do.
And the VA does not only face challenges in delivering quality care; it will soon be facing demographic challenges as well. As the Vietnam generation passes on, the size of the veteran population will shrink considerably. In 2009, there were 24 million U.S. veterans; by 2029, the VA expects that population to shrink to 16 million. VHA hospital-patient volume will shrink as well. Advances in battlefield and medical technology have also led to fewer hospitalizations and more care delivered in physician offices. Future wars could, of course, re-expand the veteran population, but this is not a possibility that the VHA can either predict or rely upon. Simply put, the VHA must get ahead of its demographic destiny or face a future in which funding for veterans' health care will be crowded out by the need to maintain underused facilities.
Past efforts at addressing these problems, however, have faced enormous resistance from entrenched interests, a constellation of forces sometimes described as the "iron triangle." As John Iglehart of the New England Journal of Medicine put it in 1985,
The VA and its advocates represent a classic example of an "iron triangle" of interests that make their way through the Washington policy swirl. In this instance, the triangle consists of the agency itself, the congressional committees that oversee and often protect its interests, and veterans' service organizations, many of which operate under a federal charter....The interlocking nature of this influential triad is well reflected by the movement of numerous staff members between its organizations.
Each corner of Iglehart's triangle has its own incentives to oppose VA reform. VA facilities employ thousands of individuals in certain congressional districts, and elected officials oppose the closure of VA facilities in their localities. Employees at VA facilities understandably prefer the security of federal employment and oppose efforts to optimize the VA's workforce. Veterans' organizations in Washington are comfortable with their existing role and immense power in the existing ecosystem, and they are naturally suspicious of change.
The prestige of certain veterans' organizations, combined with their skepticism of reform, has had a major effect on Congress. Lawmakers understandably value the endorsements of veterans' organizations. Indeed, in the recent past, some veterans' organizations have been able to review proposed budgets for the Department of Veterans Affairs, both from the White House and Congress, prior to the introduction of fiscal legislation.
A system in which veterans could gain control over their health-care dollars would be inherently more responsive to veterans' needs than one in which decisions are made by coordinated Washington interests. These interests are concerned that they will be rendered less important or even irrelevant by reform. But veterans' organizations are mistaken if they see for themselves a diminished role in a reformed veterans' health-care system. Indeed, the opposite is true; if veterans have a broader range of health-care choices, they will actively seek guidance from traditional, well-established veterans' organizations in navigating those choices.
Most important, the vast majority of rank-and-file veterans want those choices. In a national survey of veterans conducted in November 2014 by the Tarrance Group for Concerned Veterans for America, 88% of respondents agreed that eligible veterans should be given the choice to receive medical care from any source that they themselves choose. Veterans believed that they should have the option to seek the best possible care, even if that means getting that care outside a VA facility: 95% said they believe this option is "extremely" or "very important." Fully 91% supported allowing veterans to go to the doctors or hospitals closest to their homes, and 86% endorsed allowing veterans to use a private physician if they choose.
Strikingly, a large majority of veterans (77%) thought it "extremely" or "very important" to give veterans more choices in their insurance products, even if these alternatives involved higher out-of-pocket costs. Only 6% considered this option "not at all important." It is time for the veterans' health-care system to be thoroughly modernized.
To that end, a number of core principles must guide any effort to improve the quality and stability of veterans' health care.
First, the interests of veterans must come before the interests of the VHA as a government agency. Too often, the "iron triangle" has looked out for its own perceived institutional interests, as veterans' concerns have remained an afterthought.
Second, the VHA should refocus its mission upon caring for veterans injured or disabled in the line of duty. Veterans should be able to take advantage of America's world-class private health-care infrastructure and choose where to get their health care. But reforms must ensure that current veterans can retain the option of remaining in the traditional VA system, at no additional cost, if that is what they prefer.
Third, veterans' health reform cannot be seen as a source of spending reductions, but it must nonetheless be fiscally responsible. The VHA is quite well funded; the object of reform must be to increase the VHA's accountability for its performance and cost-effectiveness, and to reallocate the VHA's existing resources toward veterans' health care and away from the maintenance of underused facilities.
These goals should be pursued through a set of reforms guided by two core concepts. First, policymakers should spin off the VHA's clinical facilities into an independent, integrated, government-chartered health-care organization. And second, they should add on a new option for veterans to obtain private health coverage, while preserving the VA's traditional health-insurance program.
Some institutions, like Kaiser Permanente, have successfully combined a health insurer with a provider of medical services. The theoretical advantage of a combined system is that hospitals have less incentive to charge higher prices, knowing that doing so would increase the cost of their insurance product. But it is far from clear that such a model is workable for a government agency like the Veterans Health Administration, as the VHA does not have the political independence necessary to make economically efficient decisions. Furthermore, a fully self-contained system heavily restricts the ability of veterans to seek care in civilian hospitals and from private physicians. Congress must provide the VHA with the flexibility to make independent operating decisions, free of excessive regulatory and political interference.
There are several examples of corporations chartered and owned by the federal government — the most notable is probably the National Railroad Passenger Corporation, which operates Amtrak. These corporations provide public services; however, unlike services provided directly by government agencies, chartered corporations are independent legal entities separate from the U.S. government. Government-chartered corporations often receive federal budget appropriations, but they can also have independent sources of revenue.
Providing some veterans' health care through such a corporation could offer some significant benefits over today's VA — perhaps most notably a more effective approach to the coordination of care. One of the principal problems with the delivery of health care in general in the United States is its uncoordinated nature. In particular, patients with multiple chronic conditions may be seeing multiple physicians who do not talk to each other, leading to overlapping prescriptions and, in some cases, dangerous mistakes. "Badly coordinated care, duplicated efforts, bungled handoffs, and failures to follow up result in too much care for some patients, too little care for others, and the wrong care for many," observed Katherine Baicker and Helen Levy in 2013.
A number of health-care systems comprised of hospitals, outpatient physician clinics, and other facilities have attempted to rectify this problem by using information technology and aligned financial incentives to coordinate care between different physicians and different treatment modalities. Model practitioners of this approach — called "accountable care organizations" — include the Mayo Clinic in Rochester, Minnesota; the Cleveland Clinic in Ohio; the Geisinger Health System in central Pennsylvania; and Intermountain Healthcare in Utah. Central to the ACO approach is the use of primary-care physicians, who serve as the primary coordinators of patient care.
The VA's health-care facilities already incorporate many of the concepts used by ACOs. In 2013, the VA employed 5,100 primary-care physicians. The VA's hospitals and clinics are all owned by the same entity, and the VA's VistA electronic medical-records system has helped the VA coordinate care for veterans with multiple medical conditions.
Formally organizing VA provider facilities along the ACO model could help improve veteran patient care within the VA system and give the VA a natural set of private-sector benchmarks with which to assess its progress in improving health-care delivery. An independent Veterans ACO could build centers of excellence around health problems prevalent in the veteran population, such as traumatic brain injuries, spinal-cord injuries, and post-traumatic stress disorder.
Finally, Congress would necessarily assign the VACO a discrete budget, independent of the VA's health-insurance program, giving Congress insight into the cost-effectiveness of the reorganized VA facilities.
VETERAN-CENTERED HEALTH COVERAGE
Beyond such improvements in the public veterans' health-care system, though, policymakers need to make access to private coverage an option. Veterans who are satisfied with their current VA health care should be able to maintain their existing benefits, with no cost-sharing. But this should not be veterans' only option.
Veterans should be able to control their own health-care dollars. A new Veterans Health Insurance Program would allow them to take the funds spent on them through the VA system and use those funds to purchase private health coverage using a mechanism called premium support — a process similar to that used by VA employees (and other federal employees) to obtain health coverage.
The term "premium support" was coined by two Democrats: Henry Aaron of the Brookings Institution and Robert Reischauer, director of the Congressional Budget Office in the 1990s. Premium support, they wrote in 1995, describes a system in which the government "would pay a defined sum toward the purchase of an insurance policy that provided a defined set of services. As with private insurance for the working population...plans could manage care in any of the ways now in use or that might arise in the future."
The Federal Employee Health Benefits Program, or FEHBP, is the oldest and most successful premium-support program in the world. FEHBP was founded in 1959 to offer private health insurance to federal workers, including employees of the Department of Veterans Affairs. Today, approximately 8 million individuals — 4 million federal employees and 4 million of their dependents — are enrolled in the program, at a projected annual cost of $49 billion in 2015.
For 20 years, premium support has been part of the most consequential health-reform proposals of both Democrats and Republicans. In 1995, Aaron and Reischauer proposed reforming the Medicare program by offering premium-support payments to retirees to shop for the private health-insurance plans of their choice. The 2003 Medicare Modernization Act, which established a prescription-drug benefit for seniors, delivered that coverage through premium support. The Affordable Care Act of 2010 uses a premium-support approach to expand health coverage to the uninsured, albeit within captured-market exchanges that purport to be a private system and not a federal program. The 2015 House Republican Budget, authored by Congressman Paul Ryan, adopts the Aaron-Reischauer approach, applying premium support to the broader Medicare program.
In a veterans' premium-support program, non-elderly veterans would gain the option to use VA funds to purchase private acute-care and long-term-care insurance. Medicare-eligible veterans would be able to use VA funds toward their premium costs for supplemental "Medigap" coverage. All veterans who purchase private health coverage in this manner would continue to be able to use VA facilities, through insurance products that contract with the Veterans Accountable Care Organization, along with private health-care providers.
Importantly, veterans who are satisfied with traditional VA coverage should be grandfathered in, unless they explicitly opt into the premium-support model. Eligible future veterans would be required to enroll in private coverage.
MANAGING THE TRANSITION
If more veterans have access to the private, voluntary U.S. health-care system, fewer veterans will use proprietary VA facilities. As noted above, VHA enrollees already receive roughly three-quarters of their care outside of the VA system. And a 2011 VHA survey found that 77% of VHA enrollees were also enrolled in non-VA-based health-insurance plans. Furthermore, the high fixed costs of maintaining VA hospitals siphon funds away from the provision of high-quality health care; this problem will grow more acute if more veterans seek care outside the VA.
If we are to preserve the traditional VA model for those veterans who prefer it, we must manage the transition to a modernized system. First, Congress should appoint a panel, modeled after the Defense Base Closure and Realignment Act of 1990 (commonly called BRAC), to recommend which underused VA facilities should be closed down. Lawmakers understandably fight hard to preserve VA hospitals in their districts, as they do for military bases; a BRAC-like process could assist Congress and the VA in making decisions that best serve the interests of veterans and taxpayers.
Second, the premium-support option for veterans should be phased in over time. At first, only those veterans with service-connected injuries should be eligible for private coverage. After five years, the remainder of VHA enrollees should gain the private option. This five-year lag would allow Congress and the VHA to take note of any unexpected effects of the new program and adjust the VHA's planning accordingly.
Third, the Veterans Accountable Care Organization should have a privileged place among the options available to veterans. Privately covered veterans could use VACO facilities with no cost-sharing, whereas private facilities would require some co-pays and deductibles.
Fourth, policymakers should consider the possibility of allowing VACO facilities to admit civilian patients in regions where VACO patient volume is low. In the private sector, rising hospital consolidation has led to higher U.S. health-care prices without evidence of improved quality. VACO facilities could restore competition to areas where mergers have eliminated it.
Allowing veterans to gain private coverage and private health care would certainly not be a cost-saving mechanism at first. Maintaining the upkeep of proprietary VA facilities, while more veterans seek care elsewhere, could increase VA spending in the short term. But over the long term, the reformed system should be much more cost efficient due to a lighter physical footprint and a more cost-effective insurance system.
It is widely believed that VA-based care costs less than the equivalent amount of care delivered in the private sector. However, a December 2014 report from the Congressional Budget Office found that "limited evidence and substantial uncertainty make it difficult to reach firm conclusions about those relative costs or about whether it would be cheaper to expand veterans' access to health care in the future through VHA facilities or the private sector." The VA, according to the CBO, "has provided limited data to the Congress and the public about its costs and operational performance," making direct comparisons to the private sector difficult. Furthermore, lower per-enrollee costs are only meaningful if the quality of care is equivalent or better.
Recent Congressional proposals to improve veterans' health care have been stymied by another problem: A more attractive VA health-care program would, by definition, attract more veterans to enroll, increasing its overall spending. However, a well-designed reform can offset these higher VA costs with savings from reduced enrollment in other federally subsidized health-care programs, such as Medicaid, Obamacare subsidies, employer-sponsored insurance, and Medicare. These cost savings should be credited to the VA.
Based on our own fiscal modeling, we believe the proposal we offer here can be deficit neutral, provided that VACO rationalizes its hospital and clinical capacity as veterans seek care elsewhere.
THE CARE VETERANS DESERVE
If reforming veterans' health care were easy, it would already have been achieved. Reformers face no shortage of obstacles: Government agencies are inherently inefficient; an "iron triangle" of special interests opposes VA reform; and the VHA's fixed costs for hospitals and other facilities limit the agency's flexibility in offering health-care choices to veterans.
In response to the waiting list scandal of 2014, Congress passed the Veterans Access, Choice, and Accountability Act of 2014. VACAA can best be understood as a quarter-step in the direction of expanded choice for veterans. The Act allows some veterans to seek care outside of VA facilities if they meet a number of bureaucratic criteria, which are determined and evaluated by the VA itself. Furthermore, the provisions of VACAA that assist veterans in obtaining health care outside of the VA system are of limited duration. Congress appropriated $15 billion under VACAA for the purpose of offering veterans health care through non-VA entities; the Congressional Budget Office projects that the bulk of these funds will be used up in a few years.
Hence, around 2016, Congress will be faced with a choice between the unattractive and costly option of temporarily renewing VACAA for a few more years and enacting a permanent, long-term solution that improves access to care for veterans in a strategically sound and fiscally responsible manner. That moment would offer an ideal opportunity for more comprehensive reform.
For years, lawmakers and veterans have quietly asked some important questions: Why can't the VA do more to serve those injured in the line of duty? Why not let veterans take the dollars that the VA spends on their health care and use them to get care wherever they choose? It is long past time to bring such questions out of the cloakroom and into the open, and to bring veterans' health care into the 21st century.