GAO

United States General Accounting Office

Report to the Chairman, Committee on

Veterans’ Affairs, House of

Representatives

December 2000 VETERANS’

BENEFITS

Veterans Have Mixed

Views on a Lump Sum

Disability Payment

Option

GAO-01-172

Page 1 GAO-01-172 Lump Sum Compensation for Veterans

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 20

Appendix II: Comments from the Department of Veterans Affairs 27

Appendix III: GAO Contacts and Staff Acknowledgments 28

Tables Table 1: Perceived Advantages and Disadvantages of a

One-Time Lump Sum Disability Payment Identified

by Veterans and Military Personnel 12

Table 2: Stratification Levels of Sample by Characteristic 21

Table 3: Sample Size and Response Rate 22

Figures Figure 1: Veterans’ Views on Whether VA Should Offer a Choice

Between Monthly Payments and a Lump Sum Payment 8

Figure 2: Percentage of Veterans Who Probably or Definitely

Would Have Been Interested in Taking a Lump Sum

When First Compensated, by Selected Characteristics 10

Abbreviations

DOD Department of Defense

VA Department of Veterans Affairs

VBA Veterans Benefits Administration
Page 2 GAO-01-172 Lump Sum Compensation for Veterans
Page 3 GAO-01-172 Lump Sum Compensation for Veterans

United States General Accounting Office

Washington, D.C. 20548 Letr

December 18, 2000

The Honorable Bob Stump

Chairman

Committee on Veterans’ Affairs

House of Representatives

Dear Mr. Chairman:

For more than two centuries, veterans of the U.S. Armed Forces have been

compensated for disabilities sustained while serving their country. The

current program is designed to compensate veterans for average reduction

in earning capacity. Compensation is based on the severity of a veteran’s

disability and paid on a monthly basis. After an initial rating for

compensation has been determined, veterans who believe their condition

has worsened may file a claim with the Department of Veterans Affairs (VA)

to reevaluate their disability rating and potentially increase their monthly

payments. In fiscal year 1999, these repeat claims outnumbered initial

disability applications by nearly three to one, dominating VA’s workload.

VA’s claims processing performance has caused concern for a number of

years because of growing backlogs of pending initial and repeat claims,

which have delayed disability decisions and veterans’ receipt of

compensation. To help reduce the volume of repeat claims, the Veterans’

Claims Adjudication Commission, in its 1996 report, asked Congress to

consider paying less severely disabled veterans compensation in a lump

sum.1 According to the Commission, this change could have a number of

benefits for VA as well as veterans. Specifically, the lump sum option could

reduce the number of claims submitted and allow VA to process claims

more quickly—especially those of more seriously disabled veterans.

Moreover, a lump sum option could be more useful to some veterans as

they make the transition from military to civilian life.

To learn how future veterans who become eligible for compensation might

respond to a lump sum option, you asked us to survey veterans who are

currently compensated. We are also providing information on (1) the

1

Veterans’ Claims Adjudication Commission, Report to Congress (Dec. 1996). Consideration

of a lump sum payment dates back to at least the 1950s, when a presidential commission

raised the possibility. See Findings and Recommendations of the President’s Commission on

Veterans’ Pensions (Bradley Commission) (Washington, D.C.: Government Printing Office,

1956).
Page 4 GAO-01-172 Lump Sum Compensation for Veterans

advantages and disadvantages for veterans that veterans and military

personnel believe would be associated with a one-time lump sum payment,

(2) strategies veterans and military personnel have suggested for mitigating

perceived disadvantages, and (3) other lump sum programs that may have

relevance for VA disability compensation. For example, we reviewed the

Department of Defense’s (DOD) provisions for a lump sum severance

payment to disabled military personnel.

To conduct our work, we surveyed through a mail questionnaire a

representative sample of compensated veterans and held focus groups with

selected compensated veterans and active-duty military personnel. Our

survey and focus groups captured views on a broadly defined hypothetical

program that would give veterans the option of taking a one-time lump sum

payment but would not allow them to reapply if the disability for which

they were compensated worsened. We also discussed such a lump sum

option with representatives from veteran service organizations; military

service organizations; and the Veterans Benefits Administration (VBA),

which administers VA disability compensation. In addition, we reviewed

relevant studies on lump sum payments and obtained information about

lump sums in other federal programs and six foreign countries. We did not

assess the potential effects a lump sum option might have on either the

disability claims workload or government cost. We performed our

evaluation from August 1999 through November 2000 in accordance with

generally accepted government auditing standards. (See app. I for more

detail on our methodology.)

Results in Brief Veterans had mixed views about a hypothetical option to offer newly

compensated veterans the choice between monthly disability payments

and a lump sum payment. Support for offering the choice of a lump sum

payment was nearly equally split: 49 percent supported the idea, and 43

percent were against it; the remaining 8 percent were unsure. About onethird of veterans responded that they would have been interested in a lump

sum payment had this option been available when they were first

compensated—a gauge of the level of interest new recipients may have. In

addition, younger and less severely disabled veterans—who may more

closely match the overall demographics of future recipients—were most

likely to report interest in a lump sum option, at 46 percent and 39 percent,

respectively. However, program details could substantially affect veterans’

views about the lump sum option. For example, in discussions with

veterans and military personnel, we found that uncertainty about the dollar

value of the lump sum amounts that would be available made them less
Page 5 GAO-01-172 Lump Sum Compensation for Veterans

sure of whether they supported the option or would be interested in taking

a lump sum. Moreover, some were skeptical and suggested that such an

option would be designed primarily to cut the government’s costs rather

than to benefit veterans.

The veterans and military personnel we spoke with perceived advantages

and disadvantages for veterans if a lump sum option were available. These

perceptions may, in part, explain the degree to which they supported or

would have been interested in such an option. The advantages they cited

for choosing a lump sum payment included having more capital to make a

down payment on a house, start a business, or invest in education. The

disadvantages primarily focused on risks to long-term financial welfare.

Veterans were particularly concerned about what would happen if the

disability for which they were compensated worsened and they were not

allowed to apply in the future for a higher disability rating and additional

compensation.

Veterans and military personnel suggested some strategies that they

believed could minimize the financial risks a lump sum payment option

might introduce. For example, to reduce the likelihood of veterans’ making

an unwise choice, some thought VA should fully inform and educate

veterans about the two options—receiving the traditional monthly

disability payments or taking a lump sum—and the effects each might have

on other veterans’ benefits, such as priority for health care and survivor

benefits. To limit the risk of mismanaging or prematurely exhausting a

lump sum payment, some suggested that financial counseling be made

available or even required before veterans receive the one-time payment.

Some suggested that VA limit the lump sum option to certain veterans, such

as those with other income sources or with less severe disabilities and a

low risk of significant disability progression. However, others questioned

the fairness of these suggestions. There were also concerns that some

suggestions—such as fully informing the veterans of the potential effects—

may not be feasible or effective. If a lump sum payment program were to be

developed, the advantages and disadvantages that veterans and military

personnel identified and the strategies to mitigate perceived risks could

help policymakers shape the program’s design and better ensure veterans’

support. In its written comments, VA highlighted our points that veterans

had mixed views about offering a hypothetical lump sum program and that

further development of program details could affect veterans’ views.
Page 6 GAO-01-172 Lump Sum Compensation for Veterans

Background VA provides tax-free compensation to veterans who have serviceconnected disabilities.2 The payment amount is based on a disability rating

scale that begins at 0 for the lowest severity and increases in 10-percent

increments to 100 percent for the highest severity. More than half of initial

applicants claim multiple disabilities, and veterans who believe their

disabilities have worsened can reapply for higher ratings and more

compensation. For veterans who claim more than one disability, VA rates

each claim separately and then combines them into a single rating. About

two-thirds of compensated veterans receive payments based on a rating of

30 percent or less. At the base compensation level, these payments range

from $98 per month at 10-percent disability to $288 per month at 30-percent

disability.3 Base compensation for veterans with a 100-percent disability

rating is significantly higher—$2,036 per month in 2000. Disability ratings

are also used to determine eligibility for certain other VA benefits. For

example, veterans with a 30-percent disability rating are entitled to an

additional allowance for dependents, and those with higher ratings can

become eligible for free VA nursing home care and grants to adapt housing

for their needs. In addition, priority for care for VA health care is partly tied

to disability ratings.4

VA has had long-standing difficulties in keeping up with its claims

processing workload, resulting in increasing backlogs of pending claims.5

In fiscal year 1999, VA received approximately 468,000 compensation

claims—about 345,000 of which were repeat claims. More than 207,000

claims were still pending at the end of fiscal year 1999—an increase of

nearly 50 percent from the end of fiscal year 1996—and the average

processing time was 205 days. Of the 207,000 pending claims, about 69,000

were initial claims, and about 138,000 were repeat claims.

2

Although VA compensation is not paid in addition to retirement pay, military retirees can

waive an amount of their retirement pay to receive an equal amount of VA compensation,

which would be tax-free.

3

Base compensation can be supplemented with additional payments, such as dependent

allowances.

4

All veterans are eligible for free VA health care to treat service-connected disabilities.

5

See Veterans Benefits Administration: Problems and Challenges Facing Disability Claims

Processing (GAO/T-HEHS/AIMD-00-146, May 18, 2000).
Page 7 GAO-01-172 Lump Sum Compensation for Veterans

In its 1996 report, the Veterans’ Claims Adjudication Commission observed

that 56 percent of veterans with pending repeat claims were rated as 30-

percent or less disabled. Questioning whether VA should expend a

significant share of its resources processing claims for veterans who are

already compensated and have relatively minor disabilities, the

Commission raised the possibility of offering lump sum payments to

veterans with minimal disabilities. Other federal agencies have established

this type of payment program. For example, under DOD’s disability

program, mandatory lump sum payments are given to separating military

personnel with less than 20 years of service and a disability rating of less

than 30 percent, and the Department of Labor allows injured civilian

federal employees to request lump sum payments for bodily loss or

impairment instead of the scheduled duration of weekly payments.

Six countries—Australia, Canada, Germany, Great Britain, Israel, and

Japan—provide lump sum payments to at least some of their disabled

veterans. Britain, Canada, Israel, and Japan make these payments to

veterans with minor disabilities, while Germany supplements veterans’

pensions with a lump sum payment for those whose ability to work has

been severely restricted. For peacetime service, Australia pays lump sum

compensation for noneconomic losses from permanent impairments; it

also provides a lump sum payment for a reduced capacity to work, if the

incapacity is likely to be stable and would otherwise entitle the veteran to

only a relatively small weekly pension.

Reactions to a Lump

Sum Option Are Mixed

Veterans’ views captured through our survey and focus groups were based

on the following features of both the lump sum and monthly payment

options:

• Both types of payment—monthly and lump sum—would be tax-free.

• Under both types of payment, veterans would continue to be entitled to

VA medical and other current benefits.

• Under the monthly payment system, veterans could reapply for

increased payments for a worsening disability; under the lump sum

system, veterans could not reapply for additional payments for a

worsening disability for which a lump sum had been received.

• When the lump sum recipient dies, the surviving family would not have

to repay any portion of the lump sum.

Reactions to this hypothetical framework yielded no clear consensus

among compensated veterans about whether a choice between monthly
Page 8 GAO-01-172 Lump Sum Compensation for Veterans

payments and a lump sum should be offered to newly compensated

veterans. Among compensated veterans, 49 percent said they would

definitely or probably support a lump sum option for newly compensated

veterans, 43 percent said they would definitely or probably not support it,

and 8 percent were unsure. Respondents whose views were “definite” were

also about equally split—about 24 percent definitely supported offering a

choice, and about 28 percent definitely opposed it (see fig. 1).

Figure 1: Veterans’ Views on Whether VA Should Offer a Choice Between Monthly

Payments and a Lump Sum Payment

Source: GAO survey.

Veterans’ responses indicate that experience could influence interest in

taking a lump sum payment. Among all veterans, 32 percent reported they

would have been interested in taking a lump sum payment when first

0

5

10

15

20

25

30

Definitely Yes Probably Yes Unsure Probably No Definitely No

Percentage

25

8

15

28

24
Page 9 GAO-01-172 Lump Sum Compensation for Veterans

compensated had such an option been available.6 Half as many—16

percent—reported that, knowing what they know today, it would have been

a good choice for them. This ratio was borne out among supporters of

offering a lump sum choice—56 percent indicated they would have been

interested in a lump sum payment, and 28 percent said it would have been a

good choice for them.

Age and severity of disability also seemed to influence the degree of

interest in taking a lump sum payment. For example, among veterans aged

43 or younger, 46 percent reported they definitely or probably would have

been interested in taking a lump sum payment, compared to 21 percent of

veterans aged 61 or older.7 Similarly, among veterans whose current

disability rating is 10 percent or less, 39 percent reported definite or

probable interest in a lump sum, compared to 22 percent with disability

ratings of 40 percent or more (see fig. 2). Younger, more recently rated, and

less severely disabled veterans—groups that expressed greater interest—

could be a better gauge of newly compensated veterans’ interest in taking a

lump sum payment because they may be more similar to potential

recipients than are other veterans. Thus, if future newly compensated

veterans are offered a lump sum option, the actual percentage of those

interested in it could exceed the 32 percent found among current veterans.

6

Thirteen percent reported definite interest, and 19 percent reported probable interest.

7

The age breaks at 43 years and 61 years were proxies for period of service. The age break at

43 years was used to roughly identify veterans whose service began after the Vietnam era,

and the age break at 61 was to roughly identify veterans who first served prior to that era.
Page 10 GAO-01-172 Lump Sum Compensation for Veterans

Figure 2: Percentage of Veterans Who Probably or Definitely Would Have Been Interested in Taking a Lump Sum When First

Compensated, by Selected Characteristics

Source: GAO survey.

0

10

20

30

40

50

40 or

More %

Before 0-10% 20-30%

1970

1970-89

Age

61 or

Older

43 or 44 to 60

Younger

Year of First Disability Rating Current Disability Rating

Percentage

22

33

41

32

24

46

21

1990-99

Percentage of All Compensated Veterans 

Across All Characteristics 

39 39
Page 11 GAO-01-172 Lump Sum Compensation for Veterans

Although our results indicate some receptivity to a lump sum option,

interest and support would likely depend on the specific design of the

payment program. For example, among military retirees with 20 years of

service—whose compensation is now a tax-free portion of their retirement

pay—interest in a lump sum payment increased from 29 percent to 66

percent after they learned in the survey that the lump sum might be offered

in addition to their full retirement pay.8

Veterans and military personnel in our focus groups expressed

considerable interest in knowing additional details about the proposed

lump sum option—particularly about the lump sum payment amount.

Others asked for clarifications about the program, such as whether there

could be circumstances under which lump sum recipients could reapply for

additional compensation. In reacting to the option, some indicated that

they had made assumptions about the amount. Others felt they could not

give an informed opinion or make a decision without more information—or

the “fine print,” as one individual put it. Some were skeptical and suggested

that the lump sum option was a way for the government to cut VA benefits

and reduce its obligations to those whose disabilities may get worse.

Veterans and Military

Personnel Perceive

Flexibility as a Key

Advantage and

Financial Risk as a

Major Disadvantage

Through our focus group sessions and discussions with veteran and

military organizations, we found that veterans and military personnel

perceive advantages and disadvantages of offering a lump sum option.

However, information on the actual effects of lump sum payments on

veterans’ financial well-being is limited. While some studies have examined

how recipients use lump sum payments, they do not address how likely

lump sum recipients are to be financially advantaged or disadvantaged as a

result of receiving a lump sum payment rather than monthly payments.

Advantages and

Disadvantages Identified by

Veterans and Military

Personnel

Veterans and military personnel identified several advantages and

disadvantages associated with a lump sum payment option (see table 1).

These advantages and disadvantages generally weigh the benefit of

financial flexibility against the risk of financial loss.

8

If the lump sum is provided in addition to full retirement pay, the government would have to

make an additional contribution to replace the VA offset amount to the military retirement

trust fund because DOD would be responsible for the full retirement amount.
Page 12 GAO-01-172 Lump Sum Compensation for Veterans

Table 1: Perceived Advantages and Disadvantages of a One-Time Lump Sum

Disability Payment Identified by Veterans and Military Personnel

Source: GAO focus groups.

Veterans and military personnel who said the lump sum payment would put

recipients at risk of being less well off or unable to pay for basic necessities

such as food and housing provided several reasons to support their

perception. Some reported that most lump sum recipients—particularly

younger veterans and those already in financial need—would not have

adequate money management skills. For example, some said that recipients

may squander the one-time payment before reaching old age. They also

said that more lump sum recipients would spend rather than invest the

money, and those who did invest would be at risk of making poor

investments. These veterans and military personnel also expressed

concern that the lump sum amounts would be inadequate to protect

recipients from financial setbacks that could result from a progressive

disability and the inability to reapply for a higher disability rating. Some

were similarly concerned that the initial rating could be inaccurate or

unfairly low or that the average life span on which the lump sum was

calculated would be insufficient to support recipients who outlived this

average. Finally, veterans and military personnel said that choice creates

risk because information may be incomplete or biased, individual judgment

Perceived advantages Perceived disadvantages

Offers more financial flexibility and

opportunities than monthly payments.

Reduces the need for future dealings

with VA or the government.

Allows a terminally ill veteran to leave

some money to his or her family or to

enjoy his or her final days.

Provides additional income to military

retirees if the lump sum does not require

retirement pay to be offset.

Enables veterans to make bad investments or

mismanage the lump sum and become

financially worse off.

Could result in veterans’ becoming eligible for

other federal or state income support if the

one-time payment was mismanaged or poorly

invested, burdening other veterans and other

taxpayers.

Is a less dependable income source than

monthly payments, which increase with

inflation, number of dependents, and increased

severity of disability.

Inadequately protects veterans whose

disabilities worsen, since they would not be

eligible for future benefits that are tied to higher

disability ratings.

Could be inaccurate, unfair, or inadequate

compensation.
Page 13 GAO-01-172 Lump Sum Compensation for Veterans

may be poor, or both. Some said a lump sum option would actually lead to

more poor judgments because people would find a large sum of money so

immediately attractive that they would not adequately consider the longterm financial consequences of taking it.

On the other hand, others said that there would be benefits to a lump sum

payment option. For example, some said lump sums could be used to make

investments or large purchases, such as a house or an education; settle

debts; or start a business. In addition, veterans and military personnel said

that the benefit of providing a choice outweighed any risks. This high value

placed on choice seems to underlie much of the option’s support, since our

survey indicated that, among veterans who supported the lump sum option,

28 percent thought in hindsight that a lump sum would have been the better

choice for them. As one veteran said, “I don’t believe that the lump sum

option is a good idea, but it’s America and veterans should have a choice.”

Another supporter of choice argued that, while a lump sum payment

invested in stocks could be substantially reduced if the market falls,

monthly payments could be routinely squandered. It was also pointed out

that while a veteran who opted for a lump sum could outlive the average

age used to calculate the payment, a veteran who chose monthly payments

could die relatively young and therefore receive less total compensation.

Moreover, focus group participants also said that veterans who were fully

informed about their options, would have to take responsibility for the

consequences of their choice.

Information Limited on the

Financial Effects of Lump

Sum Payments

Little definitive information is available to validate perceptions about the

potential financial effects on veterans taking a lump sum payment. Our

review of the literature and inquiries about lump sum provisions for

disabled veterans in several countries yielded very few studies on veterans

receiving lump sum payments, and none addressing the long-term financial

effects of such payments. We did find two qualitative accounts, provided to

us by British and Australian officials, which told of financial difficulties

among foreign disabled veterans who received lump sum compensation

before World War II. In 1939, the British Ministry of Pensions stopped

allowing veterans to convert their disability pensions into lump sum

payments because it found that some recipients had sustained serious

financial losses, particularly through business ventures. Allowing

conversions of pensions to a lump sum has never been reinstated under the

British War Pensions Scheme, but lump sums are paid for lower-rated

disabilities. In Australia, a lump sum provision was discontinued when

some impoverished World War I veterans returned for pension benefits
Page 14 GAO-01-172 Lump Sum Compensation for Veterans

after exhausting their lump sum payments. While Australia’s act covering

service during armed conflicts still does not provide for lump sum disability

compensation, a separate act directs lump sum compensation for certain

disabilities incurred during peacetime service, on essentially the same

basis as for other government employees.

Although not addressing long-term financial effects or disabled veterans,

certain studies examine recipients’ use of lump sum payments from other

sources, indicating different ways recipients would typically manage a

lump sum.9 In general, studies of retirement distributions suggest that

many factors affect how individuals use lump sum payments. For example,

one recent study of lump sum retirement distributions reported that

recipients under age 25 spent almost half of their money on everyday

expenses and consumer items, compared to older age groups who spent 22

percent or less.10 Another study reported that the recipient’s age, education

and income level, and the payment amount are influential factors, but

together these factors explain less than 20 percent of the variation in saving

behavior among lump sum recipients.11 However, findings from these

studies depend on the definitions of savings, investment, and spending

used, and may have less relevance for different populations and lump sum

programs.

Potential Strategies

Veterans and Military

Personnel Believe

Could Lessen Risks

Some veterans and active duty personnel we spoke with suggested certain

strategies—some of which have been used in other lump sum payment

programs—to minimize the potential risks associated with receiving a onetime payment. However, others had concerns about whether they would be

effective, feasible, or fair.

9

See, for example, Michael Landsberger, “Windfall Income and Consumption: Comment,”

and Ronald Bodkin, “Windfall Income and Consumption: Reply,” The American Economic

Review, Vol. 56 (June 1966), pp. 534-45. Observing wide variation in average tendencies to

spend lump sum payments found between World War Veterans receiving insurance

dividends and Israeli recipients of German restitution payments, the authors debate which

factors would best explain the differences.

10Leonard E. Burman, Norma B. Coe, and William G. Gale, What Happens When You Show

Them the Money? (Washington, D.C.: The Urban Institute, Nov. 1999).

11James Poterba, Steven Venti, and David Wise, “Lump-Sum Distributions from Retirement

Saving Plans: Receipt and Utilization,” Inquiries into the Economics of Aging (Chicago:

University of Chicago Press, 1998), pp. 101-2.
Page 15 GAO-01-172 Lump Sum Compensation for Veterans

To help ensure that beneficiaries make a wise choice, some veterans and

military personnel suggested that VA develop an information and education

plan—one that would fully inform beneficiaries of the benefits and risks of

the two payment types and project for individual beneficiaries the likely

effects of each. They further suggested that such information and

education be provided well before the time the choice would be made to

allow beneficiaries sufficient time to consider their options. To ensure

unbiased information, it was also suggested that independent counseling

on the payment choices be encouraged, as well as a second medical

opinion on the disability. However, some expressed concern about VA’s

ability to develop an effective information and education strategy. This

skepticism was based on their perceptions that the government’s past

efforts to inform and educate veterans about benefits were inadequate and

a lump sum decision would involve complex assessments of future

disability, individual financial situations, and investment risks.

Veterans and military personnel also suggested strategies that they believe

would limit the risk of forgone compensation or other benefits if a veteran’s

disability were to progress. For example, one strategy would be to delay

veterans’ choice of a lump sum until they are comfortable with the stability

of their condition. Others said that the progression—or stability—of an

individual’s disability could not be predicted accurately enough to allow

fully informed choice. According to VA and medical experts in disability

evaluation, definitive medical knowledge is often insufficient to fully

inform veterans of whether their disabling condition would progress or

remain the same.12 The course of disability is highly individualized and can

be complicated by multiple impairments. The limited historical data from

our survey suggest that while some veterans get higher ratings over time

for worsening disabilities, others get lower ratings for improved

disabilities.13 For example, among veterans who received their first ratings

12Some disability programs have provisions for determining some disabilities as unlikely to

change based on current medical knowledge. For instance, the DOD program allows for

service members to be removed from the Temporary Disability Retired List if the

preponderance of medical evidence indicates that the severity of the condition will probably

not change within the next 5 years to the point of requiring a higher or lower disability

rating.

13These data are limited measures of the risks in either direction because they do not (1)

establish whether this group is historically typical, (2) include deceased persons who were

first rated during the same period, or (3) consider rating changes between initial and current

ratings.
Page 16 GAO-01-172 Lump Sum Compensation for Veterans

before 1970, about 21 percent reported higher current ratings than initial

ratings, and almost 17 percent had lower current ratings.

Another strategy veterans and military personnel suggested would be to

estimate veterans’ lifetime disabilities and use these estimates in

calculating their lump sum payments. The VA Inspector General has

similarly proposed that VA revise its disability rating criteria to reflect

expected lifetime impairment.14 While projecting the progression of an

individual’s disability over his or her lifetime would prove difficult,

determining average progression factors using VA historical data may be

possible. Another suggested strategy would be to allow reevaluations of

lump sum recipients’ disability ratings—not for the purpose of providing

additional payment but to determine their eligibility, and that of their

dependents, for other VA benefits that are tied to disability ratings, such as

medical care or survivor benefits.15 Some participants suggested, however,

that disabled veterans should also be able to seek reevaluation for

additional compensation payments if their disability progresses.16

Other strategies for reducing the financial risk associated with a lump sum

payment were aimed at encouraging responsible financial management.

For example, focus group respondents recommended financial counseling

and education; investment options, such as in the federal government’s

Thrift Savings Plan; or payment allocations, such as paying lump sums in

allotments or initially putting the money into a trustee account. It was also

suggested that returns on investments could be tax-free. However,

concerns were also raised about these strategies, including perceptions

that the government would not be able to successfully instruct people on

how to manage their money and that these strategies would increase

government bureaucracy.

14Office of Inspector General, Department of Veterans Affairs, Report of Audit: Timeliness of

Benefits Claims Processing Can Be Improved (Mar. 25, 1994).

15VA partially pays for dependent and survivor medical care if a veteran is rated 100 percent

disabled or dies at this rating, and it provides survivor payments if the veteran had a certain

duration of being rated at 100 percent.

16We found such a feature in Canada’s compensatory payment system. After receiving a

mandatory lump sum compensation for minor service-connected disabilities, Canadian

veterans become eligible for monthly payments if their disability worsens.
Page 17 GAO-01-172 Lump Sum Compensation for Veterans

Some of the suggested strategies were aimed at protecting vulnerable

populations from financial risk. Specifically, some suggested that a lump

sum payment option not be offered to those who would be least able to

manage the money well—such as those who have been declared

incompetent or have a history of significant psychological disabilities—or

that the lump sum payment be assigned to someone who could manage the

money for the payee.17 One concern that was raised with this type of

strategy was that there would not be enough time to declare a newly

compensated veteran incompetent or in need of a representative before the

veteran was offered a choice.

A similar strategy suggested by veterans and military personnel was to limit

the lump sum option to the least financially vulnerable—that is, veterans

who would not be likely to suffer great economic hardship if they were to

lose the lump sum payment. These veterans would include those who

would receive small monthly compensation payments, have stable or less

severe disabilities, or have alternative income sources.18 However,

respondents raised concerns that any safeguard restricting who would be

offered the lump sum option could be viewed as unfair.

Agency Comments In its written comments, VA highlighted our points that veterans had mixed

views about offering this hypothetical lump sum program and that further

development of program details could affect veterans’ views. (The full text

of VA’s comments is presented in app. II.)

We are sending copies of this report to the Honorable Hershel W. Gober,

Acting Secretary of Veterans Affairs, appropriate congressional

committees, and other interested parties. We will also make copies

available to others upon request.

17VA currently has a fiduciary program to ensure that incompetent beneficiaries and their

estates are protected from fraud, waste, and abuse. Also, according to the Social Security

Administration, it assigns a representative to about 25 percent of Supplemental Security

Income disability beneficiaries.

18According to a British official, recent consideration has been given to splitting disability

compensation into a lump sum and pension. This arrangement would give veterans an

income source even if they completely spend the lump sum.
Page 18 GAO-01-172 Lump Sum Compensation for Veterans

If you or your staff have any questions concerning this report, please

contact me at (202) 512-7101 or one of the GAO contacts listed in appendix

III. Other key contributors to this report are also listed in this appendix.

Sincerely yours,

Cynthia Bascetta

Director, Health Care—Veterans’ Health

and Benefits Issues
Page 19 GAO-01-172 Lump Sum Compensation for Veterans
Page 20 GAO-01-172 Lump Sum Compensation for Veterans

Appendix I

Scope and Methodology ApApenednxidexiIs

To gain an understanding of support for and interest in lump sum disability

payments as a potential option for veterans, we surveyed and met with a

variety of interested parties, including veterans currently receiving VA

disability payments, active-duty service members, and military and veteran

service organizations. For our survey, we mailed a questionnaire asking for

views about a possible lump sum option to a representative sample of 2,481

veterans who currently receive disability compensation and reside at a

domestic address. During pretests of the survey questionnaire with over 30

veterans, we discussed the perceived advantages and disadvantages of a

lump sum option and what might be done to mitigate the disadvantages. We

also discussed reactions to the option in focus groups of veterans and

active-duty service members in the Air Force, Army, Marines, and Navy. To

determine what is known about the impact on recipients of receiving a

lump sum, we reviewed relevant literature on lump sum payments and

communicated with representatives from other federal agencies and

foreign countries that provide some form of lump sum payment to civilian

and military beneficiaries.

We performed our evaluation from August 1999 through November 2000 in

accordance with generally accepted government auditing standards.

Survey Methodology The objective of our survey was to learn about views veterans with serviceconnected disabilities have about lump sum payments as a compensation

option. To elicit their views, we asked veterans to react to a hypothetical

program—offering newly compensated veterans a choice between monthly

payments and a lump sum payment—with the following features: (1)

Monthly payments and the lump sum payment would both be tax-free. (2)

Regardless of the type of payment chosen, veterans would continue to be

entitled to VA medical and other current benefits. (3) Under the monthly

payment system, veterans could reapply for increased payments for a

worsening disability, but under the lump sum system, veterans could not

reapply for additional payments for a worsening disability for which a lump

sum had been received. (4) When the lump sum recipient dies, the surviving

family would not have to repay any portion of the lump sum.

The survey questions asked veterans whether VA should offer veterans a

choice between monthly payments and a lump sum when they are first

granted compensation and whether they would have been personally

interested in a lump sum had it been available at that time. They were also

asked, with the advantage of hindsight, which option would have been

better for them. We pretested questions in group and individual discussions
Appendix I

Scope and Methodology

Page 21 GAO-01-172 Lump Sum Compensation for Veterans

with veterans in Denver and Littleton, Colorado; Baltimore, Maryland;

Washington, D.C.; and Fairfax and Fredricksburg, Virginia. These sites

were chosen because of their proximity to our staff.

Sampling Strategy A sample of 2,484 veterans was drawn from VA’s Compensation and

Pension file as of October 23, 1999. Our population of interest was veterans

currently receiving compensation for a service-connected disability who

resided at domestic addresses.1 To minimize the probability of sending the

questionnaire to veterans unable or incompetent to participate in the

survey, we excluded veterans from the population with two or more

psychological disabilities or a single psychological disability rated 60

percent or more, those whose records indicated incompetence, and those

residing in nursing homes. After these exclusions, and also excluding those

with nondomestic addresses, our sampled population covered about 94

percent of all compensated veterans in VA’s file.

In addition to determining the level of support among compensated

veterans for a lump sum option, we also wanted to learn from our survey

something about what the interest in a lump sum might be if such a choice

were offered. We wanted to be able to estimate the level of interest for

specific categories of veterans. Therefore, we oversampled various groups

to ensure that we could construct these estimates of interest within an

acceptable margin of error. The population was stratified by the

characteristics in table 2.

Table 2: Stratification Levels of Sample by Characteristic

1

In addition to U.S. addresses, domestic addresses include those for U.S. overseas military

mail and those in Wake Island, Puerto Rico, Virgin Islands, Guam, and Samoa.

Characteristic Stratification levels

Disability rating 0 to 10 percent, 20 to 30 percent, 40 percent or more

Age 43 or younger, 44 to 60, 61 or older

Military retirement Retiree or not

Recently compensated Those since Nov. 6, 1998, and those before Nov. 6, 1998
Appendix I

Scope and Methodology

Page 22 GAO-01-172 Lump Sum Compensation for Veterans

Before surveying, we checked our sample file against VA records2 to

identify veterans who had been terminated from the compensation rolls

subsequent to our sample draw. We also visually inspected the addresses

and dropped from the sample three veterans whose mailing address

indicated that they should have been excluded—that is, the address

suggested the likelihood that the veteran was incapable of responding. A

total of 2,481 questionnaires were mailed for our survey.

Survey Response Our survey response rate is based on the proportion of questionnaires that

were returned with usable information. We mailed our questionnaire in

January 2000. A second mailing to nonrespondents occurred approximately

a month later. We accepted returned questionnaires through April 26, 2000.

Of the sample, 1,921 usable questionnaires were returned, for an overall

response rate of 78 percent. For 16 of the sampled veterans, we received

notification that the veteran had died or was ineligible for the survey. These

cases were removed from the sample. Table 3 details the final disposition

of the questionnaires mailed.

Table 3: Sample Size and Response Rate

a

Veterans were designated ineligible if we received information that they were institutionalized,

incapacitated, or no longer receiving compensation.

2

The sample file was checked against the December 21, 1999, version of VA’s Compensation

and Pension file, the most current version at that time.

Sample Number

Total questionnaires initially mailed 2,481

Deceased 7

Ineligible recipientsa 9

Adjusted sample size 2,465

Postal nondeliverables 45

Refusals 19

Questionnaires not returned 480

Total usable questionnaires returned 1,921

Final response rate 78%
Appendix I

Scope and Methodology

Page 23 GAO-01-172 Lump Sum Compensation for Veterans

Response rates were above 65 percent for each stratification level in the

sample. To produce our estimates of responses in the population from

which we sampled, we weighted each respondent’s answers based on our

stratification scheme.

Sampling Errors All sample surveys are subject to sampling error, that is, the extent to

which the survey results differ from what would have been obtained if the

whole population had received and returned the questionnaire. Measures

of sampling error are defined by two elements, the width of the confidence

interval around the estimate (sometimes called precision of the estimate)

and the confidence level at which the interval is computed. The confidence

interval refers to the fact that estimates actually encompass a range of

possible values, not just a single point. This interval is often expressed as a

point, plus or minus some value (the precision level). For example, an

estimate of 75 percent plus or minus 2 percentage points means that the

true population value is estimated to lie between 73 percent and 77 percent,

at some specified level of confidence.

The confidence level of the estimate is a measure of the certainty that the

true value lies within the range of the confidence interval. We calculated

the sampling error for each statistical estimate in this report at the 95-

percent confidence level. This means, for example, that if we repeatedly

sampled veterans from the same population and performed the analyses

again, 95 percent of the samples would yield values that fall within the

confidence intervals of our estimates. Sampling errors in this report range

from 1 to 7 (plus or minus) percentage points, with most being less than 5

percentage points.

Nonsampling Errors In addition to sampling errors, surveys can also be subject to other types of

nonsystematic (noise) or systematic (bias) error that can affect results,

such as differences in interpretation of the question or respondents’

inability or unwillingness to provide correct information. Unlike sampling

errors, the magnitude of the effect of nonsampling errors is not normally

known; however, steps can be taken to minimize their impact.

One potential source of nonsampling error that may be especially

important in this survey is questionnaire construction. Our early pretests

revealed that compensation benefits can be an emotion-laden subject for

veterans. Some veterans had strong, unanticipated reactions to language

used to phrase the question about offering a choice of payments. To ensure
Appendix I

Scope and Methodology

Page 24 GAO-01-172 Lump Sum Compensation for Veterans

that the question was as clear and unbiased as possible, we did extensive

pretesting of the questionnaire, making modifications based on veterans’

comments. We also consulted with an outside expert in questionnaire

design, who reviewed our survey instrument and provided

recommendations.

In addition, veterans found it difficult to respond to questions about a lump

sum choice without details about what that choice might entail, especially

the amount of the lump sum payment. It may be that given a more detailed

and specific lump sum option, a larger or smaller proportion of veterans

would support VA’s offering veterans a choice. The magnitude of the effect

of these potential biases, if any, on survey results is unknown.

Focus Groups To more fully understand why surveyed veterans supported or opposed a

lump sum option, we conducted focus groups with veterans receiving

disability compensation at VA Medical Centers in Cheyenne, Wyoming, and

Grand Junction, Colorado. To gauge the opinions of people who could be

affected by such a change in policy, we also conducted focus groups with

active-duty military members in all four services. We spoke with members

of the Air Force at Buckley Air National Guard Base, Colorado; Army at

Fort Carson, Colorado; Marine Corps at Quantico, Virginia; and Navy at

Norfolk, Virginia. Since compensated veterans in our survey pretests had

also discussed their reasons for support or opposition, we considered their

input in our analysis.

The sites for veterans’ focus groups were in smaller cities, in part because

we had already gathered reactions of veterans in some large metropolitan

areas during our pretests. Regardless, findings from focus groups and

pretest respondents cannot be generalized to larger populations.

Experiences of Other

Agencies and Foreign

Countries

To obtain information on the experiences of other government agencies

offering lump sum payments to the disabled, we contacted officials

administering the Department of Labor’s Federal Employees

Compensation, State Employment Compensation, Black Lung, and

Longshore and Harbor Worker’s programs. We also obtained information

from the Social Security Administration about its Disability Insurance

program and from DOD about its disability separation and retirement

benefits.
Appendix I

Scope and Methodology

Page 25 GAO-01-172 Lump Sum Compensation for Veterans

To capture the experiences of foreign governments with this type of

payment, we reviewed the compensation programs for disabled veterans in

Australia, Canada, Israel, Germany, Great Britain, and Japan. We selected

these countries because they were the focus of lump sum discussions in the

1999 Report of the Congressional Commission on Servicemembers and

Veterans Transition Assistance. We contacted officials from these countries

directly or through the Department of State. Both Germany and Japan

provided information about their programs in their native languages. We

used translators from the Department of State to translate their responses

into English.
Page 26 GAO-01-172 Lump Sum Compensation for Veterans
Page 27 GAO-01-172 Lump Sum Compensatiion for Veterans

Appendix II

Comments from the Department of Veterans

Affairs ApendxiI
Page 28 GAO-01-172 Lump Sum Compensation for Veterans

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts Shelia Drake, (202) 512-7172

Terry Hanford, (303) 572-7379

Staff

Acknowledgments

In addition to those named above, the following staff made key

contributions to this report: Sandra Davis, Linda Diggs, Deborah Edwards,

Susan Lawes, Karen Sloan, Vanessa Taylor, Joan Vogel, and Greg Whitney.

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