why was it set in 1991??

It was "based on a real story" so it uses the correct time period. Tommy was a veteran of the Operation Desert Storm and had his breakdown shortly after the end of hostilities. I agree, the time period wasn't a big deal (90s period pieces aren't going to happen for a while) but there were reasons to set the movie as they did.

I have watched the film many times
I own it on DVD
I do not recall in the commentary track if anyone explains why the film is set in 1991

But in my opinion

I just think this is a subtle statement about the current War in Iraq today.

It shows the pain of the father played by Val Kilmer, in agony over the loss of his son while Saddam was still in power.

Tommy could have been arrested at any time during his military service for punching out an MP or something, but it was so tied into the fact that we did not capture Saddam and overthrow is regime in 1991, even though that was not the mission of Gulf War 1

I think anyone in favor or opposed to the war can view this film in a subtle way as a commentary on Operation Desert Storm in 91 and Operationan Iraqi Freedom which started in 2003 and continues to this day.

It might have you draw your own conclusions regarding your feelings about the war today.