Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Department of Veterans Affairs and Veterans' Homes of California (8955-8966)

The Department of Veterans Affairs (DVA) provides services to California veterans and their dependents, and to eligible members of the California National Guard. The principal activities of the DVA include: (1) providing home and farm loans to qualifying veterans using the proceeds from the sale of general obligation and revenue bonds; (2) assisting eligible veterans and their dependents to obtain federal and state benefits by providing claims representation, subventions to county veterans service offices, and direct educational assistance to qualifying dependents; and (3) operating veterans' homes in Yountville, Barstow, and Chula Vista with several levels of medical care, rehabilitation services, and residential services.

The budget proposes total expenditures of $328 million in 2003-04. This is $8.1 million less than estimated current-year expenditures. Expenditures of $62 million from the General Fund are proposed for the budget year, which is $1.9 million, or 3 percent, less than the estimated current-year level. The budget year decrease in General Fund mainly consists of positions eliminated under Control Section 31.60, and reductions to operating expenses and out-of-state travel. General Fund support for local assistance for the County Veterans Service Offices would be reduced by $470,000, a 21 percent reduction from the current year. Finally, the Governor proposes a 7.5 percent fee increase for residents of the domiciliary wings of the state's veterans homes. 

Fee Increases for Home Residents Should Be Broadened

The Governor proposes a 7.5 percent fee increase for residents of the domiciliary wings of the state's veterans' homes. In light of the significant increases that have occurred in the cost of operations at the home, and also to ensure equity in the payments by all home residents, we recommend extending the same increase to individuals in skilled nursing facilities at the same veterans' homes and related changes to help offset state costs for operating the facilities. Accordingly, we recommend that the Legislature reduce the General Fund appropriations for the home by the collective amount of $475,000. (Reduce Item 8960-011-0001 by $290,000, Item 8965-001-0001 by $91,000, and Item 8966-001-0001 by $94,000.)

Background. The state operates three veterans' homes located in Yountville, Barstow, and Chula Vista, with the collective capacity to house almost 1,900 veterans. All three homes provide a range of living accommodations designed to meet the needs of aging and disabled veterans. This includes domiciliary living quarters both for veterans who live independently as well as those who require some assistance with day-to-day living. Intermediate care facility (ICF) beds are available for veterans with ongoing, daily medical needs, and skilled nursing facilities (SNFs) are provided for those veterans requiring intensive medical care. Yountville also includes an acute care hospital.

The domiciliary beds, ICFs, and SNFs are operated as separate units located within different sections of each of the veterans' homes. The department projects a total 2003-04 home population of approximately 1,700 veterans, with 1,081 or 63 percent in domiciliary care, 197 or 12 percent in ICFs, and 419 or 25 percent in SNFs.

All veterans home residents are assessed member fees based upon the level of care they receive and their income. Residents living in domiciliary settings pay 47.5 percent of their income in member fees up to a $1,200 monthly cap. Residents living in ICFs pay 65 percent of their income in member fees up to a $2,300 monthly cap, and residents living in SNFs pay 70 percent of their income in member fees up to a $2,500 monthly cap. In exchange, veterans receive room, board, medical care, and the opportunity to participate in a variety of programs and activities provided by the homes. Member fees cover approximately 14 percent of the cost of operating and maintaining the veterans' homes, with General Fund support (52 percent of total funding) and reimbursements and federal trust funds (34 percent) making up the remainder. California's three veterans' homes are among the 137 nursing homes and 43 domiciliaries operated nationwide in cooperation with the U.S. Veterans Administration. 

Prior Fee Reduction Would Be Reversed. Chapter 118, Statutes of 2001 (SB 742, Escutia), reduced member fees for domiciliary beds in the veterans' home by 7.5 percent, specifically by lowering them from 55 percent of each member's monthly income to 47.5 percent. The measure did not change the ceiling on fees of $1,200 per month.

The Governor's budget proposes a statutory change to reverse this fee reduction, by restoring domiciliary members' fees to 55 percent of monthly income. The budget assumes this change generates an additional $1.2 million in fee revenues that would be used to offset General Fund expenditures in 2003-04. Under the Governor's proposal, the maximum monthly payment ceiling would remain unchanged at $1,200.

Other States Already Charge More for Care. The available data indicate that veterans' homes in some other states are charging their residents higher fees than does California's homes. Figure 1 shows the results of a survey of such charges imposed in other states that was conducted by the California Research Bureau in November 2001. As the figure shows, California veterans living in domiciliary settings pay a maximum of $39 per day. Veterans in Michigan and Kansas pay a similar amount while veterans in Illinois pay less. However, Pennsylvania, Wisconsin, Oklahoma, and Florida all have a higher maximum daily member fee than California. On average, veterans living in domiciliary care in these states pay a maximum of $54 dollars per day.

Disparity in Share of Fee Support. Under the Governor's proposal, residents of ICF and SNF nursing beds in the veterans' homes would continue to pay a relatively smaller share of the cost of their care compared to members of domiciliary beds, even though ICF and SNF beds are far more costly to operate.

The average annual cost per bed for domiciliaries (averaged across all three veterans homes) is projected to be $38,550 in 2003-04. Including the fee increase proposed by the Governor, members in domiciliary beds would pay up to $14,400, or 37 percent of their per-bed cost over the course of a year.

The projected average annual cost per bed is $96,500 for ICFs and $135,100 for SNFs. Under the fee structure now in place, and proposed for continuation in 2003-04, a veteran making the maximum allowable annual contribution for ICF care would pay $27,600 or 29 percent of the cost of their care, while SNF residents would pay $30,000 or 22 percent of the cost of their care.

As a result of this fee structure, veterans in ICFs and SNFs account for $62 million or 56 percent of the total veterans' homes budget while accounting for 36 percent of the total home population. Given the level of services they receive, the Legislature may wish to consider whether ICF and SNF residents should also share in any member fee increase.

Monthly Payment Limits Need Adjustment. The monthly payment limits of $1,200 for domiciliary, $2,300 for ICFs, and $2,500 for SNFs were established in 1994 and have never since been adjusted for the effects of inflation. Figure 2 (see next page) shows that, since 1994, the average cost per bed has increased substantially at Yountville, which houses 64 percent of the total veterans' home population. The chart excludes Barstow, which came on line in 1996, and Chula Vista, which opened in 2000 because one-time startup costs skew the cost per bed averages upward. An adjustment to upper payment limits to bring each of them in line with inflationary cost increases would generate up to $225,000 in additional revenues annually that could be used to help offset the cost to the state of operating the homes.

Analyst's Recommendation. Given the significant increases that have occurred in the cost of operating the veterans' homes, we believe it is reasonable for the veterans to assume a slightly greater share of the costs for the services they receive at the state veterans homes. Accordingly, we recommend the Legislature approve the Governor's proposed fee increase of 7.5 percent for veterans in domiciliary accommodations, in effect restoring the level of fees they had been paying under a recent change in state law. 

In order to make cost-sharing more equitable in its effect among all home residents, we further recommend that the fee increase be extended to include veterans in ICFs and SNFs. Under our proposal, member fees for ICFs (now set at 65 percent of their income) and SNFs (70 percent of their income) would increase to 72.5 percent and 77.5 percent, respectively. We estimate that our modification of the Governor's fee proposal would result in additional annual revenues of $250,000. The 7.5 percent fee increases proposed are significantly less than the increases which have occurred in the cost of care. We also recommend increasing the monthly payment limits now imposed on fee collections for the effects of 24 percent inflation since 1994, a change which could generate up to another $225,000 in annual revenue.

The additional revenues generated through these modifications of the Governor's fee proposal could be used to help offset the cost to the state of operating these facilities. Accordingly, we recommend the Legislature reduce the General Fund for the homes by the collective amount of $475,000.

Relatively Few Home Residents in Medi-Cal

We recommend that the Legislature direct the Department of Veterans Affairs (DVA) to report during budget hearings on the feasibility of providing financial planning services to residents entering the veterans' homes that may help them become eligible for Medi-Cal benefits. We also recommend the DVA report on the costs and benefits of such an approach. Such a change would apply only to veterans entering the veterans' homes, not to veterans already living in them, and could eventually generate millions of additional federal dollars that could help offset the growing state costs for the support of these facilities.

Background

Currently, medical services provided at the state's veterans' homes are eligible for funding through the Veterans Administration and Medicare programs. However, these programs cannot be used to help offset the costs of long-term care provided in the nursing facilities at the homes. Instead, a portion of nursing facility costs is covered for eligible veterans under the Medi-Cal Program. In order for a resident at a veteran's home to be eligible for long-term care under the Medi-Cal Program, he/she must meet various requirements, including income levels and limits on personal assets. Some assets are exempt from the asset limits and generally not counted when determining eligibility. For example, homes, automobiles, business-related property, certain life insurance policies, pension funds, and cash up to certain amounts can all be exempted from the limit under certain defined circumstances.

More Veterans Could Be Eligible for Medi-Cal. Approximately 30 percent of the residents of the nursing facilities in the state's veterans' homes have been determined to be Medi-Cal eligible, according to DVA. Individuals applying for admission to the state's veterans' homes are currently required to disclose their personal finances for purposes of determining their Medi-Cal eligibility. Our analysis indicates that this portion of the population enrolled in Medi-Cal is relatively low compared to other nursing homes operating in California. This has important ramifications for the revenues used to support the veterans' homes.

Statewide, approximately 65 percent of revenue for nursing facilities comes from Medi-Cal, while only about 11 percent of veterans' home nursing facility reimbursements are from Medi-Cal. If additional veterans' home residents were eligible for Medi-Cal, a greater share of the operating costs of the homes could be supported with federal funds and less state funds would be needed for this purpose.

Approaches to Increasing Medi-Cal Eligible Residents. On the basis of income, many of the existing residents of the homes are eligible for Medi-Cal. However, some residents are not eligible for Medi-Cal because their assets exceed certain limits. Under federal law, certain types of actions are permissible to restructure an individual's assets in order to achieve Medi-Cal eligibility. One approach the state could take would be to assess veterans' assets to determine whether they could be eligible for Medi-Cal. Under such an approach, the state would receive additional funding for patient care and a veteran could maintain control of his assets, and would have access to them in the event he later decided to move out of the veterans' home. Currently, no such planning services are provided to veterans through the veterans' homes that could assist in making such arrangements.

Analyst's Recommendation. Given the significant increases in costs that have occurred in the veterans' home operations, we recommend that the Legislature examine ways to increase the number of home residents enrolled in the Medi-Cal Program.

Specifically, we recommend that the Legislature direct DVA to report during budget hearings on the feasibility of providing financial planning services to veterans entering the homes in the future to ascertain whether their assets could be restructured to meet Medi-Cal requirements. The department should also report on the costs and benefits of such an approach.

If the state could double the amount of Medi-Cal reimbursements it now projects it will receive, it would realize approximately $3 million in additional federal funds that could be used to offset General Fund support for these facilities. Given the large share of support other nursing homes currently receive from Medi-Cal, we believe the benefits to the state could eventually be even larger.

We caution that these fiscal benefits would grow over time, but would probably not be substantial during 2003-04. This is because this approach would target new residents admitted to the home, not the large number of existing residents. However, the cumulative effect of such a change could become significant over time as more and more home residents were enrolled in Medi-Cal.