variations in the means test. Areas of the country which have high income relative to other areas have high medical costs as well, so the proportionality and equity issues are harmonized. Question 3. Answer 3. Your testimony indicates that in "emergency or extraordinary The "emergency or extraordinary circumstances" language refers to a On the other hand, the "exceptional and unusual circumstances" involve the issue of dealing with an applicant's financial situation as it Such a waiver does not envision categorical exceptions, such as a specific illness, procedure, type of care, and so forth. Chairman MURKOWSKI. The witness from the Congressional Budget Office is Dr. Nancy M. Gordon, Assistant Director for Human Resources and Community Development. We welcome you to the hearing. We are interested in a specific area that has come up for discussion previously under the means test with regard to the suggested cost savings in the implementation of the means test. My spread sheet indicates an overall savings. Yet testimony previously given here seems to indicate that it is a matter of equity with the VA; the cost savings are not really cost savings in the true sense of the word; and there is not necessarily any substantive increase in costs because the costs will be assimilated through efficiencies within the VA. Yet, under your CBO overall savings you indicate $420 million in 1986, and $1.58 billion through 1990. Tell us a little bit about that difference of opinion. Are you being conservative, extraordinarily liberal, or what? TESTIMONY OF DR. NANCY M. GORDON, ASSISTANT DIRECTOR FOR HUMAN RESOURCES AND COMMUNITY DEVELOPMENT, CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC, ACCOMPANIED BY DOROTHY AMEY, ANALYST; AND NINA SHEPHERD, ANALYST Dr. GORDON. Thank you, Mr. Chairman. Perhaps I might start by introducing the two Congressional Budget Office [CBO] analysts who work in this area: Dorothy Amey, who is seated to my left, and Nina Shepherd, who is seated to my right. We do have a prepared statement that we would like to have included in the record. Chairman MURKOWSKI. It will be included in the record. Dr. GORDON. Thank you very much. I think that the basic issue that you are raising has two points. The first has to do with the number of veterans who would no longer be eligible for care. And the second has to do with the extent to which there are veterans who would remain eligible for care under the means test and who would in fact apply for that care. Chairman MURKOWSKI. Why do we have this discrepancy, though, between the VA and your position? The VA says there will be no savings. Dr. GORDON. I believe that the Veterans' Administration's [VA's] estimates of the numbers of veterans who would be made ineligible are lower than ours. We believe our estimates of the numbers of veterans who would be made ineligible are very conservative. Chairman MURKOWSKI. Have you conversed with the VA and sat down and discussed this? Dr. GORDON. Yes. Chairman MURKOWSKI. And you are still at odds? Dr. GORDON. We have had extensive discussions with VA staff, and there is a basic difference of opinion. Chairman MURKOWSKI. Why? Why can't you convince them or why can't they convince you? Dr. GORDON. It is not clear to me, sir, why it is that-- Chairman MURKOWSKI. Is that a pattern? Dr. GORDON. No, sir. Chairman MURKOWSKI. I see. Dr. GORDON. We generally have good analytic relations with the administration. Sometimes they provide information we did not have before. One of the difficulties is that some of the VA data has not yet been made available. Chairman MURKOWSKI. Has that data not been made available? Dr. GORDON. The data has not been made available to us yet. The VA has provided certain tabulations on some data, but not the raw data themselves. Perhaps I could make two points about the question of the numbers of veterans who would become ineligible and why we believe our estimates are conservative. The first point has to do with the fact that we have to use survey data on veterans' income, and survey data normally is found to underreport the incomes that people actually have. For that reason, we believe that more veterans would be made ineligible than our estimates show. The second reason is that the estimates made by the Congressional Budget Office are based on income alone and do not have any assets reflected in them for two reasons: One, the asset test was not specified in detail by the administration; and, two, the data that deal with assets are very poor. For both those reasons, we believe that the estimates of the numbers of veterans who would be made ineligible are quite conservative. Chairman MURKOWSKI. Well, they figure 21,000 and you figure 8,000? Dr. GORDON. I believe those are estimates of the-- Dr. GORDON [continuing]. Estimates of the number of veterans standing in line. Chairman MURKOWSKI. And they figure 21,000; you figure 8,000? Dr. GORDON. Right. Chairman MURKOWSKI. That is quite a difference. Dr. GORDON. I should point out that if they are correct about the 20,000 veterans on waiting lists, that would reduce the CBO estimated savings by at most 20 percent. That amount would not be sufficient to reduce those savings to the VA's estimate, which is essentially zero. Chairman MURKOWSKI. The point was made in testimony, I think by Senator Mitchell, of the tremendous increase in eligibles because of the aging of the veterans. You have taken that into consideration? Dr. GORDON. Yes, we have. Chairman MURKOWSKI. Well, I suppose we could ask you to stay here for the test of time, but that seems hardly fair. If Congress modifies the administration's means test proposal to provide for an income and asset level of, say, $25,000, with no spend-down provisions, and an implementation date of October 1985, or thereabouts, could you give us what you might estimate the potential savings to be? Dr. GORDON. Yes. If the administration's proposal were to be enacted Chairman MURKOWSKI. At 25, with no spend-down. Dr. GORDON. The estimates, the numbers that we have with us this morning would have a phasein on this proposal-not complete implementation, by October 1. Chairman MURKOWSKI. There would be a phasein- Dr. GORDON. Right. Chairman MURKOWSKI [continuing]. Over how long? Chairman MURKOWSKI. Seven months. OK, go ahead. Dr. GORDON. Under those circumstances, the 1986 reduction in outlays is estimated to be $190 million. Chairman MURKOWSKI. A $190 million for fiscal year? Dr. GORDON. That would be for fiscal year 1986. Chairman MURKOWSKI. Fiscal year 1986. Savings as compared to what for the $15,000 threshold for the same period? Dr. GORDON. If the annual income cutoff was $15,000, the savings would be $362 million. Chairman MURKOWSKI. $362 million on $15,000 for fiscal year 1986. Dr. GORDON. By 1990, when it is assumed that the proposal would be fully implemented, it would generate roughly 60 percent of the savings relative to the administration's proposal. Clearly, the savings would be higher in 1986 if the proposal could be implemented by Chairman MURKOWSKI. Earlier. Dr. GORDON. If it could be implemented by October 1. Chairman MURKOWSKI. I understand. Dr. GORDON. Perhaps I should also mention that these numbers- Chairman MURKOWSKI. Go ahead. Dr. GORDON. I should also mention that these numbers include the reimbursement proposal from private insurers as well. If we were to look at the administration's proposal using the $25,000 income limit and consider only the savings from the means test, then we would have savings in 1986 to the VA budget of $131 million that would be offset in that year by roughly $25 million in the Medicare budget. That would be just over $100 million in net savings. Chairman MURKOWSKI. Would there be a gain of 60 percent or a loss? Dr. GORDON. There would be a loss of about 40 percent of the net savings, compared with the administration's proposal. About 60 percent of the net savings would be retained. Chairman MURKOWSKI. OK. Dr. GORDON. The discussion we just had includes the numbers for the reimbursement from private insurers. When you raise the income limit, then there are many more veterans who would remain eligible for VA care who have private insurance from which recoveries could be made. Chairman MURKOWSKI. OK. Now, with or without the Medicare offset, is the $190 million with that, or without it? Dr. GORDON. The $190 million reflects the offset. Chairman MURKOWSKI. The offset. OK. Dr. GORDON. That amount would be the net budgetary savings. Chairman MURKOWSKI. OK. So that is the net figure for fiscal year 1986? Dr. GORDON. Correct. And again— Chairman MURKOWSKI. The VA does not agree with that? Chairman MURKOWSKI. And your understanding as to why the VA does not agree with that is specifically what? Dr. GORDON. There are two basic factors. One has to do with estimates of the number of veterans who would become ineligible for care under the proposal. The second has to do with the extent to which there is unmet demand so that the veteran who no longer received care would be replaced by another veteran. Chairman MURKOWSKI. In your examination of the VA as it functions, what is their ability, in your opinion, to forecast whether there is 8,000 or 21,000? Dr. GORDON. I believe that the VA has some data that they have collected. Chairman MURKOWSKI. Waiting in line. Dr. GORDON. One of the difficulties is that the questionnaire that they use is a relatively recent one that they are in the process of examining and improving for future years. Chairman MURKOWSKI. Well, it is fairly significant. Dr. GORDON. Questions were asked about what type of care the veteran was seeking that was unavailable, but the tabulations that the Veterans' Administration has provided do not in fact differentiate between types of care. A clinic visit is so much less expensive than a hospital stay; indeed it is only 2 percent of the cost of a hospital stay. Therefore, it is crucial to be able to distinguish between those two types of demands. Perhaps even more important, the CBO numbers assume essentially no savings in the nursing home side because there are waiting lists for nursing home care in many of the local areas. 'Therefore, if most of those requests for care that were denied were in fact for nursing home care, then you must set those aside when you try to estimate the savings from hospital care and outpatient care, which is where the CBO savings come from. Chairman MURKOWSKI. Well, I don't know, the next time we have a hearing I think I will bring you up with the VA so we can have a little more give and take. Dr. GORDON. It would be- Chairman MURKOWSKI. The record is going to be open. The major concern of this committee is the question of whether the means test is worthwhile. The VA has come in and said it is from a standpoint of equity. Well, that is significant. But in itself, are there any savings, or are we just burdening the system with a redundancy of a bureaucratic expansion in paperwork? Dr. GORDON. May I add something? Chairman MURKOWSKI. You may. Dr. GORDON. There were many questions about the increase in costs for Medicare that would occur if eligibility for VA services were reduced for those veterans age 65 and over. Based on current data, our estimates show that about half of the savings that the VA would achieve for elderly veterans would go toward paying higher Medicare costs. And it is possible that Medicare outlays |