March 1, 2007
    
The Honorable Kent Conrad 
Chairman 
The Honorable Judd Gregg
Ranking Member        
Committee on the Budget
United States Senate
Washington, DC  20510
 
Dear Chairman Conrad and Ranking Member Gregg: 
        
 Pursuant to Section 301(d) of the Congressional Budget Act of 1974, the Democratic and Independent Members of the Committee on Veterans' Affairs (hereinafter the 'Undersigned Members') hereby report to the Committee on the Budget their views and estimates on the Fiscal Year 2008 (hereinafter, 'FY08") budget for Function 700 (Veterans' Benefits and Services) and for Function 500 (Education, Training, Employment, and Social Services) programs within the Committee's jurisdiction, including the Court of Appeals for Veterans Claims.  This letter responds to the Committee's obligation to provide recommendations on veterans' programs within its jurisdiction, albeit from the perspective of the Undersigned Members.
  
     I.  SUMMARY

 The Department of Veterans Affairs (VA) requires, at a minimum, $4.8 billion in additional funding in FY08 to support its medical care operations.  Our requested medical services increase is $2.845 billion over the Administration's request. 

 For the fifth year in a row, the Administration's proposed budget includes a number of legislative proposals designed to generate additional revenue from fees or savings and deter certain categories of veterans from using the VA system.  Just as Congress has done over the past five years, the Undersigned Members unanimously reject each of the legislative proposals – the increase in prescription drug copayments from $8 to $15 for 'middle-income' veterans; the annual enrollment fee of $250 to $750 for veterans whose families make $50,000 a year or more; and eliminating the practice of offsetting VA first-party copayment debts with collections from insurance companies.

 With respect to benefits, we disagree in particular with the amount requested for staff within the Veterans Benefits Administration and at the Board of Veterans' Appeals for the adjudication of claims.  In addition, we believe it is time to provide a proper pension for Filipino veterans who served alongside American troops during World War II.   

 We also recommend an increase in funding for the Department of Labor's Veterans' Employment and Training Service.
   The projections in the President's budget for discretionary spending in the out years are troubling.  The VA health care system would be devastated should the Administration's budget for future years become a reality.  It is our view that veterans, who have sacrificed for this country, are being asked to carry a disproportionate share of the burden to balance the Federal budget.  We believe that the Government can be fiscally responsible and reduce the Federal deficit and debt, without abandoning its commitment to our Nation's veterans. 

 As the Congress continues the debate the conflicts in Iraq and Afghanistan, including the cost of prosecuting those efforts, we must clearly demonstrate our understanding that the cost of war includes the cost of caring for servicemembers, now and in the decades to come. 
 
                II.  DISCRETIONARY ACCOUNT SPENDING 

A.  Medical Services  
 
Policy Proposals

 Prescription Drug Co-payment Increase for Priority 7 and 8 Veterans:  The Undersigned Members oppose the Administration's proposed increase of the prescription drug co-payment from $8 to $15, for a projected savings of $311 million from increased revenue and decreased enrollment of these categories of veterans.  Many Priority 7 and 8 veterans – some earning as little as $27,790 a year – cannot afford to nearly double their payments for needed prescription drugs. 

 Enrollment Fee of $250 to $750 for Priority 7 and 8 Veterans:  The Undersigned Members oppose the Administration's proposed new enrollment fee of $250 for veterans with family incomes between $50,000 and $74,999; $500 for those with family incomes between $75,000 and $99,999; and $750 for those with family incomes over $100,000.  This proposal is projected to save $138 million from increased revenue and decreased enrollment starting in 2009.
 
 Taken together, these two fee increases would be particularly hard on certain categories of veterans.  For example, a family with two veteran wage-earners, each taking an average number of medications and each paying an enrollment fee of $250, would have to pay nearly $3,000 in new out-of-pocket costs for VA care if the prescription and enrollment fees were enacted.
    
 Offset of First-Party Debt:  The Undersigned Members of the Committee oppose a proposed change in law that would eliminate the practice of offsetting VA first-party co-payment debts with recoveries from insurance companies.  Many veterans are drawn to VA because of low-cost prescription drugs.  Yet, in most cases, acquiring these drugs requires visits to a specialty care provider.  The vast majority of these veterans are elderly and on a fixed income.  While they are not 'high-income' by any standard, they are over the VA means-test threshold.  While the current primary care co-payment of $15 is in line with most private insurance companies, VA's specialty care co-payment is $50 per visit.  That amount is high enough to be an instant disincentive to seeking medical care in VA if it cannot be paid by third-party insurance.  VA estimates this change would yield $44 million in increased collections.

 The Undersigned Members also oppose the proposal to return revenue from the above new fees to the Treasury, rather than reinvesting the funds in veterans' health care.

 Waiver of Health Care Copayments and Fees for Catastrophically Disabled Veterans:  The Undersigned Members of the Committee note with favor the recommendation of The Independent Budget, a document prepared by four veterans service organizations (AMVETS, the Disabled American Veterans, the Paralyzed Veterans of America, and the Veterans of Foreign Wars [hereinafter 'the IBVSOs']) to amend the law so as to remove the requirement that Priority 4 veterans – those veterans who have been deemed 'catastrophically disabled' but whose disabilities are not service-connected – pay co-payments and other fees in connection with receiving care from VA.  The Undersigned Members intend to review this issue with the possibility of eliminating the requirements for co-payments and fees.

Components of Recommended Increase

1. Current Services (+$1.897 billion)

 Payroll inflation, increases in the costs of goods, and other 'uncontrollables' dictate funding increases of at least $1.9 billion in FY08 simply to maintain the level of current services.  Increased utilization of medical services by existing patients also continues to drive costs higher. The Administration has requested an additional $1.897 billion in funding in FY08 to meet these costs, and we support this request.
       
 We are concerned that the Administration has not adequately budgeted for enough physicians and nurses to meet the projected increase in demand for VA medical care in FY08.  The number of physicians, nurses, and all other health professionals currently employed by the Veterans Health Administration (VHA) under the Medical Services account cannot keep pace with increasing demands on the system.  The Undersigned Members believe that resources in this area must be spent on the hiring of additional clinical staff to better meet demand.  In addition, we believe that VA should make the establishment of a national nurse staffing standard a high priority and budget funds accordingly.         
2. OEF/OIF Demand (+$357 million)

 For the past four years, VA has significantly underestimated the number of Operation Iraqi Freedom and Operation Enduring Freedom (OIF/OEF) veterans applying for health care benefits, and we are concerned that this mistake is being repeated.   These individuals are eligible for two years of VA care upon separation from service.  VA estimates that any potential workload from OIF/OEF will be negligible relative to the overall number of new enrollees next year.  Treating these new veterans cost $232 million in FY05, and ultimately required an increase of that same amount in FY06 for a total funding level of $464 million.  For FY07, VA estimated that it would need $515 million to treat OIF/OEF veterans, but is now slated to spend $572 million for their care.

 The Undersigned Members recommend a total funding level of $930 million to furnish services to OIF/OEF veterans under current law, an increase of $357 million over FY07.

3. Rescinding the Ban on Priority 8 Veterans (+$1.113 billion)

           In January 2003, the Administration halted enrollment of Priority 8 veterans, those veterans with no compensable service-connected disabilities and with incomes above the HUD geographical low-income threshold for their respective counties.  The Administration's request for FY08 assumes that the enrollment ban on Priority 8 veterans will continue. 

 The Undersigned Members do not accept this assumption and estimate that new resources of $1.113 billion are needed to restore access for these veterans.  This number is based on VA's own estimates of what it would cost to reopen the system to Priority 8 veterans. 

 We believe that veterans in need of VA care should not be prohibited from enrolling in the system.  Indeed, adequate funding should be appropriated to VA so that all veterans who choose to enroll with VA have access to needed care and services.  Many of these veterans bring health care coverage with them and are also subject to co-payments, effectively bringing revenue into the system, thereby offsetting the cost of their care.  We can think of no other health care system which discourages insured patients from seeking care.

 The Undersigned Members note that VA's cost estimate for rescinding the ban on Category 8 veterans would be significantly reduced if the impact of third-party insurance and co-payments for care and prescription drugs were factored in.  The IBVSOs estimate that the total cost would be reduced to $366 million.
 
4.  New Initiatives (+$1.126 billion)

 The Undersigned Members of the Committee accept the Administration's proposed 'new initiatives'.  While we support each of these initiatives, we believe that more can and should be done – especially in the areas of mental health, traumatic brain injury/polytrauma care, readjustment counseling, and rehabilitative care.  The Undersigned Members also support the expansion of many existing initiatives and recommend increases in the specialized services discussed below.

 Mental Health.  The Undersigned Members are very concerned about VA's capacity to meet the mental health needs of returning servicemembers.  For example, while the number of veterans diagnosed with substance abuse problems is increasing, the President's request would cut funds for substance abuse treatment.  Rather than account for growing demand for mental health care services, the budget also projects reductions in inpatient psychiatric and residential care. 

 We believe that VA needs greater resources for mental health services and recommend $693 million in additional funding over FY07 levels.

 This level of funding would restore $135 million needed to correct deficiencies in mental health programs; support expansion of VA's specialized substance abuse programs; expand VA's capacity to provide inpatient psychiatric and residential care; provide funds to address family-related needs of returning veterans experiencing distress following their reentry into civilian life; support more effective treatment for post-traumatic stress disorder (PTSD); and advance efforts to prevent suicide among veterans.  In addition, the Undersigned Members believe that VA must take a preemptive, proactive approach to assist families dealing with the stresses and challenges caused by servicemembers' deployments to combat zones and their return to civilian life. 

 Traumatic Brain Injury and Polytrauma.  Traumatic brain injury (TBI) has been described as the signature injury of the current conflicts and medical science is only beginning to understand the mental and physical effects of this condition.  VA has a responsibility to be at the forefront of TBI research and treatment.  The Undersigned Members believe that VA must have adequate staff and equipment to help brain-injured veterans with rehabilitative care, and to return them to an independent existence in their communities.

 In recognition of the needs of veterans with traumatic brain and other injuries, Congress directed VA to establish specialized centers for rehabilitative care.  The four Polytrauma Centers in Tampa, Palo Alto, Minneapolis, and Richmond are generally regarded as successful.  We believe that VA must expand comprehensive polytrauma and rehabilitative care to all Veterans Integrated Service Networks to meet the needs of severely injured veterans and their families – and provide the resources to support this effort accordingly.

 We are concerned that the Administration has not adequately budgeted for intensive multi-disciplinary care and case management for veterans with multiple traumas, including TBI.  We are also concerned that VA lacks specialized TBI outpatient, home-based, and residential rehabilitative programs.  We support VA's efforts to assess and evaluate returning servicemembers for TBI, but we do not believe that the Administration has committed the resources necessary to provide this service. 

 To improve both TBI and Polytrauma care and services, the Undersigned Members recommend an increase of $303.4 million for this program over the President's request.

  This level of funding would improve the evaluation and treatment of veterans with milder TBI injuries; provide veterans with intensive and comprehensive TBI/Polytrauma rehabilitation; provide each Polytrauma Center with $3 million to achieve accreditation for specialized outpatient programs for TBI; expand vocational rehabilitation opportunities for veterans with TBI; support 150 additional social workers to provide intensive care management for veterans with TBI; enhance family education and caregiver assistance programs; and provide VA with funding to improve its case management and research programs.

 Vet Centers.  As the Global War on Terrorism continues, the number of veterans seeking readjustment counseling and related mental health services through Vet Centers will continue to grow.  Experts predict that as many as 30 percent of returning servicemembers may need some kind of mental health treatment – from basic readjustment counseling to care for debilitating PTSD.  A study published on March 1, 2006, in the Journal of the American Medical Association, reported that 35 percent of Iraq veterans accessed mental health care services during their first year at home.  Despite an increase in the number of veterans coming to Vet Centers, the budget for the program has remained relatively stagnant.  We note that legislation to authorize $180 million in funding for Vet Centers passed the full Senate last December (Public Law 109-461). 

 We recommend that Vet Centers receive a funding increase of $70 million above FY07 to meet that goal.

 Rehabilitation.  Rehabilitative care programs offer a full range of rehabilitation services in a supportive environment, with minimal medical care.  VA offers both outpatient and inpatient programs, including the Comprehensive Integrated Inpatient Rehabilitation Program, which focuses on stroke and other neurological diseases, vascular diseases, amputations, orthopedic conditions, debility, and medically complex conditions.  While Public Law 104-262 established the requirement that VA maintain its capacity to provide for the specialized treatment and rehabilitative needs of patients, including those with amputations, the Administration is projecting a significant decrease of 169 in the average daily census for its residential rehabilitative care program.  We believe that the rate of spending for this account should maintain the same rate of growth as in previous years.

 We recommend an increase of $34.3 million for this program.

 Homeless Grant and Per Diem Program.  Veterans are disproportionately represented among the homeless population, accounting, according to estimates, for one in three homeless persons on any given night.  VA has a responsibility to help the roughly 400,000 veterans experiencing homelessness over the course of the year.  VA's Grant and Per Diem program is effective in creating and aiding local shelters as they help our Nation's veterans by providing transitional housing, rehabilitative services, and referrals for clinical services. 

 We recommend $23 million in additional resources for this program to fully fund it at the $130 million level that was previously authorized by the Committee (Public Law 109-461).

5. Medical Administration and Medical Facilities

 We support the President's recommendation of $265 million over FY07 levels for both Medical Administration and $23 million for Medical Facilities.  We expect these funding levels to be adequate to maintain current levels of service.  

Our overall recommendations [in thousands of dollars] on medical spending are summarized in the chart below:

Current Services 
   Increased Utilization 497,000
   Inflation and Payroll 1,400,000
Total Current Services 1,897,000
 
Increased Patient Workload 
   OIF/OEF Demand Increase 357,000
   Restore Priority 8's 1,113,536
Total Increased Patient Workload 1,470,536
 
New Initiatives and Program Expansions 
   Mental Health 693,000
   TBI/Polytrauma 296,000
   Vet Centers 70,000
   Rehabilitative Care 34,300
   Homeless Grant and Per Diem 23,000
Total New Initiatives & Program Expansions 1,116,300
 
Total Medical Services 4,483,836
Medical Administration 265,000
Medical Facilities 23,000
 
Total Recommended For Medical Care 4,771,836
President's Medical Care Request 1,943,671
President's Medical Care Shortfall 2,828,165

B.  Proposed Discretionary Spending for FY09-FY12

 For the second year in a row, the Administration's proposed budget for discretionary spending in years after the current fiscal year would devastate VA health care.  The President's budget assumes no increases for VA medical care for the budgets for Fiscal Years 2009 through 2012. 

 We view the current strategy as one that gives in the first year and cuts heavily thereafter, in order to improve the overall appearance of the President's budget.  A frozen appropriation coupled with cuts in other programs would translate to a reduction of services and benefits.  The Undersigned Members believe that any budget resolution must reverse these cuts in future years.

C.  Medical and Prosthetic Research

 The Administration's proposed FY08 budget for VA research is $411 million, a $1 million cut from the current year level of $412 million.  This sum cannot sustain current research initiatives or provide the program growth necessary to attract and retain quality staff.  The Administration's proposal would result in the direct loss of 193 FTE.  Increased funding is required to sustain current VA research and development program commitments, and to cover inflationary cost increases associated with these commitments.  VA must be able to continue addressing the special needs of our Nation's veterans, and continue to recruit and retain the highest quality physicians.  We recommend an additional $69 million over FY07 levels for a total funding level of at least $481 million.

D.  Grants for State Extended Care Facilities (SECF)

 The Administration requested $85 million for the second consecutive year for State extended care construction grants in FY08.  Grant proposals from the States continue to increase, in response to an ever-growing population of veterans in need of long-term care.

 The FY07 'Priority 1" backlog of 92 validated construction projects, submitted by 23 State governments, stands at $242 million.  In all cases, the State governments involved have satisfied VA's requirement of reserving 35 percent of the construction cost in appropriated or bonded State funds.  With currently available funds of $85 million in FY07 from Public Law 110-5, VA will be able to fund only 22 of these 92 projects in this fiscal year.  Further, VA will be able to fund only one previously approved high-priority new home project.  Three other States have proposed new State veterans homes to be funded in FY08, but VA would be unable to support those projects under the President's budget proposal.  The States have taken on the major burden of providing veterans' long term care, and they ask little of the Federal Government.  The Administration should support their efforts.

 To award these three new State home grants in FY08, and to fund pending meritorious grant proposals, the Undersigned Members recommend $250 million for FY08, a $165 million increase above both the Administration's FY07 and FY08 requests. 

E.  Major and Minor Construction

 We support the Administration's request for $727 million for Major Construction and $233 million for Minor Construction in FY08, although increased resources for construction may be required in the near future.  We believe VA must move forward in FY08 on previously approved projects with funds appropriated for FY07 in a more organized fashion.  The Undersigned Members believe that VA must honor the commitments it has made to the completion of new hospitals in Denver, Las Vegas, and Orlando, as well as for other enhancements and expansions across the system.

F.  Office of the Inspector General

 The work of the VA Office of the Inspector General (OIG) has made significant contributions to management effectiveness throughout VA.  The OIG conducts vital oversight investigations and audits of various aspects of the Department's operations and budget.  For the second year in a row, the Administration is proposing a decrease in FTE and funding for the OIG.  Reductions in staff would severely impair the OIG's ability to identify fraud, waste, and mismanagement, and would result in fewer arrests, indictments, and convictions of individuals who prey on VA and our Nation's veterans. 

 To reinstate the cuts made by the FY07 Joint Funding Resolution and to further enhance the abilities of the OIG, we recommend an additional $18.3 million above the amount included in the President's request.  Funding at this level will allow for an additional 100 FTE to support additional auditors, health care inspectors, and criminal investigators to ensure enhanced quality and safety of VA health care and services.
  
G.  Information Technology (IT)

 The Undersigned Members support the Administration's request for $1.8 billion for IT for FY08.  The events of 2006 and the subsequent restructuring of VA's IT system have the potential to limit future risk of catastrophic security breaches.  The Committee intends to closely monitor developments as VA works to improve its IT systems.

 Provisions in Public Law 109-461 require that, in the event of a breach of secure personal information held by VA, the Secretary must ensure that, as soon as possible, a non-Department entity or the VA Inspector General conduct an independent analysis to determine the level of risk associated with the breach.  Since July 2006, VA's Security Operations Center has reported about 3,600 incidents involving the potential loss or unauthorized access of sensitive personal information.  VA has not budgeted for the conduct of these risk analyses. 

 We recommend that VA be allocated an additional $10 million for purposes of conducting data risk analyses.
     
H.  Compensation, Pension, and Burial Staffing and Training

 The Undersigned Members are concerned that the Administration's request for compensation, pension, and burial staffing is inadequate.  Although the President's FY08 budget request of $804 million for compensation, pension, and burial staffing is $27.6 million over the 2007 level, we believe that additional funding is necessary to provide veterans with timely and accurate decisions of their claims.  We recommend an additional $40 million for compensation, pension, and burial staffing to provide an additional 663 FTE over the President's request.  We also recommend $10 million for the training of these new staff, and improvement and expansion of VBA's training programs.

 Staffing.  The President requests 6,882 FTE for direct compensation staffing in FY08.  The request for pension and burial staffing remains flatlined at 1,287 and 151, respectively.  VA typically combines these three programs for their direct FTE count – in 2008 it is estimated to be 8,320 for all three programs.  This is 457 more than last year's request, but not enough to meet VA's ever-increasing workload and backlog of claims. 

 Workload.  The disability claims workload from returning war veterans as well as from veterans of earlier periods has increased continuously since 2000.  Annual claims grew 39 percent from 2000-2006, from 578,773 to 806,382.  Despite this trend, VA estimates that it will see a slight decrease in claims receipts in FY08 to 800,000.  VA estimates that its pending inventory, which as of January 2007 was 393,922, will decrease to 329,660 by the end of 2008.  However, currently claims receipts are up 8 percent over what was projected for FY07, and most of those are original rather than reopened claims.  VA typically receives 70,000 claims per month.        

 Studies have shown that the size of the active duty force is the best predictor of new claims activity.  DoD data show that there were nearly 198,000 military separations in 2006.  This number does not include demobilized Guard and Reserve.  Trends show that 35 percent of these veterans will file a claim over the course of their lifetime.  For 2006 separations only, that number is over 69,000 for active duty forces alone.  It is clear that VA has not yet seen the bulk of claims that will be submitted as a result of OIF/OEF, and must prepare now for this influx of claims.
 
 In 2006, 24 percent of the compensation workload (51,260 of the 217,343 original compensation claims received) contained eight or more issues.  Cases resulting from VA's popular Benefits Delivery at Discharge program have an average of ten issues per claim.  These claims are increasingly complex, and require more time invested in development and rating. Additionally, many veterans receiving compensation have chronic, progressive diseases such as diabetes, mental illness, and musculoskeletal or cardiovascular illnesses.  As these veterans age, they will undoubtedly file additional claims.

 VA estimates that these 8,320 direct FTE will have an average output of 101 cases per FTE per year.  However, this number of direct FTE also includes clerical, public contact, and non-rating claims processors, and others working in VBA, so the number actually processing claims will be lower. 

 Clearly, VA must reduce its backlog and prepare for an influx of claims resulting from ongoing operations abroad, recent court decisions, and legislation.  Given that it takes two years for a claims adjudicator to become proficient in his or her work, the time to hire and train new employees is now. 

 Training of adjudicators.  The accuracy and timeliness of VA's claims performance is dependent upon well-trained and experienced staff.  The President's budget cites VA's enhanced training efforts as 'the key' to developing a staff capable of producing accurate and consistent decisions and effectively responding to changing workload volumes.  Simply hiring additional FTE will not automatically increase VBA's productivity.  There must be sufficient funds in the budget to absorb the cost of training new personnel before they can contribute to improving VBA's bottom line.

 VBA has established a broad spectrum of training programs and educational resources, both at VA's Regional Offices and at the Veterans Benefits Academy in Baltimore, MD.  Veterans Service Representatives (VSRs) and Rating Veterans Service Representatives (RVSRs) are provided three weeks of centralized basic training at the Veterans Benefits Academy.  The Veterans Benefits Academy also offers a range of advanced training courses in leadership and management development, as well as computer-based learning tools and satellite broadcasts that bring the Academy's expertise directly to staff desktops.  As of FY07, all claims adjudicators are required to undergo a minimum of 80 hours of job-specific training.

 The Undersigned Members recommend an additional $10 million toward this effort.

I.  Vocational Rehabilitation and Employment

 The Vocational Rehabilitation and Employment (VR&E) Program provides training, education, and other services to enable veterans to obtain and maintain employment after sustaining service-connected disabilities. 

 The President's FY08 budget request calls for an additional 39 direct FTE for VR&E.  The VR&E workload is expected to increase above 2006 by 2.8 percent in 2007 to 92,126, and by another 2.5 percent in 2008 to 94,500.  VR&E anticipates that the effects of OIF/OEF will result in more se