Achieving Health Care Independence for Veterans

Executive Summary

The 2014 scandal at the Veterans Health Administration—in which thousands of veterans were forced to wait for several months to see a doctor, leading to poor health outcomes, with the delays concealed by VA officials—brought attention to the manifold problems with veterans’ health care. And yet, not nearly enough has been done to provide America’s veterans with the health care choices they deserve.

The VA has a long history of cycling between scandal and failed reforms. In this way, the VA closely resembles the British National Health Service, which, like the VA, is a fully socialized system in which the government is both the monopoly payer and the monopoly provider of health care services.

In this paper, we propose a wide-ranging reform of VA health care, focused on two core concepts:

• Strengthen and modernize VA care for those who are satsified with their access to it, by evolving the VA’s system of clinics and hospitals into an independent, government-chartered Veterans’ Accountable Care Organization; and
• Add on a new option for veterans to obtain private health coverage and health care, while preserving the VA’s traditional health insurance program.

Our approach builds on work by a 2014–15 task force, entitled “Fixing Veterans Health Care,” led by former Senate Majority Leader Bill Frist (R., Tenn.) and former Rep. Jim Marshall (D., Ga.); along with a former VHA Under Secretary for Health, Mike Kussman; the senior adviser to VA Secretary Robert Wilkie, Darin Selnick; and FREOPP’s Avik Roy.

We believe that these reforms, combined with others described in our broad reform plan, Medicare Advantage for All, can make health insurance affordable for every American living today, while also enabling our health care system to be fiscally sustainable for the generations to come.

Introduction

There are few promises made by the United States more sacred than the ones made to its soldiers. For centuries, 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. Recent scandals have highlighted the inconsistent quality of health care for veterans — and the long, checkered history of federal veterans’ programs. But from scandal and tragedy arise opportunity: the opportunity to offer injured and low-income veterans the kind of health care enjoyed by most Americans.

On April 23, 2014, Scott Bronstein and Drew Griffin of CNN reported that more than 40 veterans had died while waiting for appointments at the Phoenix Veterans Affairs Health Care System. Worse still, Bronstein and Griffin obtained internal e-mails from top officials at the Phoenix VA, who had signed off on an “elaborate scheme [to] hide that 1,400 to 1,600 sick veterans were forced to wait months to see a doctor.”

On September 28, 2013, Thomas Breen, a 71-year-old Navy veteran and cancer survivor, discovered blood in his urine. His son and daughter-in-law brought him to the emergency room at the Phoenix VA. 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 send to VA headquarters in Washington, asserting timely care for veterans; and a secret — but more accurate — list, in which ailing veterans waited more than a year to see a doctor.

“The scheme was deliberately put in place to avoid the VA’s own internal rules,” rules that require the VA to provide timely care, said Sam Foote, a recently retired VA physician. “I feel very sorry for the people who work at the Phoenix VA,” continued Foote. “They’re all frustrated. They’re all upset. They all wish they could leave ’cause they know what they’re doing is wrong. But they have families, they have mortgages, and if they speak out or say anything to anybody about it, they will be fired, and they know that.”

It soon became apparent that the problem of officials manipulating official patient waiting lists was not isolated to the Phoenix VA. VA medical centers in Colorado, Illinois, Missouri, North Carolina, Texas, Wyoming, and elsewhere were doing the same things.

Our health care system for veterans has proven uniquely vulnerable to these kinds of problems. Efforts to reform the VA have proven extremely difficult. To understand why, it is important to review the institutional history of veterans’ health care in the U.S.

The origins of the VA: Financial aid for disabled veterans

Today, the Veterans Healthcare System 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 British 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 in the direction it did for reasons that were understandable at the time, reasons that are worth reviewing if we are to understand how best to improve veterans’ health care.

On May 31, 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 workers’ compensation 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. When 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. 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 U.S. 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.

Lincoln used his second inaugural address to uphold the government’s role in providing care to disabled veterans: “With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow, and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.”

In the nineteenth century, both federal and state governments sought to expand their role in the care of disabled veterans. As a supplement to providing financial compensation, governments sought to provide an early form of long-term care to veterans with service-connected injuries.

In 1827, architect William Strickland was tasked by the U.S. Navy with making “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.

World War I transforms veterans’ health care

As veterans returned home from the Great War, veterans’ care underwent severe strain. In 1890, the U.S. Census recorded 1 million Union veterans. But 4.7 million Americans had been mobilized for World War I, from 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 of 1917 provided federal financing for care of all service-connected injuries, whether through government-owned or private hospitals. Prior to that time, because voluntary (i.e., civilian) hospital beds were scarce, veterans needing hospital care received it from active-duty military hospitals. Furthermore, World War I veterans came home with two unusual health problems: tuberculosis, caused by chemical warfare, and “shell shock” from the unprecedented use of artillery and trenches.

By this time, veterans’ financial and health care needs were 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 inherently slow-moving nature of government agencies — combined to renew outcry about the way veterans were treated after they returned home.

In response, in 1921 Congress established the U.S. Veterans’ Bureau. The new Bureau was designed to provide a single point of responsibility for health care for wounded and disabled veterans, consolidating the government’s risk insurance, public health, and vocational programs.

President Warren Harding appointed Col. 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 few of those 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.

The VA’s cycle of scandal and failed reforms

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.

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, with one senator charging that veterans were being cared for by “incompetent political doctors” in the Public Health Service, political appointees rather than meritocratic ones.

Driven by these concerns, Congress folded the veterans’ portion of the Public Health Service into the new Veterans Bureau. But the Charles Forbes corruption scandals, driven in large part by waste, fraud, and abuse in the construction of veterans hospitals, led to a second round of consolidation in 1930, and the formation of the Veterans Administration.

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.

“However,” notes Ronald Hamowy of the Independent Institute, “widespread 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 twenty million — into the VA system. Once again, observers began to complain of inadequate conditions, describing veterans’ health care as “back waters of medicine” in “physical and scientific isolation.” Albert Maisel, writing in Readers’ Digest, decried the state of VA health care as “third rate treatment of first-rate men.”

I have been shocked and shamed to discover that…service men, after they have received a veteran’s honorable discharge, are suffering needlessly and, all too often, dying needlessly in our Veterans’ Hospitals.

Our disabled veterans are being betrayed by the incompetence, bureaucracy and callousness of the Veterans’ Administration, the agency set up over 20 years ago to insure the finest medical care for them.

We have never stinted the Veterans’ Administration. We have given it over a quarter of a billion dollars for nearly a hundred great hospitals. Recently Congress appropriated over $105,900,000 just to run these hospitals. But conditions in these beautiful buildings are far worse than cold statistics can indicate.

In every one of these hospitals that I have visited — from Minnesota to Massachusetts — I have found disgraceful and needless overcrowding.

I have found doctors overloaded and hog-tied by administrative restrictions…nurses [who] did not bother to wash their hands after examining one patient with a contagious disease before turning to another.

Then I have gone to many [civilian] state and county hospitals, just as tied down by government restrictions and labor shortages…Here there are lower death rates and higher cure rates. That is why I know that there is no excuse for the Veterans’ Administrations’ 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 eleven times more effective than VA hospitals at treating tuberculosis.

The VA categorized as “tuberculosis specialists” physicians with one year of internship and four months’ orientation, 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 1949,” notes Hamowy, “the agency was operating under the authority accorded it by more than 300 laws, providing benefits to nearly 19,000,000 living veterans and to dependents of deceased veterans,” amounting to approximately 40 percent of the adult U.S. population.

In 1945, New York Post columnist Albert Deutsch testified before Congress that Charles Forbes’ successor as VA director, Frank Hines, “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, in 1946 President Harry Truman replaced Hines with Gen. Omar Bradley. In the two years following, the VA’s 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 systemic fashion, but rather a political one.

Hence, some areas had far too many hospital beds, and other areas too few; 81 percent of VA hospitals in the San Francisco Bay area were unoccupied, and 86 percent 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.

Gen. Bradley did install consequential changes at the VA. Bradley 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.

In 1964, Congress passed the Gulf of Tonkin Resolution, authorizing U.S. military operations in Southeast Asia. While Vietnam veterans were fewer in number relative to the World War II generation, advances in battlefield medicine meant that a larger proportion of the former group 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 memoirs of Vietnam veteran Ron Kovic, Born on the Fourth of July, published in 1976.

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:

In the last decade, an influx of patients resulting from the Vietnam War drew public attention to some of the VA’s problems. The controversy over their treatment sharpened the debate between the Congress and the Executive Branch on the resource requirements of the VA hospital system. Congressional committees responsible for veterans affairs and for VA appropriations were repeatedly told by veterans groups and medical schools that shortages of hospital staff and equipment were jeopardizing the quality of patient care in VA hospitals and forcing some VA hospitals to deny admission or outpatient services to veterans who needed care. Congressional hearings emphasized the disparity in staff-to-patient ratios between VA hospitals and community hospitals: VA hospitals were said to be greatly understaffed. These problems were said to persist despite the rapid growth of the VA’s medical-care budget in recent years.

The panel found that the VA’s post-World War II emphasis on hospital construction had another 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. Today, 70 percent of the patients using VA facilities were not injured due to 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 issues, the panel recommended that veterans’ health care be integrated into the broader civilian health care system, one that 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 into 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.

However, Cabinet status did not measurably improve the quality of VA health care. Meanwhile, the aging of the World War II population meant that the veteran population was declining in size; in addition, 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 said, “The real question is whether there should be a veterans health care system at all.”

A high point in the Nineties, followed by regression to the mean

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 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. (On his first day on the job, someone had vandalized his car and stolen the headrests.)

Kizer closed 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 percent, and the number of hospitalization days decreased from 3,530 per 1,000 patients in 1995 to 1,333 in 1998: a drop of 62 percent.

In the 1970s, a group of entrepreneurial employees at the VA 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 reorganized the VA around Veterans Integrated Service Networks, or VISNs, to improve the coordination of care that veterans received. He deployed VistA and other modern tools to ensure that veterans were receiving care 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 — such as providing aspirin to heart attack victims after they left the hospital — at higher rates than the Medicare program, which worked mostly through voluntary hospitals. One comparison of diabetic care at 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, Philip 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, most notably the waiting-list scandal of 2014. “Since 2005, the VA Office of Inspector General (OIG) has issued 18 reports that identified, both at the national and local levels, deficiencies in scheduling resulting in lengthy waiting times and the negative impact on patient care,” noted the VA’s Acting Inspector General in a 2014 review.

In retrospect, 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.”

The 2014 Veterans Choice Act and the 2015 Independent Assessment

In response to the waiting list scandal of 2014, Congress passed the Veterans Access, Choices 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 gain a “choice card” to seek care outside of VA facilities if they meet a number of bureaucratic criteria, of which the VA remains the gatekeeper. Participation in the program by eligible veterans has been extremely low, due to confusing regulations and limited enthusiasm from VA staff, who are reluctant to lose patients to private-sector competitors.

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 by the late 2010’s.

Section 201 of VACAA required Congress to fund an independent assessment of the Veterans Health Administration. That assessment, totaling 4,000 pages authored by representatives of institutions such as McKinsey, the RAND Corporation, and the Institute of Medicine, was published in 2015.

The independent assessment highlighted serious, comprehensive, and overwhelming flaws in the VHA’s structure and performance. VHA facilities’ average score, under the assessment, was a C-minus.

VHA information systems were described as nearing obsolescence. “Solving these problems,” said the report, “will demand far-reaching and complex changes that, when taken together, amount to no less than a systemwide reworking of VHA.”

Over the next several years, Congress will be faced with the unattractive and costly option of temporarily renewing VACAA, or enacting a permanent, long-term solution that improves access to care for veterans in a strategically sound and fiscally responsible manner, as prescribed in the independent assessment.

The Veterans’ Independence Act contemplates just this sort of fundamental, carefully designed reform.

Impediments to reforming veterans’ health care

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. The VA’s involvement in long-term care for injured veterans dates back to the nineteenth century, and it is a role that fulfills a real need, given the woefully thin private market for long-term care insurance. However, it is unclear why veterans should be denied the opportunity to seek care outside the VA system, if that is what they wish to do.

Indeed, the VHA itself estimates that veterans enrolled in the VA health care system receive approximately three-quarters of their care outside the VA.

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.

In 1921, when the Veterans Bureau was created, civilian health care infrastructure was sparse. Today, the U.S. has the most developed health care infrastructure in the world; U.S. health care spending represents more than seventeen percent of the nation’s economic output. There is no legitimate reason for veterans to wait in line for access to health care; there are many ways for veterans to gain that access, if they are given the means to do so.

And the VA does not only face challenges in delivering quality health care. As the Vietnam generation passes on, the size of the veteran population will shrink considerably. In 2009, there were twenty-four million U.S. veterans; by 2029, the VA expects that population to shrink to sixteen million.67

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 a constellation of forces sometimes described as the “Iron Triangle.”

“The VA and its advocates,” wrote John K. Iglehart of the New England Journal of Medicine in 1985, “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; 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 rationalize the VA’s workforce. Veterans’ organizations in Washington are comfortable with their existing role in the existing ecosystem, and are naturally suspicious of change.

The prestige of certain veterans’ organizations, combined with their skepticism of reform, has had a major impact 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 a confluence of Washington interests. 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 veterans organizations in navigating those choices.

Most importantly, 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 percent of respondents agreed that eligible veterans should be given the choice to receive medical care from any source that they themselves choose.

As Figure 17 illustrates, 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 percent believing this option to be “extremely” or “very important.”

91 percent supported allowing veterans to go to the doctors or hospitals closest to their homes, and 86 percent endorsed allowing veterans to use a private physician if they choose.

Strikingly, a large majority of veterans — 77 percent — 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 six percent considered this option “not at all important.”

Principles and objectives of veterans’ health reform

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, with veterans’ concerns on the periphery.

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.

Veterans’ health reform cannot be seen as a source of spending reductions, but reform must 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 underused facilities.

In 2014, in an effort to examine options for reforming veterans’ health care, Concerned Veterans for America convened a task force entitled “Fixing Veterans Health Care.” The task force was led by two lawmakers — former Senate Majority Leader Bill Frist (R., Tenn.) and former Rep. Jim Marshall (D., Ga.) — along with a former VHA Under Secretary for Health, Mike Kussman; the senior adviser to VA Secretary Robert Wilkie, Darin Selnick; and FREOPP’s Avik Roy.

In February 2015, the task force published a detailed reform proposal, called the Veterans Independence Act, comprised of two core concepts. First, spin off the VHA’s clinical facilities into an independent, integrated, government-chartered health care organization. Second, add on a new option for veterans to obtain private health coverage, while preserving the VA’s traditional health insurance program.

The task force’s recommendations were designed to harmonize with those in FREOPP’s broader health reform proposal; while veterans’ health reform can be pursued separately from broader reform, improvements of the individual health insurance market, as contemplated in Bringing Private Health Insurance Into the 21st Century, provide veterans with an additional option for private coverage on top of those designed specifically for veterans.

Accountable care for veterans

Some institutions, like California’s Kaiser Permanente, have successfully integrated a health insurer with a provider of medical services. The theoretical advantage of a fully integrated system is that hospitals have less incentive to charge higher prices, knowing that doing so would increase the cost of their insurance product.

However, 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 voluntary (i.e., 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. 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 budgetary appropriations, but they can also have independent sources of revenue.

The most prominent example of a federally chartered corporation is the National Railroad Passenger Corporation (NRPC), which operates Amtrak. The construction of interstate highways and the emergence of air travel led to a steep decline in passenger rail ridership; by the late 1960s, most private intercity rail services were unprofitable. In order to avoid the possible collapse of the U.S. railroad industry, in 1970, President Nixon signed the Rail Passenger Service Act, which created the National Railroad Passenger Corporation.

While Amtrak continues to require federal subsidies — including $1.4 billion in congressional appropriations for 2017 — the NRPC has succeeded in growing the passenger rail market. In 1972, Amtrak carried 15.8 million passengers; in 2014, it carried 30.9 million, with ticket revenues of $2.2 billion.

Because Amtrak receives congressional subsidies, it remains subject to oversight from Congress. But the NRPC has been able to invest in the heavily traversed Northeast Corridor between Washington and Boston, and to discontinue dozens of underused routes.

One of the principal problems with the delivery of health care 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, in many ways, already incorporate some of the concepts utilized by accountable care organizations. 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 ACO for veterans could build centers of excellence around disciplines 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 VA facilities.

Veteran-centered health coverage

Under the Veterans Independence Act, veterans who are satisfied with their current VA health care would be able to maintain their use of existing benefits, with no cost-sharing. Importantly, however, this would not be veterans’ only option.

The Veterans Independence Act offers veterans control of their own health care dollars, through the new Veterans Health Insurance Program (VHIP). Specifically, veterans would be able to take the funds spent on them through the VA system, and use those funds to purchase private health coverage, using premium support.

It is worth noting that the VA employees who care for veterans obtain their coverage via premium support. 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.

Under VIA’s 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.

Along with VHIP-specific coverage options that contract with VA providers, veterans could have the option of use their premium support to purchase coverage in the private non-group insurance market, with any savings deposited in a health savings account.

Importantly, veterans who are satisfied with traditional VA coverage would be grandfathered, unless they explicitly opt in to 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, it goes to follow that fewer veterans will use proprietary VA facilities. Already, as noted above, VHA enrollees receive roughly three-quarters of their care outside of the VA system. In 2011, a VHA survey found that 77 percent of VHA enrollees were enrolled in non-VA-based health insurance plans.

And the high fixed costs of maintaining VA hospitals siphon funds away from the provision to veterans 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. The Veterans Independence Act employs several tools to do so.

First, the VIA proposes that Congress appoint an independent nine-member panel, modeled after the Defense Base Realignment and Closure Act of 1990 (BRAC), to recommend closing down underused VA facilities. Lawmakers understandably fight hard to preserve VA hospitals in their districts; a BRAC-like process could assist Congress and the VA in making decisions that best serve the interests of veterans and taxpayers.

Second, the VIA phases in the premium support option in the new Veterans Health Insurance Program. At first, only those veterans with service-connected injuries would be eligible for private coverage. After five years, the remainder of VHA enrollees would gain the private option. This five-year lag allows Congress and the VHA to reflect on unexpected effects of the new program, and adjust the VHA’s planning accordingly.

Third, the new Veterans Health Insurance Program assures the Veterans Accountable Care Organization a privileged place within VHIP’s private insurance products. Under the Veterans’ Independence Act, privately covered veterans could use VACO facilities with no cost-sharing, whereas private facilities would require some co-pays and deductibles.

Fourth, the VIA contemplates the option 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.

Fiscal considerations

Allowing veterans to gain private coverage and private health care is not a free lunch. 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: that 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, by savings from reduced enrollment in other federally subsidized health care programs, such as Medicaid, employer-sponsored insurance, Medicaid, and federal subsidies for individual coverage. These cost savings should be credited to the VA.

The Fixing Veterans Healthcare task force modeled the fiscal effects of their proposal using the same microsimulation methodology deployed in FREOPP’s Transcending Obamacare, built by Stephen Parente and colleagues. That modeling indicates that the Veterans Independence Act can be deficit neutral, provided that VACO rationalizes its hospital and clinical capacity as veterans seek care elsewhere.

Based on fiscal modeling led by Stephen Parente, there are considerable grounds to believe that the Veterans Independence Act can be deficit neutral, provided that VACO rationalizes its hospital and clinical capacity as veterans seek care elsewhere. Hence, expanding health care options for veterans can be done in a way that preserves traditional VA care for those who prefer it, without additional taxpayer costs.

The VA MISSION Act of 2018

In 2018, Congress overwhelmingly passed the VA Maintaining Internal Systems and Strengthening Integrated Outside Networks Act of 2018, abbreviated as the VA MISSION Act. The new law is based on ideas proposed in the Veterans Independence Act, but is the result of a compromise between reformers and status-quo advocates that makes modest—but potentially meaningful—progress towards giving veterans true health care independence.

The MISSION Act consolidates the VA’s fragmented programs for community care into an integrated network of VA and community providers, called the Veterans Community Care Program. The MISSION Act authorizes the VA to enter into Veterans Care Agreements with these private providers. The program also establishes a new network of privately-managed walk-in clinics, and increases pay and benefits for caregivers of older Vietnam veterans.

The MISSION Act creates an Asset and Infrastructure Review (AIR) process to reallocate resources from underused VA medical facilities to those in the highest demand.

The new law also modestly reduces restrictions on veterans’ choice of private health care providers, as initially implemented by the Veterans Choice Act of 2014. The MISSION Act’s reform could make it somewhat less difficult for veterans to seek private care, provided that veterans can demonstrate to the VA’s satisfaction that they lack access to that care within the VA system.

A promising provision in the MISSION Act allocates $50 million per year on a new Innovation Center within the VA, analogous to the Center for Medicare and Medicaid Innovation. The VA Innovation Center will facilitate the piloting of programs to improve the delivery and payment of veterans’ health care.

As Ashok Reddy and colleagues note in the New England Journal of Medicine, “in capitated systems such as the VA [clinicians have] incentives to skimp on necessary care…the VA [innovation] center could address incentives in capitation payment by prioritizing models that focus on specific episodes of care.” In effect, the Innovation Center can help to test models such as the Veterans Accountable Care Organization.

The MISSION Act, however, fundamentally maintains the VA’s paradigm of veteran capture, in which veterans are locked into an inflexible, government-run insurance program with a restricted network of clinics and hospitals. It will be interesting to follow the implementation of the MISSION Act, and to keep further reforms in mind.