Sorry, But the VA Isn't a Model Health Care System for the Rest of the Country

How much can we learn about how to manage American health care policy from the Veterans Health Administration? According to known cat-person Paul Krugman, a lot—it's just that most people, Republicans especially, are too dim to realize it.

Republicans reflexively hate the VA, he writes, for no good reason at all: "It's literally a fundamental article of faith in the G.O.P. that the private sector is always better than the government, and no amount of evidence can shake that credo."

But what too few people know, Krugman insists, is that "the V.H.A. is a huge policy success story, which offers important lessons for future health reform." Here's his case: 

Many people still have an image of veterans' health care based on the terrible state of the system two decades ago. Under the Clinton administration, however, the V.H.A. was overhauled, and achieved a remarkable combination of rising quality and successful cost control. Multiple surveys have found the V.H.A. providing better care than most Americans receive, even as the agency has held cost increases well below those facing Medicare and private insurers. Furthermore, the V.H.A. has led the way in cost-saving innovation, especially the use of electronic medical records.

What's behind this success? Crucially, the V.H.A. is an integrated system, which provides health care as well as paying for it. So it's free from the perverse incentives created when doctors and hospitals profit from expensive tests and procedures, whether or not those procedures actually make medical sense. And because V.H.A. patients are in it for the long term, the agency has a stronger incentive to invest in prevention than private insurers, many of whose customers move on after a few years.

And yes, this is "socialized medicine" — although some private systems, like Kaiser Permanente, share many of the V.H.A.'s virtues. But it works — and suggests what it will take to solve the troubles of U.S. health care more broadly.

It's true that the VA was significantly reformed in 1995, and reviews of the system have been noticeably more positive since. But Krugman's not giving readers the whole story.

There are two important details about the system's design that he doesn't mention—perhaps because they suggest the limits of the broader health policy lessons that can be learned from the VA.

The first thing he leaves out is that since 1999, the program has been organized into "priority groups" that determine who gets prioritized service. When vets enroll in the program, they get assigned to these eight groups based on their disability status and calculations of their income and/or net worth. Veterans with disabilities calculated as 50 percent or more disabling are slotted into the first priority group; veterans with lesser disabilities or no disabilities at all and higher income or personal wealth get ranked in lower priority groups.

The reason is that the service was designed first and foremost to provide care for those veterans with serious disabilities. As the Congressional Budget Office noted in a 2007 report, "veterans with no service-connected disabilities and with income and/or net worth above established thresholds, who previously had very limited access to the department's medical services" don't fall into the VA's "traditional target population." The program's administrators are clear enough about the reason for the grouping system: "Since funds are limited, VA set up Priority Groups to make sure that certain groups of veterans are able to be enrolled before others." 

The second important fact that Krugman fails to note is that on average most enrollees don't actually get the majority of their care from the VA. In 2007, the Congressional Budget Office reported that none of the eight priority groups received more than 50 percent of its care from the program. In 2010, the VA reported that just two of the priority groups—the two groups that have the highest cost per enrollee—had barely crept above 50 percent usage.

So even the groups that rely on the VA the most end up turning to it for only about half of their care. For the rest of their health care, they rely on a combination of other public programs and private services, including Medicare, Medicaid, and private health insurance. This is not exactly a picture of a one-stop, fully comprehensive health system. 

And as Michael Cannon and Avik Roy have pointed out, the VA still has problems providing quality, timely health services as well. Disabled vets sometimes have to wait months to get benefits, and then only after drawn out fights with the bureaucracy.

But the larger point is that it would be hard to replicate the structure of a system like the VA at the national level, with blatantly prioritized service levels and huge gaps in care that end up being filled by outside services. The VA is a government-run system that controls spending by creating a strict prioritization heirarchy in which certain people are more entitled to care than others, and by relying on outside providers and payers to cover a lot of what it doesn't do. On second thought, maybe Krugman is right and there are "important lessons" to be learned about health policy from the VA—just not the ones he thinks.