[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]






                     FUNDING THE U.S. DEPARTMENT OF
                     VETERANS AFFAIRS OF THE FUTURE

=======================================================================

                                HEARING

                               before the

                     COMMITTEE ON VETERANS' AFFAIRS

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 3, 2007

                               __________

                           Serial No. 110-49

                               __________

       Printed for the use of the Committee on Veterans' Affairs





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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     RICHARD H. BAKER, Louisiana
Dakota                               HENRY E. BROWN, Jr., South 
HARRY E. MITCHELL, Arizona           Carolina
JOHN J. HALL, New York               JEFF MILLER, Florida
PHIL HARE, Illinois                  JOHN BOOZMAN, Arkansas
MICHAEL F. DOYLE, Pennsylvania       GINNY BROWN-WAITE, Florida
SHELLEY BERKLEY, Nevada              MICHAEL R. TURNER, Ohio
JOHN T. SALAZAR, Colorado            BRIAN P. BILBRAY, California
CIRO D. RODRIGUEZ, Texas             DOUG LAMBORN, Colorado
JOE DONNELLY, Indiana                GUS M. BILIRAKIS, Florida
JERRY McNERNEY, California           VERN BUCHANAN, Florida
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota

                   Malcom A. Shorter, Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                            October 3, 2007

                                                                   Page
Funding the U.S. Department of Veterans Affairs of the Future....     1

                           OPENING STATEMENTS

Chairman Bob Filner..............................................     1
    Prepared statement of Chairman Filner........................    42
Hon. Steve Buyer, Ranking Republican Member, prepared statement 
  of.............................................................    43
Hon. Phil Hare...................................................     2
Hon. Cliff Stearns...............................................     4
Hon. Richard H. Baker............................................     5
Hon. Stephanie Herseth Sandlin...................................    13
    Prepared statement of Congresswoman Herseth Sandlin..........    44
Hon. Ciro D. Rodriguez...........................................    20
Hon. John Boozman................................................    21
Hon. Harry E. Mitchell, prepared statement of....................    44
Hon. Jeff Miller, prepared statement of..........................    45
Hon. Ginny Brown-Waite, prepared statement of....................    45

                               WITNESSES

U.S. Department of Veterans Affairs, W. Paul Kearns III, FACHE, 
  FHFMA, CPA, Chief Financial Officer, Veterans Health 
  Administration.................................................    35
    Prepared statement of Mr. Kearns.............................    60

                                 ______

Aaron, Henry J., Ph.D., Bruce and Virginia MacLaury Senior 
  Fellow, Brookings Institution..................................    25
    Prepared statement of Mr. Aaron..............................    52
Center on Budget and Policy Priorities, Richard Kogan, Senior 
  Fellow.........................................................    27
    Prepared statement of Mr. Kogan..............................    57
Partnership for Veterans Health Care Budget Reform, Joseph A. 
  Violante, National Legislative Director, Disabled American 
  Veterans.......................................................     6
    Prepared statement of Mr. Violante...........................    46

                   MATERIAL SUBMITTED FOR THE RECORD

Post Hearing Questions and Responses for the Record:
Hon. Bob Filner, Chairman, Committee on Veterans' Affairs, to 
  Joseph Violante, National Legislative Director, Disabled 
  American Veterans, letter dated October 18, 2007...............    63
Hon. Bob Filner, Chairman, Committee on Veterans' Affairs, to 
  Henry J. Aaron, Ph.D., Bruce and Virginia MacLaury Senior 
  Fellow, Brookings Institution, letter dated October 18, 2007...    66
Hon. Bob Filner, Chairman, Committee on Veterans' Affairs, to 
  Richard Kogan, Senior Fellow, Center on Budget and Policy 
  Priorities, letter dated October 18, 2007......................    67

 
     FUNDING THE U.S. DEPARTMENT OF VETERANS AFFAIRS OF THE FUTURE

                              ----------                              


                       WEDNESDAY, OCTOBER 3, 2007


                    U. S. House of Representatives,
                            Committee on Veterans' Affairs,
                                                     Washington, DC

    The Committee met, pursuant to notice, at 10:02 a.m., in 
Room 334, Cannon House Office Building, Hon. Bob Filner 
[Chairman of the Committee] presiding.
    Present: Representatives Filner, Snyder, Michaud, Herseth 
Sandlin, Mitchell, Hall, Hare, Rodriguez, Donnelly, McNerney, 
Space, Walz, Buyer, Stearns, Moran, Baker, Brown of South 
Carolina, Miller, Boozman, Brown-Waite, Turner, and Bilirakis.

              OPENING STATEMENT OF CHAIRMAN FILNER

    The Chairman. Good morning. This hearing of the Committee 
on Veterans' Affairs of the House of Representatives is called 
to order for a very important subject, funding the U.S. 
Department of Veterans Affairs (VA) for the future, how are we 
going to meet the incredible demands that are on the VA in 
terms of our funding mechanisms. The issue of so-called 
mandatory funding, assured funding, is on the table.
    I am going to yield to Mr. Hare to make an opening 
statement or to have his opening statement because he has taken 
the leadership following his predecessor, former Member Lane 
Evans, on this issue.
    I think there are 2 main reasons why we should do it. 
Number 1, it takes the politics out of providing healthcare to 
our veterans where the Executive and the Legislative Branches, 
Senate, and the House, Republicans, and Democrats pick numbers 
and keep accusing each other of not doing enough. Let us get 
that out of the process.
    And, second, we would not be in the position we are in 
today, on October 3rd, the third day of the fiscal year, and 
there is no fiscal year 2008 budget beyond the Continuing 
Resolution for the VA or any other agency.
    I had hoped that we would fund the VA on time. We owe it to 
our veterans to do that. That has not been the case. With 
mandatory funding, we would not be in this position.
    Mr. Hare, thank you for your leadership. Thank you for 
introducing the bill that brings us there. And I would yield to 
you for your opening statement.
    [The prepared statement of Chairman Filner appears on p. 
42.]

              OPENING STATEMENT OF HON. PHIL HARE

    Mr. Hare. Thank you, Mr. Chairman. Thank you for your 
indulgence of being able to make this statement.
    I am extremely pleased that the Committee is examining 
future funding of the VA and that so much discussion is focused 
on mandatory funding.
    With our continued presence in Iraq and Afghanistan, it has 
become obvious that a new generation of brave men and women are 
coming home and will require substantial healthcare through the 
VA for generations to come.
    I am proud to have introduced H.R. 2514, the ``Assured 
Funding for Veterans Healthcare Act,'' which currently has 87 
cosponsors. This is a legislative priority that I inherited 
from my good friend, predecessor, and former Ranking Member of 
this Committee, Congressman Lane Evans.
    Simply put, this bill would require that funding for 
veterans' healthcare become mandatory rather than subjected to 
the discretionary appropriations battle every year. With 
Congress being on average 105 days late in completing the 
funding bills, the Veterans Health Administration (VHA) is 
often stuck in a holding pattern, unable to plan, unable to 
provide care because it does not know how much money it will 
have to spend.
    This must stop. I do not believe there is a more pressing 
issue this Committee should focus on than assured funding for 
veterans' healthcare.
    Need I remind all of us that the VA actually ran out of 
money the last 2 years suffering shortfalls of $1 billion in 
2005 and $2 billion in 2006.
    Due to the passage of the ``Veterans Healthcare Eligibility 
Reform Act of 1996,'' the VA enrolled patient population surged 
from 2.9 million in 1996 to 7.7 million in 2005, a 172-percent 
increase.
    However, appropriated funding for VA medical care has 
barely increased over 50 percent from $16.6 billion in 1990 to 
$34 billion in 2007. The VA has received on average only a 5 
percent increase in appropriations over the last 8 years.
    However, VA's Under Secretary for Health testified that the 
VA requires at a minimum approximately a 14-percent increase 
annually just to maintain current services.
    I am proud that this Congress passed a fiscal year 2008 
budget that includes the largest increase in veterans' 
healthcare funding in the 77-year history of the VA. However, 
we cannot rely on future Congresses to be as smart, which is 
why we need assured funding.
    We must all remember that while we are talking about 
dollars and cents, we are talking about people. These are more 
than just numbers. Funding shortfalls have real life or death 
consequences. They can take away our ability to provide an 
injured soldier with a prosthetic leg or treat a Marine 
suffering from traumatic brain injury (TBI), people who have 
honorably and courageously fought for our freedom.
    As Mr. Violante will mention in his written testimony, the 
demands being placed upon the VHA by the soldiers returning 
from Operation Iraqi Freedom/Operation Enduring Freedom (OIF/
OEF) are, and will continue to be, enormous. We must ensure 
that our troops receive the care they deserve and that this 
care will not be subject to an uncertain, unstable, and 
commonly delayed appropriations process.
    Soldiers returning today are wounded in ways never seen 
before. TBI, polytrauma, post traumatic stress disorder (PTSD), 
amputees are no longer exceptions but the reality. Life-saving 
research, long-term care and planning and prosthetics 
development will be key components of the VA of the future and 
these goals and the demands of the VHA simply cannot be met by 
discretionary funding.
    Mandatory funding, as proposed in H.R. 2514, will give the 
VHA the funds and, more importantly, the ability to better 
manage its assets and ensure adequate staffing. It will provide 
assured care for our veterans, not just as much care as we can 
afford in a fiscal year.
    Allowing the VHA to know its budget, plan for the future, 
and spread costs out over numerous years will increase the 
efficiency and effectiveness of the VHA.
    Critics question whether or not we can afford assured 
funding. I ask them, can we afford not to? Let me make 
something very clear. When it comes to the brave men and women 
who risked their lives for our Nation, we should spare no 
expense.
    The operation under which the VA has created a highly 
efficient, high-quality, state-of-the-art healthcare system 
would not be changed under my bill. Eligibility requirements, 
enrollment management, budgetary oversight, and a benefits 
package would remain as enacted by Public Law 104-262.
    Mandatory funding would assure the funding of those 
enrolled, create a mechanism to pay for the increased use of 
the system, guarantee care, and eliminate budgetary shortfalls 
in the VHA that leave veterans waiting for care.
    Never before has there been a more critical moment for 
Congress to act. I urge this Committee to pass the ``Assured 
Funding for Veterans Healthcare Act,'' and I want to commend 
the Chairman of this Committee for his support on this bill.
    Thank you, Mr. Chairman, for giving me the opportunity to 
do my opening statement. Thank you.
    The Chairman. Thank you, Mr. Hare. And without objection, 
my opening statement and all other Members of the Committee 
will be included in the record.
    Mr. Buyer, you are recognized.
    Mr. Buyer. I ask that my opening statement be submitted for 
the record and yield back.
    [The prepared statement of Congressman Buyer appears on p. 
43.]
    The Chairman. I thank the Ranking Member.
    Mr. Stearns. Mr. Chairman, as I understand, we can have 
opening statements?
    The Chairman. I was not planning on that, but if you would 
like to.
    Mr. Stearns. Oh, sure. I would not mind if that is 
possible.
    The Chairman. All right. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    The Chairman. You are so convincing.

            OPENING STATEMENT OF HON. CLIFF STEARNS

    Mr. Stearns. So convincing. Obviously this is an important 
hearing. This issue is not new. It was brought in previous 
Congresses and it has support obviously in some Members of 
Congress.
    We know that doing this will be a big change for us as a 
Veterans' Affairs Committee itself. There is many that will 
argue that leaving the VA funding to the annual appropriation 
process results in this uncertainty and shortfall of funds and, 
therefore, as the gentleman indicated, the changing of the 
funding would be a mandatory funding to ensure that the access 
and quality of VA programs are assured. I think we all want 
that.
    But I do have some concerns with this proposal. The 
underlying goal and ideal I support and I think it is 
something, as I mentioned, we can all agree upon. I certainly 
consider the healthcare services for this dedicated population 
of Americans one of the most essential debts owed by this 
Nation. We should and will ensure that all veterans who are in 
need of healthcare are taken care of.
    But people will complain about the current system. It is 
not perfect. Well, obviously it is not perfect, but it is 
improving.
    Following the budget shortfalls in fiscal year 2005 and 
2006, Congress simply passed supplemental funding to cover 
those affected areas. In addition, the VA has implemented a new 
budget model that incorporates a risk-adjusted formula 
anticipating the changing healthcare needs as our veterans age.
    I am pleased that in our work here in Congress, we have 
increased the VA budget appropriations by an average of 8 
percent each year from the year 2000 to 2006.
    What I am concerned about the proposed solution, while 
well-intended, might have the opposite unintended effects. As 
long as Congress has the opportunity to hear from veterans 
every year, every year, we have hearings on the budget, review 
circumstances, and consider these needs, then appropriate as 
needed based on this annual consideration. We have great 
flexibility, my colleagues.
    If we implement a formula to allow for mandatory funding as 
we are considering today, we lose that ability to periodically 
evaluate the needs that each one of us has in our district. In 
a given year, Congress might wish to provide more for veterans 
than a static formula might allow.
    And here is a very important point. Being a new mandatory 
entitlement program, VA funding would become subject to PAYGO 
rules. Moving the VA funding to a mandatory entitlement would 
make it compete against other entitlement programs such as 
Medicare, Medicaid, Social Security. PAYGO rules would mandate 
that any increase in funds that we consider for the VA fine, 
offsetting costs in one of these other programs or offset by 
increasing taxes.
    Therefore, I think, Mr. Chairman, it is important to have 
this hearing. I think we should look at this seriously. It is a 
complex issue. But I look forward to our panel of witnesses 
today and the impact and assured funding that is necessary so 
that all the veterans can benefit.
    And I thank you for your----
    The Chairman. Thank you, Mr. Stearns.
    Mr. Rodriguez, any opening statement?
    Mr. Rodriguez. No, thank you. I will reserve my time.
    The Chairman. Mr. Brown?
    Dr. Snyder.
    Mr. Snyder. No, thank you.
    The Chairman. Okay. Mr. Baker.

           OPENING STATEMENT OF HON. RICHARD H. BAKER

    Mr. Baker. Mr. Chairman, I appreciate the expedited 
proceedings. I just want to be very brief and make a couple of 
comments.
    I think how we best meet veterans' needs going forward is 
certainly an appropriate subject of discussion. Whatever 
resolution we reach is, I am sure, the best considered interest 
by this Committee as we all hope.
    More troops are coming home every day and we all want all 
of them home as quickly as possible. And the only certainty in 
this business is the need for veterans' services will continue 
to escalate, not deteriorate.
    There is a bit of irony in this discussion, however, in 
that this Committee has done its work. We passed out a very 
good bill. In fact, the House floor passed our measure on June 
15th by a 409 to 2 vote. And this is really the notable 
achievement. The Senate, the Senate has actually passed 
something. And they passed a MilCon Appropriations bill 92 to 1 
back in September.
    Another notable bit. This is one of the few subjects in 
which I have not heard the White House use the veto word. The 
President would actually sign this bill. So we have the House 
and Senate historically acting. We have the White House not 
threatening a veto.
    The Senate has appointed conferees and, yet, in our search 
to find a sense of urgency to assist troops in future years, 
the House has yet to appoint the conferees on this critically 
important matter. While we are all debating the right strategy 
in the Iraq War, this is one that is sitting right there teed 
up ready to go.
    And, Mr. Chairman, I would hope the Committee would call on 
the leadership for whatever reason to insist on the appointment 
of conferees. Let us get this work done. Let us at least get 
this one bill done because of its vital importance to our vets.
    And with that, I yield back and thanks for the courtesy of 
the statement.
    Mr. Brown of South Carolina. Mr. Chairman, if I might add 
on that same subject, I believe the numbers that make $37 
billion a day we deprive in our veterans every day the 
President does not sign that bill.
    Mr. Baker. The gentleman is correct. And it is also the 
highest amount of assistance ever appropriated by the Congress 
for veterans' assistance in the VA history. So this is a big 
deal.
    Thank you.
    The Chairman. Thank you, Mr. Baker.
    In fact, I have done what you suggested to our leadership, 
urged that to happen. And as I said in my opening remarks, I 
had hoped we would do that. I would agree with you.
    Mr. Baker. However we can bring focus to bear from our 
side, Mr. Chairman, I want to be of help.
    The Chairman. Thank you.
    Mr. Space, any opening remarks?
    Mr. Space. No.
    The Chairman. Mr. Bilirakis.
    Mr. Bilirakis. No.
    The Chairman. Thank you for growing some hair before you 
returned here. It was not a pretty sight before.
    Mr. Violante, thank you for being here. I know it is 
unusual not to be surrounded by your comrades. I hope you can 
handle this one alone. You are speaking not only, of course, 
for the Disabled American Veterans for which you serve as 
National Legislative Director, but on behalf of the Partnership 
for Veterans Health Care Budget Reform.
    And because you represent that coalition, you will have 10 
minutes to present your views. And your written statement will 
be made a part of the record. Thank you for being here and 
thank you for your leadership on this.

STATEMENT OF JOSEPH A. VIOLANTE, NATIONAL LEGISLATIVE DIRECTOR, 
  DISABLED AMERICAN VETERANS ON BEHALF OF THE PARTNERSHIP FOR 
               VETERANS HEALTH CARE BUDGET REFORM

    Mr. Violante. Thank you, Mr. Chairman and Members of the 
Committee. Thank you for this opportunity to testify on the 
future of veterans' healthcare funding.
    I am testifying on behalf of the Partnership, as you said, 
for Veterans Health Care Budget Reform made up of 9 national 
veteran service organizations (VSOs).
    Firstly, I would like to begin by thanking you, Mr. 
Chairman, and all the Members of this Committee for holding 
this hearing.
    Fourteen years ago, the original Partnership for Healthcare 
Reform urged Congress to address and reform the basic 
discretionary appropriations system for funding VA healthcare.
    Today we remain unified in this position. We all agree that 
the VA healthcare system must be protected for millions of 
veterans who depend on it now as their only healthcare 
resources and will do so for many decades.
    As we have done several times already this year, the 
Partnership would like to acknowledge and applaud the support 
of this Committee and the Members of the House who have voted 
to increase VA healthcare funding in recent years and, in 
particular, for this year's prospective increase of $6 billion.
    But as has been noted, the new fiscal year, fiscal year 
2008, has already begun and we have no appropriation for VA. We 
are now in the third day of VA's functioning under a Continuing 
Resolution, a situation that has endured for 17 of the past 19 
years.
    Over the past 5 years, VA's appropriation has been late by 
an average of 105 days or 3\1/2\ months. How late will it be 
this year?
    Mr. Chairman, a lack of an appropriation means that none of 
the prospective increase for VA healthcare that you and your 
colleagues supported for fiscal year 2008 is actually helping 
veterans today. None of VA's directors or department heads can 
use the prospective increase in funding to improve the delivery 
of healthcare to veterans today. No new equipment can be 
procured. No new personnel can be hired. No services can be 
expanded.
    Despite the fact that the prospective increase is supported 
or at least not opposed by both sides of the aisle, both Houses 
of Congress and both ends of Pennsylvania Avenue, we still have 
no appropriation.
    In the past 19 years, we have had a Democratic President 
with a Republican Congress, a Republican President with a 
Democratic Congress, a Republican President with a Republican 
Congress, and a Democratic President with a Democratic 
Congress. And only twice could they get the job done on time. 
Even at a time of war when obligations to America's veterans 
are clearer than ever, VA healthcare funding is still late.
    Is there really any doubt that it is the system for funding 
VA healthcare that is broken?
    Mr. Chairman, today's budget process itself has basically 
paralyzed VA officials from more properly managing, planning, 
and operating the VA system. Not knowing when or what level of 
funding they would receive from year to year or how Congress 
would deal with policy proposals directly affecting the budget 
severely impairs their ability to recruit and retain staff, 
contract for services, procure equipment and supplies, and 
conduct planning and administrative matters across a wide path 
of necessary and even routine matters.
    Congress can only fully solve this problem by enacting real 
reform that results in sufficiency, predictability, and 
timeliness of VA healthcare funding. I want to repeat that 
again because it is important. Sufficiency, predictability, and 
timeliness of VA healthcare funding.
    In past Congresses, we have worked with both chambers to 
craft legislation that would solve this problem. The current 
version of that bill is H.R. 2514, the ``Assured Funding for 
Veterans Healthcare Act,'' introduced by the Honorable Phil 
Hare of Illinois and 77 original cosponsors including you, Mr. 
Chairman, and several Members of this Committee. The bill now 
has 85 cosponsors and the Partnership's full endorsement.
    Opponents of this reform have made a number of charges, 
specifically that it would create a new entitlement, that 
Congress would lose its oversight power, and that it would cost 
too much. The Partnership rejects these skeptics.
    Shifting VA healthcare to a mandatory status would not 
create an individual entitlement for veterans nor would it 
change the current benefit package. Many veterans today have 
private health insurance and would not seek VA care merely 
because of a change in the funding mechanism. Congress would 
retain all oversight authority. What the shift would do is 
remove politics from determining the budget for VA healthcare.
    Most importantly, the Partnership rejects the argument that 
it would cost too much. Funding VA healthcare is a continuing 
cost of war and our National defense.
    At a Senate hearing in July on the same subject, Dr. Ewe 
Reinhardt, a distinguished Professor of Economics at Princeton 
University pointed out that the increase in VA healthcare over 
the past decade is less than that of private healthcare 
systems, Medicare, and the overall national average for 
healthcare. Dr. Reinhardt made persuasive arguments for the 
proposition that the VA system can be sustained and is 
affordable and that it would be more efficient with funding 
through a mandatory rather than a discretionary system.
    I commend this testimony and that of other witnesses to 
this Committee.
    Mr. Chairman, our goal is to ensure sufficient funding is 
made available to provide healthcare services to veterans whom 
VA enrolls, no more, no less. Today and in the future, there is 
so much at stake. A young American servicemember wounded today, 
particularly one with severe injuries such as limb loss, 
blindness, or traumatic brain injury, must be able to rely on 
VA healthcare system for decades.
    The goal of the Partnership is for Congress to enact a 
long-term funding solution that guarantees all enrolled 
veterans will have a dependable VA system, not just today while 
the war is in the news, but far in the future when the 
headlines of these wars have faded from our National memory.
    Mr. Chairman, Members of the Committee, the Partnership is 
looking to this Committee to move forward with legislation to 
create a mandatory and guaranteed funding system for VA 
healthcare to become effective in 2009.
    If the Committee chooses a different method than offered in 
H.R. 2514, the Partnership will study that proposal to 
determine whether it meets our 3 key standards for reform, 
sufficiency, timeliness, and predictability. If that 
alternative measure meets our standards, the Partnership will 
support it with a great deal of enthusiasm and appreciation. If 
it does not, we will tell you why. The time for change is now. 
We ask all of you to please stand up for veterans.
    And, again, I know we are going to have testimony from 
other witnesses who are going to talk about this bill as an 
entitlement. And, again, I could not disagree more strongly 
that it is not an individual entitlement. It does not change 
the way in which VA provides care or to whom it provides care. 
So I would ask the Members of this Committee to understand that 
fact.
    Again, thank you for holding this crucial and long-awaited 
hearing. I will be pleased to answer your questions. Thank you.
    [The prepared statement of Mr. Violante appears on p. 46.]
    The Chairman. Thank you, Mr. Violante, and thank you for 
your long-time leadership on this.
    Mr. Stearns had some objections. One, I think, is not real, 
that is limiting this Committee or the Congress' flexibility. 
Obviously we could do whatever we want in addition to any 
assured funding or if any needs arise, we could act and change 
any formula. I do not think it in any way limits the 
flexibility.
    The one thing he did mention that I thought we ought to 
think about is the effect of the PAYGO rules. We are not in 
competition with other mandatory funding because all mandatory 
funding comes first.
    But in terms of any changes that may occur and offsets 
required, how would you answer Mr. Stearns' objection about the 
PAYGO situation?
    Mr. Violante. Well, my understanding is that PAYGO would be 
applicable, but Congress has a way of doing things that need to 
be done when they need to be done without following the rules 
that they have in place.
    You know, we have enough money for a lot of programs. We 
could certainly find the necessary money to support this change 
from a discretionary to a mandatory pot.
    The Chairman. Okay. By the way, another thing that we need 
to consider as a Committee because the situation is moving 
rapidly, is that the President asked for a supplemental on the 
war totaling almost $200 billion. That does not include the 
cost of the injuries produced by that war. And I think we ought 
to demand that the supplemental for the war include a 
supplemental for the warrior, even if it is long term. These 
costs obviously do not happen in the current fiscal year, but 
they are there.
    And I think the President and this Administration is vastly 
understating the cost of the war by not including the long-term 
effects that the war produces, including injured veterans. So I 
do hope we can move on this. As you know, there are 
institutional objections. But I would hope we would move on 
that.
    I would call on Mr. Buyer for his 5 minutes.
    Mr. Buyer. Thank you.
    A couple of things really jumped out at me when I read your 
statement. One of them in particular when you mentioned the 
``Balanced Budget Act of 1997'' and you blame the ``Balanced 
Budget Act'' on flatlining of budgets and, therefore, Congress 
created a system that put it into crisis.
    What a warped dimension in which you define the world back 
then. The reason I say that so strongly is I recall all this. I 
recall back in 1997 that what we did is we took the third-party 
medical collections that were going to the Treasury and we 
said, no, you, the VA, get to keep them. You do not recognize 
that point.
    The other point we did is in the ``Balanced Budget Act,'' 
we exempted the VA. We exempted the VA in ``Balanced Budget 
Act.'' So do not blame the ``Balanced Budget Act.''
    And you do not even mention them, i.e., the Clinton 
Administration. You do not do that at all. Now, I compliment 
the Clinton Administration, in particular Ken Kizer who was 
there at the time, and you know this, restructuring the 
program.
    But when you do not do those kinds of things in your 
statement, it bothers me. So I just want to bring that to your 
attention.
    The other thing is that very cleverly, you bring up Gail 
Wilensky or the Co-Chair of her task force. The reason I use 
cleverly is that you excerpted particular statements to make it 
appear as though that Presidential task force was in support of 
what you are advocating here today.
    Well, I have her testimony. So I go back to read her 
testimony on page 25. This is a hearing of the Committee of 
Veterans' Affairs, the First Session of the 108th Congress, 
June 3rd, 2003. In response to then Chairman Simmons, Ms. 
Wilensky testifies there is no recommendation for mandatory 
funding. Cleverly written in your statement.
    The other thing I would like to ask, is it not true that 
with mandatory funding, Congress would be able to change the 
funding formula or place caps on spending through the budget 
reconciliation language which would limit spending?
    Mr. Violante. I am sorry?
    Mr. Buyer. Is it not true that with mandatory funding, 
Congress would be able to change the funding formula or place 
caps on spending through budget reconciliation language?
    Mr. Violante. I am still having a problem. You are reading 
something that----
    Mr. Buyer. What I am saying is when we go through budget 
reconciliation with the House and the Senate, it addresses 
mandatory programs. So if we do not exempt the VA like we did 
back in the ``Balanced Budget Act,'' it is subject to caps. So 
I guess I will give it as a statement rather than as a 
question.
    Mr. Violante. Well, having VA exempted during the 
``Balanced Budget Act,'' I do not recall that because maybe it 
was on the mandatory side, but it certainly was not on the 
discretionary side because VA----
    Mr. Buyer. We did.
    Mr. Violante [continuing]. Did not receive any additional 
funding.
    Mr. Buyer. We exempted Social Security benefits, veterans' 
programs, net interest, and low-income programs.
    Is it not true that Congress would need to take money from 
other Federal programs or increase taxes to meet the increased 
share of the Federal budget going to the VA for healthcare if 
we adopted mandatory spending?
    Mr. Violante. Under your rules, you would. You would have 
to find savings from other programs or other avenues to save 
money.
    Mr. Buyer. Currently there are about 7.9 million enrollees, 
but only 5.5 million veterans are using the VA healthcare 
system. The mandatory formula is based on the number of 
enrollees in the healthcare system.
    Would we not be basing the budget on this extra 2.4 million 
veterans who do not use the healthcare system?
    Mr. Violante. Well, the way the formula is set up, the per 
capita basis is based on enrollees. I think if you were to 
change that formula, you could use unique patients or those who 
are using the system and probably still come out ahead of where 
we are now.
    But the idea was, I mean, obviously the per capita cost per 
enrollee is less than the per capita cost per user. So either 
way, it does not make a difference. You are still coming to the 
same end result.
    Mr. Buyer. I have had difficulty in getting the Disabled 
American Veterans as an organization to take a position on this 
Committee on a party line vote having overturned the Hartness 
decision.
    What is the position of the Disabled American Veterans with 
regard to denying a pension benefit to wartime, elderly, 
indigent, disabled, or homebound veterans?
    Mr. Violante. Mr. Chairman, as we have explained to your 
staff and we are in the process of responding to you in 
writing, DAV does not take positions on pension issues. We do 
have concerns and we have shared that with the leadership of 
the House that we would not like to see the funds taken from a 
change in the court ruling in Hartness to be used for other 
than U.S. veterans programs.
    Mr. Buyer. Thank you.
    I yield back.
    The Chairman. Mr. Michaud, you are recognized for 5 
minutes.
    Mr. Michaud. Thank you very much, Mr. Chairman, Mr. Ranking 
Member, for having this hearing today because I think it is 
extremely important that we finally talk about mandatory 
funding or assured funding, whatever you want to call it, 
because I do think there is a problem out there as far as the 
timing when the VA receives their budget. And I think there has 
to be some assurance that they will get their budget on time.
    My question is, hearing your testimony that you are not 
really wedded to the idea in this legislation, you are more 
concerned about a process where we go from here on out and you 
are amenable to whatever that process is as long as it meets 
some of your criteria.
    When you look at the funding formula within the VA system, 
do you have any specific recommendations on how that could or 
should be changed?
    Mr. Violante. Yes. To answer your question, we are not 
married to that formula. There could be changes to it as I 
pointed out with Mr. Buyer. I think VA would be ahead of where 
it is now even if you were to change that formula to use the 
users or unique patients as VA refers to them in that equation.
    Senator Stabenow has introduced legislation over in the 
Senate that would create a hybrid which would provide a certain 
level of discretionary funding. Using the same formula, it 
would then determine what additional needs VA would need on 
October 1st. And they would know beforehand what that 
additional money would be and they would receive it on October 
1st.
    That is another means to accomplish what we are trying to 
accomplish and there are other avenues out there. Advanced 
budgeting comes to mind. There are other ways to ensure that we 
meet the sufficiency, timeliness, and predictability 
requirements that we have.
    Mr. Michaud. When you look at the Senate legislation 
compared to this one, which is DAV's or the organizations you 
represent, what is your preference, the Senate version or the 
House version or either one will do?
    Mr. Violante. Well, with the Senate version again there, it 
makes it a little more palatable for appropriators because they 
still have part of that money coming through their 
Subcommittees or Committees.
    For us, I think either one accomplishes our goals. The 
House version, H.R. 2514, certainly takes any of the politics 
out of it that could still go on with the Senate amendment if 
the appropriators decide to try to cut discretionary to match 
the increase in the mandatory side.
    Mr. Michaud. Thank you.
    I yield back, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Brown.
    Mr. Stearns.
    Mr. Stearns. Yes. Thank you, Mr. Chairman.
    And, Mr. Violante, thank you for testifying here. And I 
just assure you that all of us on both sides just want to do 
the right thing and we appreciate your courage for coming here 
to talk about this. You have your particular point of view.
    And as the Chairman mentioned, one of the concerns I had 
was the PAYGO rules. And I think you indicated that we should 
probably just waive those. You might have said it more 
diplomatically, but I think that is what you are saying.
    Mr. Violante. That would certainly be nice. It would help 
us immensely.
    Mr. Stearns. Yeah. Now, the Congressional Budget Office 
(CBO) has come out and indicated this bill would cost half a 
trillion dollars. And I guess the question would be, under that 
scenario, assuming they are approximately correct, where would 
Congress get this money under the PAYGO rules? And you can see 
that would be, even as the Chairman recognized in his comments, 
that still is a problem. And your solution would be, I guess, 
just to waive the PAYGO rule for the mandatory for veterans.
    Mr. Violante. That would be my suggestion. Now, again, this 
is Congress' rule.
    Mr. Stearns. Right.
    Mr. Violante. Not mine. I believe that regardless of what 
we do at this point in time, our government is going to 
continue to pay out money. I believe that half a trillion 
dollars is incorrect. I disagree with CBO's estimate on that.
    Mr. Stearns. Okay. I understand.
    Mr. Violante. But the thought is that this money is going 
to be paid out. Professor Bilmes from Harvard has said that the 
cost just for new veterans coming into the system over their 
lifetime is going to be $350 billion to $700 billion. 
Regardless of the price tag, we have to pay it.
    Mr. Stearns. On another matter, the Chairman has instituted 
these joint hearings between the Senate and the House to review 
the budget every year. But that would no longer be necessary. 
And I think as a Member of Congress and others probably enjoy 
those joint hearings, have the opportunity to talk about, and I 
think veterans have an opportunity to talk about their 
problems.
    Now, this particular mandatory spending, as I understand 
it, does not include construction or research. Is that your 
understanding?
    Mr. Violante. Yes.
    Mr. Stearns. Now, so construction and medical and 
prosthetic research would still be subject to annual 
appropriations is the way we understand it.
    So to use your own language in your opening statement, 
predictability, timeliness, reliability, still they would not 
be fulfilled under your opening statement because these two 
very important areas, research and construction, would have to 
still be appropriated. Is that the way you understand it?
    Mr. Violante. That is correct. And the thought behind that 
was to not include that in the mandatory program. We would not 
be adverse to it, but----
    Mr. Stearns. I guess my question is, would you like to 
include construction and research in the mandatory program?
    Mr. Violante. Certainly I think there is a strong argument 
that could be made for construction. But the thought was in an 
effort to keep down the overall costs of mandatory funding and 
to provide Congress with the discretion to work with VA on 
their needs for construction, it was left out of the 
legislation.
    Mr. Stearns. Yeah. And maybe the idea is that Members of 
Congress would like to have a say in their Congressional 
districts where this money is being spent. Many of them are 
touring the facilities. And if you leave it to the bureaucracy 
or the Veterans Administration perhaps the flexibility that I 
brought up in my opening statement would not be there.
    So I submit that getting these construction funding, 
updating for facilities that are important, I think is the 
responsibility of Congress and not the bureaucrats.
    The last area I wanted to talk to you about is the VA 
system, as many of us know, is inefficient in many areas. And 
my colleagues have had bills. We have talked about how long it 
takes for the appeal process and for the processing of claims.
    Do you think the efficiency would increase under a 
mandatory funding rather than us supervising overview, bringing 
the Secretary in, and talking about these problems?
    It seems to me that the care and performance and the 
innovative management that would be necessary might be lost 
under an automatic funding that Congress has no control over.
    Mr. Violante. I would disagree with that statement. I think 
it would provide Congress with more opportunity to do oversight 
to ensure that the money that VA was receiving was being 
properly used.
    Right now we spend an awful lot of time fighting on what 
that amount is going to be and there is not enough time spent 
on efficiencies. And I do not believe that just getting a 
mandatory funding stream will stop VA from trying to be 
efficient in spending this money wisely. And, again, Congress 
still has oversight of that.
    Mr. Stearns. My last point is just my experience here in 
Congress, the power of the purse is pretty powerful. If you 
control the purse, you control a lot better than if you do not. 
And I think we see that with our children. We see that in 
business that the power of the purse is such that you get 
things done better than if you just have automatic spending.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Ms. Herseth Sandlin.

      OPENING STATEMENT OF HON. STEPHANIE HERSETH SANDLIN

    Ms. Herseth Sandlin. Thank you, Mr. Chairman. I want to 
commend you for having this hearing.
    And I want to commend Mr. Violante for his testimony. I am 
1 of the 85 cosponsors of this bill and I am pleased to know 
that the DAV and the Partnership are open to other proposals 
because I think, you know, we are all trying to figure out a 
way to make the current system better. We are forming the 
budget process.
    We had hearings in the last Congress under Ranking Member 
Buyer that took a look at the formula and whether or not we can 
improve that formula given that at that time, there did not 
seem to be momentum behind the assured funding proposal.
    I think now, you know, in the world of PAYGO, those of us 
who want to move to mandatory spending recognize that that is a 
hurdle to cross whether, as you suggested, the rules are waived 
or whether, you know, there are some difficult decisions and 
taking a closer look at the CBO estimate based on how many 
years of spending over the next 5 we anticipate in 
discretionary spending. And, of course, looking at how we use a 
formula for predictability, as you state, is one of the key 
standards in how we reform this process is what we have to 
grapple with.
    And so I would just encourage you, Mr. Violante, and the 
rest of the Partnership while waiving PAYGO rules is always a 
possibility, we have not done it yet. And we want to make sure 
that we are working closely with you so that we can perhaps 
achieve both objectives, reforming this budget process and 
doing it within PAYGO.
    And so I would just encourage us to continue a dialog on 
how we move either to the assured funding bill of Mr. Hare's or 
Senator Stabenow's proposal and that is a hybrid to work 
through some of those other budget issues because in the world 
of PAYGO, it is the world of priorities.
    And I think we have done pretty well in this Congress of 
identifying priorities. We certainly have done it in the 
discretionary spending process as well that is reflected in the 
prioritization of healthcare for our Nation's veterans.
    But what we need to focus on today and next week and next 
month is how in this Congress, in the 110th, do we protect 
ourselves, the country, our veterans from the potential neglect 
in future Congresses of the need for spending on healthcare for 
veterans when the pressure is off, so to speak, when the 
current conflict ends and hopefully we are at a time of peace 
because care for veterans is a cost of national security 
whether we are at war or whether we are at peace.
    And that is why I think that this hearing is so important 
today, so that we can identify and reiterate the problems with 
the current system. As the Chairman said, it is reflected in 
the fact that it is October 3rd and we still do not have 
appropriations for fiscal year 2008 other than the Continuing 
Resolution.
    And as some of the questions already posed to you have 
indicated, there may be problems, similar budget pressures or 
even some political pressures that come into bear in a 
mandatory system, but do we improve the process by making it 
direct spending? Is it improvement to reform the process in 
that way because it does a better job of meeting sufficiency, 
timeliness, and, of course, the predictability that you 
mentioned?
    And I also appreciate the point that you made about 
oversight. We do spend a lot of time on a number of issues in 
this Committee. But in my opinion, in past Congresses, I think 
we have certainly been more aggressive in our oversight in this 
Congress, but it would free us up in some ways if it were 
mandatory spending to then get at the cost efficiencies, to 
really get it through oversight of how the money is being 
spent.
    I would raise, as an example, the issue of the money, the 
increases in money that we have spent for PTSD and mental 
health counseling for veterans. Some of the questions that have 
been raised since that money was allocated, how many case 
workers have they hired versus how many supervisors and people 
in mid-level management, how many people have been hired to 
actually treat the veterans day to day on the ground in the 
medical centers across the country.
    So as we raise those issues based on either changes to 
formulas or other decisions that we would make in the mandatory 
sphere, I agree with you that it would be an improvement, 
although not without some pitfalls that we have to be aware of, 
not without some problems in the budget process, but clearly an 
improvement from the current situation, particularly given the 
historical background that you provide at the outset of your 
testimony.
    So thank you. And, again, we will look forward to working 
with you on some of the issues, the hurdle of PAYGO to see if 
we can find a way across that as we continue to debate the 
proposals.
    Thank you, Mr. Chairman. I yield back.
    [The prepared statement of Ms. Herseth Sandlin appears on 
p. 44.]
    The Chairman. Thank you.
    Ms. Brown-Waite.
    Ms. Brown-Waite. Thank you, Mr. Chairman. Thank you very 
much for being here and presenting your views on mandatory 
funding.
    Jeff Miller from the panhandle and I go back and forth each 
year as to who has the highest number of veterans. So obviously 
veterans' care and veterans' healthcare is very important to 
both of us.
    Mandatory funding would obviously be very costly. And 
Representative Stearns mentioned the amount.
    Are you advocating an increased tax or I know it is 
Congress' role to find the money, but where would you suggest 
cutting?
    Mr. Violante. It is not my job. Again, I mean, that is 
Congressional rules that you have to deal with. My belief is 
that caring for veterans is a continuing cost of war. If we 
could find the money to continue to prosecute this war, we 
should be able to find the money to care for those men and 
women and or older generations of veterans who need this care.
    I mean, I cannot tell you, you know, to cut taxes or to 
increase taxes----
    Ms. Brown-Waite. It would be increased. It would not be 
cut.
    Mr. Violante. I mean, that is not what I am here for.
    Ms. Brown-Waite. Let me ask you a question. If we go home 
and we are talking to veterans' groups and, you know, mandatory 
funding really does sound like a good thing, it is kind of like 
the--in Florida, we passed Bullet Train until people found out 
how much it cost and then they quickly repealed it because 
taxpayers realized how much it would cost.
    So if I say to the veteran, well, it may require raising 
taxes, I do not think I would get a very positive response from 
the veterans in my district. I do not represent a wealthy area. 
Maybe the other coast of Florida, maybe those veterans would be 
more inclined to say tax me more, but I do not think that 
because of the cost here.
    Now, have you considered anything such as a phase-in of 
mandatory funding?
    Mr. Violante. As I mentioned in my statement, we are 
willing to discuss any mechanism that will meet the 
requirements and that is sufficiency, timeliness, and 
predictability. If we can achieve those 3 goals, we do not care 
what is done to get us to that point.
    But the problem right now is, as I said earlier, we are at 
war. There is great support for the MilCon bill in both the 
House and Senate and we still do not have an appropriations 
bill. So something needs to change.
    Ms. Brown-Waite. Well, sir, obviously the people in charge 
have not taken that action. People have not even been appointed 
to a Committee for the conference. And that is wrong. I do not 
want to see the VA back to the 2007 funding. I want to see that 
increase there. That is obviously out of this side of the 
aisle's control.
    I think we have mutual goals in certainly wanting to have a 
healthcare system that is adequate.
    Before this hearing, I called my various hospitals and 
clinics and found that every OIF and OEF veteran is being seen 
within 30 days. And, you know, I would encourage other Members 
to do the same thing, to track that. And they are doing that 
with a growing population. And I am very glad to see that that 
is happening and I hope that it is happening around the 
country.
    And with that, Mr. Chairman, I yield back.
    The Chairman. Thank you.
    I am not sure that is happening around the country. There 
was, I think, an Inspector General's report on these waiting 
times and how they may be manipulated. And I know from personal 
testimony that some hospitals are responding to our concern for 
waiting times by just having people call back and not keeping 
any real list. So you cannot judge it----
    Ms. Brown-Waite. Mr. Chairman, if you will yield?
    The Chairman. Yes.
    Ms. Brown-Waite. I found the same thing. When I first got 
elected, I tracked this. I dogged it. And I was wise to what 
they were doing and the games that they were playing. Both 
Tampa, as well as Gainesville, know that we track this 
regularly. They are not playing the games. And I also checked 
with veterans in my district also.
    The Chairman. Thank you for your leadership there.
    Dr. Snyder.
    Mr. Snyder. Thank you, Mr. Chairman, and thank you for 
holding this hearing because this is an issue that is not only 
very important to veterans' groups and veterans and the 
Congress, but it is also very complicated.
    And I think you put together a series of panels today that 
helps sort this out involving both people within the veteran 
service organization community but also think tankers and from 
the VA because I think it is real important.
    I have just a couple questions. I tried to find it in your 
written statement. I think you used the phrase that agencies, 
the VA is severely impaired, I think was your word when it 
comes to hiring and those kinds of things. And I can understand 
that when you are not sure what your budget is going to be and 
you are trying to hire, you know, a cardiac surgeon or 
something and we think the funding is going to be there but we 
are not a hundred percent sure, it makes recruiting hard.
    But those kinds of concerns, I mean, it is a bit of the 
nature of government; is it not? You know, I think that is one 
of the arguments people argue for going to a 2-year budget 
cycle.
    The VA is not the only group that has that problem. Almost 
all of government has that problem whether it is State or 
Federal. And I mean, if we use that argument, we would say 
somehow we ought to go to a formula-like system where every tax 
dollar flows in, tax dollar flows out. We come in here and meet 
and nibble around the edges.
    Is that not kind of the nature of government, kind of some 
built-in inefficiency that is going to be hard to overcome and 
provide the kind of oversight and scrutiny that the public 
expects?
    Mr. Violante. Well, certainly it is the nature of 
government. But what we are talking about here are men and 
women, less than 10 percent of our population who have served 
our country and for whatever reason need the VA for their 
healthcare.
    I think that trumps any other issue that needs to be looked 
at aside from ensuring that young men and women who are 
fighting our wars are properly equipped.
    Mr. Snyder. Well, I mean, you know, I am a veteran. I share 
your concern about that, but I think we need to be careful 
about overstating. I would think the people that do food 
safety, I think the American public would not like all the meat 
inspectors to be laid off or food and safety inspectors.
    They want to know that toys are safe. That is a big issue 
right now. Do we have adequate funding. I think you can go 
through a lot of different branches of agencies and say, I 
mean, as a veteran who has a baby, these things that involve 
toy safety are important to me.
    So I think we need to recognize there is a built-in, 
inherent inefficiency of government that is part of the system 
of checks and balances. So when I hear you say severe 
impairment, well, maybe that is a bit of an overstatement 
because the reality is the funding is going to come through.
    I know we have got this discussion going on with a speaker 
about how to approach the President on these bills and his 
threats of vetoes on appropriations bills and what is the best 
package to put together. That is part of the dance that goes on 
in terms of coming up with what the American people expect from 
their elected representatives. But I do not know that there is 
any magic way of getting rid of that inherent inefficiency.
    With regard to the PAYGO rules, when you first suggested, 
and I understand that they could be waived, they are our rules, 
and there was a little bit of a snickering in the audience and 
the Members. The reality is the PAYGO rules are real rules. And 
I think you have probably been involved on the Armed Services 
Committee.
    I mean, I am no longer the Chairman of the Personnel 
Subcommittee, but those are real rules and, you know, the 
intent is that we will indeed pay for things. Good things for 
our men and women in uniform and their families, we are going 
to find a way to pay for that, and hopefully that does not run 
up the budget deficit.
    And so there are things we would like to do whether it is, 
you know, GI Bill or Survivor Benefit Plan or we had to deal 
with it on TRICARE and those kinds of things. We had to find 
money. That is why the President, when he comes out with these 
budgets with these efficiency wedges, it really puts us in a 
bind because we have to somehow find funding for those under 
our rules. And so they are not easily waived.
    And I think we will get to our second panel that will 
discuss the impact of PAYGO rules are both good and bad on 
mandatory funding, but it is not going to be a solution to that 
challenge if we were to go this route in Mr. Hare's bill just 
to say, well, we can just waive them because we certainly have 
not waived them on some of the issues that you and I probably 
are in agreement with with regard to some of the benefits for 
our retirees from the military.
    I think the research was mentioned. I think the staff 
pointed out under Mr. Hare's bill, research probably is 
included. It includes all the functions, but that is of great 
concern to a lot of Members of the Committee.
    But I appreciate you being here today because I think it is 
a very important issue. And you have certainly acknowledged the 
complexities of it.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Dr. Snyder.
    Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman. I want to thank you 
for holding this hearing and for the discussion that is 
occurring because this certainly is an important issue.
    I want to say that I agree with Mr. Snyder and I agree with 
Ms. Herseth Sandlin that the discussion between the two of them 
of the points that they raise are exactly the type of 
deliberative discussion that you need to undertake when looking 
at an issue like this.
    And I appreciate in your testimony that you recognize that. 
You have in your testimony even in budget years like this one 
when the anticipated level of funding for VA healthcare appears 
to be sufficient, your acknowledgement of the work that this 
Committee is doing and that this Congress is doing in rising to 
the need of funding what our veterans require.
    In looking at this, obviously we all struggle with the 
issue that nationally, everyone is currently aware and 
discussing the budgetary pressures on this country and whether 
or not we can withstand the spending levels that we currently 
have and how we are going to shift our priorities and/or find 
resources to fund those priorities.
    In that context, a proposal like this being brought forth 
at this time is certainly seen in that light and is, therefore, 
difficult.
    But on the PAYGO rules, one of the issues that obviously is 
throughout your discussion that you are responding to and even 
those that come after you on this panel, discussed the issue of 
the effect that this would have on increased spending. And the 
perception is that this would have additional and increased 
costs.
    Could you speak to that for a moment because I think the 
issue of undertaking increased costs at a time when we are 
acknowledging that, you know, our funding currently appears to 
be sufficient for what we are responding to, I know that 
remains a big concern.
    Mr. Violante. Thank you. You know, the problem is I think 
the factors that CBO is putting into their numbers. I mean, as 
I mentioned, we do not see a large influx of veterans coming to 
the VA for healthcare just because you change the funding 
mechanism. It does not provide them with anything different.
    So I think in that regard, they are inflating the number of 
veterans who will come and use the system and we disagree.
    And, again, to get back to, you know, the PAYGO rules, I 
mean, there are areas that Congress can go after. There is, you 
know, pork barrel spending that uses almost as much as or more 
than we pay for VA healthcare. It is just a matter of where our 
priorities are and are we ready to make sure that veterans do 
not have to wait extended periods of time to receive their 
healthcare.
    Mr. Turner. And you certainly do have that commitment by 
everyone sitting on this Committee. But it certainly is 
important to discuss this.
    And, Mr. Chairman, I really appreciate you having brought 
this forward because the security of funding and how it impacts 
the agency year to year is one that needs to be addressed 
regardless of whether or not this bill is adopted. So thank 
you, Mr. Chairman.
    The Chairman. I am almost tempted to say I wish the concern 
with PAYGO was expressed when we come up with a supplemental 
for the war.
    Mr. Snyder. Is it appropriate to ask just a question of 
staff----
    The Chairman. Go ahead.
    Mr. Snyder [continuing]. Because Mr. Violante said 
something, and I get confused real fast on these PAYGO rules, 
when he talked about pork projects which is appropriate. I am 
not getting on to you about that at all. We all have our own 
projects that we would just as soon not see in the budget or 
somebody else's project. We want ours in.
    But can the staff help us? If we go to a mandatory funding, 
almost all that we have referred to as earmarks, that is 
discretionary funding; is it not? And that would not be able to 
be a source, that would not under the PAYGO rules be an 
appropriate source of mandatory funding. Now, why is that? 
Because that is one-time money.
    And under the rules, we want to say--now, you have got to 
be honest with the American people--you have got to find an 
offset that will be there for whatever the rules say years to 
come. So I think that is one of those complexities. I 
understand why you would bring it up. But am I correct on that?
    Mr. Tucker. Yes, sir. To offset mandatory spending, you 
have to offset it with other mandatory programs.
    Mr. Snyder. And that is the challenge we have had in the 
Armed Services Committee trying to find, you know, SBP. We say, 
well, here is some funding. But, no, that is only good for 1 
year. Now, what are you going to do for the rest of us? So that 
is one of the challenges we have.
    Mr. Miller. Mr. Chairman.
    Mr. Rodriguez. Mr. Chairman.
    The Chairman. Mr. Rodriguez, please.
    Mr. Miller. Mr. Chairman, I have a question, I am sorry, 
before we get too far.
    I am confused by the statement that you made prior to Mr. 
Snyder talking about PAYGO for the war. Is that an implication 
that you support the tax that was just discussed yesterday or--
--
    The Chairman. Mr. Miller, you are so clever.
    Mr. Rodriguez. Mr. Chairman----
    The Chairman. No, it does not. But I would just say that 
you are getting away with not discussing how we are going to 
pay for the war.
    Mr. Rodriguez. Mr. Chairman.
    The Chairman. Mr. Rodriguez.

          OPENING STATEMENT OF HON. CIRO D. RODRIGUEZ

    Mr. Rodriguez. Thank you. I gather this is my 5 minutes. 
Thank you.
    Let me first of all say that, I guess on the PAYGO and on 
the war, if you look at the history, this is the first war, and 
I would ask you to look in the record, if I am wrong, I am 
willing to eat my words, but this is one of the first wars that 
we do not have a tax to pay for.
    And one of the things that we are failing to understand is 
that war and the security of the Nation and its veterans are 
the same so that in terms of responding to the needs, in terms 
of the equipment that they need and the services that they need 
during and after ought to be part of that process.
    And I am concerned. I mean, here we have an agency that has 
been with us how many decades, you know? You know----
    Mr. Violante. You mean the Department?
    Mr. Rodriguez. Yes.
    Mr. Violante. Since the thirties.
    Mr. Rodriguez. Since the thirties and, yet, we fail to fund 
it directly. That means that it does have an impact in terms of 
efficiency. It does have an impact in terms of what you can 
expect or not expect. And that to me, I find it as ridiculous 
and we have to come up to the plate.
    But we have to look at it from the perspective that these 
are our soldiers that were there when we needed them. They need 
us now, when they reach their twilight years or right after and 
we are talking about PAYGO. If we talk about PAYGO, my God, let 
us talk about the obligation that each one of us has here in 
addition to the young people that are out there fighting the 
war to pay for it.
    And, you know, if we do the right thing, part of this is 
also if you look at it in conjunction with our veterans, it 
also reflects on the difficulty of trying to get young people 
to sign up to defend this country because of how we treat those 
veterans after they return. That is part of it.
    None of us want to look at a draft. But, my God, you know, 
the way things are going. I just had a young person who is 
going to be going to Iraq for the fifth time, for the fifth 
time. And so is that right for them to carry that kind of 
burden? At what point do we look, and I know we are trying to 
get others to come in, but part of doing the right thing is 
taking care of them after they come back. And I know that is 
difficult to do.
    I think we can come to grips with, you know, some form of 
direct funding so that they can at least say this is how much 
we are going to get, but we also need an investment in 
ourselves in terms of our infrastructure.
    What happened in Walter Reed, I know it is not VA. It is 
the U.S. Department of Defense. But it is not an isolated 
situation. We got to do the right thing for our infrastructure, 
for our soldiers, just like we have to do the right thing for 
our infrastructure for this Nation as a whole.
    And part of this effort, you know, and I am real pleased 
that we have had an opportunity to begin to dialog about this 
issue which should have been dialogued a long time ago, and it 
is something that needs to happen.
    And I agree totally with PAYGO. But I also believe that 
part of the war is part of that effort. And that needs to be 
paid for. And I also believe that along with the supplemental 
is all the emergency items in terms of the disasters that are 
occurring in this country and also the number of soldiers that 
are coming back that we are not dealing with.
    And so I look forward to moving on this legislation. And 
whichever way it goes, I like the idea that you talked about in 
terms of something that is efficient, something that is 
predictable, and at least something that you ought to expect in 
terms of timeliness that ought to be there.
    And, once again, thank you. And I apologize. I am going to 
have to cut out and go to actually one of the Presidential 
debates that is occurring right now in the morning. But thank 
you very much for bringing forth that legislation. I look 
forward to it getting out of here and passing and doing the 
right thing that has not been done since its inception. Thank 
you.
    The Chairman. Thank you, Mr. Rodriguez.
    Mr. Boozman.

             OPENING STATEMENT OF HON. JOHN BOOZMAN

    Mr. Boozman. Thank you, Mr. Chairman. And, again, thanks to 
you and the Ranking Member for holding this hearing. It really 
is very important. We have talked about it for a long time and 
it has come up. And I appreciate your testimony.
    One thing that I guess is a problem for me, what I want 
very much is adequate funding for the things that we are trying 
to do. Mandatory funding does not necessarily mean adequate. I 
think that you and others would argue that some of our, you 
know, perhaps our pension that we are paying out for 
individuals, some of the disability payments that we pay out 
for certain things, those are mandatory funding in the VA 
system. And, yet, you could argue that, you know, they have not 
kept pace with time and they are not adequate. See what I am 
saying? In other words, mandatory funding has not solved the 
problem of adequate funding in those cases.
    So, again, I look forward to the rest of the panel and we 
can talk about these things. But what I want, like I say, very, 
very much is adequate funding. I do think, and I appreciate 
what Dr. Snyder, you know, said and agree with that, I think as 
we look at the hospital aspect, you know, we might have a 
little different situation.
    Now, with the highway bill, I am on Transportation, we do 
that over a 5-year period because highway projects are major 
projects that you need to have, you know, the surety in 
building roads, major projects that the funding stream is going 
to be there.
    So, again, I would be very interested in looking at, you 
know, maybe longer times for certain things or whatever. But 
like I say, it is a very, very good discussion to have and you 
have done a good job of representing the case that you are 
representing.
    So thank you very much. I really do not have any questions. 
You know, if you want to comment on that, that would be fine. 
Like I say, my concern is adequate and mandatory are not the 
same, you know, and I think we are confusing that, you know, as 
I hear the comments here. Again, I think we have got instances 
of mandatory funding within the system right now that are not 
right, you know, we need to raise that. That is a whole 
separate issue.
    So if we do that with the, you know, healthcare, then we 
are not talking necessarily about adequate funding.
    Mr. Violante. And I understand your comparison with 
compensation. I mean, that is in place and I know it is being 
looked at by the Veterans Disability Commission, which will 
report out today, which agrees with you, I think, because they 
are talking about a quality of life factor that should be 
added.
    But to get back to the healthcare side, I think if you were 
to take this formula and take it back to the year 2000 as if it 
would have passed then, I think what you would see is whether 
you used the formula with enrollees or with unique patients you 
are probably ahead of where VA is today or at any time during 
that period, so I think this formula, while it is not perfect, 
does address the adequacy also.
    The Chairman. Thank you, Mr. Boozman.
    Mr. Mitchell.
    Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman.
    And, Mr. Violante, I want to thank you for your service and 
for your testimony here today.
    The numbers that you cite in your written testimony for 
life-time cost of care for those injured physically and/or 
psychologically in Afghanistan and Iraq may be low in my 
opinion.
    Our Subcommittee heard testimony from some experts who 
estimated a trillion dollars, this was in May, if the war 
stopped then for the cost of life-time care for traumatic brain 
injury victims, PTSD victims, spinal cord, and amputation 
cases.
    And so I am very concerned that the American public has not 
yet been told loudly enough or by the right people or are not 
situated that it has registered with them that they can add 
that trillion dollars to the cost of whatever, you know, $600 
billion or whatever it is plus this latest request for $192 or 
approximately $200 billion more.
    And just by way of comment, you know, all of us up here 
have our projects that we may or may not consider pork barrel. 
Some of them in my case are to take care of the students who 
are children of West Point faculty, go to a school next to West 
Point in the Highland Falls school district which is only 
allowed to tax 7 percent of the surface area of the town 
because West Point and other Federal entities own 93 percent of 
the land area in that town.
    So their budget was just rejected because it was a 30-
percent increase and rather than having the children of West 
Point faculty educated in a school which has cuts in arts and 
music and increases in class sizes and out-of-date computer 
systems and so on and so forth, I asked for and was able to get 
a Member item or earmark or whatever you want to call it that 
would at least for 1 year, that is not assured funding, but for 
1 year to close the gap for that school and for those students 
and for those families.
    So some of these things, you know, the Guppy Museum and the 
Bridge to Nowhere, I think we can all agree on there are cases 
that are excessive or unreasonable.
    I just wanted to ask you a couple of quick questions about 
your testimony. Under the myths and reality section, you say 
that a myth under mandatory funding program, VA would no longer 
have an incentive to find efficiencies. And you answer that by 
saying the VA's central office would still be responsible for 
ensuring local managers are using funds appropriately and 
efficiently.
    Now, I am a sponsor of H.R. 2514, but I want to ask you 
still, how you think that the VA's CO, the central office, 
would be able to ensure the necessary incentives are in place 
to provide cost-effective care when budgets are determined 
solely on the number of veterans enrolled?
    Mr. Violante. Well, again, I do not think you would take 
that incentive away. Plus, as I mentioned earlier, I think it 
would free up more of Congress' time to provide oversight to 
ensure that VA was properly spending this money and looking for 
efficiencies that may be available.
    I just cannot believe that VA at any level would not care 
about trying to find ways to do it more effectively and 
efficiently regardless of how the funding is coming in.
    Mr. Hall. Okay. I just also wanted to say that, you know, 
in the short term in terms of finding offsets for PAYGO that we 
might consider the radar system in the Czech Republic for the 
anti-missile system in Poland as a possible lower priority than 
taking care of our veterans, especially in light of the fact 
that all the tests for that missile system have been rigged in 
a non real world way.
    But testing aside, in light of the concerns you raise about 
adjusting or augmenting the formula for mandatory funding once 
it is established, how confident is the Partnership that 
establishing a base of 130 percent of fiscal 2006 obligations 
would be sufficient?
    Mr. Violante. We think it is sufficient. In fact, again, 
looking at different mechanisms, I had my staff go back and 
take out that increase and do it as if the legislation had 
passed in 2001 or 2000 without that factor in there. And, 
again, VA is still ahead of where it is now regardless of how 
you change that formula or remove that.
    But that was built in to ensure that in the change-over 
period, the year before mandatory funding would actually come 
in, that VA would have a sufficient increase. I think now with 
the baseline being where it is at, that could be relooked at 
and Congress could determine what might be an appropriate 
increase for that interim period if you go that way.
    Mr. Hall. Thank you, sir.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Hall.
    Mr. Miller.
    Mr. Miller. This question may have been asked and this is 
serious. Can you help me understand what the holdup is in the 
conference process from the House side in appointing conferees 
budgetarily? And I am asking the question because, you know, we 
are past October 1st and we do need to move forward. Are you 
aware of what is going on, Mr. Chairman?
    The Chairman. No. Is anybody aware? No.
    As you know, you had the problem for the last 12 years and 
now we have the problem. And it is one of the wonderful 
challenges of divided government.
    Mr. Miller. But I mean, is not the issue right now that the 
Senate has appointed their conferees and we have not in the 
House?
    The Chairman. No. The issue is that the President has 
threatened to veto 10 out of the 12 Appropriations bills and we 
are trying to figure out a way to get the Appropriations bills 
passed and signed by the President.
    Mr. Miller. So both bills, the House has passed it and the 
Senate has passed it. The Senate has appointed their conferees. 
The House has not. And I am not trying to be political. I am 
really not.
    The Chairman. Come on.
    Mr. Miller. You know, I thought the process in this 
Committee, you might have been a little more forthcoming with 
Mr. Buyer not in the room with us because I am not trying to be 
argumentative. I do not know. And I am spooked about an omnibus 
bill. I think most all of us are. And I am just trying to find 
out why, you know, regardless of what the Administration says, 
I mean, we have to do our work. And you are part of the 
leadership and I am just wondering what the process is.
    The Chairman. Well, I mean, as I said at the beginning 
before you were here, I have personally urged that this bill, 
the bill containing veterans and military construction, go 
forward because the President agreed to sign it. So I----
    Mr. Miller. And I am glad you acknowledge that because the 
President has said that----
    The Chairman. Right. I would urge that that go forward now.
    Mr. Miller. Okay.
    The Chairman. The leadership has taken another position on 
that.
    Mr. Miller. And in this Committee and I think we all will 
agree, we all want to find the common ground to do the thing 
that is right. You know, we need to get past the jabs back and 
forth at each other. You know, yes, the war is unpopular in 
many instances and one side gets, you know, some traction out 
of supporting it. Some get traction out of not supporting it.
    But on this Committee, and I think we all will agree, we 
are trying to do what is best for the veterans' issues and we 
all have our own ways of getting there. And philosophically, I 
am sure that some of us agree and some of us do not agree. I 
hope that really we can sit down and work this process. And I 
know that you are committed to doing it and you know from 
discussions with Members privately that we are committed to 
doing the same thing. And I appreciate you holding these 
hearings so we have an opportunity to sit down in a public 
forum and air them. But, you know, I for one am hopeful that we 
all can move past the partisanship side of things and not 
accusing you or anybody. We are just as guilty on our side. I 
mean, let us get together and get this done and make it happen. 
And I know the Democrats and the Republicans are committed on 
both sides to making it happen.
    Thank you.
    The Chairman. Thank you, Mr. Miller. I would agree with 
your statement. Thank you.
    Mr. Violante, thank you so much for your part and your 
leadership of your coalition. And we will be in discussions 
obviously for quite a bit.
    Any last words before we call the next panel?
    Mr. Violante. Other than thank you for holding this 
hearing, I think it is an important first step in getting this 
dialog moving and getting this situation corrected. So I would 
like to thank you, Mr. Chairman, and all the Members of this 
Committee, for their time and effort on this issue.
    The Chairman. Thank you.
    Panel 2 consists of Henry Aaron, a Senior Fellow from the 
Brookings Institution, and Richard Kogan, a Senior Fellow from 
the Center on Budget and Policy Priorities. Thank you for being 
with us.
    Mr. Aaron, we appreciate your long holding of the homerun 
record and we are sorry that it has been broken. But you have 
landed apparently in good stead at the Brookings Institution, 
so we are happy to have you here. Make sure your button is 
pressed, the green light is on there, and you talk directly 
into the microphone.

    STATEMENTS OF HENRY J. AARON, PH.D., BRUCE AND VIRGINIA 
  MacLAURY SENIOR FELLOW, BROOKINGS INSTITUTION; AND RICHARD 
  KOGAN, SENIOR FELLOW, CENTER ON BUDGET AND POLICY PRIORITIES

                  STATEMENT OF HENRY J. AARON

    Mr. Aaron. Thank you. Thank you very much for inviting me 
today.
    Since you mentioned my homerun record, I was invited to 
play at a celebrity golf tournament by Phyllis George. 
Unfortunately I had to tell her that I do not play golf.
    The Chairman. Can you move it closer to you.
    Mr. Aaron. Let me begin by expressing my general agreement 
with the goals that Mr. Violante set forth. I am not going to 
read my testimony. I hope that it can be placed in the record.
    The Chairman. Without objection, it will be.
    Mr. Aaron. The late appropriations to which he referred 
that have been custom for so many years undoubtedly create very 
serious problems for all of the affected agencies.
    That said, the VA of late has been doing a very good job 
with the funding it has been given.
    In my testimony, I refer to a number of studies that 
indicate that despite the problems created by late 
appropriations, the VA now is delivering better healthcare than 
the average American receives. It is delivering better 
healthcare than the typical Medicare beneficiary receives.
    So, could things be better? Undoubtedly. Have they improved 
greatly? Yes, they have. And the standard of care delivered by 
the VA is quite high.
    In my testimony, I go at some length into the budgetary 
issues that are raised by a conversion from discretionary to 
mandatory of the Veterans Health Administration funding.
    A number of references have been made to the estimates of 
the Congressional Budget Office. Some may think they are too 
high. It is entirely possible they are too low. The logic 
behind them, however, I think, deserves some emphasis.
    The logic behind the CBO estimates that spending would 
greatly increase if the program was converted to mandatory 
status is that the VA would have powerful and noble motivations 
for trying to draw in and enroll as many additional veterans as 
possible. It would have such motivations because each new 
enrollee would bring additional funding that would enable the 
VHA to do the mission it has been charged with carrying out.
    This is not a suggestion of venal motivation. It is a 
suggestion that good administrators would try to secure 
additional funding to carry out the duties with which they are 
charged.
    The numbers that emerge from the CBO estimate, I think, 
should be compared to other additions to healthcare spending 
that Congress is now being asked to consider and that are going 
to be or already are highly controversial. Budgets are limited. 
We cannot spend as much as we want on everything. And tradeoffs 
have to be made. That is your job. You were elected to make 
them.
    But I suggested two comparisons with the additional funding 
that would result if CBO's estimates of the effect of switching 
to mandatory spending are correct.
    The CBO estimate is that on an annual basis, the added 
costs would be somewhere in the range of $45 to $50 billion a 
year over the next 5 years. Let me stress I have not seen a 
specific estimate of H.R. 2514. I tried to adjust the estimates 
put out a couple of years ago for H.R. 515 that was introduced 
in 2005. I may be too high. I may be too low in those numbers. 
They are in the ballpark, $45 to $50 billion.
    By comparison, we are currently embroiled in a major debate 
over whether we can afford an additional $7 billion a year for 
the Child Health Insurance Program. We will be embroiled in a 
big debate about whether to allow the full reductions in 
reimbursements to physicians under the Medicare Program to take 
effect. If instead physician fees are increased by 1 percentage 
point, that would cost an additional $5 to $6 billion a year.
    The question that I think we all have to address is what 
the tradeoffs are among those and other spending priorities 
that the Nation has. We each have our opinion on that matter. 
Mine is that the two alternatives, the State Children's Health 
Insurance Program (SCHIP) increase and the adjustment in 
physician fees, actually deserve higher priority than would 
result----
    The Chairman. Could you summarize your----
    Mr. Aaron. Yes, I will. I will [continuing]. By the shift 
in funding to mandatory spending.
    [The prepared statement of Mr. Aaron appears on p. 52.]
    The Chairman. Mr. Kogan.

                   STATEMENT OF RICHARD KOGAN

    Mr. Kogan. Mr. Chairman, Mr. Stearns, thank you for 
inviting me to testify on how healthcare for veterans should be 
funded in the future.
    Let me start by acknowledging that I am not an expert on 
veterans' healthcare. I am, however, an expert in the 
Congressional Budget process.
    Is the funding for veterans' healthcare more likely to be 
adequate and predictable if it is converted to an entitlement 
payment? My answer is that we simply cannot know for sure. This 
answer is intended as a caution, a yellow light, not a red 
light.
    Let me explain. Under the current budget process, veterans' 
healthcare competes against a range of other discretionary 
programs, education, transportation, natural resources, so on. 
Converting veterans' health funding into an entitlement is 
intended both to increase the amount of veterans' healthcare 
funding and to shield it from the competition I have just 
described.
    But if veterans' healthcare were converted into an 
entitlement, current budget rules would prohibit Congress from 
ever enacting legislation to make that entitlement payment more 
generous unless Congress simultaneously made offsetting cuts in 
some other entitlement or raised an equal amount of taxes. This 
is the Pay-As-You-Go rule.
    Let me play out some of the ramifications of the Pay-As-
You-Go rule. Firstly, converting veterans' healthcare into an 
entitlement would by itself violate that rule. Note that the 
elimination of discretionary funding for VA healthcare does not 
count as an acceptable offset.
    Second, because the Pay-As-You-Go rule puts high barriers 
in the way of any future entitlement increases, you had better 
be sure that the formula is adequately generous to begin with.
    Okay. Let us assume that a PAYGO waiver is granted, the 
President's opposition is overcome, and a bill as generous as 
H.R. 2514 is enacted. This leads to my third point.
    The Congressional Research Service, CBO, the U.S. 
Government Accountability Office, and others would then issue 
studies pointing out the relative generosity of the new 
veterans' healthcare entitlement. The desire of governors or 
physicians or Congress to increase Medicaid or Medicare or 
SCHIP funding may then tempt Congress to look to reductions in 
this new generous veterans' health entitlement as a source of 
PAYGO offsets.
    Most significantly, any extension of the Bush tax cuts is a 
tax cut relative to current law because those tax cuts were 
enacted as temporary. Therefore, any extension of the Bush tax 
cuts entails finding PAYGO offsets. If you succeed in 
establishing a veterans' healthcare entitlement formula that is 
as generous as the advocates hope, it may well become a 
tempting source of offsets for those hoping to extend some or 
all of the Bush tax cuts.
    More generally, as I see it, if you convert veterans' 
healthcare into a more generous entitlement, you would get a 
bigger boat to sail in, but by moving in the Pay-As-You-Go 
ocean, the water may become deeper, the voyage stormier, and 
the sharks bigger and hungrier.
    Okay. Let us go beyond the Pay-As-You-Go rule. It is just a 
rule. Maybe it will be repealed. The Republicans in Congress 
did not like it over the last 3 or 4 years. If they regain the 
Majority, perhaps it will be repealed.
    Nonetheless, experts who examine overall budget trends are 
unanimous that eventually taxes will have to be raised or 
budget programs will have to be cut or some combination by very 
substantial amounts.
    Respected columnists who popularized this grim long-term 
outlook, people such as David Broder or Robert Samueleson, 
habitually call it an entitlement problem. One effect of this 
simplified style of discourse is that it leads to simplistic 
and destructive so-called solutions.
    For example, a very tight entitlement cap included in the 
``Family Budget Protection Act'' endorsed by the Republican 
Study Committee. That cap would be so tight that very 
substantial cuts would be required in entitlements each year to 
avoid a breach and the cap is backed up by automatic annual 
sequesters.
    Whether or not Congress enacts such an entitlement cap, it 
may create an entitlement commission or the leaders of Congress 
may sit down with the new President to negotiate a mega deal 
including tax increases and entitlement cuts.
    In that case, new discretionary caps would surely be 
negotiated, but a discretionary veterans' health program would 
not be specifically targeted and would remain free to compete 
with other discretionary programs.
    A veterans' health entitlement, however, would be on the 
negotiating table along with Medicare and Medicaid and SCHIP 
and cuts in other entitlements and tax increases. The funding 
for this veterans' healthcare entitlement would be decided by 
those negotiators.
    Moreover, Congress would presumably use the existing 
Congressional Budget process to implement whatever deal is 
negotiated. That budget process includes the reconciliation 
process, a reconciliation directive in which selected 
Committees including this Committee could be directed to cut 
entitlements in their jurisdiction by specified amounts. If 
Committees do not meet their reconciliation targets, the Budget 
Committee makes the cuts instead.
    All the cuts from each Committees are then combined into an 
omnibus reconciliation bill managed by the Budget Committee. In 
the Senate, this reconciliation bill is protected from 
filibuster.
    In short, in the world of entitlement caps or leadership 
mega deals, you run two great risks. You may lose control over 
your own programs and in any case, the tide of required cuts 
may sweep over even popular programs such as veterans' 
healthcare. Cuts in veterans' health entitlement might become 
just a single title in an omnibus fast track, must-pass bill.
    Mr. Chairman, let me close with one short observation. The 
long-term pressures on Federal programs come about because of a 
threatened explosion of Federal debt. Advocates in favor of 
Federal programs including the Partnership must also become 
advocates of the taxes needed to finance those programs.
    Even if there are no Pay As You Go rules, simple arithmetic 
and elementary economics demands this outcome. If you desire 
effective Federal programs but are unwilling to pay for them, 
then you ultimately will not get them. You cannot be pro-
veteran and anti-tax, at least not using honest arithmetic.
    Thank you very much.
    [The prepared statement of Mr. Kogan appears on p. 57.]
    The Chairman. Thank you very much.
    We are having votes very shortly, so I will have just one 
quick question, Mr. Kogan and Mr. Aaron.
    You said a lot about, you know, is this going to work and 
you really spent most of your time giving the negative aspect 
of it. However, the problem is not only veterans' group, but 
the VA itself where they deliver the service have been forced 
to operate with inadequate budgets because Congress has not 
done its job in passing the budget.
    So my question is, how do we solve the problem? If you do 
not like the bill before us today, what is your solution?
    Mr. Kogan. Let me perhaps disabuse you of one assumption. I 
think that if veterans' healthcare is to be made an 
entitlement, the bill before you, H.R. 2514, is a rational and 
thoughtful way to do it, perhaps overly generous.
    The whole point of my testimony was not that it was a bad 
bill or even that it is inappropriate to set a per capita cap 
funding mechanism for our veterans' healthcare, not at all.
    My whole point is that under normal budget processes, that 
does not free you from risk. It does not free you from 
competition and that the competition you will be in may be a 
big and frightening competition in which the decisions are made 
not by this Committee but by mega negotiators who are operating 
over your heads.
    The Chairman. Would you comment on, I believe, Mr. 
Boozman's suggestion whether or not we should go to a 2-year 
budget or a 5-year budget and update the budget as we go along 
so the VA will know that they will have adequate funding?
    Mr. Aaron. Actually, Mr. Kogan and I have been having an e-
mail traffic over the past couple of days on this very subject. 
That was a possibility that I suggested as an imperfect step in 
the direction of dealing with the very real problems that you 
have described.
    What I had in mind was not what is conventionally called a 
2-year budget but a rolling 2-year budget so that each year, 
you appropriate for the current or the prospective fiscal year 
and the one after and the next year, you revisit the second 
year and then add in another.
    That approach, it seems to me, ameliorates but does not 
completely solve the problems that you have been describing. 
Obviously you would face the political challenge of persuading 
Members of other Committees that your program deserved this 
treatment and theirs did not unless you were to reform the 
entire budget process.
    The Chairman. Thank you.
    Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Kogan, would mandatory funding ensure appropriations 
will be enacted on time because the first panel indicated he 
wanted sufficiency, he wanted predictability, he wanted 
timeliness? My question is, would mandatory funding do that?
    Mr. Kogan. Well, mandatory funding, of course, will not 
ensure that discretionary appropriations will be created on 
time. But every Continuing Resolution (CR) that I have seen for 
the last decade or so has included a proviso that all mandatory 
programs that otherwise flow through the Appropriations 
Committee automatically get whatever the mandate calls for. For 
example, Medicaid and food stamps are not at any risk merely 
because they are under a CR.
    Mr. Stearns. But you mentioned the loss of control, tide of 
cuts that would be swept over it because of omnibus budget 
bills. So you point out some very nuance but difficult things 
if mandatory funding is implemented.
    Mr. Kogan. That is right. In essence, I am suggesting that 
if the current appropriations process is viewed as a frying 
pan, the budget reconciliation process should be viewed as a 
fire and that you jump from one solving your frying pan 
problems, but jump into another problem, the reconciliation 
process used to implement mega deals or even mini deals or even 
to avoid entitlement caps which is also slow, difficult, and 
political.
    Mr. Stearns. Can I ask you to give a yes or no answer. 
Would you cosponsor the bill, Mr. Hare's bill to make the 
veterans' budget mandatory except for construction and 
research? Yes or no?
    Mr. Kogan. No.
    Mr. Stearns. Okay. That is all. Okay.
    Now, let me just say to my colleagues, he would not 
cosponsor this bill. This is a man who has 21 years on the 
staff of the Committee on the Budget of the United States House 
of Representatives and most recently as Director of Budget 
Policy. This is a man from his opening statement understands 
the nuances here and has the technical expertise that none of 
us really have to understand the implications. And he has given 
his reply.
    In all deference to this side, as I understand, you were 
under Democrats, you were working under Democrats.
    Mr. Kogan. That is correct.
    Mr. Stearns. So I mean, I admire your honesty here. At the 
same time, we have the majority of the Democrats on this 
Committee are supporting this mandatory.
    Now, Mr. Aaron, let me talk to you if you do not mind. I 
read your opening statement and it appears to me that you are 
saying, this is from your opening statement, against this 
background, should funding for the VHA be converted from a 
discretionary to a mandatory account. The answer, I believe, 
that it should not if I read your opening statement despite the 
genuine claim that veterans have on public support for their 
healthcare and excellent record and delivery of high quality 
care.
    So if I read this correctly, then you are also saying that 
you do not support the idea of mandatory spending.
    Mr. Aaron. I am not against the idea of mandatory spending. 
I was against this particular application of it.
    Mr. Stearns. Okay. So if I ask you the question yes or no, 
would you support the Hare bill for mandatory, what would be 
your answer?
    Mr. Aaron. I answered it in my testimony.
    Mr. Stearns. Yeah, no.
    Mr. Aaron. No.
    Mr. Stearns. No. Okay. Now, I say to my colleagues before 
we go to vote, the Veterans Administration is on the third 
panel. We might not get back. The Veterans Administration has 
come out against mandatory funding. They do not think it would 
be in the best interest of the veterans. That is what they are 
saying. And that is an important thing. They know their system. 
They have indicated here strongly that the mandatory funding 
approach would not give them the adaptation they need to take 
care of their veterans.
    So I think, Mr. Chairman, in light of these two remarkably 
well-educated and experienced individuals, they both indicated 
this particular bill, there might be others, this particular 
bill is not the bill that they would support. And I thank them.
    Mr. Chairman, I guess I have got maybe 30 seconds.
    Mr. Kogan, you know what entitlement means. You know what 
the word entitlement means. When I talk about entitlement for 
Social Security and Medicare, aren't I talking about a 
different type of entitlement than if I said entitlement for 
mandatory spending? Is there a difference, because with 
Medicare, you know, there is a fee-for-service involved?
    And what I am trying to understand is an individual 
entitlement to a payment for them, it is mandatory funding is a 
formula annually driven by payment to a government agency in 
this case. It is a government agency taking care of the 
veterans all paid for by government. Would this be a different 
type of entitlement? I am on to something, but I am not sure 
what it is.
    Mr. Kogan. No. You are on to something that is important. 
The word entitlement applies in both cases, but entitlements 
should appropriately be subdivided between individual 
entitlements which this would not be and entitlement payments 
to government units. SCHIP is an example of an entitlement 
payment to State governments. Individual people who are 
eligible for SCHIP nonetheless are not entitled to enroll if 
the States do not have enough money.
    Mr. Stearns. Okay. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Dr. Snyder.
    Mr. Snyder. Ms. Herseth Sandlin was here before I was.
    The Chairman. Ms. Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you. And I thank Dr. Snyder.
    Just for point of clarification, today's hearing is on 
funding the VA of the future, not specifically Mr. Hare's bill, 
although we appreciate your input and we appreciate your candid 
responses to Mr. Stearns' questions.
    But from your testimony, Mr. Kogan, while you may not 
cosponsor the bill if you were a Member of Congress, you are 
not sure. I mean, you are just pointing caution here. You are 
not necessarily sure that moving to mandatory spending would be 
worse than what we are doing. It may very well ameliorate some 
of the problems that we are facing.
    But the e-mail traffic between the two of you at least 
seems to reflect the fact that you would agree, would you not, 
that there are problems that we need to address and whether it 
is a complete restructuring and reform of the budget process or 
what we do in particular with veterans' healthcare spending, 
that there are better ways to do the budget than what we are 
doing?
    Mr. Kogan. Thank you for the opportunity you have given me 
to do more than say yes or no. Mr. Stearns must have been an 
effective prosecutor.
    The reason I would not have sponsored this if I were a 
Member of Congress, which will, of course, never happen, is 
twofold. Firstly, I think it is overly generous. And the second 
is that it is not paid for. I strongly believe, and the Center 
on Budget strongly believes, in the concept behind the Pay-As-
You-Go rule and its specific application in this case.
    However, if this bill were less generous and if it included 
a title raising taxes on me that fully paid for it and other 
people in my income bracket that fully paid for it, then I 
would be willing to cosponsor it because I do believe that 
mandatory funding in the form of capitation payments to a 
government agency that administers healthcare is in concept a 
pretty good way to go.
    Ms. Herseth Sandlin. Thank you.
    Mr. Aaron, did you have a comment?
    Mr. Aaron. Well, I just wanted to say that I think that the 
challenge that the VA faces looking into the future is a 
formidable one. They are doing invaluable work meeting our 
obligations to veterans and finding ways to fund that 
organization in a way that enables them to operate as 
efficiently as possible merits very high priority. And I would 
align myself with the comments that Mr. Kogan just made.
    Ms. Herseth Sandlin. Just because we do have pending votes, 
let me make the point that the broader issue here for the 
country and healthcare spending is the context I think that we 
have to evaluate some of this discussion in as well. And I 
would imagine that you are aware that the VA health system 
spending grew less rapidly than did spending in the rest of the 
U.S. health system in the past decade. At least some studies 
bear that out.
    And if you do want to comment on that issue, but also, Mr. 
Kogan, if you could just elaborate either now or in written 
testimony just what it is exactly about the proposal--well, 
maybe if you could just elaborate on overly generous, you know, 
to provide some specifics because I am a little wary about that 
statement when it comes to--I mean, what exactly is overly 
generous when it comes to ensuring adequate healthcare for 
veterans or, you know, we are having this discussion now on 
SCHIP, and so forth? Are we talking about the number of 
enrollees? Are we talking about the breadth of the services 
provided to veterans?
    Mr. Kogan. No. As I say, I am not an expert on veterans' 
healthcare. But when I looked at the CBO cost estimate of this 
bill or actually of the previous bill, H.R. 515, it struck me 
that it would provide real increases in resources totaling 
about 80 percent over 3 years before the funding would then 
start rising at a more moderate pace of about 5 percent per 
year.
    And it is not clear to me that the VA, the Veterans 
Administration, the Veterans Health Administration is currently 
underfunded by almost 45 percent which is what those numbers 
imply. Perhaps that was the case a few years ago. It is no 
longer the case now. And I think the first witness said as 
much. Given the higher base, you do not need as big a bump-up.
    Ms. Herseth Sandlin. Thank you.
    The Chairman. Mr. Boozman.
    Mr. Boozman. Thank you.
    Again, I appreciate your testimony. I think you have really 
given me good insight. And I understand these things are just 
not as simple as they appear on the surface.
    One thing you said, Mr. Kogan, is that you could not be 
anti-tax and be for veterans. And I guess are you saying if you 
look back at the periods in the country where taxes were 
higher, the veterans were taken better care of? I mean, that is 
as opposed to--I do not think that has anything do with it in 
the sense that it does and it does not. But it is a matter of 
priority more than anything else.
    But would you say that if you looked back over the periods 
when we had higher taxes that--Mr. Aaron, you know, just said 
earlier, and I agree totally, we have worked really hard in the 
last several years, everyone working together, Republicans and 
Democrats, to get the quality of the healthcare up, you know. I 
guess to me, that is an unfair statement.
    Mr. Kogan. I certainly do not know that much about the 
history of how veterans were taken care of. You know, I think 
of the very expansive GI Bill that occurred right after World 
War II and that seemed to be the greatest need at the time.
    But it is also the case that, and Mr. Aaron knows far more 
about this than I do, that the nature of medical care is 
radically different from what it was even 10 years ago, much 
less 20 or 30, and it is much more expensive.
    And if we as a nation are going to provide medical care 
through government financing in one way or another for 
Medicare, for Medicaid, for SCHIP, for veterans, for the 
military through TRICARE, ultimately, I think we have an 
obligation. Well, arithmetic and economics says that we cannot 
deficit finance that forever.
    And so unless we are going to eviscerate other Federal 
activities, transportation, healthcare, and so on, we have to 
fess up to the fact that if we like these, if we think these 
are good and worthwhile, then we should be willing to pay for 
them. I personally am. I may be the only witness who answered a 
question by saying raise my taxes.
    And if that is not a majority opinion among witnesses and 
among the public, that is fine. It is a democracy. But then the 
public has to settle for the fact that government services will 
not be as generous as they might otherwise want.
    Mr. Boozman. And, again, I am not being argumentative at 
all. I guess the only problem that I have with that statement 
is you could say, you know, if you are for children, you know, 
you cannot be against taxes. If you are for, you know, the 
transportation system that is wearing out in this country, the 
bridges and things like that, you cannot be against--but the 
reality is, and you with your budget experience much more than 
me, it is a matter of priority more than anything.
    And I think, you know, we are dealt the cards that we have, 
you know, as far as the money that we have. And that is the job 
of this Committee is to advocate for veterans regardless of 
the--you know, sometimes we do not necessarily agree with the 
funding stream, but, you know, you do the best you can with the 
moneys that are coming in. And that is to me more a matter of 
priority versus anything. But any interest that a guy has, you 
could say the same statement, you know, that you are against 
kids or you are against whatever.
    Mr. Kogan. You are certainly not the Ways and Means 
Committee. You simply do not have jurisdiction over the many 
entitlements that they spend money on and the many tax 
entitlements, tax breaks that they create.
    But if we look just at the latter, there is something like 
$600 to $800 billion per year in tax preferences and deductions 
and exemptions in the Tax Code that could be whittled away 
without raising marginal tax rates.
    That falls into the setting priorities framework which you 
have laid out. Yes, we have to choose. You cannot give 
everything to everybody. You cannot give every tax break that 
everybody wants or every government funding program that 
everybody wants without ultimately running into a collision 
that leads to a debt explosion.
    Mr. Boozman. Right. Again, thank you very much for your 
testimony.
    The Chairman. Thank you.
    Dr. Snyder.
    Mr. Snyder. Quick question for the record. I would like, 
Mr. Chairman, Mr. Violante to have the opportunity to respond 
in writing in response to my question, any rebuttal or 
discussion he or his group that he represents might have in 
response to these two good witnesses here. Make that a question 
for the record and work with staff and distribute it to the 
Members.
    Thank you.
    The Chairman. No problem.
    Since there are no other questions, I would like to release 
the second panel.
    We will be in recess for approximately a half hour till the 
votes are taken. Thank you.
    [Recess.]
    The Chairman. I would like to call this hearing back to 
order. We have our third and final panel for today.
    Paul Kearns, III, who is the Chief Financial Officer (CFO) 
for the Veterans Health Administration in the Department of 
Veterans Affairs; accompanied by Patricia Vandenberg, who is 
the Assistant Deputy Under Secretary for Health for Policy and 
Planning. I would like to welcome the third panel here today.
    And we will start off with you, Mr. Kearns.

   STATEMENT OF W. PAUL KEARNS III, FACHE, FHFMA, CPA, CHIEF 
    FINANCIAL OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. 
    DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY PATRICIA 
  VANDENBERG, MHA, BSN, ASSISTANT DEPUTY UNDER SECRETARY FOR 
HEALTH FOR POLICY AND PLANNING, VETERANS HEALTH ADMINISTRATION, 
              U.S. DEPARTMENT OF VETERANS AFFAIRS

    Mr. Kearns. Thank you, Mr. Chairman, for the opportunity to 
discuss the Department of Veterans Affairs current funding 
process for its medical program including budget formulation, 
Congressional appropriations, and alternatives to the existing 
process such as moving such funding to the mandatory side of 
the Federal ledger.
    Joining me today is Patricia Vandenberg, the Assistant 
Deputy Under Secretary for Health for Policy and Planning.
    I would like to request that my written statement be 
submitted for the record, and I have a few short remarks.
    The Chairman. Without objection.
    Mr. Kearns. Prior to the enactment of the ``Veterans 
Healthcare Eligibility Reform Act 1996,'' VA medical care 
budgets were based on past expenditures adjusted for inflation. 
This historic approach was inconsistent with the practices of 
large, integrated, private-sector healthcare plans which VA 
began to resemble as it transformed into an integrated system 
of care for providing a full range of comprehensive healthcare 
services.
    The VA decided to adopt the private-sector practice of 
using healthcare actuarial projections to predict future demand 
for healthcare services and incorporate those estimates into 
our annual budget request. This enables our budget request to 
account for shifting trends in veteran population, changes in 
demand for services, and escalating costs of healthcare.
    Our annual budget request is based on the VA enrollee 
healthcare demand model which develops estimates of future 
veteran enrollment, veterans' expected utilization for over 55 
distinct healthcare services, and the costs associated with 
utilization.
    This involves over 40,000 variables that are part of our 
budget estimate. The budget estimate includes the future demand 
for healthcare services based on private-sector benchmarks 
adjusted for unique demographic and healthcare characteristics 
of our veteran population and the VA healthcare system.
    Each year, the budget request is updated with the latest 
data on enrollment, healthcare service utilization, and service 
costs.
    VA believes that the use of actuarial projections for 
budget development is the most rational way to estimate the 
resource needs for our veterans and this approach is consistent 
with the private sector.
    Unlike the private sector, however, the VA must develop its 
budgets 2\1/2\ to 3 years into the future. Furthermore, VA 
receives its medical care budget in 3 separate appropriations, 
medical services, medical administration, and medical 
facilities.
    The Congress created the 3 appropriation funding structure 
in 2004 replacing the previous single appropriation structure. 
This change has significantly increased operational complexity 
without improving financial accounting accuracy.
    In addition, it has introduced unintended inefficiencies 
and increased complexities into VA's budget management 
processes and procedures.
    Two alternatives to the existing appropriation process are, 
first, to combine VA's current multiple appropriations into a 
single medical care appropriation and, second, to adopt 
mandatory funding.
    We believe a single appropriation for medical care would 
enable VA managers at every medical center and network to 
optimize resource flexibility and ensure the timely delivery of 
healthcare services to our veterans.
    We believe the other alternative, mandatory funding, would 
not be in the interest of our veterans because it is neither 
reflective of, nor adaptive to, the changes in our veteran 
enrollment priority levels, age, morbidity, mortality, and 
reliance on VA. And it does not address advances in the state-
of-the-art technologies in medical practice.
    VA believes that the current process of annual budget 
formulation provides the best methodology for estimating the 
budget needs for our Nation's veterans.
    Mr. Chairman, this concludes my prepared statement and we 
would be pleased to answer any questions you may have.
    [The prepared statement of Mr. Kearns appears on p. 60.]
    The Chairman. Thank you very much.
    So you believe the model that they are using now to 
determine the needs within the VA system is a pretty good 
model?
    Mr. Kearns. We do, yes, sir.
    The Chairman. Does that model get adjusted on its way 
through the process by the Office of Management and Budget 
(OMB)?
    Mr. Kearns. The model accounts for approximately 84 percent 
of our budget requests. The remaining 16 percent is developed 
separately. It is not in the model right now.
    However, when we get that total request, we submit it to 
the Department and to OMB and we have been very successful in 
the recent past of having that request honored.
    The Chairman. The 85 percent?
    Mr. Kearns. No. The entire, the 100 percent.
    The Chairman. The 100 percent?
    Mr. Kearns. Yes.
    The Chairman. If it is such a good model then and it is 
being adopted, then why have we seen such shortfalls?
    Mr. Kearns. I think the shortfalls you are referring to, 
sir, were in 2005 and 2006. At that time, we had proposed 
policies that were not able to be effected or implemented in 
the budget year. That also included the proposal for the 
enrollment fees at that time which were offset in the budget.
    We have stopped that practice in future budgets. In the 
budget for fiscal year 2008, we have stopped that practice. So 
I am referring to the most current submission that have gone 
before the Congress. We feel that we have corrected those past 
situations that created the budget shortfalls.
    The Chairman. So the current model you are using, when VHA 
and OMB, you, you have received what that model said you 
needed?
    Mr. Kearns. Yes, sir.
    The Chairman. You made reference to 16 percent. You said 84 
percent and 16 percent. What does that 16 percent encompass?
    Mr. Kearns. The 16 percent basically encompasses areas that 
we have not yet included in the actuarial projections. It is 
our long-term care, dental, and the CHAMPVA benefits. Now, we 
are moving as we go forward to try and attempt to include more 
of those areas under the model into the actuarial projections.
    I think Ms. Vandenberg can address that too.
    Ms. Vandenberg. Is there a particular question? I think 
that as Mr. Kearns indicated, we are attempting to migrate 
those services that are not currently covered by the model into 
the model.
    And we have seen over the last year, especially as we have 
been very vigilant in tracking the projected to actual 
experience, we are able to identify areas where there are 
variances and understand what gives rise to those variances. So 
the model definitely is evolving.
    The Chairman. And would you have any objection as you move 
forward in the next budget cycle to share with the Committee 
the actual model before it goes anywhere? If the Department is 
adopting it and OMB is adopting it, then there should be no 
problem where Members of Congress can actually see what is 
really go on. Would there be a problem sharing that with the 
Committee?
    Mr. Kearns. I would have to check with the Department. But 
from our perspective, no, sir.
    The Chairman. Part of the problem that we see, even if we 
do accept the model and provide the adequate funding within the 
budget cycle, it is the timeliness of when that budget comes 
about that in and of itself causes a problem within the veteran 
system.
    I have talked to different administrators throughout the 
country and timeliness is an issue. I am not sure. How do you 
think that we as Members of Congress can, if we accept the 
model and decide not to do the mandatory funding, how can we 
make sure that we have a system so that the funding is there in 
a timely manner?
    Mr. Kearns. Well, sir, we would greatly appreciate, as I am 
sure every other government agency would, having our budget on 
1 October. That has not been the case normally.
    We are subjected to the rules of the Continuing Resolution. 
And as long as it is not a protracted one, I think we will live 
within them. And we are hopeful that this year, the CR through 
the 16th of November will not go beyond that. But the longer 
the CR, there are challenges.
    The Chairman. Would you comment on having a, it was brought 
up earlier, a 2-year or a 5-year type of budget cycle that is 
not mandatory.
    Mr. Kearns. I think that is an interesting concept, sir, 
and certainly we are not prepared to address the specifics of 
it. We would have to see. But it certainly would be interesting 
to look at, I would think, and to evaluate.
    The Chairman. In your model, you said you do a model that 
is based on what, a 3-year or is it a 5-year model?
    Mr. Kearns. Well, we actually do out-year projections. But 
in the budget, we only use the budget year, sir, and then we 
update it each year.
    The Chairman. Okay. So if you used your 5-year model, said 
this is what the model is, we can say, well, this is a 5-year 
budget or a 3-year or whatever it is, and then as you update 
while waiting for the new budget cycle to come into effect, at 
least you will have some assurance that what your budget will 
be because Congress will already have passed, say, a 2- or a 3-
year or 5-year budget.
    Mr. Kearns. I think we would have to evaluate that. Like I 
said, sir, not knowing the specifics, I think it is an 
interesting concept, though, I mean, in principle.
    The Chairman. Okay. Let me try to clarify that thought 
process. I will just use a 2-year cycle. We will take, say, the 
model, this is what it is going to be for the next 2 years. 
Congress will pass an appropriation bill for 2 years. This is 
what it is. The next year, Congress will look at the update on 
the model for that second year and if it is changed, then we 
can pass a budget reflecting that change. However, if the 
budget is not adopted in time, you will operate under the 
initial budget.
    Now, under that concept, what is the downside?
    Mr. Kearns. Well, first of all, as I pointed out, the model 
does not address a hundred percent of the budget yet and it 
probably would not for the immediate future.
    The other issue would be probably the rules for CR would 
have to be modified or changed, the normal rules that we 
operate under for that second year, you know, assuming that 
there was no--but----
    The Chairman. But the budget would already be in place for 
that second year.
    Mr. Kearns. Okay. If it was appropriated that way, then, 
yes, sir. We would at least have that authority to operate 
under.
    The Chairman. You had mentioned all the departments are not 
a hundred percent in yet. What timeframe will it be to get a 
hundred percent of the Department into the formula?
    Mr. Kearns. I am not sure that we have got a specific 
timeframe. We are hopeful to include in this next year as we 
develop the fiscal year 2009 budget the dental portion, dental 
services into that. Then that would leave two other large 
pieces that would be outside.
    And right now we do not have any specific plans of how soon 
that could be incorporated. They are so different and distinct 
from the normal healthcare services that we just want to make 
sure that as we bring them in that we are doing the correct 
thing.
    The Chairman. Okay. I know some of the Members are still 
stuck on the floor, so I will turn it over if you have any 
questions you might have on the Minority side.
    Ms. Dunn. Well, just one question. You know, currently the 
way VA appropriations work, they fund not only the direct 
services to the eligible veterans, but the cost of the system, 
the facilities, construction, and so forth.
    Under, you know, a static mandatory funding formula, the 
costs would increase on factors outside the system like 
inflation, economic conditions, and so forth.
    Do you feel like that would create a mismatch between the 
amount of funding and the actual cost of running the veterans 
healthcare system?
    Mr. Kearns. I am not quite sure I understand the question. 
I am sorry.
    Ms. Dunn. Well, you use a budget model----
    Mr. Kearns. Yes.
    Ms. Dunn [continuing]. That looks at age, morbidity, and so 
forth.
    Mr. Kearns. Yes, we do.
    Ms. Dunn. But the funding formula under the mandatory 
system would be just based on the number of enrolled veterans.
    Mr. Kearns. And that is why we are concerned about that, 
that it is not as complex and would not pick up the nuances and 
the changes in our population and the services and be updated 
each year as ours is. And I think that is one of the concerns 
that we would have.
    The Chairman. Would you comment on the legislation that is 
currently pending over in the Senate as far as the hybrid 
legislation dealing with this.
    Mr. Kearns. I do not think we are prepared to do that at 
this time, sir.
    The Chairman. Have you seen it?
    Mr. Kearns. Not specifically, no, sir.
    The Chairman. I would be interested in your comment because 
I think there is a lot of interest to help, you know, with this 
problem year after year. And it is not any one particular 
party. I think both parties, we heard earlier, have been at 
fault. But I think there has to be some middle ground where we 
can work to make sure veterans do get the healthcare that they 
need in a timely manner.
    Counsel?
    Mr. Tucker. Yes. Two quick questions, Mr. Kearns.
    By necessity, you use data that is 2, sometimes 3 years 
old. For example, in the fiscal year 2008 budget submission, 
you had to use fiscal year 2006 actuals as part of your 
modeling. So obviously those figures have to be, what you are 
getting out of the model has to be, tweaked in order to address 
current situations, returning servicemembers, unexpected costs, 
things of that nature.
    And in addition, as you stated, only 84 percent of your 
budget really is accounted for by the model. There are concerns 
by many veterans' groups and many veterans that there are 
political decisions being made subsequent to what the model 
produces that tend to underestimate demand and lower your 
budget as it works through the budget process over in the 
executive branch.
    Can you comment on what steps you can take to ensure that 
what the model is providing is accurate and accurately reflects 
your needs for the coming year.
    Mr. Kearns. Well, regarding the age of the data, the data 
that we use, we began the budget process in the April, May 
timeframe as we develop our estimates. We used the most recent 
completed fiscal year at that time. So it is the most current 
data that is available.
    Part of the process is just the timeline that we need to 
develop and submit the budget to Congress. So we are using the 
most current data that is available.
    The other issue, based on the results of the experience 
that we had in 2005 and 2006, we have been working very closely 
since that time, since that occurrence with the Department and 
with OMB to monitor our execution of the budget, first of all, 
the development of the budget and then the execution.
    We meet monthly with OMB. So I think there is a much better 
understanding on both parts of the requirements and we have not 
experienced those types of problems since that time.
    Mr. Tucker. And if I may, sir, one more.
    Other than changing your appropriations account structure 
back to the one account, medical care account, as CFO of the 
VA, what are the 3 biggest concerns or issues or problems you 
have with the current funding mechanism, the discretionary 
funding mechanism? What are those? Do you have any suggestions 
on how to improve that mechanism and how to make your life a 
little easier and make the VA a little more effective and 
efficient?
    Mr. Kearns. I think the concern we addressed in our 
statement, the largest concern is not necessarily with the 
current process. It is with the budget structure, its the 3 
appropriation structure.
    It complicates operations particularly at the medical 
facility level. It has broken one, if you would, line of 
business which is healthcare delivery services into 3 
components as though they were separate and distinct and not 
interactive and, yet, if you are running the medical facility 
as a Director, you have to integrate all of those 3 components 
together as though they were one.
    So from that perspective, although we have been successful 
in working with the 3 appropriations structure, it has greatly 
increased the complexity at all levels of our organization. So 
that would be the one change I would suggest.
    Mr. Tucker. Any additional changes or is that just the one 
you can think of right now?
    Mr. Kearns. You know, we are comfortable with the current 
process. We would like much shorter CR periods if that is 
possible, too, I mean, as I am sure everybody would. But other 
than that, no.
    The Chairman. Actually, I do not want any CR periods. I 
mean, there is no reason why we should not get our work done on 
time. But, unfortunately, politics does enter into it 
regardless of who is in power.
    And I think it is very important that we look at what the 
goal is. And the goal is to make sure that our veterans receive 
the proper and adequate funding on a timely basis. And 
whichever way we can provide that, I think we have to look at 
it.
    One of the things I keep telling my staff all the time is 
to think outside the box. You know, there is a problem here. 
The problem is the VA is not getting their budgets on time. 
Sometimes it is inadequate. So how do you solve that problem? 
And that is what I would ask the VA to really look at. If you 
do not like the proposals in front of you, how can we deal with 
it that we can do that?
    So we are looking forward to working with you and want to 
thank you once again for coming here today and I also want to 
thank once again the previous two panels.
    If there are no other questions, the hearing will be 
closed.
    Mr. Kearns. Thank you, sir. We appreciate the support of 
the Committee. Thank you.
    The Chairman. Thank you.
    [Whereupon, at 12:49 p.m., the Committee was adjourned.]



                            A P P E N D I X

                              ----------                              

                 Prepared Statement of Hon. Bob Filner
             Chairman, Full Committee on Veterans' Affairs
    The Committee on Veterans' Affairs will come to order. I would like 
to thank the Members of the Committee, our witnesses, and all those in 
the audience for being here today.
    In general, there are two types of federal spending--mandatory, or 
direct spending, and discretionary spending. Discretionary spending is 
subject to annual Congressional determinations regarding funding 
levels.
    When we think about what the Federal government does, most of these 
activities are financed by discretionary spending. Direct spending, 
also known as ``entitlement spending,'' is governed by eligibility 
rules and criteria, and includes Medicare and Social Security.
    For fiscal year 2008, the House-passed VA funding bill provides 
$43.2 billion for discretionary spending, of which $37.1 billion is for 
the four accounts that comprise the Veterans Health Administration. 
This bill provides $44.5 billion for mandatory spending, including 
$41.2 billion for the payment of compensation and pension benefits.
    There is a widespread perception that the current manner in which 
we fund veterans' healthcare is broken, and must be fixed.
    The VA currently utilizes the ``VA Enrollee Healthcare Demand 
Model'' to estimate its healthcare needs.
    Although utilizing an actuarial model to predict healthcare 
spending may arguably be an improvement over the old system of 
utilizing a current services model, there are concerns that this model 
does not accurately reflect the true costs of caring for veterans.
    There are concerns that even if the model is accurate, decisions 
regarding budget requests made subsequently underestimate the real 
need. This leads to budget shortfalls as experienced by the VA in 
previous years, most notably in 2005 and inadequate budget requests, 
requests that must be augmented by Congress. The bottom line is that 
each year we see VA struggling to do more and more with a budget that 
does not quite keep up.
    In addition to concerns over the adequacy of the VA's healthcare 
budget, there are concerns that the failure to provide this funding at 
the start of the fiscal year hinders the VA's efforts to plan and to 
spend its resources in the most advantageous manner.
    These concerns have led a number of veterans' groups to propose 
that VA funding be switched from the discretionary side of the federal 
ledger and placed on the mandatory side of the ledger.
    VA healthcare funding would be provided subject to a formula. 
Proponents argue that by doing so, VA funding would be needs-based and 
removed from the vicissitudes of the annual budget process.
    This was a legislative issue championed by our former colleague on 
this Committee, Lane Evans. It is an issue now championed by the 
successor to Mr. Evans' seat, Mr. Hare.
    We do not debate VA funding in a vacuum--whether the VA is funded 
by discretionary or direct spending has long-term implications 
regarding our fiscal ability to fund veterans' healthcare and to meet 
the obligations that our government must meet.
    The Congressional Budget Office, in testimony before another 
Committee earlier this year, stated that VA medical spending would 
increase from $35 billion in fiscal year 2007 to $66 billion in 2025 
``or 88 percent cumulative real growth.'' This figure was 50 percent 
greater than the VA's assumptions. If VA's growth rate continued at the 
level of the growth of appropriations in recent years, then VA 
healthcare would ``triple in real terms, reaching $108 billion in 
inflation-adjusted dollars by 2025.''
    How will the VA fare in the future when forced to compete with 
other discretionary spending programs?
    There are concerns that as a nation we are facing a crisis in 
mandatory spending in the coming decades. In 2006, mandatory programs 
made up 53 percent of the federal budget, discretionary programs 38 
percent, and interest 9 percent. In 1962, discretionary spending made 
up 68 percent of the federal budget and mandatory spending 26 percent.
    The Administration claims, in its FY 2008 budget submission, that 
``by 2040 spending . . . on mandatory programs will crowd out all 
discretionary spending--for defense, homeland security, or education--
unless we take steps to reform these programs.''
    The Administration paints a bleak picture, a picture that may, or 
may not, be accurate. Are we indeed facing a future where discretionary 
programs like veterans' healthcare are at risk because of the explosion 
of entitlement spending? If the VA was funded by mandatory spending 
would it be affected by efforts to rein in mandatory spending in the 
future?
    The 110th Congress has instituted strict pay-as-you-go (PAYGO) 
mechanisms that require offsets for any new direct spending. There are 
concerns that in the future we may face mandatory spending caps or even 
discretionary spending caps as we struggle with moving the federal 
budget toward balance.
    Today, we begin the discussion on how best to fund the VA of the 
future, how best to meet the needs of returning servicemembers, and our 
veterans from previous conflicts. This may mean that we stick with the 
current discretionary funding mechanism, perhaps with an expectation 
that we will see more accurate budget submissions in the future, budget 
submissions that acknowledge the true costs of providing healthcare and 
do not, year-after-year, underestimate demand or rely on Congress to 
come up with extra resources because those resources have not been 
requested.
    Perhaps it is time, within the current discretionary funding 
framework, to explore how to increase alternative funding streams, such 
as seriously looking at the issue of Medicare subvention or increasing 
the effectiveness and efficiency of the VA's third-party collections 
efforts. Or maybe it is indeed time to fund VA healthcare in the manner 
that other federal healthcare programs are funded, by direct spending.
    The new fiscal year began on Monday. Both the House of 
Representatives and the Senate have passed historic increases for 
veterans' programs. Currently, the VA is being funded under a 
continuing resolution that is scheduled to run until November 16,2007. 
It has been over a decade since the VA did not have to rely on a CR. I 
am hopeful we will not face the situation faced earlier this year when 
the VA did not get its fiscal year 2007 funding in place until February 
15, 2007.
    Whichever method we ultimately decide upon, I know I speak for all 
of us that we are committed to finding a manner that accurately 
reflects the needs of veterans, and provides the VA with a steady and 
sufficient stream of resources to enable it to meet its requirements 
and care for our veterans.

                                 
   Prepared Statement of Hon. Steve Buyer, Ranking Republican Member,
         a Representative in Congress from the State of Indiana
    Thank you Mr. Chairman.
    Placing Department of Veterans Affairs (VA) healthcare under a 
mandatory funding program would subject it to PAYGO offsets and in put 
it in direct competition with Medicare and Medicaid.
    I cannot understand why some organizations are so eager to make 
such a radical change that would risk jeopardizing our Nation's largest 
and finest healthcare system.
    It's especially perplexing to me that some of these same 
organizations recommend a cautious, measured approach to fixing VA's 
claims processing system.
    Why would you recommend radical changes for a system that is widely 
praised by numerous sources, while recommending incremental changes for 
a system that, by your own definition, is in a state of crisis?
    The inconsistency is astounding . . .
    Mandatory funding for VA would create a new type of entitlement 
program, an entitlement program for the second largest department in 
the federal government, not an individual.
    I believe the downside to such a change, as so well-explained in 
Mr. Kogan's written testimony, outweighs the potential positives.
    Entitlements have great emotional appeal because they appear to 
offer something for nothing.
    On the surface, entitlement programs appear to offer a smooth 
funding process that is automatic.
    Entitlements are so politically appealing that it is tempting to 
expand them under the guise of providing an ever-increasing security 
blanket that makes our citizens more reliant on government programs.
    As Mr. Kogan will aptly points out, that is hardly the case.
    I would also note that Mr. Aaron from the Brookings Institute, 
hardly a bastion of conservatism, opposes mandatory funding.
    Proponents of mandatory funding ignore that the recent successes of 
the VA healthcare system took place under a discretionary funding 
system.
    Proponents of mandatory funding often cite Medicare and Medicaid as 
examples of how we should fund veterans' healthcare.
    I find it notable that Mr. Kogan refers to those programs as 
``stingy'' despite their entitlement status.
    Mr. Chairman, we must resist the urge to respond emotionally and 
risk making irrational changes that may jeopardize VA healthcare.
    Our obligation to provide care for our veterans can best be 
fulfilled if the funding system is within our jurisdiction where we can 
make necessary, rapid adjustments.
    I strongly oppose the notion of abrogating this responsibility.

                                 
         Prepared Statement of Hon. Stephanie Herseth Sandlin,
      a Representative in Congress from the State of South Dakota
    Thank you to everyone for being here. I congratulate Chairman 
Filner for holding today's hearing to examine one of the most important 
issues confronting this Committee and our Nation's veterans--the 
funding process for the Department of Veterans Affairs.
    I believe the increased level of funding provided by the House and 
Senate will go a long ways to helping address some of the VA's chronic 
problems. However, while the Department of Veterans Affairs and 
Congress have made some tremendous improvements to VA funding in recent 
years, there continues to be room for improvement and analysis of the 
process. This point is revealed by the fact that we have again begun a 
new fiscal year without the passage of a new VA appropriations bill.
    Now, as the wars in Iraq and Afghanistan are producing a new 
generation of sick and wounded veterans, it is time for Congress to 
address the adequacy, timeliness, and reliability of VA healthcare 
funding.
    I am pleased that we have the opportunity to hear from today's 
panelists and am grateful to have the opportunity to hear your 
suggestions and answers to the critical issues involved. I look forward 
to hearing your testimonies.
    Again, I want to thank everyone for taking the time to be here and 
discuss these important matters.

                                 
             Prepared Statement of Hon. Harry E. Mitchell,
         a Representative in Congress from the State of Arizona
    Thank you Mr. Chairman.
    I would also like to thank our distinguished panels for joining us 
today to discuss spending priorities for the VA going forward.
    We took a big step earlier this year by passing a VA appropriations 
bill which made the single-largest investment in veterans' healthcare 
in the 77-year history of the agency.
    I am very proud of that legislation, and I know it will make a 
difference in the lives of millions of veterans and their families.
    And while it represents an important step forward, I think we can 
all agree that we need to do more.
    This afternoon, the Veterans Disability Commission will release its 
final report, which will contain important recommendations for how we 
can ensure that all disabled veterans get the resources they need. Next 
week our Committee will have an opportunity to hear from some of the 
members of the Commission, and I am eager to hear about what they have 
found.
    Unfortunately, we already know that our veterans are facing a host 
of challenges. They're encountering increased wait times for care, 
questions about the safety of their personal information, and 
difficulties accessing their medical records from the Department of 
Defense, just to name a few. We have an obligation to work together to 
address these issues.
    We also have an obligation to provide the resources necessary to 
help veterans cope with the new and different kinds of injuries they 
are suffering in Iraq and Afghanistan. We need to ensure that they have 
access to treatments for traumatic brain injury and post-traumatic 
stress disorder, as well as the latest in prosthetic technology.
    We clearly have a lot of work to do, and that's why I am looking 
forward to today's hearing. I yield back.

                                 
                Prepared Statement of Hon. Jeff Miller,
         a Representative in Congress from the State of Florida
    Thank you, Mr. Chairman.
    Ensuring that the men and women of our armed forces, to whom we owe 
so much, have timely access to the best healthcare is of the utmost 
importance to me.
    As we look ahead to the future of VA healthcare, we see a new 
generation of veterans combined with veterans of past wars. These 
veterans will have different needs, and we must ensure VA has the 
resources and ability to serve all of their healthcare requirements.
    VA has faced tremendous challenges in the past few years with the 
rapid increase in demand for VA healthcare. VA's inability to meet its 
own access standards and the fiscal year 2005 budget shortfall has 
given rise to veterans groups to urge Congress to move VA healthcare 
from its current discretionary appropriation to a mandatory spending 
authority. They see this as a solution to avoiding uncertainties of the 
annual appropriations process and ensure all eligible and enrolled 
veterans may gain and retain access to VA healthcare programs.
    I believe it is the wrong solution. While it is understandable that 
groups would want ``guaranteed'' funding, there is no guarantee that a 
mandatory funding mechanism would enhance resources for veterans' 
medical care.
    Mandatory funding proposals would fund VA through a formula that 
takes into account the number of enrolled and veterans eligible for VA 
medical care, and the consumer price index. These concepts have not 
been tested, and to implement an untested formula could lead to 
significant risks and unintended consequences for veterans' healthcare. 
As the veteran population declines, it could even result in under 
funding VA healthcare in the future and threaten the long-term 
viability of the VA to provide care to the highest priority severely 
disabled veterans Further, these funding mechanisms do not provide for 
VA research or construction, which are integral pieces of the Veterans 
Health Administration. Under the current discretionary funding 
structure, Congress has acted to improve the VA budget process and 
passed record spending levels for veterans' healthcare.
    Our most effective tool for enforcing change at the VA is our 
legislative authority to hold VA accountable through the ``power of the 
purse''. A rigid mandatory funding formula would provide absolutely no 
incentive for VA to realize higher performance standards or maximize 
the use of its own resources.
    Mr. Chairman, our responsibility is not to take the politically 
appealing route-- it is to provide our veterans with a sustainable 
system of benefits now, and in the future. Especially at this time when 
our military is so heavily engaged in fighting the war on terror, 
Congress must retain the right and ability to oversee VA's healthcare 
system and adjust the level of funding to the rapidly changing needs of 
the veteran population.
    Thank you and I yield back the balance of my time.

                                 
             Prepared Statement of Hon. Ginny Brown-Waite,
         a Representative in Congress from the State of Florida
    Thank you Mr. Chairman.
    I want to thank all of our witnesses here today for testifying 
before this Committee.
    Under current law, the Department of Veterans Affairs' programs are 
funded through both mandatory and discretionary spending authorities. 
Cash benefit programs like compensation and pensions, survivor and 
readjustment benefits are examples of mandatory spending programs; 
whereas, VA healthcare, medical facility construction, medical research 
and administration costs are examples of discretionary funding.
    We are here today to discuss whether it would be financially 
prudent and in the best interest of veterans across the country to make 
VA healthcare programs a mandatory spending item. I know that VA 
healthcare experienced funding shortfalls in FY 2005 and FY 2006 and 
that this has led some to believe that in the future VA healthcare 
should be made into a mandatory spending program. Opinions vary as to 
whether this change would be a good idea or not, so I look forward to 
hearing what the witnesses before us today have to add to this debate.
    Once again, I welcome you to the hearing and look forward to 
hearing your thoughts on the issue before us today.

                                 
Prepared Statement of Joseph A. Violante, National Legislative Director
 Disabled American Veterans on behalf of the Partnership for Veterans 
                       Health Care Budget Reform
    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to testify today about the funding 
process for the Department of Veterans Affairs (VA) healthcare system. 
I am testifying not only on behalf of Disabled American Veterans (DAV), 
but also the eight other national veterans service organizations that 
along with DAV, make up the Partnership for Veterans Health Care Budget 
Reform: The American Legion; AMVETS; Blinded Veterans Association; 
Jewish War Veterans of the USA; Military Order of Purple Heart of the 
U.S.A.; Paralyzed Veterans of America; Veterans of Foreign Wars of the 
United States; and Vietnam Veterans of America.
    We would like to begin by thanking you, Chairman Filner, for 
holding this hearing, and all the Members of the Committee who are here 
today to examine the critical issues involved. For more than a decade 
the Partnership has urged Congress to address and reform the basic 
discretionary appropriations system of funding VA healthcare. We all 
agree that the VA healthcare system must be protected for millions of 
veterans who depend on it now as their only healthcare resource and 
will do so for many decades. Our hope is that today's hearing becomes a 
key moment toward achieving that goal.
    As we have done several times already this year, the Partnership 
would like to acknowledge and applaud the support of this Committee, 
your Appropriations Committee colleagues, and all Members of the House 
who have elevated VA discretionary healthcare funding over the past 
several budget cycles, and in particular for this year's prospective 
increase of $6 billion in additional healthcare funding. But, it can't 
have escaped the notice of anyone in this room that the new fiscal 
year, FY 2008, has already begun and once again we have no new VA 
appropriation. We are now in the third day of fiscal year 2008 without 
Congressional approval of a regular appropriation for the Department of 
Veterans Affairs, which is functioning under a Continuing Resolution. 
We have been in this same situation--beginning a new fiscal year 
without new VA appropriations--in 13 of the past 14 years. In fact, 
over the past five years, the VA appropriation has been late by an 
average of 105 days, or 3\1/2\ months.
    The lack of an appropriation means that none of the prospective 
increase for VA healthcare in FY 2008, that we are all so grateful for, 
is actually helping veterans today; and we have no idea when it will. 
None of VA's VISN Directors, medical center directors, clinic 
directors, or department heads can use the prospective increase in 
funding to improve the delivery of healthcare to veterans today. No new 
equipment can be procured, no new personnel can be hired, and no 
services can be expanded until Congress and the President finish their 
annual job of enacting VA's appropriation. Even at a time of war, when 
the obligations to America's veterans are clearer than ever, we cannot 
get the VA appropriation on time.
    Despite the fact that the prospective increase in funding is 
supported, or at least not opposed, by both sides of the aisle, both 
Houses of Congress and both ends of Pennsylvania Avenue, we still have 
no new appropriation. Is there really any doubt that the system for 
funding VA healthcare is broken? Even in budget years--like this one--
when the anticipated level of funding for VA healthcare appears to be 
sufficient, the lack of timeliness and predictability undermine the 
overall effect of those gains. That is simply intolerable. We hope that 
this Committee will agree that Congress can only fully solve this 
problem by enacting real reform that results in sufficiency, 
predictability and timeliness of VA healthcare funding.
    The problem is not just about how much, but equally if not more so 
about how the budget process works. Each year the President proposes a 
budget and accompanying policies for the federal government. Based on 
the Views and Estimates reports from authorizing Committees, including 
this Committee in the case of Budget Function 700, Veterans Benefits 
and Services, submitted to the Budget Committees, that Committee 
establishes a Concurrent Resolution as a blueprint to execute that 
budget. The Appropriations Committees allocates funds to carry out the 
purposes of that budget, guided by the Concurrent Resolution. The whole 
Congress and the President underwrite this system. It is intended to be 
a balanced system, and it works well in most cases. But for a variety 
of reasons, it no longer works in the case of VA healthcare.
    No matter how accurate and precise the formulation methodology for 
the VA budget may be, the budget process itself impacts the sufficiency 
of the final outcome. For example, although the federal budget process 
is designed to accommodate multiple reviews and approvals, it is 
cumbersome and long, requiring multiple levels of review (within the 
Veterans Health Administration; the VA; the Office of Management and 
Budget; Congressional Authorizing Committees (House and Senate); 
Congressional Budget Committees (House and Senate) and Congressional 
Appropriations Committees (House and Senate). At minimum, 21 months are 
consumed from initial formulation to the start of the fiscal year 
concerned. The final budget, after numerous tactical adjustments, often 
lacks a clear strategic direction. Updates in needs estimates during 
the 21-month span are not encouraged after review officials lock on to 
their approved levels. Finally, the enactment of the appropriations act 
is predictably late--as in our current dilemma for this fiscal year--
over issues unrelated to VA healthcare.
    Mr. Chairman, as a result of perennially inadequate budget 
submissions from Presidents of both political parties; annual 
Continuing Resolutions in lieu of approved appropriations; late 
arriving appropriations; offsets and across-the-board reductions; and 
the injection of supplemental and even ``dire emergency supplemental'' 
appropriations, VA has been unable to manage or plan the delivery of 
care to veterans as effectively as it could have done. We challenge 
this Committee to identify an American business that could operate 
successfully and remain viable if, in 13 of 14 consecutive years, it 
had no advance confidence about the level of its projected revenues or 
the resources it needed to bring a product or service to market, no 
ability to plan beyond the immediate needs of the institution day-to-
day, and no freedom to operate on the basis of known or expected need 
in the future. In fact, this has been the situation in VA, with 13 out 
of 14 fiscal years beginning with Continuing Resolutions, including 
this year, creating a number of conditions that are preventable and 
avoidable with basic reforms in funding. We believe that no commercial 
business in America could have withstood the degree of financial 
insecurity and instability VA has endured over more than a decade. The 
Partnership believes this situation needn't exist, and that Congress 
can make vast improvements with funding reform legislation.
    The wars in Iraq and Afghanistan are producing a new generation of 
wounded, sick and disabled veterans, and some severe types at 
polytrauma levels never seen before in warfare. A young American 
wounded in Central Asia today with brain injury, limb loss, or 
blindness will need the VA healthcare system for the remainder of their 
lives. The goal of the Partnership is to see a long-term solution 
formed for funding VA healthcare to guarantee these veterans will have 
a dependable system for the foreseeable future, not simply next year. 
Reformation of the whole funding system is essential so federal funds 
can be secured on a timely basis, allowing VA to manage the delivery of 
care, and to plan effectively to meet known and predictable needs. In 
our judgment a change is warranted and long overdue. To establish a 
stable and viable healthcare system, any reform must include 
sufficiency, predictability, and timeliness of VA healthcare funding.
    In past Congresses, we have worked with both chambers' Veterans' 
Affairs Committees to craft legislation that we believed would solve 
this problem, if enacted. The current version of that bill is H.R. 
2514, the Assured Funding for Veterans Healthcare Act, introduced on 
May 24, 2007 by the Honorable Phil Hare of Illinois and 77 original 
cosponsors, including Chairman Bob Filner and several other Members of 
the Committee: Representatives Corrine Brown, Stephanie Herseth 
Sandlin, John Hall, Michael Doyle, Shelley Berkley, Ciro Rodriguez, and 
Zach Space. The bill now has 85 cosponsors and the Partnership's full 
endorsement.
    We ask the Committee to consider all the actions Congress has had 
to take over only the past three years to find and appropriate 
``extra'' funding to fill gaps left from your normal appropriations 
decisions. Please also consider the Administration's efforts to explain 
to Congress why VA found itself deficient by billions of dollars in 
each of those years. These acknowledgements were often very reluctantly 
made. In one case, the President was reduced to formally requesting two 
VA budget amendments from Congress within only a few days of each 
other.
    Some Members have opposed mandatory funding claiming it would be 
too costly; however, the recent Congressional Research Service report 
to Congress detailing the running expenditures for the global war on 
terror since September 11, 2001, revealed that Veterans Affairs-related 
spending constitutes one percent of the government's total expenditure 
since that date. Without question, there is a high cost for war, and 
caring for our Nation's sick and disabled veterans is part of that 
continued cost. A report by a researcher at Harvard's Kennedy School of 
Government predicted that federal outlays for veterans of the wars in 
Afghanistan and Iraq would arc between $350 billion and $700 billion 
over their life expectancies following military service--an amount in 
addition to what the Nation already spends for previous generations of 
veterans. Thus, it is clear the government will be spending vast sums 
in the future to care for veterans, to compensate them for their 
service and sacrifice, but these funds will still only constitute a 
minute fraction of total homeland security and war spending.
    On July 25, the Senate Committee on Veterans' Affairs held a 
hearing on VA healthcare funding, the first hearing of its kind. A 
number of key witnesses testified at that hearing in addition to the 
Partnership, including the former Chairman of this Committee, the 
Honorable Christopher H. Smith; the former Under Secretary for Health, 
the Honorable Kenneth W. Kizer; four retired VA medical center 
directors; Mr. J. David Cox, National Secretary-Treasurer of the 
American Federation of Government Employees (VA's largest employee 
union); and, Dr. Ewe Reinhardt, a distinguished professor of economics 
at Princeton University. All the witnesses urged the Senate to reform 
funding for VA healthcare. In particular, we want to call your 
attention to Dr. Reinhardt's statement on VA healthcare and its place 
in American public policy. Dr. Reinhardt made persuasive arguments for 
the propositions that the VA system can be sustained and is affordable, 
and that it would be more efficient if funded through a mandatory, 
rather than discretionary system.
The Partnership Calls for Action
    Mr. Chairman, from today's hearing, after considering the testimony 
of witnesses here as well as those who addressed the Senate Committee, 
we ask the Committee in your fiscal year 2009 Views and Estimates to 
the Budget Committee that you notify them of your intention to report 
legislation creating a mandatory and guaranteed funding system for VA 
healthcare in 2009, and that you recommend that the Budget reserve 
sufficient funds to make that seminal change next year. If the 
Committee chooses a different method for effecting this change than 
offered in H.R. 2514, we will examine that proposal to determine 
whether it meets our three essential standards for reform: sufficiency, 
predictability, and timeliness of funding for VA healthcare. If that 
alternative fully meets those standards, our organizations will 
enthusiastically support it.
Historical Perspective and Further Justification for Reform
    In 1996, Congress passed the Veterans Healthcare Eligibility Reform 
Act 1996, Public Law 104-262, which changed eligibility requirements 
and that paved the way for improved healthcare for veterans. Greater 
numbers of veterans became eligible for healthcare benefits as a result 
of this Act. As P.L. 104-262 was moving through Congress, Dr. Kenneth 
W. Kizer, the then-Under Secretary of Health of the Veterans Heath 
Administration (VHA), submitted a major administrative reorganization 
plan to Congress under Title 38 United States Code, Chapter 5, section 
510(b). Since Congress expressed no disapproval of this proposal, this 
plan created 22 Veterans Integrated Service Networks (VISNs) \1\ to 
replace the VA's four regional management divisions.
---------------------------------------------------------------------------
    \1\ The creation of the new VISN's began in 1995 in anticipation of 
the passage of the Act.
---------------------------------------------------------------------------
    The decentralization of operations was seen as essential to prepare 
VA to function more effectively in manageable and integrated delivery 
networks--networks that would be more patient-centric and would rely on 
primary and preventive care rather than more intensive modes. 
Accentuated by authorities provided by P.L. 104-262, the VA healthcare 
system thereabout underwent significant reforms from an episodic and 
bed-reliant system of care, to one in which veterans were enrolled and 
could expect continuity of care and health maintenance, including 
preventive services. The shift in focus from medical intervention in 
diseases afflicting veterans, to primary care to maintain their health, 
reflected a broader trend co-occurring in America's private healthcare 
sector. The shift allowed VA to close thousands of unnecessary hospital 
beds while establishing new facilities called Community-Based 
Outpatient Clinics (CBOCs) to provide more veterans more convenient 
access to care.
    With encouragement from many Members of Congress as well as your 
Committee and national veterans service organizations, the VISNs 
outreached to veterans to enroll in a reformed VA healthcare system. As 
a result, millions of veterans enrolled in VA healthcare for the first 
time in their lives. A decade later, VA healthcare is a remarkable 
success story of how to transform a troubled and overburdened system 
into a state-of-the-art provider. Harvard University's School of Public 
Health and the National Quality Research Center at the University of 
Michigan have both scored VA at the very top of American healthcare 
systems in terms of patient safety and medical outcomes. Mainstream 
publications, including Time, Newsweek, US News and World Report, 
Business Week, The Wall Street Journal, New York Times, Washington 
Post, Fortune, and the Washington Monthly, have all written major 
stories detailing VA's transformation over the past decade. Their 
investigations have confirmed that VA today is the highest quality, 
lowest cost healthcare system in the Nation.
    While Congress intended veterans to be able to secure an improved 
continuum of care, P.L. 104-262 underscored that VA healthcare 
operations would still be dependent upon appropriated resources. \2\ As 
early as 1993, the Partnership urged Congress to ``guarantee'' funding 
for VA healthcare if Congress decided to reform eligibility for that 
care. Unlike other healthcare benefits available to non-VA 
beneficiaries, this VA benefit is not ``guaranteed.'' This has probably 
been the single most significant problem for VA during the past decade 
and the reason we appear here today. In sum, as a result of eligibility 
reform, veterans have been rewarded with a more integrated VA 
healthcare system, a more comprehensive healthcare benefit and high 
quality, safe healthcare services. However, gaining and keeping access 
to that system is a continuing dilemma due to the uncertainty of 
duration of an individual's enrollment, VA's hobbled planning from lack 
of secured and predictable funding; budgetary gimmicks employed by VA 
and Office of Management and Budget (OMB) officials. Additionally, 
because of the Administration's policies, VA officials are constrained 
from publicly stating their true needs.
---------------------------------------------------------------------------
    \2\ ``the extent and in the amount provided in advance in 
appropriations Acts for these purposes. Such language is intended to 
clarify that these services would continue to depend upon discretionary 
appropriations.'' Taken from the Committee Report (H. Report 104-690) 
of the P.L. 104-262.)
---------------------------------------------------------------------------
    Most importantly, eligibility reform eliminated fragmented care 
provisions in the statutes and enabled VA to appropriately streamline 
care for its veteran patients. It eliminated a tangled web of rules and 
internal VA policies that made individual healthcare eligibility 
decisions bureaucratic, complicated, confusing, and harmful to the 
health of veterans who depended on VA to meet their needs. Reforming 
eligibility corrected the artificial inefficiencies of the system, 
allowed it to treat more veterans, and enabled it to preserve the 
system, primarily for service-connected veterans, low income veterans 
and veterans with special needs. We believe that goal was, and still 
is, a sound one. Without question VA's success has led to unprecedented 
growth in the system, but we disagree with some who allege that 
eligibility reform created ``the current funding problem'' by enticing 
too many veterans to enroll. In our judgment, the problem is not 
eligibility reform, but inadequate funding through the discretionary 
appropriations process.
Pressure Builds on the System
    In 2002 VA placed a moratorium on its facilities' marketing and 
outreach activities to veterans and determined there was a need to give 
the most severely service-connected disabled veterans a priority for 
care. This was necessitated by VA's realization that demand was 
seriously out-pacing available funding and other resources, and 
service-connected veterans were being pushed aside as VA's highest 
priority. On January 17, 2003, the Secretary announced a ``temporary'' 
exclusion from enrollment of veterans whose income exceeds 
geographically determined thresholds and who were not enrolled before 
that date. This directive denied healthcare access to 164,000 so-called 
``Priority Group 8'' (PG8) veterans in the first year alone following 
that decision. To date over one million veterans have been denied 
access to VA healthcare under that policy. The then-Ranking Member of 
the this Committee was correct when, in response to the Secretary's 
decision to restrict enrollments of these veterans he stated, ``The 
problem isn't that veterans are seeking healthcare from their 
healthcare system--it's that the federal government is not making the 
resources available to address their needs.'' We agree.
    Mr. Chairman, the decision to exclude PG8 veterans from VA 
healthcare enrollment at the beginning of 2003 also must be taken into 
context. While VA was in the midst of unprecedented systemic--even 
revolutionary, change, Congress passed the Balanced Budget Act (BBA) 
1997, Public Law 105-33. That Act was intended to flat-line domestic 
discretionary federal spending, across the board, including funding for 
VA healthcare. As the effects of the BBA took hold during the three-
year life of that law, VA's financial situation shifted from 
challenging to that of crisis. In 2000, at the urgings of both this 
Committee and your Senate counterpart, Congress relented and provided 
VA healthcare a supplemental appropriation of $1.7 billion. 
Nevertheless, the 3-year funding drought built up conditions that could 
not easily be surmounted by one infusion of new funding. VA began 
queuing new veteran enrollees, the waiting list lengthened and 
rationing of care was commonly reported. Eventually, by 2002, the list 
of veterans waiting more than six months for their first primary care 
appointment inched toward 300,000 nationwide. Given an Administration 
that would not permit additional funding to stem the waiting list 
buildup, then-VA Secretary Principi, using the policy available to him 
by law, closed new enrollments of PG8 veterans and set out a plan to 
get the waiting list under control.
    Another consideration important to this discussion is that the BBA 
also authorized a 10-site ``Medicare subvention'' demonstration project 
within the Department of Defense (DoD) healthcare system as a precursor 
to the advent of Medicare subvention in VA. This program eventually 
failed in DoD and, later known as ``VA+Choice Medicare'' and later 
still, ``VAAdvantage,'' never got off the ground due to opposition from 
the Office of Management and Budget (OMB) and the Department of Health 
and Human Services. This failure meant that no Medicare funds would 
ever be received by VA for the care it had been providing (and is still 
providing) to fully Medicare-eligible veterans receiving care as 
enrolled VA patients, at a huge cost avoidance for the Medicare trust 
fund. At least 55 percent of VA's enrolled population is concurrently 
eligible for Medicare coverage. Many PG8 veterans, in and out of VA, 
would be Medicare eligible as well.
    Congress must also consider the implications of the anticipated 
policy change that would extend eligibility for all OEF/OIF veterans to 
access VA healthcare services from two to five years. In addition, 
changes in the weapons of warfare and advances in battlefield medicine 
have resulted in significant numbers of surviving, but traumatically 
wounded, servicemembers. The demands that are placing, and will 
continue to place on the VA system, including the need for expanded 
polytrauma treatment and rehabilitation programs, must be considered.
President's Task Force
    An additional perspective to consider with respect to your 
addressing funding reform is that of the President's Task Force to 
Improve Healthcare Delivery for Our Nation's Veterans (PTF). Dr. Gail 
Wilensky, Co-Chair of that task force, testified before the House 
Committee on Veterans' Affairs on March 26, 2003, two months following 
the exclusion of PG8 veterans from VA enrollment. She stated:

        ``It was clear to us that, although there has been a historical 
        gap between demand for VA care and the funding available in any 
        given year to meet that demand, the current mismatch is far 
        greater, for a variety of reasons, and its impact potentially 
        far more detrimental, both to VA's ability to furnish high 
        quality care and to the support that the system needs from 
        those it serves and their elected representatives.

                               __________
        Although we did not reach agreement on one issue in the 
        mismatch area--that is, the status of veterans in Category 8, 
        those veterans with no service-connected conditions with 
        incomes above the geographically adjusted means test 
        threshold--we were unanimous as to what should be the situation 
        for veterans in Categories 1 through 7, those veterans with 
        service-connected conditions or with incomes below the income 
        threshold.''

    While the Partnership supports opening the system to new PG8 
veterans who need care, we must surmise based on the above historical 
recounting and our analysis that the readmission of PG8 veterans to VA, 
absent a major reformation of VA's funding system, could stimulate and 
trigger a new funding crisis in VA healthcare. We are concerned whether 
sufficient health professional manpower could be recruited to enable VA 
to put them into place in an orderly fashion to meet this new demand. 
Also, VA's physical space may be insufficient to accommodate the new 
outpatient visits that PG8 patients would likely generate.
    The question about PG8 veterans reenrolling in VA healthcare is not 
a question only about them and their needs for healthcare. It is also a 
larger question about the sufficiency, predictability and timeliness of 
the current system of funding VA healthcare. Until those reforms are 
enacted to guarantee that on October 1 of each year, VA will have a 
known budget in hand, the means and methods to spend those funds in 
accordance with need, and that VA's budget will be based on a sound 
methodology, we are concerned about immediate readmission of PG8 
veterans.
    Mr. Chairman, we have heard over and again a number of reasons as 
to why converting VA healthcare to mandatory funding would fail, 
whether from the bill we recommended or through other models to achieve 
that goal. We list below some of those criticisms, with our response 
for your consideration. We hope you will review those issues as you 
consider this reform.

                           MYTHS and REALITY

    MYTH: Congress would lose oversight over the VA healthcare system 
if VA shifted from discretionary to mandatory funding.
    REALITY: While funding would be removed from the direct politics, 
uncertainties, and capriciousness of the annual budget-appropriations 
process, Congress would retain oversight of VA programs and healthcare 
services--as it does with other federal mandatory programs.
    Guaranteed funding for VA healthcare would free Members of Congress 
from their annual budgetary battles to provide more time for them to 
concentrate on oversight of VA programs and services.

    MYTH: Mandatory funding creates an individual entitlement to 
healthcare.
    REALITY: The Assured Funding for Veterans Healthcare Act would 
shift the current funding for VA healthcare from discretionary 
appropriations to mandatory budget status. The Act makes no other 
changes. It does not expand eligibility for an individual veteran, make 
changes to the benefits package, or alter VA's mission.

    MYTH: Guaranteed funding would open the VA healthcare system to all 
veterans.
    REALITY: The Healthcare Eligibility Reform Act 1996 theoretically 
opened the VA healthcare system to all 24 million veterans; however, it 
was never anticipated that all veterans would seek or need VA 
healthcare. Most veterans have private health insurance and will likely 
never elect to use the system. The Secretary is required by law to make 
an annual enrollment decision based on available resources. This bill 
would not affect the Secretary's authority to manage enrollment, but 
would only ensure the Secretary has sufficient funds to treat those 
veterans enrolled for VA healthcare.

    MYTH: Guaranteed funding for VA healthcare would cost too much.
    REALITY: Guaranteed funding under the Act would utilize a formula 
based on the number of enrolled veterans multiplied by the cost per 
patient, with an annual adjustment for medical inflation to keep pace 
with costs for medical equipment, supplies, pharmaceuticals and 
uncontrollable costs such as energy. The Act would ensure that VA 
receives sufficient resources to treat veterans actually using the 
system.

    MYTH: Veterans in Priority Group 7 and 8 are using up all of VA's 
healthcare resources; and it therefore costs too much to continue to 
treat these veterans.
    REALITY: Among the 7.9 million enrollees in the VA healthcare 
system, 2.4 million veterans from Priority Groups 7 and 8 account for 
only 30 percent of the total enrolled population, but use only 11 
percent of VA's expenditure for all priority groups.

    MYTH: The viability of the VA healthcare system can be maintained 
even if VA only treats service-connected veterans or the so-called 
``core group,'' Priority Groups 1-6.
    REALITY: VA healthcare should be maintained and priorities given to 
treat these veterans, since many of the specialized services they need 
are not available in the private sector. However, to maintain VA, a 
proper patient case mix and a sufficient number of veterans are needed 
to ensure the viability of the system for its so-called core users and 
to preserve specialized programs, while remaining cost effective.

    MYTH: Providing guaranteed funding for VA healthcare will not solve 
VA's problems.
    REALITY: With guaranteed funding, VA can strategically plan for the 
short-, medium- and long-term, optimize its assets, achieve greater 
efficiency and realize savings. VA continues to struggle to provide 
timely healthcare services to all veterans seeking care due to 
insufficient funding, and always uncertain funding beyond the 
operational year. The guaranteed funding formula in the bill provides a 
standardized approach in solving the access issue and permitting more 
rational planning.

    MYTH: Veterans healthcare should be privatized because the system 
is too big, inefficient, and unresponsive to veterans.
    REALITY: VA patients are often elderly, have multiple disabilities, 
and are chronically ill. They are generally unattractive to the private 
sector. Also, such patients pose too great an underwriting risk for 
private insurers and health maintenance or preferred provider 
organizations. While private sector hospitals have lower administrative 
costs and operate with profit motives, a number of studies have shown 
that VA provides high quality care and is more cost-effective care than 
comparable private sector healthcare. VA provides a wide range of 
specialized services, including spinal cord injury and dysfunction 
care, blind rehabilitation, prosthetics, advanced rehabilitation, post-
traumatic stress disorder, mental health, and long-term care. These are 
at the very heart of VA's mission. Additionally, VA supplies one-third 
of all care provided for the chronically mentally ill, and is the 
largest single source of care for patients with AIDS. Without VA, 
millions of veterans would be forced to rely on Medicare and Medicaid 
at substantially greater federal and state expense.

    MYTH: Under a mandatory funding program, VA would no longer have an 
incentive to find efficiencies and to supplement its appropriation with 
third-party collections.
    REALITY: Mandatory funding will provide sufficient resources to 
ensure high quality healthcare services when veterans need it. It is 
not intended to provide excess funding for veterans healthcare. VA 
Central Office (VACO) would still be responsible for ensuring local 
managers are using funds appropriately and efficiently. Network and 
medical center directors and others would still be required to meet 
performance standards and third-party collections goals. These checks 
and balances will help ensure accountability.
Conclusion
    In closing, Mr. Chairman and Members of the Committee, we ask for 
your leadership and commitment to resolve this keystone issue in 
veterans' affairs. The long-term solution to VA's funding problems 
requires strong leadership from this Committee and this Congress. We 
urge you, as leaders in veterans' health and financial policy, to 
remember the needs of America's veterans and take action to remedy this 
serious problem.
    Mr. Chairman, we would like to note that all of the member 
organizations of the Partnership have adopted statements or resolutions 
urging funding reform in VA healthcare.
    We hope as you debate this crucial matter the Committee will 
recognize that our organizations are united in our interest in calling 
for basic budget reform.
    This concludes our testimony. Again, the Partnership appreciates 
the opportunity to present testimony, and we thank the Committee for 
its continuing support for veterans, especially those who are sick and 
disabled as a result of serving the Nation.
                                 
            Prepared Statement of Henry J. Aaron, Ph.D. \**\
               Bruce and Virginia MacLaury Senior Fellow
                         Brookings Institution
---------------------------------------------------------------------------
    \**\ The views expressed here are my own and do not necessarily 
represent those of the trustees, officers, or other staff of the 
Brookings Institution.
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    Mr. Chairman:
    Thank you for the invitation to testify today on the proposal to 
convert funding for the Veterans Health Administration (VHA) from a 
discretionary to mandatory basis. In the course of my remarks, I should 
like to stress four points:
    First, the VHA faces an unusually difficult challenge--it must 
deliver an extraordinarily wide range of services to highly diverse 
populations. The VHA provides ordinary primary, secondary, and tertiary 
somatic medicine, as well as mental health services. One of its most 
important responsibilities is to offer a subtle combination of physical 
therapy, mental health services, and somatic treatment to victims of 
spinal cord and traumatic brain injury.
    Second, the VHA has performed remarkably well of late. Inspired 
management has transformed the VHA from being the poster-child for low-
quality medical care into a model organization that delivers higher 
quality healthcare than the average of private healthcare providers and 
does so at a comparatively reasonable price.
    Third, the budget of the VHA is part of the long roster of 
federally financed healthcare services. The cost of federal healthcare 
obligations is projected under current law to increase enormously. In 
fact, growth of these programs accounts for more than all of the long-
term deficits recently to which the Congressional Budget Office and 
various private analysts have recently drawn attention. Put more 
positively, if the Nation deals with the imbalance between projected 
revenues and spending for healthcare, revenues at current levels are 
projected to be sufficient to pay for all other anticipated government 
commitments, including all Social Security benefits promised under 
current law.
    Fourth, proposals to boost federal healthcare spending abound. Not 
all can be funded without unduly raising federal spending. Different 
groups would benefit from each of these proposed increases. Sensible 
budgeting requires a comparison of these competing claims. 
Unfortunately, Congressional Committee structure inhibits such 
comparisons. To illustrate this problem, I list three such candidates 
for increased spending. For what it is worth, my judgment is that the 
priority of converting VHA spending into mandatory funding ranks below 
the other two possible uses of federal funds.

                                   I

    The VHA administers more than 1,200 hospitals, outpatient clinics, 
nursing homes, and rehabilitation facilities. \1\ These facilities 
comprise one of the largest healthcare delivery networks in the United 
States, with revenues approximating those of the largest private 
domestic healthcare system, Kaiser Permanente.
---------------------------------------------------------------------------
    \1\ Sidath Piranga Panangala, ``Veterans' Medical Care: FY 2008 
Appropriations,'' CRS Report for Congress, 25 June 2007, p.3.
---------------------------------------------------------------------------
    The statutory clientele of the VHA, currently more than 23 million 
veterans, is enormously varied in its needs. It includes veterans who 
have crippling service-connected spinal-cord and brain injuries that 
prevent them from earning a living or taking care of themselves. It 
includes other veterans who, despite serious service connected 
disabilities, support themselves and their families. It includes 
veterans with comparatively minor service connected disabilities that 
have no bearing on their current activities. It includes veterans with 
no service related disability whatsoever who currently have low 
incomes. And, finally, it includes, millions of veterans who have no 
service connected disability and have what is normally regarded as an 
adequate income.
    America owes its thanks to all military veterans for their service 
to this Nation. All took time from civilian lives to help protect the 
rest of us. But it in no way diminishes the contribution made by those 
veterans who came home healthy and uninjured and have prospered to say 
that the Nation owes a special debt to those who suffer daily physical 
reminders of their service. This sense of priority is reflected in the 
VA healthcare priority groups.
    It is also manifest in the use that each of these groups makes of 
the VA health system. More than half of veterans in priority groups 1, 
2, and 3 are enrolled in the VA health system, just under half of 
priority groups 4 and 5, about one-third of groups 6 and 7, and less 
than 20 percent of group 8. The VHA is particularly good at treating 
those conditions that peculiarly affect veterans, and veterans turn 
disproportionately to the VHA for care of these conditions. This 
pattern reflects a match of need and expertise. Other veterans choose 
healthcare providers from the private sector.

                                   II

    The Veterans Health Administration has undergone a remarkable 
transformation since 1995. At the time, critics charged the VHA with 
high cost, low quality, providing the wrong mix of services for its 
clientele, and poor accessibility. The key reforms included 
reorganizing numerous separate providers into veterans integrated 
service networks (VISNs) that received budgets from which responsible 
officials had to manage variety of service providers. Budget authority 
was shifted to where veterans were most numerous. These reforms gave 
the VHA authority to bargain over the prices of pharmaceutical products 
that, linked to the VHA's size, gives it more clout than virtually any 
other single purchaser. The performance of the VISNs is measured and 
advertised around the VHA and VISN managers receive bonuses for good 
performance. \2\ These quite business-like incentives illustrate an 
important proposition: government can achieve the efficiencies normally 
associated with private businesses if its managers are given the 
flexibility and incentives to operate effectively.
---------------------------------------------------------------------------
    \2\ Adam Oliver, ``The Veterans Health Administration: An American 
Success Story?'' The Millbank Quarterly, vol. 85, no. 1, 2007, pp. 5-
35.
---------------------------------------------------------------------------
    Unfortunately, Congress has interfered with the VHA's 
administrative freedoms in various ways and has made efficient 
administration more difficult than it needs to be. Congress has 
prevented the VHA from contracting with one or a few suppliers of some 
products whose prices are lowest. The late completion of work on 
budgets and the all-too-frequent use of continuing resolutions has 
hampered efficient hiring and other planning.
    On a more positive note, the VHA has gone further and faster in 
introducing electronic medical records (EMR) than have most private 
healthcare providers. EMR could be introduced expeditiously because VHA 
management had centralized control, something that is lacking in nearly 
all of the private U.S. healthcare system. And it proceeded as fast as 
it did also because the VHA also had adequate financial backing--an 
estimated $300 million for wiring, $450 million for computers, and $485 
million a year (an average of $90 per patient) in upkeep. \3\ The VHA 
experience illustrates why all the talk about electronic health records 
for the private sector has produced so few results. In contrast to the 
money that the VHA had to back its EMR `play,' the legislation that 
created Office of the National Coordinator for Health Information 
Technology stipulated that no additional funds would be appropriated to 
support its activities. One would be hard pressed to find a better 
example of `you get what you pay for.'
---------------------------------------------------------------------------
    \3\ Oliver, p. 20.
---------------------------------------------------------------------------
    Objective measures indicate that the quality of care provided by 
the VHA at least equals that of private sector health services. One 
study that found that two-thirds of VA patients but only 51 percent of 
privately served patients receive all indicated care when they see a 
doctor or visit a hospital. \4\ Another study reported that the VHA 
provided better care in 12 of 13 categories than private providers 
rendered to Medicare patients. \5\
---------------------------------------------------------------------------
    \4\ Stephen Asch et al., ``Comparison of Quality of Care for 
Patients in the Veterans Health Administration and Patients in a 
national Sample,'' Annals of Internal Medicine, vol. 141, no. 12 (21 
December 2004), pp. 938-945.
    \5\ A. K. Jha, et al., ``Effect of the Transformation of the 
Veterans Affairs Healthcare System on the Quality of Care,'' New 
England Journal of Medicine, vol. 348, no. 22, pp. 2218-2227. Patients 
covered by Medicare received better care than those covered by 
commercial insurance in eight of twelve categories where comparisons 
were possible. Patients covered by Medicaid consistently received poor 
services.
---------------------------------------------------------------------------
    These comparisons clearly indicate that the VHA has come a long way 
since the days when the quality of its care was almost universally 
criticized. They are also consistent with a view that, at least in the 
case of healthcare, a well-managed public agency, authorized by 
Congress to operate in a business-like manner, can deliver care as good 
as or better than that rendered by the private sector as currently 
organized. No doubt improvements in efficiency similar to those of the 
VHA could have been achieved in the private sector if current 
administrative arrangements were altered. Alas, the currently 
fragmented organization of private providers and payers alike deprives 
most of them of the capacity to execute the reforms that centralized 
management made possible in the VHA.

                                  III

    Governments--federal, state, and local--now directly account for 47 
percent of national healthcare spending and an even larger share--56 
percent--of hospital spending. The full role of governments is even 
larger than those numbers suggest, because premiums paid by employers 
for their employees are partially offset by the revenues forgone as a 
result of the exclusion of this portion of consumption from all tax, 
corporate or individual.
    Although it is already large, the public share in the cost of 
healthcare is certain to increase. Growth of healthcare spending has 
outpaced the growth of income by an average of 2.7 percentage points a 
year for more than four decades. A gap of similar size is likely to 
persist. The rate at which the menu of beneficial medical interventions 
increases is not expected to slow as the genomic revolution, 
nanotechnology, and personalized medicine proceed. Furthermore, the 
population is aging. The financial burden of supporting healthcare for 
the elderly disproportionately falls on the public. \6\ The proportion 
of the population covered by public programs will increase. 
Furthermore, the value of the exclusion from tax of privately financed 
health insurance premiums will continue to grow faster than income 
does.
---------------------------------------------------------------------------
    \6\ The statement in the text is a factual, not normative. Even if 
the Nation embarked on a policy to require the elderly, or most of 
them, to save enough to pay for the healthcare they will use in 
retirement, the transition to such a system would take decades. Whether 
such a policy shift would be desirable is irrelevant to the text 
statement.
---------------------------------------------------------------------------
    What is insufficiently understood, in my opinion, is that meeting 
this challenge will require a transformation of both publicly and 
privately financed healthcare. Measures to slow the growth of both 
public and private healthcare spending and to boost taxes will be 
necessary. This Nation has come to a national consensus that 
Americans--old and young, with and without disabilities, rich and 
poor--should enjoy similar--not identical, but similar--access to 
healthcare. Hospitals and physicians treat all patients similarly; 
indeed, if they do not, they are--and should be--open to successful 
suit for malpractice. That the polity would long tolerate cuts in 
either Medicare or Medicaid sufficient to significantly lower the rate 
of growth of spending is, in my view, an insult to the generosity and 
compassion of the American people.
    What is also inadequately understood is that successfully balancing 
public spending for and revenues dedicated to healthcare would 
eliminate any long-term budget problem, based on the best current 
projections. The following figure shows the long-term budget 
projections of the Congressional Budget Office, adjusted for healthcare 
spending statistics available early this year.

[GRAPHIC] [TIFF OMITTED] T9458A.001


    The dotted bars show projected primary budget deficits, as a 
percentage of gross domestic product. The primary budget deficit is the 
difference between total spending other than interest on the debt and 
total revenues. If the primary budget deficit were to balloon, as shown 
here, the actual situation would be far worse than indicated. As the 
ratio of debt to GDP increased, interest payments would grow for two 
reasons, which interact multiplicatively. Firstly, there would be more 
debt on which to pay interest. Second, the interest rate at which the 
government can borrow would rise as lenders become apprehensive that 
the government will be able to meet future debt service obligations. 
The result would be explosive increases in interest payments.
    The figure also shows projections of the primary budget if one 
subtracts projected government spending on Medicare and Medicaid, 
earmarked taxes, and a share of general revenues equal to the current 
support level. This difference is shown in solid black bars. As is 
apparent, if the impact of rising spending on Medicare and Medicaid in 
excess of revenues is eliminated, there is no projected deficit. 
Current projections indicate that a small surplus would emerge. In 
other words, if the Nation deals with its healthcare financing problem, 
the remaining revenues under current law would be adequate to cover all 
projected private spending, including all Social Security benefits 
promised under current law.
    Let me hasten to emphasize that long-term projections are never 
exactly right. They simply extrapolate the implications of current 
assumptions. Small differences in those assumptions compounded over 
enough years can produce large differences, but mean little. 
Projections are useful when they show large imbalances and broad 
trends. This figure clearly indicates two realities that should shape 
current fiscal debate.

      The Nation faces large long-term deficits under current 
policy.
      The Nation does not face an overall fiscal crisis or an 
entitlement crisis: it faces a big healthcare financing problem that 
should lead to a vigorous national debate on much healthcare we want 
and how to pay for it.

                                   IV

    Against this background, should funding for the VHA be converted 
from a discretionary to mandatory account? The answer, I believe, is 
that it should not, despite the genuine claim that veterans have on 
public support for their healthcare and the excellent record in 
delivery high quality healthcare at a reasonable price that the VHA has 
established in recent years.

      This switch would create incentives for undue expansion 
of the VHA.
      This expansion would very likely not be consistent with 
the longer term objectives of reforming the overall healthcare system.
      Finally, the conversion would likely boost federal 
spending at a time when other increases in federal healthcare spending 
would yield greater benefits.

    At present, the VHA annually receives a fixed appropriation set by 
Congress based on the president's budget. If VHA funding were 
mandatory, it would presumably be based on actual enrollment multiplied 
by a sum set to approximate the per person cost of providing care to 
enrollees. This is the system proposed in H.R. 2514. Baseline spending 
is to be set at a percentage of past spending--130 percent in H.R. 
2514. Future funding would be based on baseline, per capita spending 
multiplied by enrollment in the VHA system in the preceding year 
multiplied by an index--the CPI in H.R. 2514. \7\
---------------------------------------------------------------------------
    \7\ The choice of index has an important bearing on how rapidly 
funding grows in the long term. H.R. 515, introduced in 2005, proposed 
to use a healthcare index, which would have resulted in more rapid 
growth in spending than would occur under H.R. 2514.
---------------------------------------------------------------------------
    Such a system would likely create powerful incentives for the VHA 
to enroll as many veterans as possible, whether or not new enrollees 
use VHA services as much as current enrollees or even whether they use 
them at all. In fact, incentives would be strongest to enroll those 
expected not to use VHA services, as the resulting addition to budget 
would encourage VHA administrators to enhance services to entice others 
to join. As funding increases, the VHA would be able to enrich 
services, encouraging both current and new enrollees to increase the 
proportion of healthcare they seek from the VHA. The VHA now enrolls 
only about one-third and annually serves just over one-fifth of all 
veterans. Furthermore, nearly 80 percent have non-VHA health insurance 
coverage from public or private sources.
    These facts mean that the potential for increasing VHA service 
levels is vast. The Congressional Budget Office, using similar 
reasoning, has estimated that converting the VHA to mandatory funding 
on the lines of the 2005 proposal would roughly double total spending. 
Some drop in spending under other government programs would occur, but, 
according to the Congressional Budget Office estimates of H.R. 515 
submitted in 2005, which resembles H.R. 2514 submitted this year, the 
offsets would be modest. \8\
---------------------------------------------------------------------------
    \8\ Based on H.R. 515 introduced in 2005, spending on Medicare, 
Medicaid, and the Federal Employees Health Benefits Program would fall 
initially by about 5 percent of the increase in VHA spending, growing 
to about 7 percent after ten years. Congressional Budget Office, Cost 
Estimate, H.R. 515, ``Assured Funding for Veterans Healthcare Act of 
2005, July 25, 2005.''
---------------------------------------------------------------------------
    To be sure, converting the VHA to mandatory funding would not 
entirely insulate it from budgetary pressures. Congress could cut the 
per person funding amount or exclude certain groups of veterans from 
the formula used for computing annual funding. The funding formula 
contained in H.R. 2514 could be modified to hold down spending. But I 
think such modifications are unlikely to gain much traction.
    Is an increase in VHA funding the best way to increase healthcare 
spending? Is it likely to move healthcare delivery in a direction that 
the Nation is likely to follow? If the answer to these questions is 
`yes,' then this budgetary commitment is justified. Each of us will 
have views on the answers to these questions. Mine is that the answers 
are `no.'
    The VHA is the nearest approximation in the United States to the 
British National Health Service, a publicly funded entity that directly 
employs most healthcare providers. That form of organization differs 
from the U.S. norm--third party payment to private hospitals, 
physicians, and other providers. It is unlikely to be widely adopted in 
the United States. Little support exists anywhere on the political 
spectrum for turning healthcare providers into public employees. All 
strategies for extending coverage--tax incentives, state initiatives, 
single-payer, employer mandate, individual mandate--call for payments 
to private hospitals, physicians, and other providers. To encourage an 
increased fraction of the U.S. population to receive an increased 
proportion of its care from a system based on publicly employed and 
managed providers would be a step away from any future national system.
    Furthermore, Congress is duty bound to weigh the relative merits of 
various proposals to boost public spending on healthcare. Such 
comparisons are difficult given the prevailing Committee structure of 
the U.S. Congress, but it is right to make them.

      At present, Congress has just sent to the president a 
proposal to extend the State Child Health Insurance Program, at an 
annual cost of approximately $7 billion over the next five years.
      Congress will likely prevent the full scheduled cut in 
physician reimbursement under Medicare from taking effect. CBO has 
estimated that the cost of raising physician reimbursements 1 
percentage point instead of cutting them, as required under current 
law, would boost spending by an annual average of $4.8-$6 billion over 
the next five years.
      I have not seen a cost estimate for H.R. 2514. Adjusting 
the estimate for H.R. 515 for the passage of time and the change of 
index for per person costs, leads to an estimate of increased annual 
outlay of $45-50 billion over the next five years.

    The current budgetary climate will not readily accommodate spending 
increases that boost the budget deficit. Indeed, part of the 
controversy surrounding SCHIP is its cost, despite the fact that it 
would be offset by increased tobacco taxes. Furthermore, making VHA 
funding mandatory would not be offset by reduced spending elsewhere or 
by increased revenues. It is not yet clear whether any added spending 
to avoid reductions in physician reimbursements under Medicare will be 
offset. But what is clear is that the deficit increasing effect of H.R. 
2514 is vastly larger than that of either of the other two bills.
    On substantive grounds, and contrary to allegations of some of its 
critics, the SCHIP bill builds on and reinforces the private provision 
of healthcare. SCHIP has enjoyed bipartisan support since its enactment 
in 1997. Avoiding the full reduction in physician reimbursements under 
Medicare is necessary in order to discourage significant and possibly 
catastrophic defections by physicians from being participating 
providers or even participating at all in the Medicare Program at all. 
Both uses of public funds reinforce established ways of providing 
healthcare to dependent populations, building on a public private 
partnership. Both these measures should enjoy far higher priority than 
does H.R. 2514.

                                 
           Prepared Statement of Richard Kogan, Senior Fellow
                 Center on Budget and Policy Priorities
    Mr. Chairman, Mr. Buyer, thank you for inviting me to testify on 
how healthcare for veterans should be funded in the future. Let me 
start by acknowledging that I am not an expert on healthcare, much less 
veterans' healthcare. I am, however, an expert in the congressional 
budget process; the budget process was one of my portfolios during the 
21 years I served on the staff of the House Budget Committee.
    The question before this Committee is whether the amount of funding 
the Veterans Health Administration receives each year is more likely to 
be adequate and predictable if the funding is provided by the annual 
appropriation of discretionary budget authority--as is currently the 
case--or instead by a mandatory or entitlement payment of some kind.
    My answer is that we simply do not know for sure. This answer is 
intended as a caution: a yellow light, not a red light. Caution is 
advisable because of the law of unintended consequences. Let me 
explain.
    Under the current budget process, veterans' healthcare must compete 
against a wide range of other discretionary programs--education, 
transportation, natural resources, scientific research, the Pentagon, 
the IRS, and so forth. The total amount of funding available for all 
these discretionary programs is established annually in a congressional 
budget plan, which can decrease, freeze, or increase that dollar limit 
each year as it sees fit. (A president, likewise, can freely advocate 
decreases, freezes, or increases.)
    Converting veterans' health funding into an entitlement is intended 
both to increase the amount of healthcare funding and to shield it from 
the competition I have just described. But there is always competition 
for scarce resources--scarce tax dollars--and congressional budget 
rules are designed to mediate that competition. Here's how budget rules 
would apply if veterans' health were converted into an entitlement. In 
such a case, current budget rules would prohibit Congress from ever 
enacting legislation to make that entitlement payment more generous--
unless Congress simultaneously made offsetting cuts in some other 
entitlement, such as Medicare or farm price supports or unemployment 
compensation or military retirement or even veterans disability 
payments, or unless Congress raised an equal amount of taxes. This is 
the Pay-As-You-Go Rule.
    Let me play out some of the ramifications of the Pay-As-You-Go 
Rule.

      Firstly, converting veterans' healthcare into an 
entitlement would by itself violate the Pay-As-You-Go rule, regardless 
of the kind of entitlement or its funding level--unless of course you 
cut some other entitlement by an equivalent amount or raise taxes by an 
equivalent amount. I assume you will not eliminate the Compensation and 
Pensions programs in order to establish a healthcare entitlement, nor 
should you; it is not in your jurisdiction to raise taxes or cut 
entitlements created by other Committees; and it is unlikely that the 
Ways and Means Committee will volunteer a tax increase to cover the 
cost of the veterans healthcare entitlement.
         Note that the elimination of discretionary funding for 
veterans' healthcare does not count as an acceptable ``offset'' for the 
creation of entitlement funding. And even if the Budget Committees and 
the Leadership were willing to bend the rules and allow the elimination 
of discretionary funding to count as an offset, that offset would only 
cover healthcare funding at levels in the existing baseline, which 
grows only with inflation, about 2% per year; you've done a lot better 
than that under the existing system.
      Second, because the Pay-As-You-Go Rule puts high barriers 
in the way of any future enhancement of the entitlement formula you 
initially establish, you had better be sure that the formula is 
adequately generous to begin with. (But as I have just noted, 
establishing a generous entitlement formula would also violate the Pay-
As-You-Go rule).
      The proposal advocated by the Partnership for Veterans 
Health Care Budget Reform, embodied in H.R. 2514, certainly qualifies 
as a generous formula, so let's imagine for the sake of argument that 
you are granted a one-time PAYGO waiver in the House and Senate, have 
the votes to overcome presidential opposition, and so enact that bill. 
This leads to my third point: the Congressional Research Service, the 
Congressional Budget Office, the Government Accountability Office, and 
others will issue studies comparing the relative generosity of the new 
veterans' health entitlement to, for example, the relative stinginess 
of Medicaid, which is the stingiest of all healthcare payers. The 
governors unanimously and ardently desire greater federal matching 
payments for Medicaid, and may look to reductions in the new veterans' 
health entitlement as a source of PAYGO offsets.
         Or CRS, CBO, and GAO might compare the generosity of the 
veterans' health entitlement with the stinginess of the Children's 
Health Insurance Program--SCHIP--whose current funding cap is so tight 
that the program could lose 15% of its enrollees this coming year 
simply for lack of funding, and whose proposed cap is so tight under 
the President's budget that the number of children served by SCHIP will 
actually fall by 840,000 by 2012 at the same time that the number of 
uninsured children rises.
         And there are pressures to increase Medicare, as well--to 
provide a ``physicians update'' that would avoid the scheduled 10% cut 
in the Medicare reimbursement rate for physicians, or to help fill in 
the so-called ``doughnut hole'' in the prescription drug benefit, just 
to name two.
         Most significantly, there is always pressure to cut taxes. 
Under the Pay-As-You-Go rule, the standard against which entitlement 
increases or tax cuts is measured is current law. Thus, any extension 
of the Bush tax cuts in whole or in part is a tax cut relative to 
current law, because those tax cuts were enacted as temporary 
provisions. Extending any of the Bush tax cuts thus entails finding 
offsets--acceptable alternative tax increases or entitlement cuts. So 
if you have succeeded in establishing a veterans' healthcare 
entitlement formula that is as generous as the advocates hope, it will 
surely become a tempting target for those with other priorities, 
including those hoping to extend some or all of the Bush tax cuts.

    In summary, under current rules, veterans' healthcare competes for 
funding each year against other discretionary programs within a overall 
dollar limit that generally grows from year to year, sometimes by 
noticeable amounts. It competes within the Appropriations Committees, 
whose members feel an institutional need to support each of the 12 
appropriations bills. Admittedly there is also competition among the 12 
Subcommittees, but the ethos of the Appropriations Committees limits 
the turf battles somewhat; it is considered wrong to lead fights 
against other appropriations bills in favor of your own.
    If veterans' healthcare becomes an entitlement, however, it will be 
on its own; each other Committee could becomes a predator looking to 
the ``overly generous'' veterans' healthcare entitlement as a source of 
possible PAYGO offsets. There is no institutional loyalty that would 
mitigate such turf battles. And potential predators would include 
interest groups and advocacy communities that are at least as powerful 
as those against whom veterans' health now competes--for example, the 
health insurance lobby or especially the advocates of tax cuts.
    As I see it, you would get a bigger boat to sail in, but by moving 
from the discretionary ocean to the Pay-As-You-Go ocean, the water may 
become deeper, your voyage stormier, and the sharks bigger and 
hungrier.
    Now let us look beyond the Pay-As-You-Go rule. Experts who examine 
overall budget trends are very concerned about the future; the budget 
situation starts to deteriorate significantly in roughly two decades. 
The Comptroller General, the Director of CBO, experts at the Brookings 
Institution, nonpartisan budgeting groups such as the Concord 
Coalition, the Committee for Economic Development, the Committee for a 
Responsible Federal Budget, and my own employer, the Center on Budget 
and Policy Priorities, have all warned repeatedly about the 
unsustainability of existing budget policies over the long term. Put 
simply, relative to a simple extension of existing policy, taxes will 
have to be raised or budget programs will have to be cut (or some 
combination of the two), and by very substantial amounts. Our analysis 
shows that to get us through 2050 without increasing the ratio of debt 
to the economy, we would need to raise taxes or cut programs 
immediately, by an amount equivalent to 18 percent of projected 
revenues. And the longer we delayed, the larger the tax increases or 
program cuts would need to be.
    Respected columnists who popularize this grim long-term outlook--
people such as David Broder or Robert Samueleson--habitually refer to 
the problematic long-term budget picture as an ``entitlement problem.'' 
This is probably intended as a useful simplification, but I view it as 
a rhetorical trap. The Comptroller General sometimes falls into this 
trap, as well. One effect of this simplified style of discourse is that 
it leads to simplistic and destructive so-called solutions. One such 
example is the ``entitlement cap'' included in the Family Budget 
Protection Act, designed by Representative Jeb Hensarling and endorsed 
by the Republican Study Committee. Most simply, this proposal would 
establish a statutory cap on the aggregate amount of entitlement 
expenditures each year; the cap would be so tight that very substantial 
cuts would be required in entitlements each year to avoid a breach; and 
if Congress did not voluntarily choose which entitlements to cut and 
enact those required cuts each year, then almost all entitlements would 
be automatically and permanently cut across-the-board. Each successive 
year, the hunt for entitlement cuts would begin again.
    I should add that the procedures under which Congress would 
voluntarily make the required entitlement cuts would presumably be the 
existing congressional budget process. If entitlement cuts were needed 
to meet the Hensarling entitlement cap, the congressional budget 
resolution would surely contain a ``reconciliation directive'' in which 
selected Committees, including this Committee, would be directed to cut 
entitlements in their jurisdiction by specified amounts. By tradition, 
if a Committee doesn't meet its reconciliation target, the Budget 
Committee makes the cuts instead. All the cuts from each of the 
Committees are then combined into an omnibus ``reconciliation'' bill, 
managed by the Budget Committees. In the Senate, this reconciliation 
bill is protected from filibuster. In short, in a world of entitlement 
caps, you run two great risks: you may lose control of your own 
programs, and in any case, the tide of required cuts may sweep over 
even a very popular program such veterans' healthcare; cuts in the 
veterans' health entitlement might become just a single title in an 
omnibus, fast track, must-pass bill.
    As I said, discussion of an ``entitlement crisis'' is over-
simplified and proposals such as entitlement caps are misguided and 
simplistic. But even the most sophisticated discussion of the long-term 
budget picture will focus, very appropriately, on the rising cost of 
healthcare. After all, innately rising healthcare costs, more than the 
recent increase in the severity of the medical problems that veterans 
suffer, are the main reason that increased funding is needed. According 
to our projections, if it were not for the fact that healthcare costs 
are rising faster than GDP throughout all of the society, there would 
be no long-term budget problems. The mere aging of the population is 
not by itself sufficient to overwhelm the budget. It is healthcare 
costs, not demographics, that are already putting the U.S. budget, the 
VHA's budget, state budgets, and the budgets of businesses and 
families, under strain.
    In this context, the current treatment of veterans' healthcare 
might arguably provide the program with a sort of haven. If an 
``entitlement commission'' is established, or if the leaders of 
Congress sit down with a new President to negotiate a mega-deal 
including tax increases and entitlement cuts, the fate of discretionary 
programs might be viewed as a less important backwater. Surely new 
discretionary caps will be negotiated, but a discretionary veterans' 
health program will not be specifically targeted and will remain free 
to compete with other discretionary programs. A veterans' health 
entitlement, however, will be on the negotiating table along with 
Medicare, Medicaid, and SCHIP, and along with cuts in other 
entitlements and tax increases. The funding for this veterans 
healthcare entitlement would be decided by the negotiators.
Conclusion
    Entitlement status for veterans' healthcare on its surface appears 
likely to provide a substantial funding increase and a guaranteed and 
predictable level of annual funding. This is what you strive for. But 
1) such a status will be difficult to achieve since it violates the 
House and Senate Pay-As-You-Go rules; 2) those rules will increase the 
importance of achieving a big increase in funding right from the start; 
3) paradoxically, such a big increase could quickly make veterans' 
health funding a target for ``offsets'' for other Committees with PAYGO 
problems; 4) such PAYGO problems are certain to arise shortly, if only 
because many people desire that at least some of the Bush tax cuts be 
extended past their scheduled expiration date in 2010; 5) the long-term 
budget picture is sufficiently problematic that significant deficit 
reduction will need to be enacted in the future; 6) the Congressional 
Budget Act includes a special ``reconciliation'' process that is 
particularly effective in targeting entitlements for cuts and over 
which individual entitlement Committees have little or no control; 7) 
over-generalized talk about an ``entitlement crisis'' can lead to 
wrongheaded ideas like entitlement caps and automatic entitlement 
sequesters; and finally, 8) any major bipartisan deficit reduction 
negotiation is bound to focus, quite appropriately, on health 
entitlements. Given all this, I am sure that enactment of an 
entitlement formula for funding veterans healthcare will not guarantee 
predictable funding each year--at the least, you will have to fight off 
competitors looking to you for offsets. I suspect that entitlement 
status, in the unlikely event that you could achieve it, will provide 
more funding than you would otherwise have gotten, but for only a 
limited number of years: eventually, budget forces will place all 
healthcare entitlements squarely in the cross-hairs of high-ranking 
leaders negotiating blockbuster budget deals.
    One final thought: the long-term pressure on federal programs comes 
because of a threatened explosion of federal debt. A debt explosion 
cannot be allowed, unless the U.S. aspires to become a large banana 
republic. Advocates of federal programs, including the Partnership for 
Veterans Health Care Budget Reform, must also become advocates of the 
taxes needed to finance these programs. Even if there were no Pay-As-
You-Go rule, simple arithmetic and elementary economics demands this 
outcome. If you desire effective federal programs but are unwilling to 
pay for them, then you ultimately won't get them. You cannot be pro-
veteran and anti-tax, at least not using honest arithmetic.

                                 
      Prepared Statement of W. Paul Kearns III, FACHE, FHFMA, CPA
        Chief Financial Officer, Veterans Health Administration
                  U.S. Department of Veterans Affairs
    Mr. Chairman and Members of the Committee, good morning and thank 
you for the opportunity to discuss the Department of Veterans Affairs' 
(VA) current funding process for its medical care program including 
budget formulation, Congressional appropriations, and alternatives to 
the existing process, such as moving such funding to the mandatory side 
of the Federal ledger. Joining me today is Patricia Vandenberg, 
Assistant Deputy Under Secretary for Health for Policy and Planning.
    Following the enactment of the Veteran's Healthcare Eligibility 
Reform Act 1996, VA's healthcare system has undergone significant 
transformation from one that provided episodic, inpatient care to an 
integrated system of care that provides a full range of comprehensive 
healthcare services to its enrollees. The focus on health promotion, 
disease prevention, and chronic disease management has produced more 
effective and more efficient healthcare for our Nation's veterans. As a 
result, the range of healthcare services utilized by VA patients began 
to mirror that of other large healthcare plans. Therefore, VA decided 
to follow private sector practice of large healthcare plans and use a 
healthcare actuary to help predict future demand for healthcare 
services. Mr. Chairman, transforming VA from an inpatient, hospital-
based system to a fully integrated healthcare system has enabled VA to 
take a leadership position in healthcare quality in the United States.
    Prior to eligibility reform, VA medical care budgets were based on 
historical expenditures that were adjusted for inflation and increases 
were based on new initiatives. However, this historical-based approach 
was not consistent with the practices of large, integrated, private-
sector health plans. The private sector budget practices based on 
projected demand appeared better suited for our mission, so VA adopted 
a rational and predictive budget to meet the needs of veterans in this 
new transformed healthcare system. We appreciated the need to be able 
to continually adjust budgetary projections to account for shifting 
trends in the veteran population, increasing demand for services, and 
escalating costs of healthcare, e.g., pharmaceuticals and changing 
utilization of healthcare services.
Current Funding Process VA's Enrollee Healthcare Demand Model
    The VA Enrollee Healthcare Demand Model (model) develops estimates 
of future veteran enrollment, enrollees' expected utilization for 55 
healthcare services, and the costs associated with that utilization. 
These projections are available by fiscal year, enrollment priority, 
age, Veterans Integrated Service Network (VISN), market, and facility 
and are provided for a 20-year period. This produces over 40,000 
individual utilization and budget estimates per year.

[GRAPHIC] [TIFF OMITTED] T9458A.002


    The model provides risk-adjustment and reflects enrollees' 
morbidity, mortality, and changing healthcare needs as they age. 
Because many enrollees have other healthcare options, the model 
reflects how much care enrollees receive from the VA healthcare system 
versus other providers. This is known as VA reliance. Enrollee reliance 
on VA is assessed using VA and Medicare data and a survey of VA 
enrollees. The VA/Medicare data match provides VA with enrollees' 
actual use of VA and Medicare services, while the survey provides 
detailed responses from enrollees regarding private health insurance 
and use of VA and non-VA healthcare. The graphic on the next page 
provides a conceptual overview of the actuarial model and the key data 
and analyses supporting it.
    The model projects future utilization of numerous healthcare 
services based on private sector utilization benchmarks adjusted for 
the unique demographic and health characteristics of the veteran 
population and the VA healthcare system. The actuarial data on which 
these benchmarks are based represent the healthcare utilization of 
millions of Americans and include data from both commercial plans and 
Medicare, and are used extensively by other health plans to project 
future service utilization and cost.
    The model produces projections for future years using healthcare 
utilization, cost, and intensity trends. These trends reflect 
historical experience and expected changes in the entire healthcare 
industry and are adjusted to reflect the unique nature of the VA 
healthcare system. These trends account for changes in unit costs of 
supplies and services, wages, medical care practice patterns, 
regulatory changes, and medical technology.
    Each year, the model is updated with the latest data on enrollment, 
healthcare service utilization, and service costs. The methodology and 
assumptions used in the model are also reviewed to ensure that the 
model is projecting veteran demand as accurately as possible. VHA and 
in partnership with Milliman, Inc., develop annual plans to improve 
data inputs to the model and the modeling methodology.
    VA has integrated the model projections into our financial and 
management processes. Eighty-four percent of the VA healthcare budget 
request for FY 2008 was based on these detailed actuarial projections; 
the remaining 16 percent is for health programs not yet included in the 
actuarial projections because of the unique characteristics of these 
programs. Some examples include: readjustment counseling, dental 
services, the foreign medical program, and non-veteran medical care 
(such as CHAMPVA and spina bifida). The budget estimates for these 
programs are developed by the respective program managers.
    VA believes the use of actuarial projections to develop its budget 
estimates is the most rational way to project the resource needs for 
our veterans. As noted earlier, this approach is utilized by the 
private sector. Unlike the private sector, however, where projections 
are used to formulate budgets for the next year or even the next ``open 
season,'' the Federal budget cycle requires budget formulation using 
data 2\1/2\ to 3 years ahead of budget execution.
Congressional Appropriations
    VA receives its medical care budget in three separate 
appropriations (Medical Services, Medical Administration, and Medical 
Facilities). This is a funding structure created by Congress in Fiscal 
Year 2004. This structure replaced the previous single appropriation 
structure and has significantly increased the operational complexity 
without improving the accuracy of financial accounting. In addition, 
the new structure has introduced unintended inefficiencies and 
increased complexities into VA's budget management processes and 
procedures. VA does not believe the benefits of this structure are 
superior to the previous one.
Alternatives to the Existing Process
    The two most considered alternatives to the existing process are: 
1) combining VHA's current multiple appropriations structure into a 
single medical care appropriation and 2) mandatory funding. VA supports 
a single appropriations structure for medical care but does not support 
a mandatory funding approach for veterans' healthcare.
    A single appropriation for medical care would enable VA managers at 
every Medical Center and Network level to optimize resources flexibly 
and ensure timely delivery of high quality healthcare to veterans. It 
would also reduce the complexity of current financial management 
processes and procedures.
    On the other hand, mandatory funding we believe would not be in the 
best interests of our veterans. A mandatory funding approach, in our 
view, is neither reflective of nor adaptable to changes in: enrollee 
priority level and age mix, enrollee morbidity and mortality, enrollee 
reliance, and advances in state-or-the-art technologies and medical 
practice. While we can only hypothesize at this time since there is not 
a concrete proposal to review regarding a mandatory funding model, this 
type of funding mechanism can be reactive in nature consequently may be 
out of date with rapidly changing best clinical practices and 
developments. Additionally, a mandatory funding approach potentially 
limits the ability of either the Executive or Legislative branches of 
government to match policy with financial circumstances or to execute 
their inherent oversight responsibility.
    We believe the current process of budget formulation provides the 
best methodology for estimating the VHA budget and a single 
appropriation would significantly improve VHA's ability to deliver 
timely, high-quality healthcare to our Nation's veterans.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to answer any questions you may have.

                                 
                                     Committee on Veterans' Affairs
                                                     Washington, DC
                                                   October 18, 2007

Mr. Joe Violante
National Legislative Director
Disabled American Veterans
807 Maine Avenue, SW
Washington, DC 20024

Dear Joe:

    In reference to our Full Committee hearing ``Funding the VA of the 
Future'' on October 3, 2007, I would appreciate it if you could answer 
the enclosed hearing questions by the close of business on November 15, 
2007.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all Full 
Committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,
                                                         BOB FILNER
                                                           Chairman
DT:ds

                                 ______
                                 

          Responses to Questions from the Honorable Bob Filner
             Chairman of the Committee on Veteran's Affairs
                Following the Hearing of October 3, 2007
                    ``Funding the VA of the Future''
    Question 1. The Partnership for Veterans' Health Care Budget 
Reform's statement includes, in a section entitled ``Myths and 
Realities,'' the following:
    Myth: Under a mandatory funding program, VA would no longer have an 
incentive to find efficiencies [.]''
    And you answer that ``VA Central Office (VACO) would still be 
responsible for ensuring local managers are using funds appropriately 
and efficiently.''
    In practical terms, what steps could VACO take to ensure that 
necessary incentives remain to provide cost-effective care when VA 
budgets are determined solely on the number of veterans enrolled in the 
system?
    Response: The above referenced `myth and reality', which is 
reproduced below in its entirety, includes steps VACO can take to 
ensure necessary incentives remain to provide high quality cost-
effective care. Furthermore, VA, much like Medicare and Medicaid, must 
consider the universe of patients for which it is responsible. In VA's 
case, it is responsible for all veterans enrolled in its healthcare 
system and therefore utilizes this population in determining, among 
other things, its annual budget proposal submitted to Congress.

    MYTH: Under a mandatory funding program, VA would no longer have an 
incentive to find efficiencies and to supplement its appropriation with 
third-party collections.
    REALITY: Mandatory funding will provide sufficient resources to 
ensure high quality healthcare services when veterans need it. 
Mandatory funding for veterans healthcare is based on a formula that 
includes the number of enrolled patients and a per capita amount for 
each patient. It is not intended to provide excess funding for veterans 
healthcare. Under this method, inefficiencies in spending would be 
easily revealed.
    VA Central Office (VACO) would still be responsible for local 
managers using funds appropriately and efficiently. Hospital directors 
would still be required to meet performance standards and third-party 
collection goals. Current checks and balances will help ensure 
accountability. VACO provides monetary incentives to local managers who 
meet their goals and strive for the most efficient ways of delivering 
high quality healthcare to our Nation's veterans.
    Finally, VACO would continue to evaluate local mangers and 
distribute allocations to Veterans Integrated Service Networks based on 
need and performance.
    VACO can use a number of incentives to continue providing what some 
have called, the ``best care anywhere.'' For example, monetary 
incentives are given to local managers and leaders who meet their goals 
and strive for the most efficient ways of delivering high quality 
healthcare to our Nation's veterans.
    Performance and strategic plans that involve VA, Congress and the 
veteran community must be in place to produce medical care that is 
safe, effective, patient-centered, timely, efficient and equitable. 
Furthermore, these outcomes must be benchmarked to measure progress. 
VACO must ensure continued use of VHA's exceptional patient safety 
program; use of evidence based medicine, care coordination, and inter-
disciplinary healthcare teams, expand chronic disease management 
initiatives and health promotion and disease prevention programs, and 
advance its electronic health record. In essence, we recommend the 
continued improvement of VA's performance measures and monitors in 
addition to supporting such offices as VA's National Center for Patient 
Safety, Office of Quality and Performance, and the continued evolution 
of VHA information technology, which should be aligned toward and, more 
importantly, involves its end users.
    Regardless of how VA healthcare is funded, neither VA, nor the 
Administration, nor Congress is constrained in exercising proper 
management and oversight of the system in order to achieve maximum 
efficiency.

    Question 2. Adequacy of Funding Formula: The funding formula put 
forward in H.R. 2514 is meant to cover the ``programs, functions, and 
activities of the veterans Health Administration.'' This would include 
research funding but exclude construction funding.
    How would mandatory funding ensure sufficient resources for VA 
research?
    Are you concerned that VA may not have sufficient funding to embark 
on a construction program in order to meet the increased demand for 
services that many envision as occurring under a mandatory funding 
regime?
    Response: Under the mandatory funding proposal, H.R. 2514, VA 
medical and prosthetic research is already included in the baseline 
calculation upon which annual increases in funding are determined. As 
the mandatory funding formula provides increased resources to meet 
increased need for such services, VA research funding would be 
increased commensurately.
    DAV and others, including The Independent Budget (of which DAV is a 
member), have long been concerned that VA has not been receiving 
sufficient construction funding. Over the past decade, VA construction 
funding--both major and minor--has not been sufficient to meet the 
identified need to preserve and maintain VA's infrastructure. 
Throughout the CARES process, VA operated under a de factor moratorium 
on construction which led to a construction backlog, including numerous 
projects necessary for safety reasons.
    In July 2004, then-VA Secretary Principi testified before the House 
Veterans' Affairs Subcommittee on Health and said that CARES ``reflects 
a need for additional investments of approximately $1 billion per year 
for the next five years to modernize VA's medical infrastructure and 
enhance veterans' access to care.'' Since that statement, the amount 
actually appropriated for construction has fallen far short.
    The FY 2008 Independent Budget noted that in 2006, with CARES no 
longer holding back construction, Congress did authorize new 
construction projects in P.L. 109-461, however we remained concerned 
that VA's construction needs were not being fully addressed by Congress 
or the Administration.
    Regardless of how VA healthcare is funded, there must be sufficient 
funding provided to construction accounts in order to maintain an 
infrastructure capable of delivering medical care to enrolled veterans 
seeking such care.

    Question 3. Adequacy of Discretionary Funding: Since FY 1998, and 
including the proposed increases for FY 2008, the number of unique VA 
patients has increased by 70 percent, and VA funding has increased by 
114 percent. During this period, Medicare funding has increased by 77 
percent.
    In light of this increase in the VA's healthcare budget, is the 
Partnership's major concern over the timeliness and predictability of 
discretionary funding, or is the Partnership concerned that 
discretionary funding will never provide the level of resources you 
believe the VA needs?
    Response: The Partnership remains equally concerned about both the 
sufficiency of funding for veterans healthcare as well as the 
timeliness and predictability of such funding. Without satisfying all 
three criteria, VA will continue to be challenged in meeting the 
healthcare needs of our Nation's veterans.
    As noted in our testimony, the continued failure to deliver VA's 
funding on time year after year has significant negative consequences 
on the ability of VA to manage and plan the most effective and 
efficient healthcare system possible. As of this date, 1\1/2\ months 
into the new fiscal year, VA remains without an enacted 2008 
appropriation, and thus without the full benefit of the anticipated 
increase.
    While we recognize that VA healthcare funding has increased 
significantly over recent years, particularly the past couple of years, 
we do not believe that the increase in funding over the past decade has 
kept pace with the demand for and cost of providing healthcare to 
enrolled veterans.
    First, the question implies that an increase in VA's patient 
workload is directly comparable to an increase in funding--without 
accounting for other factors, such as increases in the cost of 
providing services. For example, the consumer price index (CPI) for 
medical care between 1998 and 2007 rose by more than 40 percent. While 
this is not directly applicable to VA-delivered healthcare, there must 
be some accounting for the increased cost of providing medical 
services. In addition, many other factors, including patient mix, 
morbidity, complexity and intensity of care need to be factored into 
any determination of whether VA is being provided sufficient resource 
to meet demand for such.
    Second, the question implies that a comparison between the overall 
increase in funding for VA healthcare and the increase in the overall 
funding for Medicare need not take into account comparative increases 
in workload. As noted above, the number of patients treated by VA has 
increased by at least 70 percent over the past decade; the number of 
Medicare beneficiaries over the same period is significantly less. 
Again, there are a number of other factors that must be examined in 
order to make a valid comparison.
    One such valid comparison was testified to by Dr. Uwe Reinhardt at 
the October 3 hearing. Dr. Reinhardt noted that between 1997 and 2007 
the-percent increase in VA healthcare spending (100%) was less than 
that of Medicare (110%) or private health insurance (124%).
    The Partnership for Veterans Health Care Budget Reform believes 
there exist inherent flaws in the current discretionary funding process 
for veterans medical care that will continue to manifest themselves, 
notwithstanding a few recent years in which the funding increases were 
significant. For this reason, and in order to provide predictability 
and timeliness, we continue to support reform of the VA healthcare 
funding process through mandatory funding, or some combination or 
hybrid of mandatory and discretionary funding processes.

                                 
                                     Committee on Veterans' Affairs
                                                     Washington, DC
                                                   October 18, 2007

Henry J. Aaron, Ph.D.
Senior Fellow, Economic Studies
The Bruce and Virginia MacLaury Chair
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC 20036

Dear Henry:

    In reference to our Full Committee hearing ``Funding the VA of the 
Future'' on October 3, 2007, I would appreciate it if you could answer 
the enclosed hearing questions by the close of business on November 15, 
2007.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all Full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,
                                                         BOB FILNER
                                                           Chairman
DT:ds

                                 ______
                                 

                 Question from the Honorable Bob Filner
                           For Henry J. Aaron
           Before the Committee on Veterans' Affairs Hearing
                    ``Funding the VA of the Future''
                            October 3, 2007
National Healthcare Reform

    It seems that one of your reservations regarding switching VA 
healthcare to a program financed by mandatory spending is that by doing 
so we might be creating an incentive for the VA to attempt to enroll a 
greater proportion of the 25 million veterans' population. You 
characterize the VA healthcare system as being ``the nearest 
approximation in the United States to the British National Health'' and 
state that there seems to be little public support for turning 
providers into public employees. You state that all strategies for 
extending coverage involve payments to private providers and hospitals. 
Finally, you state that ``to encourage an increased fraction of the 
U.S. population to receive an increased proportion of its care from a 
system based on publicly employed and managed providers would be a step 
away from any future national system.''
    The VA healthcare system is a safety net system. Would not 
expanding the number of veterans receiving care from the VA, and cost-
effective care at that, provide a better opportunity to attempt to 
reform the rest of our healthcare system?
Response:
    Getting to reform of the whole healthcare system is, of course, the 
central issue. The sooner that happens, the better, assuming that the 
reform moves in a sensible direction.
    But that event is not one that can reliably be expected to happen 
any time soon. So, in the meantime, there is the additional question of 
how the federal government should spend its limited resources for 
healthcare to maximize societal benefit. There are groups among the 
population of veterans who deserve public support as much as or more 
than any in our population. But not all veterans have an equal claim on 
public support. Those who continually bear the pain and disability of 
past wounds must be helped. Other groups in society also merit public 
assistance, however. We all have our priorities, and a compelling case 
can be made for many groups. I listed SCHIP in my testimony because I 
believe that children should have access to healthcare--financed by 
their parents, if they can afford it, but financed by the public if 
parents cannot afford it or even if they simply fail to meet their 
obligations.
    The VHA now does a very good job with the resources that it has. 
That was not always true. But it is organized in a way that full-scale 
health reform is unlikely, in my view, to follow.
    For both reasons--the importance of caring for such other groups as 
children, and the fact that VA is not likely to be a model for overall 
reform--I think that one should be careful adopting a funding change 
that is likely, as estimated by the Congressional Budget Office, to 
result in a large increase in funding, much of which will go to cover 
services for veterans in relatively low priority categories.
    I do not say any of this lightly, as I understand and respect the 
Nation's obligations to veterans who have served our Nation. But 
choices must be made.

                                 
                                     Committee on Veterans' Affairs
                                                     Washington, DC
                                                   October 18, 2007

Mr. Richard Kogan
Senior Fellow
Center on Budget and Policy Priorities
820 First Street, NE, Suite 510
Washington, DC 20002

Dear Richard:

    In reference to our Full Committee hearing ``Funding the VA of the 
Future'' on October 3, 2007, I would appreciate it if you could answer 
the enclosed hearing questions by the close of business on November 15, 
2007.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all Full 
Committee and subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,
                                                         BOB FILNER
                                                           Chairman
DT:ds

                                 ______
                                 

                Questions from the Honorable Bob Filner
                           For Richard Kogan
           Before the Committee on Veterans' Affairs Hearing
                    ``Funding the VA of the Future''
                            October 3, 2007
Question:
Discretionary Funding a ``Safe Haven''
    You express concern that a veterans' health entitlement would be 
included on the negotiating table with Medicare, Medicaid, and SCHIP 
and other cuts in entitlement programs when Congress tackles the 
effects of rising healthcare costs and entitlement spending. You argue 
that keeping healthcare as a discretionary program would shield it from 
any future entitlement cuts. You also believe that in the future we 
will see new discretionary spending caps.
    If our long-term budget problem is indeed driven by rising 
healthcare costs, should we not expect future attempts to rein in 
veterans' healthcare spending no matter how it is funded?

Answer:
    I agree with your conclusion--that we will very likely see future 
attempts to rein in veterans' healthcare spending whether it is funded 
as a discretionary appropriation or as an entitlement. My testimony was 
intended to refute the notion, put forth by some organizations that 
advocate entitlement status for this funding, that such a status would 
provide known, guaranteed, and adequate amounts of funding each year. 
My point was that entitlement status certainly would not provide a 
guaranteed amount, since the pressure to rein in healthcare costs in 
the federal budget is bound to increase and because the congressional 
budget process includes a mechanism--a ``reconciliation directive,'' 
which may be attached to annual congressional budget plans--that can 
force any Committee, including yours, to cut back entitlements within 
its jurisdiction.
    In summary, I believe that funding for veterans' medical care will 
always be competing for scarce resources. If the program continues to 
be funded as an annual, discretionary appropriation, it will continue 
to compete with other such appropriations--e.g., for education, 
infrastructure, housing, or biomedical research. If the program is 
funded as an entitlement, it will compete with Medicare, Medicaid, 
Veterans' Compensation, military and civil services retirement, and so 
on. It is a judgment call about which pool of sharks provides fiercer 
competition, and my testimony suggests that one should not dismiss the 
possibility that the entitlement pool might be even riskier over the 
long run.
    There is, however, one clear advantage of entitlement funding: 
delayed annual appropriations bills and the resulting stop-gap funding 
at freeze levels in a so-called ``continuing resolution'' does not 
affect entitlement programs.
    I have two objections to the bill advocates of entitlement funding 
have recently proposed. Firstly, the increase in funding called for in 
that bill is so large--because the base level of funding from which the 
calculation is made has increased rapidly in the last year--that the 
formula now likely constitutes over-funding relative to need. Second, 
whether or not the bill constitutes over-funding, its increased costs 
should be offset under the Pay-As-You-Go rule, because long-term 
deficit projections are sufficiently grim that Congress should not pass 
legislation making them worse. In short, if increased funding for 
veterans healthcare is worth doing, as I believe it is, then it is also 
worth paying for.
    If these two objections are addressed, then it seems to me that the 
structure of the proposed entitlement funding is thoughtful, realistic, 
and flexible, and the proposal to convert to entitlement funding is 
worth enacting, despite the fact that neither the proposed bill nor any 
other bill can guarantee a known and adequate amount of funding in 
advance.