VA Aid and Attendance Benefits: Effects of Revised HCFA Policy on Veterans' Use of Benefits

Published by the Government Accountability Office on 1997-03-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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GAO   United States
      General Accounting Office
      Washington, D.C. 2048

      Health, Education and Human Services Division


      March 3, 1997

      The Honorable John R. Kasich
      Chairman, Committee on the Budget
      House of Representatives
      The Honorable Tim Hutchinson
      United States Senate
      Subject: VA Aid and Attendance Benefits: Effects of Revised HCFA PoJli.v on
               Veterans' Use of Benefits
      The Department of Veterans Affairs (VA) provides aid and attendance (A&A)
      benefits to more than 130,000 disabled veterans and surviving spouses who
      need help with everyday living activities. These benefits supplement other VA
      disability benefits and have often been used by veterans to help pay for the
      costs of nursing home care. In 1994, the Health Care Financing Administration
      (HCFA), reacting to federal court rulings,1 revised its policy concerning the use
      of VA A&A benefits by Medicaid-eligible veterans who reside in nursing homes.
      Before the 1994 policy change, HCFA had considered A&A benefits to be
      income that coild be used to pay part of the costs of care in Medicaid-approved
      nursing homes, which include scme state veterans' nursing homes.2 However,

      'In a 1991 case, Sherman v. Griepentrog., 775 F. Supp. 1383 (D. Nev. 1991), a
      federal district court ruled that HCFA's treatment of VA pension payments for
      "unusual medical expenses" was not in compliance with Medicaid statutory
      requirements for determining whether such benefits could be considered as
      income. In a 1992 case, Ginlev v. White, No. 91-3290 (D. Pa. Jan. 28, 1992), a
      federal district court, applying the rationale in Shermanz ruled that HCFA's
      treatment of VA A&A benefits as income twas inconsistent with Medicaid law.
      2State veterans nursing homes are state-operated facilities that provide care
      primarily to disabled veterans incapable of earning a living. These homes
      receive financial assistance from VA under its State Home Per Diem Grant
      Program and State Home Construction Grant Program. State veterans nursing
                              GAOIHEHS-97-72R VA Aid and Attendance Benefits

under its revised policy, HCFA stated that A&A benefits could no longer be
treated as income and therefore could be retained by Medicaid-eligible veterans
rather than being collected by nursing homes to pay part cf the cost of care.
Some states and members of Congress have expressed concern that HCFA's
current A&A policy will result in greater state and federal Medicaid payments to
make up for costs that are no longer paid through collection of veterans' A&A

In light of these concerns, you asked us to (1) describe the historical purpose of
A&A benefits and the policies affecting the use of these benefits; (2) provide
information on the medical, demographic, and economic characteristics of
veterans who receive these benefits; and (3) examine the impact of HCFA's
1994 A&A policy decision on state veterans nursing homes, including federal
and state expenditures for the care of veterans in these homes.

In summary, A&A benefits have historically been a means of providing
additional disability benefits to veterans requiring assistance with activities of
everyday living. Veterans receiving these benefits are generally among the
oldest, poorest, and most disabled veterans. HCFA's current A&A policy has
increased state and federal Medicaid payments for the care of veterans in state
veterans nursing homes. While the increases potentially could be as much as
$30 million annually, we estinated that the current financial impact is
significantly less because of suc'ti'iors as the relatively small number of
Medicaid-eligible veterans residing in state nursing homes and the fact that
many states have not yet implemented the current HCFA policy. HCFA's policy
may also create an inequity by allowing Medicaid-eligible veterans in state
homes to keep their A&A benefits, while non-Medicaid-eligible veterans in these
homes are required to use these benefits to pay for the cost of care.

As requested by your offices, we focused our review on veterans and surviving
spouses who receive A&A benefits under VA's "Improved Pension" program
(P.L 95-588), because they are the primary recipients of A&A benefits and
would be most affected by HCFA's policy. To obtain information on the
purpose and use of VA A&A benefits and on the characteristics of veterans
receiving them, we interviewed officials from VA's Compensation and Pension
Service; reviewed statutory and regulatory provisions and VA internal policies
regarding A&A benefits; and analyzed VA demographic, economic, and medical
data on A&A recipients. To assess the impact of HCFA's A&A policy, we

homes represent one of VA's principal means of providing or supporting nursing
home care for veterans.

2                  GAO/HEHS-97-72R VA Aid and Attendance Benefits

interviewed officials from state veterans nursing homes, HCFA, and VA's state
home grant programs; examined correspondence, analyses, and policy guidance
concerning HCFA's revised A&A policy; and collected information from each of
the state veterans nursing homes affected by HCFA's policy on the number of
Medicaid-eligible veterans receiving A&A benefits and the amount of A&A
benefits received by these veterans. We did not independently verify the data
received from VA or the state veterans nursing homes. We conducted our
review between December 1996 and February 1997 in accordance with generally
accepted government auditing standards.


The federal government has provided A&A benefits to disabled veterans since
the late 19th century and to their surviving spouses since 1967. 3 Historically,
A&A benefits have been a means of providing additional disability benefits to
veterans who are so helpless that they require the regular aid and attendance of
another person to perform basic activities of everyday living (for example,
dressing and eating). In 1967, legislation was enacted adding residence in a
nursing home as a condition entitling veterans to A&A benefits (P.L. 90-77).

Most veterans who are entitled to A&A benefits receive them in the form of an
increased VA disability pension payment.4 As of 1996, these veterans could
receive an additional benefit of up to $412 per month for A&A. Although
entitlement to A&A benefits must be based on an actual reed for nursing home
care or personal assistance from others, there has never been a statutory
requirement that these benefits be used solely for the payment of A&A
expenses. In an April 1996 letter to a member of the House Veterans' Affairs
Committee, the Secretary of Veterans Affairs expressed VA's position that it
"has no authority to direct the way that a competent beneficiary uses his or her
A&A benefits."

Over the past decade, several legislative and policy changes have affected the
use of A&A benefits with respect to care provided under Medicaid. Prior to

3 Unlessotherwise indicated, we will use the terra "veteran" to refer both to the
veteran and his or her surviving spouse.
4Veterans  or surviving spouses who receive VA disability compensation or
dependency and indemnity compensation (DIC) benefits, respectively, may also
be eligible for A&A benefits and would receive these benefits through additional
compensation or DIC payments.
3                  GAO/HEHS-97-72R VA Aid and Attendance Benefits

1990, Medicaid-eligible veterans in nursing homes received their full A&A and
pension benefits but were required to apply them, along with other income,
toward the cost of care, with Medicaid covering any remaining costs. In 1990,
legislation was enacted limiting pension benefits to $90 a month for Medicaid-
eligible veterans without dependents who receive nursing home care (P.L. 101-
508). This benefit limitation applies to the total pension amount, including any
A&A payments that a veteran may be entitled to. Veterans subject to the
pension limitation can use their $90 benefit as they wish, and nursing homes
providing care to these veterans are prohibited from ccllecting any part of it.

In 1991, legislation was enacted granting an exemption from the $90 pension
limitation to Medicaid-eligible veterans residing in state veterans nursing homes
(P.L. 102-40). This exemption allowed these veterans to receive their full
pension award, including any A&A amounts. Until HCFA's 1994 policy revision,
Medicaid-eligible veterans in state homes were required to use these benefits-
aside from a monthly personal allowance-to help pay for the costs of their
nursing home care, with the balance of costs being paid through federal and
state Medicaid payments.


Veterans entitled to A&A benefits are generally among the oldest, poorest, and
most disabled veterans. As with all veterans who receive VA pension benefits,
veterans entitled to A&A benefits under VA's pension program must be
determined by VA to be permanently and totally disabled and financially needy.
But an even higher level of disability is required to qualify for A&A benefits: VA
must additionally determine that a veteran's disabilities make him or her unable
to perform basic functions such as bathing, dressing, and eating, without the
assistance of another person.

As of February 1997, about 85,200 veterans and 49,000 surviving spouses were
entitled to A&A benefits under VA's pension program.5 Table 1 provides data
concerning the economic and demographic characteristics of these veterans and

5 Anadditional 21,000 veterans and surviving spouses are entitled to A&A
benefits under VA's disability compensation and DIC programs.
4                   GAO/HEHS-97-72R VA Aid and Attendance Benefits

Table 1: Characteristics of Veterans and Survivors Entitled to A&A Benefits
Under VA's Pension Program

                           Veterans               Survivors
    Average age            72                     83
    Average annual         $5,143                 $2,218
    Average monthly VA     $570                   $225
    pension benefit
    Percentage with        32%                    1%
    Percentage             9796/3%                0.1%/99.996

Note: VA data do not identify veterans in terms of Medicaid eligibility. Thus,
the data include both Medicaid-eligible and non-Medicaid-eligible veterans and


HCFA's current policy, which allows Medicaid-eligible veterans to retain the
A&A portion of their pension benefits, has resulted in Ec.ditional Medicaid
expenses in some states. As of December 1996, 33 veterans nursing homes in
17 states were certified for participation in the Medicaid program and could
therefore be affected by the HCFA policy.6 These homes contain 6,162 beds
that can be occupied by VA pensioners on Medicaid. If all of these beds were
 ,-cupied by Medicaid-eligible pensioners and none of these pensioners' A&A
benefits were used to pay for nursing home care, the HCFA policy could
potentially reduce veterans' contributions for care by as much as $30 million
annually. This amount would then need to be recovered by the homes through
increased state and federal Medicaid payments. On the basis of the fiscal year
1996 Medicaid sharing ratio, states would pay about 41 percent of this amount,
while the federal government would pay 59 percent.

6An  additional 51 veterans nursing homes in 22 states were not certified for
participation in the Medicaid program at that time.
5                     GAO/HEHS-97-72R VA Aid and Attendance Benefits

However, the financial impact of HCFA's policy could be significantly less than
$30 million because of the following factors:

      Many of the Medicaid-certified beds in state homes are not occupied by
      Medicaid-eligible VA pensioners. For example, state home administrators
      reported that, as of December 1996, only 1,515 (about 25 percent) of the
      6,162 Medicaid-cerified beds were actually occupied by Medicaid-eligible
      veterans. On the basis of this Medicaid participation rate, the financial
      impact of HCFA's policy would be reduced to about $7.5 .nillion

      Some VA pensioners affected by the HCFA policy may become ineligible
      for Medicaid benefits. Under current regulations, Medicaid generally
      allows patients to retain only $2,000 in personal assets. Although
      veterans may spend or give away their A&A benefits, nursing home
      administrators report that some veterans allow their benefits to accrue
      until they have surpassed the $2,000 Medicaid limit. Once they become
      ineligible for Medicaid, these veterans are required to use their A&A
      benefits to pay for nursing home care, thereby eliminating (at least
      temporarily) the need for additional Medicaid payments. Only after the
      patient's assets are drawn down can the veteran be returned to the
      Medicaid rolls. Several state nursing home administrators have noted the
      increased administrative burden resulting from the need to repeatedly
      remove and reinstate some veterans to the Medicaid rolls.

-     Many states have not implemented the HCFA policy. Of the 17 states
      and 33 nursing homes certified for the Medicaid program, only 7 states-
      19 veterans homes-have actually stopped collecting veterans' A&A
      benefits to pay for the cost of care. The remaining states were either
      unaware of the policy change or have elected not to implement the

Although state nursing home officials acknowledged that relatively few veterans
are affected, they did express concern regarding the equity of HCFA's policy.
They noted that while the policy allows Medicaid-eligible veterans in state
homes to retain their A&A benefits (up to the Medicaid resource limit), similarly
disabled veterans who are not receiving Medicaid are required to use their A&A
benefits to help pay for their nursing home care.

Several state home officials have voiced support for legislation that would
overturn tie HCFA policy, allowing A&A benefits to once again be used to help
offset the cost of nursing home care of Medicaid-eligible veterans. These

6                  GAO/HEHS-97-72R VA Aid and Attendance Benefits
officials believe that this change would result in more equitable treatment of
veterans in need of nursing home care who are not eligible for Medicaid and
would also prevent the states from incurring additional costs under the
Medicaid program. Legislation to make such a change was introduced in the
104th Congress but was not enacted (S. 2099). State home officials told us that
they expect this legislation to be reintroduced in the current Congress.
According to the Chief of VA's State Home Per Diem Grant Program, which
provides federal assistance for the operation of state veterans nursing homes,
there has been no signific nt impact on this program as a result of HCFA's
current A&A policy. The only potentil impact on the program would occur if
states decided to stop building or operating veterans nursing homes. There is
no indication that such actions are imminent, however, as state applications for
new construction of veterans nursing homes exceed VA's available construction
funds. This indicates that states remain interested in building and operating
state homes despite HCFA's A&A policy. However, state home officials told us
that some states with pending applications for construction of veterans nursing
homes are currently unaware of the HCFA policy. If these states became aware
of the policy and its potential for increasing Medicaid expenditures, they would
likely be less inclined to build veterans nursing homes, according to the
We discussed this letter with officials from VA, HCFA, and state veterans
nursing homes, and they generally agreed with its contents. We have
incorporated their comments where appropriate.

As agreed with your offices, we will make copies of this correspondence
available to interested parties on request.
This correspondence was prepared under the direction of Irene Chu, Assistant
Director. Other major contributors to this correspondence were Mark Trapani,

7                     GAO/HEHS-97-72R VA Aid and Attendance Benefits
Jon Chasson, and Steve Morris. Please contact Ms. Chu at (202) 512-7102 or me
at (202) 5.2-7111 if you have ary questions.

Stephen P. Backhus
Director, Veterans' Affairs and
    Military Health Care Issues


8                        GAO/HEHS-97-72R VA Aid and Attendance Benefits
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