Report to the Chairman, Committee on

Armed Services, House of

Representatives

United States General Accounting Office

GAO

April 2001 DOD DISABILITY

Overview of

Compensation

Program for Service

Members Unfit for

Duty

GAO-01-622
Page 1 GAO-01-622 DOD Disability

April 27, 2001

The Honorable Bob Stump

Chairman

Committee on Armed Services

House of Representatives

Dear Mr. Stump:

This report responds to your request for information about the

Department of Defense’s (DOD) disability severance program that

provides a lump-sum payment for certain service members with a

disability. You requested this work as a follow-up to our previous report

on disabled veterans’ interest in lump sum versus monthly disability

payments.1

We agreed to examine (1) how DOD administers its disability severance

pay for service members with less severe disabilities and the associated

administrative costs and coordination issues and (2) the extent to which

the military services provide financial counseling to service members

receiving disability severance (lump-sum) payments. As agreed with your

office, we interviewed DOD and service-level officials and examined

pertinent DOD and service-level documents. We conducted our work from

January through April 2001 in accordance with generally accepted

government auditing standards.

On April 19, 2001, we briefed your office on the results of our work. (See

app. I.) We requested oral comments from DOD on a draft of this report.

DOD provided technical comments, which we have incorporated as

appropriate.

In summary, we found that the administration of disability severance, like

medical retirement pay, follows service-specific procedures using DOD

guidance. The services assess members’ fitness for duty along a scale

ranging from 0 to 100 percent in gradations of 10. Members unfit for duty

who have 20 or more years of military service with any disability rating or

who are assigned a disability rating of 30 percent or higher receive medical

 1

Veterans’ Benefits: Veterans Have Mixed Views on a Lump Sum Disability Payment Option

(GAO-01-172).

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-622 DOD Disability

retirement payment. In contrast, a lump-sum disability severance payment

is made to members unfit for duty who have less than 20 years of military

service and who are assigned a disability rating less than 30 percent. In

fiscal year 2000, the number of assessments resulting in disability

severance payment was more than double the number of assessments

resulting in medical retirement. The services and DOD could not provide

us with extant data on how much it costs to make disability decisions or

issue payments or how long it takes. However, service-level officials had

some concern about the long lead time that can elapse before a service

member with an injury or illness formally enters the disability evaluation

system.

DOD does not provide special financial counseling on the use of lump-sum

payments for members separating with a disability severance payment.

Rather, as part of transition assistance to civilian life, financial counseling

is available to all members (including members retiring, separating, or

otherwise leaving the service) at family service centers or within members’

military units.

We are sending copies of this report to the Honorable Christopher H.

Smith, Chairman, House Committee on Veterans’ Affairs, and the

Honorable Donald H. Rumsfeld, Secretary of Defense. We will also make

copies available to others upon request.

If you or your staff have any questions about this report, please contact me

on (202) 512-7101 or Shelia D. Drake, Assistant Director, Education,

Workforce, and Income Security Issues, on (202) 512-7172. Brett S.

Fallavollita and Michael J. Collins also made key contributions to this

report.

Sincerely yours,

Cynthia A. Bascetta

Director, Education, Workforce,

 and Income Security
Appendix I

Page 3 GAO-01-622 DOD Disability

Appendix I

Department of Defense

Disability Compensation Program

Briefing for the House Armed Services Committee and the House Committee on Veterans’ Affairs
Appendix I

Page 4 GAO-01-622 DOD Disability

2

Hill Briefing: DOD

Disability Compensation

• DOD compensates military service members who are

determined to be “unfit for duty”--unable to perform their

military duties.

• VA compensates veterans who have a service-connected

disability for an average reduction in earning capacity they

are expected to experience.

Disability Compensation in the

Department of Defense (DOD) and the

Department of Veterans Affairs (VA)
Appendix I

Page 5 GAO-01-622 DOD Disability

3

Hill Briefing: DOD

 Disability Compensation

• Medical Retirement

• A monthly payment paid for life

• members unfit for duty who have 20 or more years of military service

with any disability rating or who are assigned a disability rating of 30

percent or higher per VA’s Schedule for Rating Disabilities with any

length of service

• Disability Severance

• A one-time lump-sum payment

• members unfit for duty who have less than 20 years of military

service and who are assigned a disability rating of less than 30

percent

Types of DOD Disability Compensation
Appendix I

Page 6 GAO-01-622 DOD Disability

4

Hill Briefing: DOD

Disability Compensation

• Medical Retirement

• Higher of:

 (1) Disability Rating x Retired Monthly Base Pay*

 or

 (2) Years of Service x 2.5 x Retired Monthly Base Pay

• Severance Pay

• Monthly Base Pay x 2 x Years of Service (up to a

maximum of 12 years)

 *Retired base pay for those entering military service after September 7, 1980, is the

average of the highest 36 months of basic pay.

Calculation of Disability Compensation
Appendix I

Page 7 GAO-01-622 DOD Disability

5

Hill Briefing:DOD

Disability Compensation

• Medical Retirement

• 96,270 total retirees

• 2,347 new retirees

• Disability Severance

• 8,486 service members

Number of Disability

 Compensation Recipients (FY’00)
Appendix I

Page 8 GAO-01-622 DOD Disability

6

Hill Briefing:DOD

Disability Compensation

• $1.27 Billion in Medical Retirement Pay

• The average retiree received $13,060 for the year

• the average officer retiree received $24,260

• the average enlisted retiree received $8,380

• $159 Million in Disability Severance Pay

• The average member received $18,725 as a lump-sum

payment

• the average officer received $51,065

• the average enlisted member received $17,750

Approximate Financial Outlays (FY’00)
Appendix I

Page 9 GAO-01-622 DOD Disability

7

Hill Briefing: DOD

 Disability Compensation

• Commanding Officer or Physician: refers member to Medical Treatment

Facility.

• Medical Treatment Facility: treats member, seeking maximum medical

benefit.

• Medical Evaluation Board: physician-centered assessment of member’s

meeting retention standards.

• Physical Evaluation Board: service-centered assessment of fitness for

duty.

• Informal: paper-based review

• Formal: board review involving appearance by

member/representative

• Service Headquarters: finalize decision.

 Disability Evaluation System
Appendix I

Page 10 GAO-01-622 DOD Disability

Source: GAO analysis of DOD documents.

8

Hill Briefing: DOD

Disability Compensation

Member

Returned to

Active

Duty

MEB Refers

Case to

Physical

Evaluation

Board (PEB)

PEB:

Is Member

Fit for Duty?

Member with

Medical Issue

PEB:

Identifies

Member’s

Disability

Rating

PEB:

Is Disability

Stable?

Returned to Duty;

Separation

Without Benefits;

Non-Disability

Retirement

Physician

Refers

Member to

Medical

Evaluation

Board (MEB)

Years

of

Service

Placed on

Temporary

Disability

Retirement List

(TDRL),

Re-Evaluated

at Least Once

Every 18 Months

Over Max.

5-Year Period,

and Receives

Monthly Disability

Payment

Member

Separated

with Lump Sum

Disability

Severance Pay

MEB:

Does Member

Meet Medical

Standard for

Retention?

Member

Separated with

Lump Sum

Disability

Severance

Pay

PEB:

During 5-Year

Period Does

Evaluation(s)

Show Member

Is Fit for

Duty?

Yes

No

Yes No

0-20%

30% or

Higher

<20 Years

R

R

No

Yes

No

Yes

R

DOD Disability Evaluation System

>20 Years

PEB:

Is Disability

Stable?

Is Rating

30% or

Higher?

Yes

Does

Member Have

 20 Years of

Service?

>

No

No

No

Yes

Yes

Continue

on TDRL

R = Medical Retirement: Member Receives

 Monthly Retirement Payment
Appendix I

Page 11 GAO-01-622 DOD Disability

9

Hill Briefing: DOD

 Disability Compensation

• About 22,780 cases evaluated by Physical Evaluation

Boards.

• Army had the highest caseload (about 10,000).

• About 3 of every 4 cases were new cases, while remainder

were cases from the Temporary Disability Retirement List.

DOD Disability Caseload (FY’00)
Appendix I

Page 12 GAO-01-622 DOD Disability

10

Hill Briefing: DOD

 Disability Compensation

• Return to Duty...............................................................18%

• Separation with Severance Pay........................................35%

• Medical Retirement.........................................................14%

• Temporary Disability Retirement List..................................24% • Medical Retirement-eligible and disability not stable • 5-year tenure maximum; periodic re-exams (18 months) • minimum 50% base pay

• Other ...........................................................................9%

• For example, separation without benefits because

disability was not in line of duty or existed prior to service

and not service aggravated

Disposition of Cases (FY’00)
Appendix I

Page 13 GAO-01-622 DOD Disability

11

Hill Briefing: DOD

 Disability Compensation

• DOD and services do not collect information on dollar costs

or staff time to:

• make a disability decision,

• issue lump-sum severance payment, or

• issue monthly disability retirement payment.

Administrative Costs
Appendix I

Page 14 GAO-01-622 DOD Disability

12

Hill Briefing: DOD

 Disability Compensation

• Long lead time can elapse before member formally enters

Disability Evaluation System.

• Reported Impact: Service member undergoing disability

evaluation counts against a unit’s “end strength”...a

lengthy evaluation process delays replacement of

member.

• Information from Medical Evaluation Board to Physical

Evaluation Board can be outdated or incomplete, causing

case to be returned for more information.

Concerns Expressed by Some

Military Service Representatives
Appendix I

(130017) Page 15 GAO-01-622 DOD Disability

13

Hill Briefing: DOD

 Disability Compensation

• Financial counseling on use of disability lump-sum payments is

generally provided within context of counseling offered to any service

member leaving the service.

• DOD/services do not offer specific investment advice for disability

lump-sum severance payment.

• Members facing nondisability retirement options are offered financial

counseling to help make decision (accept/decline Career Service

Bonus lump-sum payment).

• Little is known about members’ use of disability lump-sum

payments.

• Based on DOD experiences, some DOD officials advise giving

plenty of time and appropriate educational resources to help a

person decide whether to take a lump-sum payment.

DOD Financial Counseling

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