Veterans' Health Care: Implications of Other Countries' Reforms for the
United States (Briefing Report, 09/27/94, GAO/HEHS-94-210BR).

Reform of the nation's health care system would have a major impact on
the Department of Veterans Affairs (VA) health care system, one of the
nation's largest direct delivery systems. Health care reform would give
many uninsured and poor veterans the freedom to choose between VA and
other health care providers. This would likely cause many veterans to
leave the system unless it changes or VA benefits change to encourage
those now in the system to stay or those outside the system to start
using VA facilities. Without such changes, VA would likely lose nearly
50 percent of its acute hospital workload. This report studies changes
in veterans health care systems and benefits in other countries that
implemented universal health care systems. GAO limited its review to
four countries--Australia, Canada, Finland, and the United Kingdom--that
ran separate direct delivery systems for veterans when they instituted
universal health care.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-94-210BR
     TITLE:  Veterans' Health Care: Implications of Other Countries' 
             Reforms for the United States
      DATE:  09/27/94
   SUBJECT:  Comparative analysis
             Veterans benefits
             Veterans hospitals
             Health care services
             Health care cost control
             Health insurance
             Proposed legislation
             Eligibility criteria
             Health care planning
             Foreign governments
IDENTIFIER:  Finland
             United Kingdom
             Australia
             Canada
             Health Security Act
             Clinton Health Care Plan
             National Health Care Reform Initiative
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on Veterans'
Affairs,
U.S.  Senate

September 1994

VETERANS' HEALTH CARE -
IMPLICATIONS OF OTHER COUNTRIES'
REFORMS FOR THE UNITED STATES

GAO/HEHS-94-210BR

VA Health Reforms in Other Countries


Abbreviations
=============================================================== ABBREV

  DVA - Department of Veterans Affairs--Australia
  DVAC - Department of Veterans Affairs--Canada
  NHS - National Health Service
  RSL - Returned and Services League of Australia
  SAO - State Accident Office
  VA - Department of Veterans Affairs--United States

Letter
=============================================================== LETTER


B-252880

September 27, 1994

The Honorable Frank H.  Murkowski
Ranking Minority Member
Committee on Veterans' Affairs
United States Senate

Dear Senator Murkowski: 

Reform of the nation's health care system would have a major effect
on the Department of Veterans Affairs (VA) health care system, one of
the nation's largest direct delivery systems.\1 Health reform would
give many uninsured and low-income veterans the freedom to choose
between VA and other health care providers.  This would likely result
in many veterans' choosing to leave the VA system unless it changes
or VA benefits change to encourage those now in the system to stay or
those not in the system to start using VA facilities.  Without such
changes, VA would likely lose nearly 50 percent of its acute hospital
workload. 

Health reform is not the only challenge facing the VA health care
system, however.  The veteran population is aging and declining. 
Planning the future of the veterans direct delivery system and, more
importantly, the future of veterans health benefits, is one of the
major challenges facing the Congress as it debates health reform. 

What changes should be made in the direct delivery system and in
veterans health benefits?  This report responds to your request that
we study changes in veterans health care systems and benefits in
other countries that implemented universal health care systems to
learn from their experiences.  We limited our review to the four
countries--Australia, Canada, Finland, and the United Kingdom--that
operated separate direct delivery systems for veterans when they
implemented a universal health care system. 

In developing our response, we (1) determined the basic reasons why
other countries implemented universal care and how these programs
operate, (2) identified how eligibility for veterans health care
benefits in other countries compares to that in the United States,
(3) determined how changes to the age and status of the veteran
population in the United States compares to the veteran populations
in the other countries, (4) determined what changes occurred to the
veterans health care systems in the other countries over time and the
effects of those changes on veterans health care benefits, and (5)
identified the potential effects of health reform on our veterans
health care system and health benefits on the basis of other
countries' experiences. 

Following is a summary of our findings: 

  Australia, Canada, Finland, and the United Kingdom implemented
     universal health care systems for the same basic reasons the
     United States is currently debating health care reform.  The
     four countries implemented universal care systems between 1948
     (United Kingdom) and 1984 (Australia) primarily to improve
     access to care and control health care costs.  For example,
     about 2 million of Australia's 13 million residents were
     uninsured before universal care was implemented.  U.S.  health
     reform proposals aim to reduce the number of Americans without
     health insurance and control health care costs.  (See section
     1.)

  Eligibility for veterans health care benefits is much more limited
     in other countries than in the United States.  The four
     countries we studied generally limit eligibility for veterans
     health benefits to veterans with injuries incurred during
     military service, veterans with wartime injuries, veterans who
     served during wartime, or a combination of the above.  By
     contrast, the United States bases eligibility on service in the
     uniformed services for a minimum length of time (currently 2
     years), but veterans are eligible for differing services on the
     basis of such factors as income, existence of service-connected
     disabilities, and availability of space and resources.  As a
     result, between 4 and 43 percent of the veterans in the four
     countries studied are eligible for veterans health care benefits
     in addition to health care coverage provided under their
     universal coverage systems compared to nearly 100 percent of
     26.8 million U.S.  veterans.  (See section 2.)

  Veteran populations in the four countries are aging and declining
     more rapidly than in the United States.  Because eligibility is
     generally linked to wartime service and the four countries have
     not been engaged in a major extended conflict since World War
     II, most of their veterans are over 65 years old.  For example,
     over 93 percent of eligible Finnish veterans were 65 years old
     or older in 1989, and the number of veterans eligible for
     veterans health benefits has declined by half since the end of
     World War II.  Although the U.S.  veteran population is also
     aging and declining, only 31 percent of U.S.  veterans were aged
     65 or older in 1993.  (See section 3.)

  Veterans health systems and benefits in the four countries evolved
     over time, and no longer focus primarily on direct delivery of
     acute hospital care.  Veterans hospitals initially focused
     primarily on specialized treatment of war-related disabilities
     and rehabilitation.  Demand for acute hospital care subsequently
     declined because, (1) as veterans recovered from their war
     injuries, they needed fewer specialized acute care services; (2)
     the number of veterans eligible for veterans health care
     declined as the population aged or war injuries healed; and (3)
     veterans had the freedom to choose between care in veterans
     hospitals or hospitals in their communities. 

The falling utilization rates, coupled with (1) the need to treat the
effects of an injury rather than the injury itself and (2) the
increasing chronic care needs of an aging population, made it
increasingly difficult for the countries to maintain medical
expertise.  For example, Australia's veterans hospitals had trouble
retaining skilled staff and maintaining affiliation with medical
schools as its patient mix became increasingly geriatric.  To improve
utilization and maintain medical expertise, veterans hospitals were
frequently opened to nonveterans or certain other government
beneficiaries were made eligible for care in veterans hospitals. 

Australia, Canada, and the United Kingdom closed or transferred
veterans hospitals.  The United Kingdom decided in 1953 that
transferring its veterans hospitals to the country's universal care
system would (1) increase utilization of the former veterans
hospitals and (2) allow them to preserve and further develop their
specialized medical expertise by expanding their patient mix. 
Canada, in 1963, and Australia, in 1988, made similar decisions on
the basis of continuing decline in acute care use of its veterans
hospitals and the ability and desire of veterans to obtain care in
their communities.  Training and research missions of the veterans
hospitals were generally transferred with the hospitals. 

Although Finland continues to maintain its acute care system, it,
like Canada, shifted the emphasis of its veterans health care system
from acute to long-term care services to meet the changing needs of
an aging veteran population.  By 1993, it had converted 100 of the
227 beds at its primary veterans hospital to long-term care use. 
Both Finland and Canada developed home care programs to enable
veterans to maintain their independence as long as possible.  (See
section 4.)

  Maintaining the direct delivery system is not the only option for
     preserving veterans health benefits.  Three of the four
     countries preserved and enhanced veterans health benefits
     without maintaining their direct delivery systems.  For example,
     some countries supplemented services covered under the universal
     care system or gave veterans higher priorities for care or
     better accommodations.  Veterans service organizations in those
     countries generally support the changes that have been made in
     their veterans health care systems and veterans benefits. 
     Current U.S.  reform proposals focus on preserving the direct
     delivery system as the means for maintaining veterans health
     care benefits. 

The administration's Health Security Act, and the Mitchell and
Gephardt proposals, would make fundamental changes both in how VA
operates and in the benefits to which veterans using VA are entitled. 
In this regard, they would (1) transform VA facilities into a series
of managed care plans to compete with private-sector plans and (2)
expand entitlement to free comprehensive health care services as an
incentive for veterans to enroll in VA health plans.  (See section
5.)

  Health reform in the United States that gives veterans the choice
     of care in VA or community facilities will affect the future of
     the direct delivery system.  Any reform of the U.S.  health care
     system or reform of the veterans health care system that would
     give veterans increased access to community providers will
     likely decrease veterans' demand for care in existing VA
     facilities.  Canada's experience suggests the potential effects
     on our VA health care system if it remains unchanged through
     health reform as it would under most of the health reform
     proposals that have been introduced.  Use of Canadian veteran
     facilities declined following implementation of universal
     hospital care in 1961, which gave veterans access to care in
     their communities.  When universal coverage was first
     implemented, Canadian veterans, like U.S.  veterans, were
     required to obtain most of their inpatient and outpatient care
     through veterans hospitals and had limited access to health care
     services in their home communities unless they had alternative
     health care coverage. 

On the other hand, Australia's experience more closely suggests the
likely effect of the administration's health reform proposal.  To
improve access to care for its aging population, Australia--before it
implemented universal health care--had authorized veterans living in
nonmetropolitan areas (that is, areas outside the state capitals) to
use public hospitals close to their homes with the veterans program
paying for their care if the treatment period was short and did not
involve surgery.  Veterans living in metropolitan areas could use
public hospitals if they obtained prior approval from the Department
of Veterans Affairs.  In the fiscal year preceding implementation of
universal care, public and private hospitals accounted for about 43
percent of the acute care bed days provided to veterans through the
veterans program.  Under the Health Security Act, VA would similarly
focus on increased contracting for care in community hospitals.  (See
section 5.)

  Regardless of whether health reform occurs in the United States,
     the changing health care needs of an aging and declining veteran
     population should prompt reform of the veterans health care
     system and benefits.  None of the current health reform
     proposals adequately focuses on the growing long-term care needs
     of aging veterans.  Only the administration's Health Security
     Act proposes changes in the current system; those changes could
     erode VA's ability to meet the long-term care needs of America's
     veterans.  (See section 5.)

In summary, the declining veteran population in the United States, in
concert with increased availability of community-based care--through
either implementation of a universal health care program or an
expansion of the veterans health care program through contracting or
new construction--would make it increasingly difficult to preserve
the current acute care workload of existing VA health care
facilities.  VA would have to attract an ever- increasing proportion
of the veteran population if it is to keep its acute care facilities
open.  Other countries have successfully made the transition from
direct providers to financiers of veterans health care without losing
the special status accorded veterans. 

We did not obtain formal comments on this briefing report.  We did,
however, discuss the contents of this report with VA program
officials, including the Acting Deputy Undersecretary for Health and
the Chief, National Health Care Reform Office. 

VA officials said that the report shows useful insights into the
potential effects of health reforms in the United States, but does
not support the conclusion that a direct delivery system is not
essential or that increased choices for veterans would mean a
significant decline in demand for care at VA facilities.  The
officials said that they believe the VA direct delivery system is a
vital component of the nation's health system and that significant
numbers of veterans will choose a VA health plan if the Congress
includes VA in health reform as proposed by the President. 

We continue to believe that maintaining a direct delivery system is
one option for preserving veterans health benefits.  Three of the
four countries we studied, however, were able to maintain and enhance
their veterans benefits without maintaining their direct delivery
systems.  The VA officials did not, in our opinion, provide
convincing arguments to support their contention that the VA direct
delivery system is a vital--and irreplaceable--component of the
nation's health care system.  Both Canada and Australia transferred
the auxiliary missions of their veterans health care
facilities--medical education, research, and medical readiness--to
other hospitals.  While such transfers would be more difficult in
this country because of the size of the veterans direct delivery
system, it should not preclude consideration of such transfers. 

The significant financial incentives the administration's Health
Security Act, and the Mitchell and Gephardt proposals, would give
veterans to enroll in VA health plans may enable VA health plans to
enroll enough veterans to preserve its direct delivery system.  The
administration, however, based its analysis of the cost impact of the
veterans health care provisions on enrollment of only 2.3 million
veterans, far short of the number of enrollees that would be needed
to maintain utilization of VA's current facilities.  Nearly 8 million
veterans might need to enroll in VA health plans if VA is to maintain
full utilization of its current facilities.  Thus the
administration's plans could cost tens of billions of dollars more
than VA estimates.  Much of the increased cost would be funded
entirely through VA appropriations. 

Additional comments from the VA officials and our evaluation appear
in Section 5. 


--------------------
\1 Under a direct delivery system, most health care services are
provided by salaried providers in system-owned facilities.  VA
operates a direct delivery system that includes 171 hospitals, 240
outpatient clinics, 126 nursing homes, and 35 domiciliaries to serve
the nation's approximately 27 million veterans.  Domiciliaries
provide care on an ambulatory self-care basis to people disabled by
age or disease who do not need the level of services available in
hospitals or nursing homes. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :1

The countries included in our review were selected through (1)
discussions with VA officials and representatives from the Paralyzed
Veterans of America and (2) a literature search.  In each country, we
interviewed officials responsible for operating their veterans and
universal health care systems and representatives of veterans service
organizations (app.  I lists those contacted). 

We obtained information on each country's veterans health care system
before and after implementation of universal health care, including
(1) who is eligible for veterans health care, (2) the countries'
health care missions, (3) the number and types of medical facilities
operated, (4) the types of services provided, and (5) expenditures on
the systems.  Additionally, we obtained reports and other
documentation explaining the major changes in their veterans health
care systems and why the changes were made.  Finally, we obtained and
analyzed data on U.S.  health reform proposals, focusing primarily on
the administration's Health Security Act. 


---------------------------------------------------------- Letter :1.1

We are sending copies to the Secretary of Veterans Affairs, other
congressional committees, and other interested parties.  Copies will
be available to others upon request.  Please call me at (202)
512-7101 if you or your staff have any questions.  Major contributors
to this briefing report are listed in appendix II. 

Sincerely yours,

David P.  Baine
Director, Federal Health Care
 Delivery Issues


OTHER COUNTRIES IMPLEMENT
UNIVERSAL COVERAGE TO IMPROVE
ACCESS, CONTROL COSTS
=========================================================== Appendix 1

Universal health care systems were established in the four countries
between 1948 (United Kingdom) and 1984 (Australia) primarily to
improve access to care for all citizens and to control health care
costs.  Three of the four countries operate health financing systems,
paying for health care services provided by public and private
providers; the United Kingdom operates a direct delivery system (see
table 1.1). 



                         Table 1.1
          
              Universal Health Care Systems in
            Australia, Canada, Finland, and the
                       United Kingdom

Country       Universal Health Care System
------------  --------------------------------------------
Australia     Universal health insurance covers
              comprehensive inpatient and outpatient care
              provided in public and private hospitals and
              by private physicians. Six state and two
              territory governments plan for and
              administer health care services delivered by
              public and private providers.

Canada        Universal health insurance covers medically
              necessary inpatient and outpatient care. Ten
              provinces and two territories plan for and
              administer health care services delivered by
              public and private providers.

Finland       Universal health care consists of federally
              subsidized inpatient and outpatient services
              provided by municipalities\a and a health
              insurance program that partially covers the
              costs of private physician services.

United        Universal direct care system provides
Kingdom       comprehensive inpatient and outpatient care
              in health care facilities owned and operated
              by the system.
----------------------------------------------------------
\a A municipality is similar to a county in the United States and, on
average, has a population of 11,000 citizens. 


   UNIVERSAL HEALTH CARE IN
   AUSTRALIA
--------------------------------------------------------- Appendix 1:1

Australia initiated its universal health insurance program, Medicare,
in February 1984 to improve citizens' access to quality health
care.\2 Australia first attempted to develop a universal health
insurance system in 1973, but it did not succeed.  Before that time,
about 2 million of the 13 million Australian citizens did not have
guaranteed access to health care services that were largely provided
on a fee-for-service basis by private physicians or by state
governments through public hospitals.  These 2 million citizens
either paid for health care out of their own pockets, or the
physicians and hospitals provided charity care. 

Australia's universal health care system covers comprehensive
inpatient and outpatient care that is provided in public and private
hospitals and by private physicians.  Citizens electing to be treated
as public patients receive free inpatient care in public hospitals
operated by six state and two territory governments; citizens with
private insurance that elect to be treated as private-pay patients in
public hospitals pay for part of the inpatient care.  Outpatient care
is provided by private physicians and may or may not be fully paid
for by the universal health care system.  Private health insurance is
available and pays for costs not covered by the universal health care
system. 

The states and territories continue to operate their own public
hospitals and determine the medical services that the hospitals offer
so that, collectively, the hospitals provide the health care services
covered by the universal health care system.  Hospitals may
specialize in certain medical fields to avoid competing with other
hospitals.  Private hospitals also operate in the states and
territories and receive payments through the universal health care
system. 

All Australians can obtain free inpatient care in public hospitals. 
Citizens who have private health insurance in addition to their
Medicare coverage--about half of the population--can either (1)
receive treatment at a private hospital or (2) receive treatment in a
public hospital as a private-pay patient.  The universal health care
system pays 75 percent of its schedule fee for inpatient services
provided to citizens using their private health insurance, and the
private health insurance pays the remaining 25 percent.  If citizens
choose to enter public hospitals as private-pay patients, they have
their choice of physician and are treated in semiprivate or private
rooms rather than wards.  Private-pay patients in public and private
hospitals incur additional costs for their accommodations, and the
private health insurance pays for these costs as well as for services
not covered under the universal care program such as dentistry,
chiropractic, podiatry, and optometry. 

Comprehensive outpatient care is also covered by the universal health
care system.  Outpatient care is free if provided at community health
clinics.  Outpatient care is also provided by private physicians and
may or may not be fully paid for by the universal health care system,
depending upon physician billing practices.  Private physicians
generally render outpatient care on a fee-for-service basis and are
reimbursed on the basis of the system's fee schedule.  Physicians who
directly bill the system must accept payment of 85 percent of the fee
as payment in full; however, physicians also have the option to bill
patients.  In this case, the patient can be charged more than the fee
schedule amount.  The patient pays the entire bill and then collects
85 percent of the fee schedule amount from the universal health care
system. 

The universal health care system is funded by the federal government
from general revenue and a means-tested health insurance levy equal
to 1.4 percent of taxable income.  In Australia's fiscal year 1992,
total health expenditures from all sources totaled $22 billion (in U. 
S.  dollars) or 8.6 percent of gross domestic product.\3


--------------------
\2 Other persons residing legally in Australia are also covered by
the universal care program. 

\3 In fiscal year 1992, the United States spent about 12 percent of
its gross domestic product on health care. 


   UNIVERSAL HEALTH CARE IN CANADA
--------------------------------------------------------- Appendix 1:2

Canada's universal health care program is also called Medicare.  It
developed in two phases; under federal legislation, all provinces and
territories covered hospital care by 1961 and physician care by 1972. 
In the 1950s, federal and provincial health and finance officials
determined that (1) private health insurance did not provide adequate
services to enough Canadians, (2) hospital costs were unaffordable
for many and rising, and (3) many hospitals were in financial
difficulty.  As a result, Canada enacted the Hospital and Diagnostic
Services Act of 1957, which all provinces and territories implemented
by 1961.  On the basis of a general lack of affordable health
insurance and the high cost of physician care, Canada enacted the
Medical Care Act of 1968, which resulted in coverage for medically
necessary physician care by 1972 in all provinces and territories. 

Canada's universal care program is a federally mandated, province-
and territory-administered program that covers Canadians for
medically necessary hospital and physician care.  Under the program,
the federal government establishes guidelines for the health care
insurance plans of the 10 provinces and 2 territories.  While the
plans vary to some extent, all must cover medically necessary
physician and diagnostic services and inpatient hospital care and can
cover a broad range of supplemental benefits such as dental care,
prosthetics, and long-term care.  Private insurance companies cannot
offer coverage for medically necessary physician, diagnostic, and
hospital services, but can offer insurance for supplemental benefits
such as prescription drugs, dental care, and vision care whether or
not they are included in provincial or territorial plans. 

The provinces and territories rely on the private and public health
care delivery systems to provide covered health care services.  Most
physicians are in private practice; about 95 percent of Canadian
hospitals are nonprofit entities operated by local governments,
voluntary organizations, or other agencies.  The universal health
care program relies extensively on primary care physicians to provide
basic medical care and to refer patients to specialists and
hospitals.  Canadian citizens can go to the physician or clinic of
their choice but do not pay directly for primary or specialist
physician care or hospital services.  There are no deductibles,
copayments, or dollar limits on coverage.  Physicians are paid by the
provincial or territory insurance plans on a fee basis; fees are
negotiated annually between the provinces and territories and the
provincial medical associations.  Hospitals' operating costs are paid
out of annual budgets negotiated with the province or territory. 

The universal health care program is funded through a combination of
federal and provincial/territorial taxes.  The federal government
provides block grant monies to the provinces and territories, which,
in turn, provide additional tax revenues as necessary.  In 1991,
total health care expenditures from all public and private sources
represented 9.9 percent of Canada's gross domestic product. 


   UNIVERSAL HEALTH CARE IN
   FINLAND
--------------------------------------------------------- Appendix 1:3

Finland's universal health care system, administered by the Ministry
of Social Affairs and Health and the Social Insurance Institute,
provides comprehensive care to all citizens.  The system developed in
two phases over a 10-year period.  In 1963, Finland passed the
Sickness Insurance Act and began providing citizens partial refunds
of private physician examination and treatment expenses, dentist
fees, and prescription drug costs.  Before the act, Finland had few
primary care physicians, most of whom were self-employed.  Citizens
typically paid for primary care services out of their own pockets,
resulting in unequal access for those of modest means.  The act
equalized citizens' access to health services and choice of provider
regardless of income. 

The second phase occurred in 1972, when Finland passed the Primary
Health Care Act.  At that time, about 90 percent of public health
care resources was devoted to specialized medical care, primarily at
hospitals, and 10 percent to primary care services.  Also, the supply
of services throughout the country was inadequate, the use of primary
care services was uneven, and health care costs were growing rapidly. 
After the act, Finland shifted its emphasis to primary health care
and prevention.  Finnish officials told us that the act (1) caused
the federal government to subsidize municipal health centers, (2) led
to regional equality in the coverage of services, and (3) slowed the
growth of health care costs. 

The system covers inpatient and outpatient services, long-term care,
dental care, mental health care, laboratory services, and
prescription drugs.  It is based primarily on federal subsidies to
Finland's 455 municipalities that provide a complete range of public
health care services at local health centers.  Costs of private
health care services are partially covered by a universal insurance
program.\4

Municipalities, either individually or collectively, operate health
centers that generally consist of public hospitals, maternal and
child health centers, laboratories, and local physician offices.  The
system emphasizes primary health care services such as maternal and
child health care, medical and dental care, ambulatory care, and
prevention of communicable and noncommunicable diseases.  Most
primary health care services are free for citizens, but dental care
provided to adults as well as treatment provided in hospitals require
copayments and deductibles.  Charges for long-term care are means
tested and may not exceed 80 percent of a person's monthly income. 

Annually, the federal government develops revolving 5-year plans that
set out the health care goals and objectives for the country,
including operating costs for primary health care services and public
hospitals.  Municipalities, in turn, are required to develop plans
that conform to the national plan to receive their federal subsidies. 
The amount of the subsidy for municipalities is based on a number of
factors, such as the municipality's population age structure,
population density, and financial capacity. 

In 1991, total health care expenditures in Finland from all sources
represented 9.2 percent of gross domestic product.  This included the
costs of private health care, which have represented about 20 percent
of total national health care costs in Finland since the mid-1970s. 


--------------------
\4 This program also provides other benefits, including compensation
for travel and accommodations relating to health care. 


   UNIVERSAL HEALTH CARE IN THE
   UNITED KINGDOM
--------------------------------------------------------- Appendix 1:4

The United Kingdom's universal health care system, known as the
National Health Service (NHS), was established on July 5, 1948, to
make health services available to every citizen regardless of age or
income.  Before the NHS, health care was provided on an unequal basis
by a patchwork of municipal, state, charitable, and private health
care organizations.  Between World Wars I and II, citizens
increasingly criticized this system until consensus developed that a
universal health care system was necessary. 

The NHS provides preventative, diagnostic, and treatment services to
all citizens regardless of age or income.  Primary care physicians
are paid by the NHS to serve as gatekeepers and refer patients,
depending on their medical need, to clinics, hospitals, or medical
centers that are NHS-owned, operated, and staffed.  The Department of
Health administers the NHS and allocates monies to 14 regional health
authorities to fund citizens' medical care.  Costs are not tracked by
services provided to individual patients; patients receive no bills. 

Some NHS medical expertise in artificial limbs, spinal cord injuries,
burns, and plastic surgery was originally developed in veterans
hospitals and was transferred to the NHS when it absorbed the
veterans hospitals between 1953 and 1961.  For example, the Stoke
Mandeville veterans hospital was a leader in treating spinal cord
injuries and continues that leadership today as an NHS hospital. 

Total health care expenditures in the United Kingdom represented 6.2
percent of gross domestic product in 1990.  This includes a small but
growing private health care sector financed by direct payments and
private insurance.  About 10 percent of the population carries
private insurance, mainly to shorten the waiting time for elective
surgery. 


OTHER COUNTRIES HAVE MORE LIMITED
ELIGIBILITY CRITERIA FOR VETERANS
HEALTH BENEFITS THAN THE UNITED
STATES
=========================================================== Appendix 2

Because of other countries' more restrictive eligibility criteria,
only some of their veterans are eligible for veterans health
benefits--a low of 4 percent in the United Kingdom to a high of 43
percent in Australia.  However, in the United States, nearly all
veterans are eligible.  Each of the four countries generally bases
eligibility on war service or injury while the United States bases
eligibility on service regardless of whether the veteran participated
in a war (see table 2.1). 



                          Table 2.1
           
            Comparison of Eligibility Criteria and
           the Number of Eligible Veterans in Four
               Countries and the United States

                                             Number of
                                             eligible
                 General eligibility         veterans versus
Country          criteria                    all veterans\a
---------------  --------------------------  ---------------
Australia        Veterans who were injured   260,000 out of
                 or contracted a disease in  600,000 (1993)
                 an overseas conflict,
                 served in World War I or
                 Vietnam, or are former
                 POWs.

Canada           Veterans who sustained a    197,000 out of
                 disabling injury during     580,000 (1992)
                 war or other designated
                 periods of service or who
                 meet certain low-income
                 criteria.

Finland          Veterans who sustained a    40,000 out of
                 disabling injury or         250,000 (1992)
                 contracted a disease
                 during war.

United Kingdom   Veterans who sustained a    196,000 out of
                 disabling injury or         5 million
                 contracted a disease        (1992)
                 during war or any other
                 period of military
                 service.

United States    Veterans discharged under   Nearly all of
                 other than dishonorable     the
                 conditions.                 26.8 million
                                             (1993)
------------------------------------------------------------
\a Numbers exclude nonveterans who may be eligible for veterans
benefits, such as widows or dependents of veterans. 


   ELIGIBILITY CRITERIA IN
   AUSTRALIA
--------------------------------------------------------- Appendix 2:1

Before World War II, only veterans who were injured or suffered a
disease while serving in an overseas conflict were eligible for
Australia's veterans health care benefits.  After World War II,
Australia expanded eligibility to other veterans and dependents,
including veterans with cancer or tuberculosis, all those with World
War I service, former prisoners of war, Vietnam veterans in need of
urgent treatment, war widows, and certain dependent children. 


   ELIGIBILITY CRITERIA IN CANADA
--------------------------------------------------------- Appendix 2:2

Canada bases eligibility for veterans health care benefits on a
veteran's injury or income.  Eligibility for medical or institutional
long-term care services not covered by a provincial or territorial
health plan is generally limited to those veterans who (1) incurred a
disabling injury during war or other designated periods of service\5
or (2) meet certain low-income criteria.  Eligibility for veterans
home health care benefits not covered by provincial or territorial
plans is extended to veterans over 65 years of age who meet the above
injury or income criteria. 


--------------------
\5 For example, veterans who served as part of a United Nations
peacekeeping force are eligible for veterans health care benefits. 


   ELIGIBILITY CRITERIA IN FINLAND
--------------------------------------------------------- Appendix 2:3

Only disabled veterans injured during the Finnish civil war of 1918
or World War II are eligible for the veterans health care system. 
Disabled veterans are those who sustained an injury or contracted an
illness in a war or a warlike circumstance and incurred a permanent
disability of 10 percent or more.  Civilians injured and disabled
during wartime are also classified as disabled veterans and are
eligible for veterans health care benefits.  Severely disabled
veterans--those who are rated 30 percent or more disabled--are
eligible for additional health care benefits, such as free nursing
home care. 


   ELIGIBILITY CRITERIA IN THE
   UNITED KINGDOM
--------------------------------------------------------- Appendix 2:4

Eligibility for veterans health benefits is based on a veteran's
wound, injury, or disease that resulted in a temporary or a permanent
disability of at least 1 percent.  Generally, these veterans
sustained their disability during World War I or II.  However,
certain others are also eligible for this system, including Merchant
Marines and Civil Defense volunteers disabled during World War II and
veterans who suffered disabling injuries during any period of
military service. 


   ELIGIBILITY CRITERIA IN THE
   UNITED STATES
--------------------------------------------------------- Appendix 2:5

Eligibility for veterans health care benefits is based on service for
a minimum length of time.  All veterans discharged under other than
dishonorable conditions are eligible.  Those persons enlisting after
September 1980 and officers commissioned on, or beginning active
service after, October 1991 must complete 2 years of active duty, or
the full period of their initial service, to be eligible. 

Although nearly all U.S.  veterans are eligible for veterans health
benefits, VA uses a complex priority system to determine which
veterans receive care.  This system considers such factors as (1)
whether they meet an income test, (2) whether they have a
service-connected disability, (3) the severity of the disability, and
(4) the availability of space and resources at VA medical facilities. 


VETERAN POPULATIONS IN OTHER
COUNTRIES ARE AGING AND DECLINING
MORE RAPIDLY THAN IN THE UNITED
STATES
=========================================================== Appendix 3

The veteran populations in the four countries studied have already
aged and declined while the U.S.  veterans population is just now
beginning to age and decline.  This is due to these countries' more
restrictive criteria for veterans health benefits that generally base
eligibility on injuries occurring during wartime or military service
and the fact that they have not engaged in a major extended conflict
since World War II.  Currently, about 72 percent of the veterans
eligible for veterans health care benefits in the four countries are
age 65 or older.  Additionally, each country has experienced a
decline in the number of eligible veterans.  Despite its broader
eligibility criteria, the United States too is beginning to
experience an aging and declining veteran population as the size of
our military forces declines (see table 3.1). 



                          Table 3.1
           
           Percent of Eligible Veterans Aged 65 or
           Older and Declining Numbers of Eligible
                           Veterans

                                        Declining numbers of
                      Percent of        eligible veterans
                      eligible          and projected
                      veterans aged 65  declines for the
Country               and older         future
--------------------  ----------------  --------------------
Australia             85 (1992)         312,000 in 1975 v.
                                        265,000 in 1993
                                        205,000 projected
                                        for 2002

Canada                99 (1993)         202,000 in 1961 v.
                                        197,000 in 1992\a
                                        91,000 projected for
                                        2011

Finland               93 (1989)         90,000 in 1945 v.
                                        40,000 in 1992
                                        5,000 projected for
                                        2010

United Kingdom        72 (1991)         738,000 in 1947 v.
                                        196,000 in 1992\b

United States         31 (1993)         26.8 million in
                                        1993
                                        13 million projected
                                        for 2040
------------------------------------------------------------
\a Through the years, Canada expanded eligibility for veterans health
care benefits to several categories of veterans previously excluded,
such as veterans who served as part of a United Nations peacekeeping
force.  As a result, the number of eligible veterans did not decline
significantly between 1961 and 1992.  However, the total number of
all veterans declined and will continue to decline in the future. 
Canada's veteran population declined from 1.1 million in 1961 to
580,000 in 1992 and is expected to decline to 393,000 in 1999. 

\b Projections were not readily available. 


OTHER COUNTRIES MAINTAINED
VETERANS HEALTH CARE BENEFITS AS
THEY MODIFIED THEIR DIRECT
DELIVERY SYSTEMS
=========================================================== Appendix 4

Australia, Canada, Finland, and the United Kingdom continue to
provide veterans with special health care benefits even though they
significantly modified their direct delivery systems.  Previously,
each country operated a hospital-based system that provided acute
care services to disabled veterans.  However, as the veteran
population aged, the number of veterans declined, and veterans'
access to community care improved, the countries changed how they
provided veterans health care benefits.  The United Kingdom no longer
operates a direct delivery system while the veterans health care
systems in Australia and Canada are transitioning from direct
providers of care to payers of care.  Although Finland continues to
operate a direct delivery system, it changed the system's focus to
meeting the long-term care needs of its aging veteran population. 
Veterans in three countries today receive most or all of their health
care by or through the universal care programs; Australia pays for
veterans care provided by public, private, or veterans medical
facilities. 

Despite these changes to their direct delivery systems, all of the
countries preserved and enhanced the health care benefits provided to
their veterans as their systems evolved.  For example, Australia
authorized and paid for much of its veterans inpatient care at public
and private hospitals before the country implemented its universal
insurance program.  This helped to preclude older veterans from
having to travel long distances to obtain care in veterans hospitals. 
Finland built 22 new nursing homes during the 1980s and 1990s to
provide for the long-term care needs of its aging veterans; the
United Kingdom provides veterans priority care of their disability
under the universal direct delivery system.  Veterans service
organizations generally support the changes made to the veterans
health care systems in their countries because veterans health care
benefits have been maintained. 


   AUSTRALIA'S VETERANS HEALTH
   CARE SYSTEM PAYS FOR CARE IN
   PUBLIC AND PRIVATE FACILITIES
   AND OPERATES ITS OWN FACILITIES
--------------------------------------------------------- Appendix 4:1

Australia's veterans health care system, managed by the Department of
Veterans' Affairs (DVA), is gradually shifting from a hospital-based
direct service provider to a purchaser of health care services.  The
system consists of (1) payment for services provided at public and
private hospitals and (2) direct delivery of services provided on an
inpatient and outpatient basis at veterans hospitals.  Veterans
organizations generally support the changes that have been made to
the system over the past three decades.  In 1992, Australia paid
about $923 million (U.S.  dollars) to operate its veterans health
care system. 

Veterans receive care in public hospitals as if they were private-pay
patients rather than Medicare patients.  This means that they (1) can
choose their own physician rather than accept the physician appointed
by the hospital and (2) receive semiprivate rooms.  If treatment
cannot be provided at a public hospital, DVA will pay for veterans
care at a private hospital under contract with DVA for providing
services to veterans.\6 When care is not available at private
hospitals with a DVA contract, DVA will pay for care provided at
other private hospitals.  Veterans obtain primary health care
services from private physicians (general practitioners) who, when
necessary, refer veterans to specialists for further treatment or to
hospitals.  DVA pays for the physician services.  Community-based
allied health professionals, such as physiotherapists, provide care
to eligible veterans at DVA expense. 

DVA also operates hospitals (four general, two auxiliary, and one
psychiatric) that provide veterans with comprehensive inpatient care. 
Plans call for DVA to transfer these hospitals to the states by July
1995. 

DVA does not directly provide long-term care services for older
veterans.  The Department of Human Services and Health has policy
responsibility for providing home care services and nursing home care
for veterans and for all other citizens.  These services are provided
by state and local government and by community providers.  Examples
of home care services are meals on wheels and housekeeping.  The
Department of Human Services and Health and state governments jointly
fund home care services under what is known as the Home and Community
Care program.  The recipients of these services, including veterans,
may be required to contribute toward their cost.  Veterans receive
the same care as the general population and do not have priority for
treatment or support.  DVA pays for the government portion of the
costs for nursing home care, with veterans, like other citizens,
making copayments. 

In recognition of the aging veteran community, DVA funds a range of
community support programs including in-home respite care, day clubs
for the lonely and isolated beneficiaries, a joint venture scheme
that provides funding to exservice clubs to establish community
programs, and support for caregivers and people who volunteer for
community programs. 

Australia's veterans health care system began changing in the
mid-1970s, at which time it operated a multimission direct delivery
system.  Table 4.1 shows the major changes that have occurred in the
system in the last three decades. 



                          Table 4.1
           
           Evolution of Australia's Veterans Health
                         Care System

Time frame  Event
----------  ------------------------------------------------
Pre-1984    Operated a multimission direct delivery system
            of nine veterans hospitals and contracted for
            physician care in the communities.

            Community patients authorized to use veterans
            hospitals (1973)

            Veterans living in nonmetropolitan areas
            authorized to use public hospitals without prior
            approval from DVA. Veterans living in
            metropolitan areas could use public and private
            hospitals with prior approval from DVA.

1984        Australia implemented universal health care.

1988        Decision made to discontinue direct delivery
            system.

1990        Veterans Independence Program established.

1992-1993   Two hospitals transferred to the states, one
            closed, and negotiations ongoing for the
            remaining hospitals. Veterans in affected areas
            given option to use former veterans hospital or
            public hospitals without prior DVA approval and
            given greater access to private hospitals.
------------------------------------------------------------

--------------------
\6 Factors to be considered in treating veterans in private hospitals
include (1) relative waiting times in the public and private
hospitals, (2) distances to be traveled, and (3) costs of care. 


      AUSTRALIAN VETERANS HEALTH
      CARE SYSTEM BEFORE 1984
------------------------------------------------------- Appendix 4:1.1

Before 1984, the veterans health care system (1) directly provided
inpatient care and hospital-related outpatient services (most
physician care was provided by local medical officers under contract
to the system), (2) trained medical professionals, and (3) conducted
medical research.  DVA operated general hospitals in the capital
cities of the six states and three auxiliary/psychiatric hospitals. 
The general hospitals provided acute medical and surgical care to
veterans and specialized in geriatrics and wound management--one
hospital (Concord Repatriation Hospital, Sydney) specialized in burn
treatment.  These hospitals also trained health care professionals
and conducted medical research.  The auxiliary/psychiatric hospitals
provided convalescent care, psychiatric services, rehabilitation, and
extended care. 

Veterans used private physicians--known as local medical
officers--for their day-to-day medical care in their home communities
at DVA expense.  These primary care physicians provided routine care
and made referrals to specialists and hospitals. 

Veterans living in nonmetropolitan areas (that is, areas outside the
state capitals) were authorized to use public hospitals without
obtaining prior approval from DVA.  Veterans in metropolitan areas
could also use public and private hospitals but only for emergency
care or with prior approval from DVA.  With the aging of the veteran
population, travel to veterans hospitals was harder for veterans and
their families.  Giving veterans greater flexibility to obtain care
in public and private hospitals, rather than restricting them to care
in veterans hospitals, therefore facilitated access to care. 
Veterans could now be treated as private patients at public
hospitals, and, if the public hospitals could not provide the needed
health care, veterans could go to a private hospital. 

In 1973, DVA authorized veterans hospitals to use their excess
capacity to treat community patients.  This was later set at a
maximum of 20 percent of available beds.  DVA was concerned that the
aging veteran population (mostly World War II veterans) was
transforming veterans hospitals into geriatric facilities, resulting
in poorer quality and fewer types of services available for veterans. 
DVA hoped that caring for community patients would allow the
hospitals and staff to maintain their medical expertise and expand
services.  Also, Australia's universities were concerned about fewer
training opportunities for their students at veterans hospitals since
these hospitals were increasingly focusing on geriatric care. 

In Australia's fiscal year 1983 (July 1, 1982, through June 30,
1983), approximately 43 percent of the over 1 million bed days of
acute hospital care veterans received through DVA were provided by
public and private hospitals.  During the same year, Repatriation
General Hospitals provided over 120,000 bed days of care to community
patients, about 17 percent of the total bed days they provided. 


      UNIVERSAL HEALTH CARE DID
      NOT AFFECT THE VETERANS
      HEALTH CARE SYSTEM
------------------------------------------------------- Appendix 4:1.2

Implementation of Australia's universal health care program in 1984
did not significantly affect the demand for veterans health care
because veterans already had benefits that exceeded those provided by
the new program.  As well as being treated in veterans hospitals,
veterans were admitted to public hospitals on a priority basis and
were treated as private-pay patients, which gave them their choice of
physician and care in semiprivate rooms.  Thus, universal health care
did not improve veterans access to care or their health care
benefits.  Neither did universal health care cause DVA to change the
services it provided nor the number and types of medical facilities
it operated. 

The 1983-84 annual report for the veterans program notes that as of
the end of the financial year no evidence existed of any significant
effect on the veterans health care system attributable to the
introduction of universal coverage.  In fact, the bed days of care
provided by veterans hospitals both to veterans and to community
patients increased slightly. 


      AUSTRALIA DECIDED TO
      DISCONTINUE ITS DIRECT CARE
      SYSTEM
------------------------------------------------------- Appendix 4:1.3

In 1988, DVA decided to discontinue its direct delivery system and to
transfer its general hospitals, along with their training and
research missions, to the states.  Several factors accounted for this
decision.  One, it became apparent to DVA during the 1980s that the
aging veteran population was requiring fewer of the specialized acute
care services offered by the veterans hospitals.  Two, the number of
veterans had declined, reducing demand for its services.  At that
time, Australia operated six general hospitals and four
auxiliary/psychiatric hospitals. 

DVA transferred its first general hospital to the state of Tasmania
in 1992.  Commencing with the transfer of the veterans hospital to
the state of Tasmania, DVA allowed all veterans in the state to
choose among the previous veterans hospital, public hospitals, and
selected private hospitals at DVA expense.  Previously, veterans
living near the veterans hospitals were authorized to use public or
private hospitals only on an exception basis. 

In 1993, it transferred a second general hospital to the state of New
South Wales and closed one auxiliary and one psychiatric hospital in
the state of Victoria.  As of July 1993, negotiations were ongoing
for transferring one general hospital to the private sector as the
state decided not to accept this hospital as it already had
sufficient public hospital capacity.  The DVA was also negotiating
the transfer of three other general hospitals to the states and had
plans to transfer or close the two remaining auxiliary/psychiatric
hospitals. 

In negotiating the transfers, DVA had several major objectives. 
These were to (1) maintain high quality care at the hospitals, (2)
preserve the employment rights and working conditions of hospital
staff, and (3) turn over the hospitals' training and medical research
to the states. 

As part of the negotiations, the states did not require the two
transferred hospitals to be renovated because they were comparable to
public hospitals in services and amenities.  For example, one of the
hospitals already had an emergency room that had been created in
1976.  Also, televisions and telephones generally did not have to be
installed because they are not common in either veterans or public
hospitals.  However, individual showers had to be added. 


      VETERANS SERVICE
      ORGANIZATIONS SUPPORT
      CHANGES MADE TO THE VETERANS
      HEALTH CARE SYSTEM THAT
      PRESERVED HEALTH CARE
      BENEFITS
------------------------------------------------------- Appendix 4:1.4

Veterans service organizations generally support the actions of the
DVA to preserve the veterans health care system and benefits.  The
primary veterans service organization--the Returned and Services
League of Australia (RSL)--supported DVA's admission of community
patients to veterans hospitals to ensure that the hospitals retained
their expertise and staff and thus provided needed care to veterans. 
At the same time, the RSL supported veterans hospital affiliations
with universities, which allowed medical students to be trained as
health professionals and for research to be conducted.  The RSL
supported the expanded authorization for veterans to use public and
private hospitals nearer to their homes because it agreed that it was
difficult for aging veterans and their families to travel long
distances to veterans hospitals. 

The RSL supported the transfer of the veterans hospitals into the
state health systems on condition that the government meet a list of
requirements that the RSL compiled in 1991 and felt was necessary to
ensure that veterans would receive the same benefits they had under
the veterans direct delivery system.  These requirements included

  guaranteed continued access to veterans hospitals at no cost to the
     veteran,

  total health care services for veterans must be at least equal to
     those provided in veterans hospitals, and

  assurances that sufficient beds are available in public and private
     hospitals to meet requirements of veterans in each state. 

At the time of our study, the government had responded to some of the
requirements, and the RSL was awaiting further response.  RSL
officials did not indicate to us their satisfaction or
dissatisfaction with the government's responses. 

Veterans service organization officials told us that they would have
strongly resisted any attempts to eliminate the veterans health care
system as a result of implementing universal health care.  They
stated that veterans benefits were better than those available to
other citizens before implementation of universal care, and the
veterans service organizations did not want veterans to lose these
extra benefits because the country implemented its universal health
insurance program. 


   CANADA'S VETERANS HEALTH CARE
   SYSTEM SUPPLEMENTS UNIVERSAL
   HEALTH CARE AND FOCUSES ON
   LONG-TERM CARE
--------------------------------------------------------- Appendix 4:2

Over the past three decades, the veterans health care system,
administered by the Department of Veterans Affairs-- Canada (DVAC),
evolved from a direct provider of both inpatient and outpatient
services to a system that now supplements care paid by the universal
health insurance program and focuses on the long-term care needs of
its veterans.  Veterans service organization officials we spoke with
support the changes that have been made to the veterans health care
system since veterans health care benefits have been maintained. 
Costs to supplement Canada's universal care program and operate
long-term care programs and facilities totaled $463 million (U.S. 
dollars) in 1992. 

Veterans receive most of their health care through the universal
health insurance plans operated by their province or territory.  DVAC
supplements these plans by paying for noncovered inpatient and
outpatient services needed by veterans.  This policy ensures that all
veterans receive the same benefits regardless of where they live. 
For example, DVAC may pay for prosthetics in one province and
prescription drugs in another because of differences in coverage
among the provincial plans. 

DVAC meets the needs of its aging veteran population in several ways. 
It contracts with 40 community health facilities across Canada that
provide veterans priority access to long-term care services. 
Although it is negotiating their transfer to the provinces, DVAC
still operates a 700-bed hospital devoted to providing eligible
veterans long-term care services and one 50-bed domiciliary that can
be accessed by any eligible veteran.  Further, DVAC operates the
Veterans Independence Program, which provides older veterans
counseling on available services, health information, and care to
help them remain healthy and live in their homes and communities. 

The current system has changed significantly since the 1950s when it
was based on direct delivery of health care services.  Table 4.2
shows the major changes to Canada's veterans health care system in
the past five decades. 



                         Table 4.2
          
           Evolution of Canada's Veterans Health
                        Care System

Time frame      Event
--------------  ------------------------------------------
1950s           Operated a multimission direct care
                delivery system consisting of 21 medical
                facilities.

Late 1950s      Expanded eligibility to nonveterans.

1961            Canada implemented universal coverage of
                hospital care.

1963            Government study recommended that the
                direct delivery system be discontinued.

1966 -1983      Eighteen of the 21 veterans facilities
                transferred to the provinces. Implemented
                the forerunner of the Veterans
                Independence Program. Also, Canada
                implemented universal coverage of
                physician care in 1972.

1993            Negotiations ongoing to transfer the one
                remaining hospital and one domiciliary to
                the provinces.
----------------------------------------------------------

      THE VETERANS SYSTEM
      PREVIOUSLY FOCUSED ON
      TREATING VETERANS'
      WAR-RELATED INJURIES
------------------------------------------------------- Appendix 4:2.1

During the 1950s and early 1960s, the veterans health care system (1)
provided medical and surgical services for treating veterans'
war-related disabilities as well as direct care services to indigent
disabled veterans in 21 medical facilities, (2) trained medical
professionals, (3) conducted medical research, and (4) provided
backup for the military hospital system in time of conflict.  The
medical facilities consisted of 13 hospitals located in the major
urban areas that provided both inpatient and outpatient care, two
large psychiatric facilities, and six domiciliary care homes. 
Veterans hospitals often affiliated themselves with university
medical schools for teaching and medical research purposes and became
national leaders in such areas as geriatric care, head trauma
treatment, and prosthetics. 


      AN AGING VETERAN POPULATION
      CAUSES A VARIETY OF PROBLEMS
      FOR VETERANS DIRECT DELIVERY
      SYSTEM
------------------------------------------------------- Appendix 4:2.2

Within 10 years after the end of World War II, use of veterans
hospitals began declining, which threatened the medical expertise
that the hospitals had developed.  Many World War I veterans were now
in their sixties and began needing long-term care, while World War II
veterans no longer needed acute care treatment of their war injuries. 
Between 1954 and 1961, utilization of available beds in veterans
hospitals fell by 14 percent, while the number of beds declined by 8
percent. 

During the late 1950s, standards of medical care at veterans
hospitals were high, according to Canadian veteran health care
officials.  However, as noted in the 1960 DVAC annual report, the
aging veteran population, which increasingly needed long-term care
services and less acute care, posed a threat to this expertise and
the ability to recruit and retain skilled medical professionals. 

DVAC attempted to counter the falling utilization and threatened loss
of its medical expertise by expanding eligibility and authorizing
veterans hospitals to admit beneficiaries of other government health
care programs, including the Royal Canadian Mounted Police and
aboriginal Canadians.  This action, however, taken during the
mid-1950s, failed to result in any significant increase in
utilization. 

Implementation of universal hospital coverage in 1961 greatly
improved veterans' access to hospital care; however, it reduced
utilization at veterans hospitals.  According to DVAC officials,
universal hospital coverage decreased workload at veterans hospitals
because veterans generally chose to receive care in nearby community
hospitals rather than at the more distant veterans hospitals.  Access
to veterans facilities had become a problem for older Canadian
veterans who lived outside of the urban areas served by the veterans
hospitals because they often had to travel long distances for health
care.  As veterans aged, traveling to these facilities became harder. 


      CANADA DECIDED IT NO LONGER
      NEEDED A SEPARATE VETERANS
      DIRECT CARE DELIVERY SYSTEM
      AND SWITCHED ITS FOCUS TO
      LONG-TERM CARE SERVICES
------------------------------------------------------- Appendix 4:2.3

On the basis of changing health care needs of an aging and declining
veteran population and the introduction of universal coverage for
hospital care, Canada decided in 1963 that it no longer needed a
separate direct delivery system for veterans.  Further, Canada began
shifting its focus from acute care to long-term care as hospitals
converted beds for acute care services to beds for veterans'
long-term care needs.  By the early 1960s, 70 percent of the veterans
hospital beds were being used for long-term care services. 

A 1963 government report noted that veterans hospitals faced a
probable decline in the quality of acute care they could provide as
the patient population continued to age.  The study concluded that
with the declining number of eligible veterans, most of whom needed
long-term care instead of acute hospital care, and the increased
costs of operating hospitals, the veterans health care system should
stop delivering direct care. 

DVAC began transferring its medical facilities to the provinces in
1966, and, by 1983, all but one hospital and two domiciliaries had
been transferred.  During this period, Canada also implemented
universal coverage of physician care.  This improved veterans' access
to outpatient care for those who used veterans hospitals for their
outpatient services. 

To transfer its hospitals, DVAC had to negotiate with the provinces. 
The following is part of the transfer negotiations: 

  The medical education, research, and military backup
     responsibilities of each former veterans hospital remained with
     that hospital, preserving these capabilities.  In effect, DVAC
     no longer has research, medical training, or military backup
     responsibilities because the provincial hospitals have assumed
     these missions. 

  DVAC agreed to upgrade its hospitals to community standards. 
     Although most veterans hospitals were structurally sound and
     provided comparable medical treatment in terms of quality, they
     frequently did not meet the privacy requirements of a community
     hospital.  For example, veterans hospitals often had multibed
     rooms rather than private or semiprivate rooms and did not have
     individual showers.  Also, while amenities like televisions and
     telephones in each room compared with those of community
     hospitals, veterans hospital furnishings were often old and worn
     and had to be replaced. 

  DVAC contracted with community health facilities in each province
     to provide veterans access to long-term care beds. 

As of 1993, DVAC was negotiating the transfer of the remaining two
facilities--one hospital and one domiciliary--to the provinces.  Both
facilities provide long-term care services to veterans. 


      VETERANS SERVICE
      ORGANIZATIONS SUPPORT
      CHANGES MADE TO THE VETERANS
      HEALTH CARE SYSTEM AND
      DVAC'S FOCUS ON LONG-TERM
      CARE
------------------------------------------------------- Appendix 4:2.4

Officials of the Royal Canadian Legion, a major Canadian veterans
service organization, told us that they are satisfied with the health
care benefits provided Canadian veterans.  They support the concept
that the veterans health care system supplement universal health care
services.  Officials also told us that they supported transferring
the veterans hospitals to the provinces because the declining
utilization of veterans hospitals no longer justified a separate
hospital system.  They also endorsed reserving a number of long-term
care beds for veterans' use on a priority basis in communities across
Canada. 

The Legion wants Canada to maintain a separate veterans health
benefits system that advocates for veterans health care issues and
that supplements the universal care program; the Legion opposes
efforts to eliminate the veterans health benefits system and merge it
with the universal care program.  Annually, Legion officials meet
with DVAC officials to promote continued improvements in veterans
health care benefits. 


   FINLAND'S VETERANS HEALTH CARE
   SYSTEM CONTINUES TO OPERATE A
   DIRECT DELIVERY SYSTEM, BUT NOW
   FOCUSES ON LONG-TERM CARE
--------------------------------------------------------- Appendix 4:3

Finland continues to operate a direct delivery system for veterans,
but the system has changed its focus to meet the long-term care need
of its aging veteran population.  It is administered by the State
Accident Office (SAO) in the Ministry of Social Affairs and Health. 
The system (1) pays operating costs of 2 hospitals, 2 outpatient
clinics, and 24 nursing homes; (2) reimburses municipalities for
special health care benefits provided veterans such as home care, day
care, and housekeeping services; and (3) pays copayments and
deductibles incurred by veterans under the universal health care
program for treatment of their disabling injuries.  All veterans are
covered by the universal health care program but do not receive
priority for treatment over other citizens.  Veterans service
organizations support the veterans health care system and the
benefits provided veterans.  In 1992, system expenditures totaled
$227 million (U.S.  dollars). 

As shown in table 4.3, the system began during World War II.  It was
not significantly affected by implementation of universal health care
and has evolved over time to meet the changing health care needs of
veterans. 



                         Table 4.3
          
           Evolution of Finland's Veterans Health
                        Care System

Time frame    Event
------------  --------------------------------------------
1940s         Veterans service organizations built and
              operated medical facilities, without
              government assistance, to treat the special
              injuries of veterans.

1948          Legislation passed creating a veterans
              health care system.

1963/1972     Finland implemented universal health care
              system that did not affect the veterans
              direct delivery system.

1970-1990s    System focuses on long-term care needs of
              veterans by (1) paying for services that
              allow veterans to remain at home, (2)
              converting acute care beds to long-term care
              beds, and (3) building nursing homes.
----------------------------------------------------------

      SYSTEM STARTED DURING WORLD
      WAR II
------------------------------------------------------- Appendix 4:3.1

Veterans health care in Finland began during the 1940s when veterans
service organizations began building and operating medical facilities
for treating veterans with disabling war injuries such as loss of
limbs, blindness, and brain injuries.  At that time, municipalities
had primary responsibility for providing health care services to all
veterans and other citizens in Finland.  The municipal facilities
generally lacked the experience and resources to meet all the
specialized care needs of disabled veterans. 

In 1948, Finland implemented legislation creating a veterans health
care system under which the federal government, through the SAO,
began paying for the operating costs of veterans medical facilities
owned by the veterans service organizations.  The SAO also began
paying the copayment and deductible costs of inpatient and outpatient
services provided by the municipalities and private providers to
treat disabled veterans' war injuries. 

By 1962, the year before Finland began implementing its universal
health care program, veterans could receive free care at three
medical and surgical hospitals,\7 two outpatient clinics, and two
nursing homes funded by the SAO, but owned and operated by veterans
service organizations, as well as care provided by municipal health
care facilities, or by private providers. 


--------------------
\7 In 1978, Finland replaced two hospitals located next to each other
with one new hospital. 


      UNIVERSAL HEALTH CARE
      IMPLEMENTATION DID NOT
      AFFECT THE VETERANS HEALTH
      CARE SYSTEM
------------------------------------------------------- Appendix 4:3.2

SAO officials told us that Finland's universal health care program,
implemented during the 1960s and 1970s, did not affect veterans
health care system operations nor the demand for veterans health
care.  That is, the number and types of medical facilities funded,
types of services provided, and eligibility criteria of the veterans
health care system did not change because the country implemented
universal health care.  Several reasons explain this:  One, universal
health care did not improve disabled veterans' access to care because
they previously received free care for their war injuries at local
municipal health care facilities or at the veterans medical
facilities.  Thus, utilization of the veterans facilities was not
affected.  Two, officials told us that the system's role of providing
for disabled veterans health care needs by supplementing the services
delivered by the municipalities did not change.  The municipalities
continued to be the primary provider of health care services in
Finland after universal health care implementation. 


      SYSTEM CHANGES MADE TO FOCUS
      ON VETERANS LONG-TERM CARE
      NEEDS
------------------------------------------------------- Appendix 4:3.3

The aging of the veteran population caused Finland to start changing
its veterans health care system between the implementation of
universal health care and the 1990s.  The objective of the changes
has been to allow older veterans to function independently at home
for as long as possible.  These changes include the following: 

  Severely disabled veterans can get grants for housing repair and
     renovation work.  These grants fund such projects as building or
     renovating bathrooms, widening doors, and constructing ramps so
     that older veterans can continue to live at home. 

  The government began reimbursing municipalities in 1986 for the
     special health care services they provide severely disabled
     veterans, such as home care, day care, and housekeeping
     services.  This change resulted from the government's
     determination that the veterans health care system was too
     institutionally focused and its desire to ensure that services
     were available to severely disabled veterans living at home. 

  The government funded construction and operation of 22 new nursing
     homes during the 1980s and early 1990s.  Although the nursing
     homes are owned and operated by municipalities and veterans
     service organizations, their operating expenses are paid by the
     SAO.  Only severely disabled veterans are allowed to use the
     nursing homes and they incur no charge, regardless of their
     income. 

The aging of the country's disabled veterans also resulted in changes
to the types of services provided at the Kauniola veterans hospital
we visited.  This is the primary hospital for treating veterans
disabling war injuries.  The chief physician at the hospital told us
that the health care needs of disabled veterans change as they age
and that the hospital, in response, has changed its services.  For
example, after World War II, the hospital primarily provided acute
care services for treating disabled veterans' war wounds, such as
brain and eye injuries, so that they could reenter the workforce. 
However, by 1993, the hospital had shifted its services to providing
more geriatric care to disabled veterans, whose average age was 74. 
Additionally, the hospital had converted 100 of its 227 beds to
long-term care use.  Some of the veterans needing long-term care
services had been at the hospital for 10 to 15 years. 

SAO officials told us that during the first quarter of the next
century, Finland will no longer need a veterans health care system. 
The average age of the 40,000 disabled veterans in 1993 was 75, with
16 percent over 80.  By the turn of the century, half of the
estimated 22,000 remaining veterans will have reached the age of 80. 


      VETERANS SERVICE
      ORGANIZATIONS OPINIONS OF
      FINLAND'S VETERANS HEALTH
      CARE SYSTEM
------------------------------------------------------- Appendix 4:3.4

Officials at two of the largest veterans service organizations in
Finland told us that they support the veterans health care system and
the health benefits provided to disabled veterans.  Officials stated
that benefits did not diminish following universal health care
implementation and praised the federal government for continuing its
funding for veterans benefits in the recessionary 1990s.  Further,
one official said that maintaining a separate veterans health care
system resulted in greater respect by the general population for
disabled veterans and the sacrifices they made for their country. 

Veterans service organizations historically have been very active in
promoting the health care needs of disabled veterans and ensuring
that the federal government provides for these needs.  For example,
veteran service organizations were responsible for promoting
construction of the 22 new nursing homes to meet the long-term care
needs of Finland's aging veterans.  They are also seeking improved
veterans access to heart bypass surgery through the universal health
care system.  Current policy is for younger men and women to have
first access to this surgery, but the veterans organizations believe
that Finland's older disabled veterans should have better access to
this service. 


   UNITED KINGDOM'S VETERANS
   HEALTH CARE SYSTEM RELIES ON
   UNIVERSAL HEALTH CARE TO
   PROVIDE MOST VETERANS HEALTH
   CARE BENEFITS
--------------------------------------------------------- Appendix 4:4

The National Health Service's direct delivery system provides and
pays for the vast majority of health care that disabled veterans
receive.  Veterans have priority for treatment for their disabilities
provided at NHS facilities.  For health care unrelated to their
disabilities, veterans receive health care at NHS facilities without
additional priority for care. 

The War Pensions Agency, an executive arm of the Department of Social
Security, which administers the veterans health care system, does not
own or operate any veterans health care facilities.  Rather, it
arranges and pays for veterans health care that is not available
through the NHS, including skilled nursing care; medical equipment
such as eyeglasses and hearing aids; home nursing equipment; and home
adaptation grants.  The Agency also pays subsistence, loss of
earnings, and transportation expenses when disabled veterans get
treated for their service-connected disabilities at NHS medical
facilities. 

Since nearly all disabled veterans' medical needs are covered and
paid for by the NHS, the Agency's yearly medical expenditure is quite
small.  Payments for the financial year ending in April 1994 were
$10.5 million (U.S.  dollars), with about 70 percent of these funds
spent on around-the-clock skilled nursing care for 220 severely
disabled veterans in nursing homes. 

The system once consisted of a combination of specialized hospitals
and contracted health care.  As the number of disabled veterans
declined and their specialized care needs diminished, the need for
veterans hospitals decreased.  Eventually the government merged the
veterans hospitals with the NHS without any loss in veterans health
care benefits (see table 4.4). 



                         Table 4.4
          
           Evolution of United Kingdom's Veterans
                     Health Care System

Time frame    Event
------------  --------------------------------------------
Pre-1948      Operated a direct care delivery system
              consisting of 12 hospitals and numerous
              clinics and paid for care provided in public
              hospitals.

1948          United Kingdom implemented the NHS.

1953          Decision made to (1) have the NHS provide
              and pay for veterans care in NHS facilities,
              (2) provide veterans priority of care in NHS
              facilities for their disabilities, and (3)
              pay for care not provided under the NHS.
              Also, hospital merger begun.

1961          Hospital merger completed.
----------------------------------------------------------

      VETERANS HEALTH CARE SYSTEM
      BEFORE THE NATIONAL HEALTH
      SERVICE:  A COMBINATION OF
      DIRECT DELIVERY AND CONTRACT
      CARE
------------------------------------------------------- Appendix 4:4.1

Shortly before implementation of the NHS in 1948, the Ministry of
Pensions operated a veterans health care system consisting of (1)
direct care provided at 12 veterans hospitals with about 4,200 beds
and numerous clinics that treated the special war disabilities of
veterans and (2) contracted care provided by public and private
hospitals and clinics for treating veterans' war-related injuries. 
Veterans hospitals were located near large population centers and
specialized in treating war disabilities such as amputations, spinal
cord injuries, paraplegia, head and eye injuries, and tropical
diseases.  These hospitals treated veterans discharged from military
hospitals as well as veterans readmitted for further treatment.  For
the year ending in March 31, 1948, veterans hospitals provided
specialized treatment to 21,000 disabled veterans; public and private
hospitals treated 85,000 disabled veterans. 

Public and private hospitals, clinics, and physicians under contract
with the Ministry treated disabled veterans for tuberculosis, mental
illness, and routine care related to their disabling injuries.  The
Ministry contracted for care for two reasons.  First, it was more
efficient to contract for services than to hire permanent medical
staff.  Second, it enabled veterans to obtain much of their care near
their homes and families rather than having to travel to veterans
hospitals. 

The veterans health care system also provided care to civilians.  For
example, Stoke Mandeville hospital, known for its spinal cord injury
and paraplegia work, was already treating a number of civilian
patients before implementation of the NHS.  Further, because of their
research and expertise in artificial limbs, Ministry facilities
supplied artificial limbs to the general population as well as to
disabled veterans. 


      BETWEEN 1948 AND 1953
      VETERANS HOSPITALS TREATED
      FEWER VETERANS BUT MORE
      CIVILIANS
------------------------------------------------------- Appendix 4:4.2

When the United Kingdom was implementing the NHS in 1948, veterans
were losing eligibility for veterans health care benefits as they
completely recovered from their war injuries.  Also, veterans needed
less and less specialized care in veterans hospitals.  As a result,
both the number of eligible veterans and utilization rates in
veterans hospitals declined.  For example, between March 1948 and
March 1950, the number of disabled veterans decreased from about
767,000 to about 725,000, a reduction of about 9 percent.  The
Ministry's 1950 annual report noted a drop in veterans' use of
veterans hospitals from about 26,000 to 21,000 for the year; this use
further declined to about 16,000 in 1952.  The Ministry's annual
report that year stated that veterans' medical needs generally did
not include the specialized care offered in veterans hospitals. 

As veterans' demand for specialized care decreased, so too did the
number of veterans hospitals and beds.  Between 1948 and 1953, the
Ministry closed 5 of its 12 hospitals, the total number of hospital
beds fell from about 4,200 to 2,000, and many of the remaining
hospitals reported empty beds.  For example, one veterans hospital
reported that 137 of its 260 beds were empty as of August 31, 1953. 
During this period civilian use of the Ministry's specialty hospitals
increased, which helped somewhat to offset their excess bed capacity. 
The Ministry's March 1949 annual report accurately forecasted that
hospital expertise in spinal cord injury treatment would become
increasingly available for NHS patients as the number of disabled
veterans needing treatment continued to decrease.  For example, by
1953 the majority of new admissions to the Stoke Mandeville hospital
were civilians needing spinal cord injury treatment.  The Ministry's
Artificial Limb Service and hospitals specializing in eye treatment,
plastic surgery, and certain war injuries were also treating an
ever-increasing number of civilian patients.  In 1953, veterans
hospitals treated over 1,800 civilians--about 14 percent of all
patients treated that year. 

The number of veterans receiving treatment in public and private
hospitals during this time also declined.  For example, the
Ministry's March 1948 annual report noted that 85,000 veterans
received care in public and private hospitals while the March 1951
report noted that about 23,000 received care in NHS or other
hospitals--a 73-percent decrease in 3 years. 


      A DECLINING VETERANS
      POPULATION THAT NEEDED FEWER
      SPECIALIZED ACUTE CARE
      SERVICES FINALLY LED TO
      MERGING MINISTRY HOSPITALS
------------------------------------------------------- Appendix 4:4.3

Because (1) the number of veterans eligible for care in veterans
hospitals was declining and (2) those eligible for care needed less
specialized medical treatment, the United Kingdom decided in 1953 to
merge its veterans hospitals with the NHS.  The government believed
that the merger would result in increased utilization of the veterans
hospitals and allow them to preserve and further develop their
specialized medical expertise by treating more NHS patients with
comparable injuries.  The seven remaining veterans hospitals merged
into the NHS between 1953 and 1961.  According to veterans health
care system officials, the privacy considerations, amenities,
physical condition, and quality of care in the veterans hospitals
compared with those at NHS hospitals at the time of the transfers. 

Although it dismantled the separate veterans hospital system, the
government maintained special health care benefits for disabled
veterans.  As part of the merger decision, (1) the NHS would provide
and pay for veterans care in NHS facilities, (2) eligible veterans
would receive priority for treatment of their disability in NHS
facilities, and (3) the veterans health care system would pay for any
necessary care of veterans not covered under the NHS.  Additionally,
the Ministry of Pensions was unified with the Ministry of National
Insurance under the Ministry of Pensions and National Insurance in
August 1953.  The Ministry of Pensions was no longer a separate
government agency. 


      VETERANS SERVICE
      ORGANIZATION IS SATISFIED
      WITH VETERANS HEALTH CARE
      BENEFITS
------------------------------------------------------- Appendix 4:4.4

The Royal British Legion, a major veterans service organization, is
satisfied that veterans health care needs are adequately met since
merger of the veterans hospitals with the NHS.  Reasons cited include
(1) veterans receive priority of treatment for their war injuries in
any NHS hospital, (2) funding for veterans additional health care
needs not covered under the NHS has been adequate, and (3) quality of
care in NHS hospitals compares with that provided in the prior
veterans hospitals and surpasses that available under the prior
patchwork health care system. 

Originally, the Legion opposed turning veterans hospitals over to the
NHS.  However, the opposition was mild because the Legion realized
that the declining numbers of eligible veterans could not sustain a
separate veterans hospital system.  Further, the Legion agreed that
the NHS had been providing quality care for 5 years before the
government decided to merge the veterans hospitals with the NHS and
that the NHS was a vast improvement over the former civilian health
care system. 

The Legion also opposed bringing the Ministry of Pensions under the
Ministry of Pensions and National Insurance because disabled veterans
would no longer be represented by a separate government agency.  In
response to this opposition, the government assured the Legion that
the interests of veterans would not be compromised.  Legion officials
told us veterans benefits and interests have been maintained since
the merger. 


IMPLICATIONS OF CHANGES IN OTHER
COUNTRIES' VETERANS HEALTH CARE
SYSTEMS FOR THE UNITED STATES
=========================================================== Appendix 5

Although significant differences exist in the veterans health
benefits in the United States and the four countries studied, the
evolution of the four countries' veterans health care systems
provides useful insights into the potential effects of health reforms
in the United States on our veterans health care system. 
Specifically, our work in the four countries shows the following: 

  Maintaining a direct delivery system is not the only option for
     preserving or expanding veterans health benefits. 

  Increasing veterans' freedom to choose between VA and non-VA health
     care providers will likely result in significant declines in
     demand for care in veterans facilities, unless financial or
     other incentives are used to entice veterans to choose VA health
     care. 

  Unless the patient mix in VA hospitals is broadened, veterans
     hospitals could find it increasingly difficult to (1) attract
     and retain physicians, (2) maintain expertise in treating the
     specialized health care needs of veterans, (3) maintain their
     medical education mission, and (4) serve as a backup to the
     military. 

  Regardless of whether the United States implements health reform, a
     declining veteran population, coupled with VA's move toward
     managed care, will likely reduce demand for acute care at
     veterans hospitals. 

  U.S.  veterans will, like those in other countries, increasingly
     need long-term care services as the population continues to age. 


   MAINTAINING A DIRECT DELIVERY
   SYSTEM IS NOT THE ONLY OPTION
   FOR PRESERVING VETERANS HEALTH
   BENEFITS
--------------------------------------------------------- Appendix 5:1

While maintaining a direct delivery system is one option for
preserving veterans health care benefits under a universal care
system, it is not the only option.  Three of the four countries
studied preserved and enhanced veterans health benefits without
maintaining their direct delivery systems.  Most of the U.S.  reform
proposals do not specifically address the role of VA in a reformed
health care system.  Those proposals that do address VA, however,
focus primarily on preserving the direct delivery system. 

Australia, Canada, and the United Kingdom closed or transferred
ownership of (or have developed plans to do so) their veterans
hospitals to other public or private organizations.  In each country,
however, veterans reportedly continue to receive health benefits that
exceed those available to the general public under the universal care
program.  Although all the countries preserved and, in most cases,
expanded veterans health benefits, they did it in different ways: 

  Most veterans health care in the United Kingdom is delivered and
     paid for through the universal care program.  Veterans receive
     priority treatment for their service-connected disabilities in
     universal care hospitals; the veterans program supplements any
     care not available through the universal care program, primarily
     nursing home care. 

  In Canada, most veterans health care is delivered and paid for
     through the universal care program.  Because covered services
     under the universal care program vary by province, the
     Department of Veterans Affairs supplements provincial plans to
     ensure that veterans continue to receive the same services
     available under the former direct delivery system. 

  Australia's Department of Veterans Affairs continues to operate a
     separate veterans health benefits program but increasingly
     contracts for care with public and private hospitals; veterans
     hospitals are being turned over to the states or to private
     organizations.  Veterans in Australia essentially obtain care
     from the same hospitals and physicians participating in the
     universal care program but have higher priorities for care and
     better accommodations by obtaining their care through the
     veterans program. 

Although none of the major U.S.  health reform proposals we reviewed
would eliminate VA's current role as a direct provider of acute
health care services, most would not authorize changes that would
enable VA to maintain its acute care workload.  The administration's
original Health Security Act and the Mitchell (S.  2357) and Gephardt
(H.R.  3600) proposals that replaced it would authorize VA to
transform its facilities into a series of managed care plans to
compete with private-sector health plans.  VA envisions an expanding
network of outpatient clinics, increased contracting for health care
services, and increased flexibility to close underutilized hospitals. 
Finally, the Dole/Packwood proposal (S.  2374) is intended to give VA
sufficient flexibility to compete as a health care provider under any
state-enacted health reforms. 

VA officials, in commenting on a draft of this report, said that it
is essential for VA to maintain a direct delivery system.  The
ability of other countries to give up their direct delivery systems
should not be compared to the United States veterans health care
system because of significant differences between health care in the
four countries and the United States.  Specifically, they said that

  the size of our VA system and the scope of services provided are
     vastly different from those that existed in the veterans health
     care systems of the four countries when they adopted universal
     coverage and

  the health systems in the four countries, as opposed to those in
     the United States, are either government-operated or
     government-financed and controlled. 

The size of our veterans health care system does not, in our opinion,
preclude a comparison with the other countries because the VA system,
while large compared to those in other countries, is nonetheless
small relative to the country's overall health care system.  There
are 171 VA hospitals compared to approximately 6,800 public and
private hospitals in the United States.  While the number of veterans
hospitals is greater than in the other countries, this alone does not
prohibit the option of transferring or selling them to the public or
private sector nor would it preclude closing facilities or converting
them to other uses such as long-term care.  Moreover, about 90
percent of patients using VA hospitals receive treatment only for
nonservice-connected conditions.  The fact that VA provides health
care services to only about 8 percent of veterans in any given year
provides further indication that the private sector is capable of
providing the types of health care services needed to meet the
general health care needs of veterans. 

Nor, as VA suggests, are there significant differences in the scope
of services provided by the veterans health care systems in the
United States and the four countries studied.  As detailed in Section
4, the four countries provided all necessary services to treat their
veterans' service-connected injuries, just as our VA does currently. 
In other countries, eligible veterans have certainty of treatment
while our veterans, because of complex eligibility criteria, are
uncertain of the VA care they will receive.  Finally, as sections 1
and 4 of this report illustrate, the scope of services available to
veterans in other countries exceeds those available to nonveterans. 

Our work, rather than suggesting that the ability of a country to
preserve veterans health benefits without a direct delivery system
depends on the type of universal health care system adopted by a
country, suggests the opposite.  That is, veterans health benefits
can be preserved without a direct delivery system regardless of how
the universal care system is structured.  As described in section 1,
the universal care systems in the four countries range from a direct
delivery system (United Kingdom) to a single payer (Canada). 
Notwithstanding differences in their universal health care systems,
three of the four countries decided to preserve and enhance veterans
health care benefits without a direct delivery system (see section
4).  Wide differences also exist in the approaches to health reform
in the United States.  Universal care proposals range from
government-administered, private-sector managed care plans
(Clinton/Mitchell/Gephardt) to a Canadian-style single payer system
(McDermott/Wellstone). 

VA officials said that because VA's training, research, and military
backup missions serve the country as well as veterans, it is
essential to retain VA's direct delivery system.  We recognize that
VA has a role in training a significant portion of this country's
medical professionals.  However, as noted in section 4, Canada had
the same additional missions as our VA but successfully transferred
them to the provinces when it decided to give up its direct delivery
system.  Australia too transferred its research and training missions
without apparent detriment to the country.  We believe that
maintaining these missions should be secondary to designing a
veterans health benefits program that best meets the needs of
America's veterans. 

Several health reform proposals could inhibit VA's ability to meet
its other missions.  For example, the administration's original
Health Security Act and the Mitchell and Gephardt bills could
diminish VA's ability to back up the military's health care system. 
Currently, most VA care is discretionary, subject to the availability
of space and resources.  This gives VA considerable flexibility to
deny or delay treatment to veterans to make room for returning war
casualties.  Under the Health Security Act and the Mitchell and
Gephardt bills, VA would have the same contractual obligation to
treat enrollees, both veterans and dependents, as other health plans. 
As a result, VA would no longer have the same flexibility it now has
to deny or delay care to veterans in the discretionary care category. 
Further, these proposals could inhibit VA's ability to conduct
research on service-related health conditions or train medical
professionals because veterans choosing other plans could generally
come to VA for treatment only if their health plans agreed to pay VA
for the care. 

VA officials said that the White House Working Group, in developing
the administration's Health Security Act, considered options other
than maintaining a direct delivery system and concluded that
maintaining a viable VA direct delivery system is a priority.  VA
officials, however, did not describe what other options the Working
Group considered or the reasons the Working Group felt these options
were not viable.  We believe the information presented in this
report, which may not have been available to the Working Group, shows
that veterans health benefits can be preserved and enhanced without a
direct delivery system. 

U.S.  veterans service organizations believe that maintaining a
direct delivery system for veterans is the only way to ensure that
veterans health needs continue as a national priority, according to
VA officials.  As section 4 points out, veterans service
organizations in Australia, Canada, and the United Kingdom held
similar opinions when their countries considered giving up veterans
direct delivery systems.  Today, these veterans service organizations
support the changes in how veterans obtain health care because, in
those countries, veterans special health care status and benefits
have been preserved and enhanced. 

VA officials further stated that a direct delivery system is
essential because VA provides specialized services that may not be
reasonably available in the private sector.  Under health reform as
detailed in the Health Security Act and the Mitchell and Gephardt
bills, however, the main focus is on providing the same standard
benefit package that veterans would receive under any competing
health plan, not on preserving specialized services.  Under these
proposals the availability of specialized services could deteriorate,
even with the maintenance of effort provisions under the Gephardt
bill.  The Gephardt bill, however, would make nursing home care an
entitlement for most service-connected veterans and would entitle
core group veterans (primarily service-connected and low-income
veterans) enrolling in VA health plans to the full range of VA
outpatient services not included in the standard benefit package. 

The countries we visited that eliminated their direct delivery
systems (see section 4), maintained their specialized services for
veterans by transferring the specialties to the universal care
systems or paying for such services to supplement the universal care
system.  Spinal cord injury treatment in the United Kingdom and burn
treatment in Australia are two examples.  Finally, VA does not need
to maintain a full-service direct delivery system to maintain its
specialty services; VA could instead focus on direct delivery of
specialized services for eligible veterans. 


   HEALTH REFORMS THAT INCREASE
   VETERANS FREEDOM TO CHOOSE
   PROVIDERS WILL LIKELY REDUCE
   DEMAND FOR CARE IN VETERANS'
   FACILITIES
--------------------------------------------------------- Appendix 5:2

Reforms of the U.S.  health care system or of the veterans health
care system that would give veterans increased access to community
providers will likely reduce demand for care in existing VA
facilities unless VA attracts an increasing number of veterans
through expanded benefits or reduced cost sharing.  Canada and
Australia both experienced significant declines in use of their
veterans hospitals after veterans got increased freedom to choose
their source of care.  Canada's experience suggests the potential
effects on our VA system if it remains unchanged through health
reform, as it would under all but the administration, Mitchell,
Gephardt, and Dole/Packwood bills.  On the other hand, Australia's
experience more closely suggests the likely effect of the
administration's proposals. 

In June 1992, we reported that many current VA users would likely
stop using VA facilities under a universal care system unless changes
were made in the VA health care system.\8 We estimated that demand
for inpatient care could decline by about 47 percent and demand for
outpatient care by about 41 percent if the U.S.  implements a
universal health care system.  At about the same time, the Paralyzed
Veterans of America similarly estimated that up to half of current VA
hospital users might leave the VA under health reform.  Many factors
could affect the extent of any decline in VA use, including the
comprehensiveness of the services provided, the cost sharing
required, and the nature and extent of any changes in VA eligibility
and services. 

In Canada, whose former VA system most closely resembled veterans
health care in this country, the decline resulted when veterans'
access to community care improved through implementation of universal
care.  Like U.S.  veterans, Canadian veterans were required to obtain
most of their inpatient and outpatient care through veterans
hospitals and had limited access to health care services in their
home communities unless they had alternative health care coverage. 
Canada implemented universal coverage without changing the structure
of its veterans health care program, much as all but the
administration and Mitchell and Gephardt proposals would do in this
country.  As a result, use of Canada's veterans facilities declined
as veterans who formerly had to travel long distances to veterans
hospitals gained improved access to community providers.  Within a
few years after implementing universal hospital coverage, Canada
decided to close its veterans hospitals. 

Unlike Canada's, Australia's veterans had considerable freedom to
choose their health care providers even before implementation of
universal coverage.  Initially, Australia, like Canada and the United
States, required veterans to use its veterans hospitals for most of
their care.  Unlike Canada and the United States, however, Australia
always allowed its veterans to obtain outpatient care through "local
medical officers," essentially private practice physicians in their
home communities.  The local medical officers could arrange
admissions to both veterans hospitals and other public and private
hospitals. 

Veterans living in nonmetropolitan areas could obtain care in public
hospitals without obtaining prior approval from DVA; veterans in
metropolitan areas could also use public and private hospitals but
were required to obtain prior approval from DVA.  With this freedom
to choose between veterans and public or private hospitals, public
and private hospitals accounted for about 43 percent of the hospital
days of care provided to veterans through DVA in the year before
Australia implemented universal care. 

Australia is giving veterans additional flexibility to use public and
private hospitals as it transfers hospitals to the states.  Beginning
in 1992, Australia authorized veterans living in states where the
veterans hospital had been transferred to use public hospitals at DVA
expense without obtaining prior approval.  The conditions for
accessing private hospitals have also eased. 

The current Australian veterans system most closely resembles the
structure of the U.S.  veterans health care system proposed under the
administration's original Health Security Act and the Mitchell and
Gephardt proposals.  Under these proposals, VA plans to give veterans
greater freedom to choose where they obtain health care by expanding
its provider network through contracts with community hospitals and
providers and through new construction/leasing of VA facilities. 

While such an expansion in the number of providers is essential if VA
is to compete under health reform, it is likely to have the same
effect on use of VA facilities as the other health reform proposals
unless VA health plans increase VA's market share of the veteran
population or veterans are replaced by other patients.  In other
words, if VA continues to serve about 2.3 million veterans per year
but serves them through a network of VA and community providers, then
those veterans' use of VA facilities will decline.  But, if VA
decides to treat veterans' dependents or other nonveterans in its
hospitals or is able to enroll more than 2.3 million veterans in its
health plans, then it may be able to maintain its existing hospitals'
workloads. 

VA officials, in commenting on a draft of this report, said that we
have ignored the impact of the administration's health reform
proposals on demand for VA care.  They noted that the proposals would
fix VA's complex eligibility rules, provide new funding streams, and
broadly expand access to the VA system for veterans and their
dependents.  They also noted that the proposal would provide
substantial financial incentives for up to 9 million veterans to
enroll in VA health plans.  Finally, they noted that the financial
incentives would be even greater under the Mitchell proposal because
employers would not be required to pay more than 50 percent of the
cost of their employees' health insurance premiums. 

We agree that incentives such as free care and additional benefits
could enable VA to maintain or expand utilization at its facilities
and have revised this report accordingly.  We also note, however,
that the government's costs for providing enrollment incentives to
expand utilization have not been adequately reflected in the
administration's estimates of the cost impact of the veterans health
care provisions of the Health Security Act.  The cost estimates are
based on enrollment of about 2.3 million veterans. 

In May 1994, and again in June 1994, we testified that under the
administration's original Health Security Act, a core group of about
9 million veterans, primarily those with service-connected
disabilities or low incomes, would be entitled to free comprehensive
benefits if they enrolled in VA health plans.  That is, they would
not be required to pay their 20-percent share of the premium or other
out-of-pocket costs.  VA would assume payment for these costs, which
could require over $15 billion annually in appropriations.\9

The Mitchell bill provides even greater financial incentives for
veterans to enroll in VA health plans.  Under this proposal,
employers would not initially be required to contribute toward their
employees' health insurance premiums, and, even if an employer
mandate were subsequently imposed, would not be required to pay more
than 50 percent of the premiums.  Thus, employed veterans would have
a strong financial incentive to enroll in VA health plans to avoid
paying 50 percent or more of their health insurance premium. 
Further, the Mitchell bill would essentially extend free
comprehensive benefits to all veterans who served in Desert Storm and
Vietnam, regardless of service-connected status or income. 

While the Mitchell bill contains financial incentives for veterans to
enroll, it also contains a significant disincentive to enrollment in
VA health plans by essentially shifting the financial risks for VA
health plans from the government to VA health plan enrollees.  Unlike
other health plans that would be required to provide services covered
under the standard benefit package to all enrollees, VA health plans
would provide items and services consistent with the standard benefit
package only to the extent that adequate funds were appropriated to
cover their costs.  If appropriations are insufficient, VA may reduce
the standard benefit package.  In other words, veterans enrolled in a
VA health plan may receive fewer health benefits than the rest of the
population that enrolled in other health plans.  All of the countries
in our study provide eligible veterans health care benefits that
exceed those available to the general population. 

In May 1994, VA officials testified before the Senate Committee on
Veterans' Affairs on the cost impact that the administration's Health
Security Act would have on its operations.  At that time, VA reported
that its cost estimates were based on 2.3 million veterans enrolling
in VA health plans--the number who use the system annually.  However,
this enrollment figure, and therefore VA's cost estimates, are
greatly understated if VA is to sustain its current workload. 

This is because more individuals generally enroll in an HMO or
private health insurance plan than actually use health care services
in any given year.  An HMO or private health insurance plan knows how
many enrollees it has and can calculate the average health care
utilization across all of its enrollees, not just those who used
health care services in the past year.  VA, however, does not have
comparable data because veterans do not currently "enroll" in the VA
health care system.  As a result, VA knows how many veterans used VA
services in any given year, but not how many other veterans would
have used VA had they needed health care.  VA officials told us that
over a 3-year period, there are about 4 million distinct users of VA
services.  Using this as a conservative estimate of current VA users,
VA would need to enroll 4 million veterans, not the 2.3 million it
reported to the Congress, to continue serving its current users with
no other changes in the VA system.\10

But, VA plans to make another important change; it plans to allow
veterans enrolling in VA health plans to use community facilities and
providers under contract with VA health plans at no additional cost
to the veteran.  If half of VA health plan enrollees chose to get
care from community providers rather than from VA facilities, the
number of veterans VA health plans would need to enroll would double,
to about 8 million, if workloads at VA facilities are to be
maintained.  While the number of enrollees VA health plans would need
to enroll to maintain utilization of VA facilities would depend on
many factors, such as where those enrolling in VA health plans live
in relation to VA facilities, we believe it is likely that at least
half of the enrollees would choose community providers. 

Many veterans, given a choice between care in VA facilities and
non-VA facilities closer to their homes, with no difference in
out-of-pocket costs, would likely choose non-VA care.  Our prior work
suggested that VA might lose as much as 47 percent of its acute
hospital workload and 40 percent of its outpatient workload if
veterans obtained better access to community providers through a
universal health care program.  The administration's Health Security
Act would essentially give veterans this same increased access to
community providers through enrollment in VA health plans, but with
an added incentive for many veterans--free care regardless of whether
they choose to get care from VA facilities or through community
providers under contract with their VA health plans. 

Clearly, the cost of enrolling 8 million veterans would far exceed
the cost the administration used in estimating the cost impact of the
veterans health care provisions of the Health Security Act.  As
stated in our May and June 1994 testimonies, the cost of enrolling
low-income, Medicare-eligible veterans (half of current VA users)
would be paid entirely through VA appropriations. 

Treating veterans' dependents in VA facilities could reduce the
number of veterans needed to sustain the direct delivery system. 
Although VA officials said they plan to treat dependents in VA
facilities to the extent space permits, VA previously indicated that
it planned to treat dependents entirely through contracts. 


--------------------
\8 VA Health Care:  Alternative Health Insurance Reduces Demand for
VA Care (GAO/HRD-92-79, June 30, 1992). 

\9 VA Health Care Reform:  Financial Implications of the Proposed
Health Security Act (GAO/T-HEHS-94-148, May 5, 1994).
VA Health Care:  Efforts to Make VA Competitive May Create
Significant Risks (GAO/T-HEHS-94-197, June 29, 1994). 

\10 We think this is a conservative estimate because 3 years may not
be a long enough time to identify a true user population. 


   LIMITING USE OF VETERANS
   HOSPITALS TO VETERANS COULD
   FACILITATE DECLINE IN
   CAPABILITIES
--------------------------------------------------------- Appendix 5:3

One of the problems faced by other countries that could increasingly
affect our VA facilities as the veteran population continues to age
is the declining capability to provide a full range of health care
services.  Other countries found that limiting their veterans
hospitals to treatment of veterans was causing a decline in their
ability to provide a full range of health care services and
increasing difficulties in attracting and retaining staff.  Canada,
Australia, and the United Kingdom all acted to expand their patient
base by bringing nonveterans into their hospitals.  For example, when
Australia's veterans health care system's expertise in wound
management and burn treatment was threatened by the loss of trained
staff, it authorized nonveterans to use veterans hospitals to provide
a more diversified patient mix.  It placed limits on the resources
that could be used to treat nonveterans to ensure that veterans would
continue to have priority for care. 

Unless the patient base of VA hospitals is similarly expanded, our
veterans hospitals are likely, as happened in other countries, to
increasingly focus on geriatric care, losing the capability to
provide a full range of health care services.  This, in turn, could
limit the ability of veterans hospitals to back up the military
health care system in wartime or civilian hospitals in domestic
emergencies.  Finally, it could make it increasingly difficult for VA
to recruit and retain physicians and to fulfill its medical education
mission. 

Currently, VA has limited authority to provide care to nonveterans;
it provides such services primarily through sharing agreements with
DOD.  The administration's proposed Health Security Act would expand
VA's authority to provide services to nonveterans through sharing
agreements and authorize the Secretary of Veterans Affairs to enroll
veterans' dependents in VA health plans.  The Secretary of Veterans
Affairs has stated his intention of providing services to dependents. 
VA officials, in commenting on a draft of this report, said that VA
would, under the Health Security Act, provide services to dependents
in VA facilities to the extent space allows. 


   EVEN IF NO HEALTH REFORM
   OCCURS, A DECLINING VETERAN
   POPULATION WILL REDUCE THE NEED
   FOR ACUTE HOSPITAL BEDS
--------------------------------------------------------- Appendix 5:4

A declining veteran population, combined with incentives for VA
hospitals to avoid or shorten hospital stays to compete under managed
care, could reduce veterans' future demand for acute hospital care. 
On the basis of the experiences of the four countries studied, the
United States can expect continuing significant declines in VA acute
hospital utilization even if no national health reform occurs.  This
is because the veteran population in the United States, estimated to
decline by one half over the next fifty years, is steadily declining. 

Each country studied experienced significant declines in acute
hospital utilization as their eligible veteran populations declined. 
For example, in Finland, the number of eligible veterans dropped from
90,000 in 1945 to 40,000 in 1992; much of the acute hospital capacity
has been converted to long-term care.  Similarly, the number of
eligible veterans in the United Kingdom declined from 738,000 in 1947
to 196,000 in 1992 while the number of acute hospital beds in the
veterans system dropped by 52 percent (from about 4,200 to 2,000)
between 1948 and 1953. 

Because the United States maintains a large standing military, has
significantly broader eligibility criteria, and has engaged in two
major conflicts since World War II (Korea and Vietnam), the U.S. 
veteran population will not decline or age as rapidly as the veteran
populations in the other countries studied.  Nevertheless, the U.S. 
veteran population has already started to decline.  Barring wars or a
buildup of military forces, the number of veterans will decrease by
about 50 percent between 1990 and 2040. 

Similarly, acute care usage of our veterans hospitals is declining. 
VA acute hospital discharges, which steadily increased from 1984 to
1988, dropped about 13 percent between 1988 and 1992, from an average
of 7,100 per hospital in 1988 to an average of 6,200 per hospital in
1992.  In fiscal year 1993, about 33 percent of VA acute medical
beds, 35 percent of acute surgical beds, and 35 percent of neurology
beds were empty on an average day. 

Such declines suggest that VA will have to either (1) capture a
steadily increasing market share of the veteran population or (2)
expand treatment to nonveterans if it is to maintain acute care
workload at its hospitals. 

VA officials, in commenting on a draft of this report, said that they
generally agree with our statement that the declining veteran
population will reduce the future need for acute care, but they also
maintained that the decline in demand will not occur until well into
the next century, around the year 2025.  This, they said, is because
older veterans have significantly more episodes of acute care than do
younger veterans. 

However, as noted above, acute care utilization rates of veterans
hospitals are already falling as the veteran population declines. 
While it is true that the elderly use more health care services than
younger veterans, overall utilization will likely continue to decline
as the number of World War I and World War II veterans declines at
increasing rates.  In addition, we believe that the decline in
utilization will accelerate under VA's move to a managed care system. 
Currently, VA's average hospital length of stay is significantly
longer than in the private sector; we believe that this average will
fall as VA implements a managed care system designed to move people
out of the hospital sooner than in the past.  Also, under a managed
care system, VA will be shifting certain inpatient procedures, such
as cataract surgery, to an outpatient basis.  This too will drive
down utilization rates of acute care services in veterans facilities. 


   VETERANS HAVE INCREASING NEEDS
   FOR LONG-TERM CARE SERVICES
--------------------------------------------------------- Appendix 5:5

VA, like the government agencies in the other countries studied,
faces the challenge of meeting the health care needs of an aging
population.  None of the health reform proposals that we reviewed
focuses specifically on the changing health care needs of an aging
veteran population, although the Gephardt bill would expand
entitlement to nursing home care and outpatient services not covered
under the standard benefit package. 

One of the most significant changes in other countries' veterans
health care systems has been the increased emphasis on long-term care
services.  Each country has expanded the availability of long-term
care or initiated home care programs: 

  Australia instituted a Hostel Development Scheme in 1992 to help
     veterans access residential long-term care services.\11 In that
     year Australia also created a pilot program, the Veterans
     Independence Program, to promote independence and quality of
     life of the veteran community in their local environment.  The
     program, currently being extended, aims to increase the
     veterans' awareness of community support programs to defer the
     need for residential care. 

  Finland funded construction of 22 nursing homes during the 1980s
     and early 1990s and pays for veterans home-based long-term care
     services. 

  Canada initiated a home care program in 1981 and contracts for
     nursing home care for veterans in provinces that do not cover
     nursing home care under their universal care programs. 

The United States has also increasingly focused its medical facility
construction program on nursing home care, but nursing home care
continues to be an optional benefit for all veterans and VA provides
only limited home care services.  None of the current health reform
proposals that we reviewed focuses specifically on the growing
long-term care needs of veterans.  Only the administration's original
Health Security Act and the Mitchell and Gephardt bills propose
changes in the current VA health care system; those changes could
lead to a degradation in VA's ability to meet the long-term care
needs of veterans. 

Under the original Health Security Act, VA health plans would be
required to provide up to 100 days of posthospital skilled nursing
home care to enrollees, including both veterans and nonveterans.  In
addition, veterans would continue to be eligible for nursing home
care that exceeds the benefits covered under the comprehensive
benefit plan under current eligibility and space and resource limits. 
The veterans health care provisions of the original Health Security
Act and the Mitchell bill could reduce veterans' access to the VA
nursing home benefit because (1) VA's space and resources might be
used in providing acute nursing home care under the comprehensive
benefit package, and (2) veterans enrolling in non-VA health plans
might be unable to access the benefit because of requirements that
they be hospitalized in a VA hospital before admission to a
VA-supported nursing home. 

The Gephardt bill would require that the Secretary ensure that VA's
overall capacity to provide the specialized treatment and
rehabilitation services not included in the comprehensive benefit
package not be reduced below existing levels.  Because the veteran
population is aging and demand for long-term care services is
increasing, maintaining current levels of effort could actually erode
VA's ability to meet the long-term needs of veterans.  In addition,
the Gephardt bill would create a new entitlement to nursing home care
for service-connected veterans and a new entitlement to outpatient
services not included under the standard benefit plan for core group
enrollees (primarily service-connected and low income veterans)
enrolled in VA health plans. 

VA officials, in commenting on a draft of this report, agreed that
veterans will increasingly need long-term care services as the
population ages.  They said that current VA long-term care programs
would be maintained and enhanced through the Health Security Act.  We
do not believe that the VA can be certain of its ability to maintain
and enhance its long-term care programs, particularly under the
original Health Security Act and Mitchell bill for the reasons cited
above.  In addition, while the Gephardt bill creates a new
entitlement to nursing home care for service-connected veterans,
nonservice-connected veterans would still be limited to treatment on
a space and resources available basis.  Any increase in services for
service-connected veterans could thus result in a corresponding
decrease in services for nonservice-connected veterans unless
additional funds were appropriated. 


--------------------
\11 Australia's Department of Veterans Affairs does not provide
nursing home care.  Nursing home care is available to all Australians
through a program administered by the Aged and Community Care
Division of Australia's Department of Human Services and Health. 
Under the program, each resident pays about $168 per week and the
government, about $500 per week for nursing home care (Australian
dollars).  DVA pays the government portion of the cost for nursing
home care for eligible veterans.  The program is not part of
Australia's universal care program, Medicare. 


AGENCIES AND ORGANIZATIONS
CONTACTED BY GAO IN THE FOUR
COUNTRIES STUDIED
=========================================================== Appendix I


   AUSTRALIA
--------------------------------------------------------- Appendix I:1

Department of Veterans Affairs
Department of Human Services and Health
Concord and Heidelberg Repatriation General Hospitals
Returned and Services League of Australia
Totally and Permanently Disabled Soldiers' Association of Victoria
 Incorporated

CANADA

Department of Veterans Affairs--Canada
Department of Health and Welfare
Royal Canadian Legion


   FINLAND
--------------------------------------------------------- Appendix I:2

State Accident Office
Advisory Board on Veterans' Affairs
Ministry of Social Affairs and Health
State Social Insurance Institute
Kauniala Hospital for War Veterans
Finnish War Veterans Federation
Disabled War Veterans Association of Finland
Oulunkyla Rehabilitation Hospital


   UNITED KINGDOM
--------------------------------------------------------- Appendix I:3

Department of Social Security
Department of Health
Royal British Legion


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

James R.  Linz, Assistant Director, (202) 512-7116
Vincent Forte, Evaluator-in-Charge
Jon M.  Chasson
Ralph D'Agostino
Robert D.  Dee
Stephen Licari
Robert E.  Sanchez

