Spousal Labor Market Effects from Government Health Insurance: Evidence from a Veterans Affairs Expansion

outpatient care for non-service-connected conditions to follow-up visits after an
1

inpatient stay.

The U.S. government began a major overhaul of this health care system in
the mid-1990s. The impetus was an effort to catch up with progress in technology
and efficiency in private-sector medicine. During this time, VA health care
restructured to become a comprehensive health care system that focused on
primary care and preventive medicine rather than hospital-based specialty
services. Following this change, VA experienced a 44 percent decline in the
number of inpatients and a 66 percent increase in the total number of outpatient
visits (Klein and Stockford 2001). At the same time, VA also changed its
resource allocation system by distributing its health care budget using a capitated,
patient-based formula, similar to the HMO model.² VA expected that these
changes would result in significant cost reductions. Based on this assumption, it
relaxed its rules on eligibility for care and offered services to all veterans rather
than limiting guaranteed access to low-income and service-connected disabled
veterans (GAO 1999).

Veterans were required to fill out paperwork enrolling in the VA program
before they could use health care services. However, it is important to note that

¹ For additional detail on VA health care and the associated reforms, see Boyle (2009).

² In a capitated payment system, the health care provider is reimbursed a flat dollar amount for
each patient regardless of the services provided.

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