Veterans' Disability Benefits: VA Should Improve Its Management of Individual Unemployability Benefits by Strengthening Criteria, Guidance, and Procedures
Published: 2006-05-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As part of its Disability Compensation program, the Department of Veterans Affairs (VA) provides Individual Unemployability (IU) benefits to veterans of any age who are unemployable because of service-connected disabilities. Over the last decade, the number of IU beneficiaries and benefit costs have more than tripled. In 2005, about 220,000 veterans received an estimated $3.1 billion in IU benefits. In response to a congressional request, GAO assessed VA's management of IU benefits. This report (1) examines the added value of IU benefits for veterans of selected ages and disability ratings, (2) assesses the criteria, guidance, and procedures used for initial decision making, (3) assesses VA's ongoing eligibility enforcement procedures, and (4) compares VA's decision-making and enforcement procedures with those used by other disability programs.
section_title: What GAO Found
paragraphs: Under VA's disability compensation program, VA can award IU benefits (that is, total disability compensation) to veterans of any age who cannot work because of service-connected disabilities even though VA did not rate their impairments at the total disability level. The added value of IU benefits over a veteran's lifetime depends upon the veteran's level of impairment at the time he or she begins receiving IU benefits and the length of time these benefits are received. To illustrate the potential amount of IU benefits that could be received, GAO estimated the lifetime present value of the added benefits in disability compensation for veterans with different impairment levels who began receipt of IU benefits in 2005 at different ages. GAO found that the lifetime present value of these benefits can range from about $300,000 to over $460,000 for veterans age 20 in 2005, and about $89,000 to about $142,000 for veterans age 75 in 2005. GAO also found that just under half (45.6 percent) of new IU beneficiaries was awarded IU benefits at the age of 60 or older, and 19.2 percent were age 75 or older. VA's criteria, guidance, and procedures for awarding IU benefits do not ensure that its IU decisions are well supported. VA regulations and guidelines lack key criteria and guidance that are needed to determine unemployability. VA guidelines also do not give rating specialists the procedures to obtain the employment history and vocational assessments needed to support IU decisions. As a result, some VA staff told us that IU benefits have been granted to some veterans with employment potential. In addition, VA's process for ensuring the ongoing eligibility of IU beneficiaries is inefficient and ineffective. This enforcement process relies on old data, outdated, time-consuming manual procedures, insufficient guidance, and weak eligibility criteria. Moreover, the agency does not track and review its enforcement activities to better ensure their effectiveness. VA is among the federal disability programs GAO has identified as high risk and in need of modernization, in part, because it is poorly positioned to provide meaningful and timely support to help veterans with disabilities return to work. Specifically, VA's compensation program does not reflect the current state of science, technology, medicine, and the labor market. VA's management of IU benefits exemplifies these problems because its practices lag behind those of other disability programs. Approaches from other disability programs demonstrate the importance of providing return-to-work services and using vocational expertise to assess the claimant's condition and provide the appropriate services. Incorporating return-to-work practices in IU decision making could help VA modernize its disability program to enable veterans to realize their full potential without jeopardizing the availability of benefits for veterans who cannot work.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) manages a range of benefit  programs that, among other things, compensate veterans for disabilities  incurred or aggravated during active military service. Military personnel in  combat are now surviving injuries that would have been fatal in past  conflicts, but along with this survival has come an increased rate of  disabilities. With the continuing deployment of our military forces to  armed conflicts in Iraq and Afghanistan and the use of military personnel  in other efforts involving fighting terrorism and national preparedness, the  effective and efficient management of VA’s disability programs is of  paramount importance. The largest of these programs is the Disability  Compensation program, which as of September 2005, paid an estimated  $29 billion in benefits to 2.6 million veterans in compensation for lost  earning capacity due to service-connected disabilities. Through this  program, VA provides benefits to veterans in accordance with a Schedule  for Rating Disabilities that categorizes disabilities on a scale ranging from  0 percent to 100 percent (in increments of 10 percentage points), which is  intended to equate to the average loss in earning capacity resulting from  the service-connected disability. Under VA’s regulations governing  Individual Unemployability (IU), VA can grant total disability  compensation benefits at the 100-percent level to veterans of any age  whose service-connected disabilities are rated at 60 percent or higher and  have caused them to be unemployable. Although disability compensation  benefits are provided to veterans regardless of their income, VA places an  earnings limit on the continued receipt of IU benefits. This limit applies  only to the veteran’s earnings, and not to the veteran’s unearned income or  household income. Managing IU benefits involves not only assessing initial  eligibility for benefits, but also ensuring beneficiaries’ ongoing eligibility  by identifying those who are not in compliance with the earnings limit.
VA has experienced a marked increase in IU beneficiaries and  expenditures at a time when advances in medicine and technology, along  with labor market changes, have provided greater opportunity for people  with disabilities to seek and maintain employment. This trend has caused  concern among Members of Congress about VA’s management of IU  benefits. Our analysis of VA data shows that the number of IU  beneficiaries and payments has more than tripled since the mid-1990s.  From September 1996 to September 2005, the number of veterans  receiving IU benefits has increased from about 71,000 to about 220,000.  Moreover, we estimated that IU benefit payments from 1996 to 2005 have  grown from about $857 million to $3.1 billion. In September 2005, nearly  half of all veterans receiving disability compensation who were rated  between 60 percent and 90 percent received IU benefits. (See app. I for a  discussion of our estimation methods and figures showing IU beneficiaries  and expenditures over the last decade.)
This report continues GAO’s long-standing reviews of VA and other federal  disability programs. In January 2003, GAO determined that federal  disability programs, including those of VA, were in urgent need of  attention and transformation, and placed the modernization of federal  disability programs on its high-risk list. With regard to VA, we have  reported that the agency’s Disability Compensation program has struggled  to make timely and accurate decisions and that the program does not  reflect the current state of science, technology, medicine, and the labor  market. Over the last 2 decades, GAO, the VA Inspector General, and the  United States Court of Appeals for Veterans Claims, have raised a number  of concerns about VA’s management of IU benefits, including problems  with both the decision-making process and enforcement procedures. Many  of these problems remain to be addressed. You asked us to examine the  criteria VA uses in determining initial eligibility for IU benefits and VA’s  efforts to enforce ongoing eligibility. In response to your request, this  report (1) examines the potential added value of IU benefits over a lifetime  for veterans of selected ages and disability ratings, (2) assesses the extent  to which VA has the decision-making criteria, guidance, and procedures to  ensure its IU decisions are well supported, (3) assesses the extent to  which VA has efficient and effective enforcement procedures, and (4)  compares decision-making and enforcement procedures used by other  disability programs with VA’s procedures.
To examine the potential added value of IU benefits, we estimated lifetime  present value of IU benefits for veterans of various ages with disability  ratings between 60 percent and 90 percent. (See app. II for more  information on our methods.) To assess VA’s IU decision-making criteria  and processes, we reviewed agency regulations and guidance, GAO  reports, Court of Appeals for Veterans Claims decisions, VA Inspector  General reports, and VA’s 2001 proposal to revise the regulations  governing IU decision making. Additionally, we interviewed officials from  VA’s Compensation and Pension Service central office, Vocational  Rehabilitation and Employment (VR&E) Service, and Veterans Health  Administration (VHA). We visited four VA regional offices, where we  interviewed officials and reviewed a small number of case files for  veterans who had been awarded IU benefits to improve our understanding  of the IU decision-making process. We also discussed the provision of IU  benefits with officials of several veterans service organizations. To assess  VA’s procedures for the enforcement of the IU earnings limit, we reviewed  VA regulations and policies, and other agency documents. We also  performed work at the agency’s Compensation and Pension Service  central office, Hines Information Technology Center, Pension Maintenance  Centers, and the four regional offices we visited. In addition, we  interviewed information technology staff from the Social Security  Administration (SSA) who were responsible for conducting the computer  match of VA records and SSA earnings data. To compare VA’s procedures  with those of other disability programs, we reviewed disability programs  administered by SSA and private-sector long-term disability insurers. For  information on decision making in other programs, we relied primarily on  prior GAO reports, but also supplemented this information with interviews  with relevant officials to ensure our information was current. We also  interviewed SSA officials to gain more information about SSA’s own  enforcement activities. In addition, because several agencies use the  National Directory of New Hires (NDNH) to enforce earnings limits in  their programs, we interviewed officials in the Department of Health and  Human Services (HHS) regarding access to and the reliability of NDNH  data, which contains information on quarterly wages, new hires, and  unemployment insurance compensation. We conducted our work  between January 2005, and March 2006, in accordance with generally  accepted government auditing standards.
subsections: section_title: Background
paragraphs: Under VA’s Disability Compensation program, the agency can award total  (100 percent) disability compensation to veterans who cannot work  because of service-connected disabilities, even though their schedular  rating is less than 100 percent. Specifically, VA will consider a veteran for  IU benefits if the veteran has a single disability rated at least 60 percent or  multiple disabilities rated at least 70 percent (with at least one disability  rated at 40 percent or more) and there is some evidence that the veteran  cannot work. In some instances, veterans with lower ratings may also be  evaluated for and granted IU eligibility.
As shown on table 1, veterans receiving an IU total disability  compensation rate may receive substantially greater benefits than they  would have received based on their schedular rating. IU benefits, like  other VA disability compensation benefits, are exempt from federal  taxation.
VA created IU benefits in 1934. By statute, VA is required to adopt and  apply a schedule of ratings to compensate veterans for reductions in  average earning capacities resulting from service-connected medical  conditions. This statute calls for compensation benefits to be tied to a  schedule of ratings that is to be based, “as far as practicable,” upon the  average impairments of earning capacity resulting from such injuries in  civil occupations. The statute does not mention individual  unemployability as a basis for granting benefits. However, VA regulations  allow the agency to grant total (100 percent) disability compensation to a  veteran who is unemployable due to his or her service-connected  disabilities, but does not meet the requirements for a total disability using  the rating schedule. Veterans can receive IU benefits when their service- connected disabilities result in their inability to obtain or retain  “substantially gainful employment,” which VA defines as employment that  is “ordinarily followed by  to earn their  livelihood with earnings common to the particular occupation in the  community where the veteran resides.”
subsections: section_title: VA’s Process for Making IU Decisions and Enforcing Compliance with Its Earnings Limit
paragraphs: Staff at VA’s 57 regional offices make virtually all eligibility decisions for  VA disability compensation benefits, including IU benefits. These regional  offices employ non-medical rating specialists to evaluate veterans’  eligibility for these benefits. Upon receipt of an application for  compensation benefits, the rating specialist would typically refer the  veteran to a VA medical center or clinic for an examination. Based on the  medical examination and other available information, the rating specialist  must first determine which of the veteran’s conditions are (or are not)  service-connected. For service-connected conditions, the rating specialist  compares the diagnosis with the rating schedule to assign a disability  rating. (App. III provides examples of selected impairments from VA’s  disability rating schedule.) As figure 1 shows, the service-connected  impairments of IU beneficiaries include a wide range of medical  conditions. Multiple disabilities will result in a combined degree of  disability, which is expressed as a percentage and represents the overall  effect on a veteran of all his or her service-connected disabilities. (App. IV  explains VA’s process for compiling combined ratings.) VA’s IU  determinations are subject to appeal to the Board of Veterans’ Appeals and  subsequently the U.S. Court of Appeals for Veterans Claims.
VA rating specialists initiate IU evaluations when a veteran submits an  application for IU benefits or his or her application for compensation  benefits contains evidence of unemployability. In all cases, before  granting benefits, rating specialists must evaluate the impact that the  veteran’s service-connected disability has had on his or her ability to  perform substantially gainful employment, which for decision-making  purposes is generally interpreted as employment that is more than  “marginal employment.” VA generally defines marginal employment as  employment for which the worker’s annual earned income is at or below  the poverty threshold for one person established by the U.S. Census  Bureau—$10,160 for 2005. However, marginal employment may also be  held to exist, on a case by case basis, when a veteran maintaining  employment at a sheltered workshop or family business receives annual  earnings above the poverty threshold. VA rating specialists are to rely on  various sources of information for the evidence needed to support such a  determination, including an employment and earnings history furnished by  the claimant, basic employment information from the claimant’s  employers (if any), and a medical exam report from VHA. If the claimant  had received vocational rehabilitation assistance from VA or disability  benefits from SSA, the rating specialist might also seek information on  these services or benefit decisions. Finally, under its regulations, VA  rating specialists are not to consider age as a factor in determining  eligibility for IU benefits; thus, veterans of any age may be determined  eligible for IU benefits.
When we analyzed VA data to determine the ages of all veterans receiving  IU benefits as of October 2005, we found that the majority of veterans  receiving IU benefits were age 60 or older. Our analysis of VA data shows  that 219,725 veterans were receiving IU benefits in October 2005. As  shown in figure 2, 51 percent of IU beneficiaries were age 60 or older and  38 percent were age 65 or older.
section_title: Studies and Proposals for Strengthening VA’s Provision of IU Benefits
paragraphs: In 1987, we issued a report that identified several problems with VA’s  administration of IU benefits and made several recommendations for  improvement. We found that VA did not require sufficient medical and  vocational evaluation of IU claimants to support award decisions. To  address this weakness, we recommended that, in cases involving IU  benefits, VA ensure that its (1) examining physicians provide observations  on how the service-connected medical condition impairs the veteran’s  functional capabilities and (2) vocational counselors provide vocational  information, including an assessment of how the veteran’s service- connected condition affects job skills and employment potential.  Furthermore, we identified potential overpayments to IU beneficiaries and  suggested that the Congress provide VA with access to Internal Revenue  Service (IRS) earnings information to monitor IU eligibility and help detect  and prevent overpayments. Since we made the recommendations, the  Congress provided the agency with access to IRS earnings data, which the  agency is using to monitor compliance with the ongoing earnings limit.  However, to date, VA has not implemented our recommendation that its  vocational counselors assess the veteran’s job skills and employment  potential so that this information could be used in the IU decision-making  process.
More recently, two studies highlighted the need for fundamental changes  to VA’s disability decision making. In 2004, the VA Vocational  Rehabilitation and Employment Task Force study recommended that  vocational professionals from VA’s VR&E should provide more complete  vocational assessments to assist in disability and vocational decisions.  More specifically, the task force recommended that VR&E perform a  functional capacity evaluation that would identify what work a veteran  could do in the paid economy despite his or her disabilities. Also, a 2005  VA Inspector General study pointed to the need for improved IU initial and  ongoing eligibility determinations. The VA Inspector General found that  some veterans receiving IU benefits may not have been entitled because  VA had not aggressively used IRS and SSA records and developed proper  controls to monitor their income through the verification process.
In addition, the Veterans’ Disability Benefits Commission was created by  the National Defense Authorization Act of 2004 (Pub. L. No. 108-136) to  independently evaluate compensation to veterans and their survivors for  disabilities and deaths attributable to military service. Among other things,  the Commission plans to include IU benefits in its review. The law requires  the Commission to provide a report to the Congress, with  recommendations as needed, which addresses the appropriateness of  benefits and the standards for granting benefits.
section_title: The Added Value of IU Benefits Over A Lifetime Depends on the Veteran’s Individual Circumstances
paragraphs: In a recently issued report, we noted that additional benefits are available  to veterans with total disabilities. In particular, awarding IU benefits  increases a veteran’s monthly disability compensation. The increase in the  monthly compensation for IU beneficiaries is the difference between the  compensation at the veteran’s schedular rate and the compensation at the  100-percent rate. For example, a schedular rating of 60 percent would  entitle a veteran to $839 per month in 2005. The veteran, however, would  be entitled to $2,299 per month if granted IU benefits—a difference of  $1,460 per month or $17,520 per year. The lower the veteran’s schedular  rating, the higher his or her increase in monthly disability compensation  when awarded IU benefits.
When the present value of IU benefits is considered over a veteran’s  lifetime, the value of these added benefits depends upon the veteran’s  schedular rating at the time he or she begins receiving IU benefits and the  length of time these benefits are received. To illustrate the potential  amount of added benefits that could be received due to IU, we estimated  the lifetime present value of the increase in disability compensation  benefits for veterans with schedular disability ratings between 60 and 90  percent who began receipt of IU benefits in 2005 at different ages. To  calculate these lifetime present values, we used the SSA general  population mortality tables for males to estimate the lifespan of IU  beneficiaries. Because benefits awarded to younger veterans would be  expected to be received for a longer length of time in comparison with  older veterans, younger veterans are estimated to receive more in benefits  than older veterans who have the same schedular rating. Also, because the  lower the veteran’s schedular rating, the greater the increase in monthly  disability compensation benefits when awarded IU benefits, veterans with  lower ratings were estimated to receive more in added IU benefits than  those of the same age with higher schedular ratings. For example, for  younger veterans, those at age 20 in 2005, the estimated lifetime present  value of these benefits can range from almost $300,000 to over $460,000.  Even for older veterans, the value of these benefits can be substantial. For  veterans awarded IU benefits at age 75 in 2005, the lifetime present value  of these benefits can range from about $89,000 to about $142,000. The  estimated lifetime present values of the added benefits for veterans  awarded IU benefits in 2005 at selected ages and schedular ratings is  shown in figure 3.
When we analyzed VA data to determine the age at which veterans begin  receiving IU benefits, we found that just under half of new IU beneficiaries  were awarded IU benefits at the age of 60 or older. For example, we found  that 46 percent of veterans awarded IU benefits from October 2004 to  October 2005 were age 60 or older, and 19 percent were age 75 or older.  See figure 4 for the age distribution of new IU beneficiaries from October  2004 to October 2005. Data for the 2 prior year periods show a similar  pattern in the age distribution of new IU beneficiaries.
In addition to disability compensation benefits, some IU beneficiaries are  also entitled to military disability retirement benefits or normal retirement  benefits based on years of military service. In general, however, an offset  provision restricts most veterans from receiving the full value of both  benefits, unless they have 20 or more years of service. Recent legislation  allows veterans with combat-related disabilities and 20 or more years of  service to receive the full value of both benefits. Also, recent legislation is  phasing out the offset for veterans who have 20 or more years of military  service and disability ratings of 50 percent or more. The phase out is  taking place between January 1, 2004, and December 31, 2013, but IU  beneficiaries with 20 or more years of service will be eligible for full  concurrent receipt with no offset beginning October 1, 2009. However,  the recent legislation to eliminate the benefit offset is likely to affect  relatively few IU beneficiaries, as our review of IU beneficiary data as of  October 2005 shows that only about 8 percent of all IU beneficiaries have  20 years or more of service.
section_title: VA’s Decision-making Criteria, Guidance, and Procedures Do Not Ensure That IU Decisions Are Well Supported
paragraphs: VA’s regulations and guidelines for awarding IU benefits do not ensure  that its decisions are well supported. VA regulations and guidelines lack  key criteria and guidance that are needed to determine unemployability. In  addition, VA guidelines do not give rating specialists the procedures to  obtain the employment and earnings history, and vocational assessments  needed to support IU decisions. As a result, VA rating specialists and some  vocational rehabilitation staff told us that unemployability benefits have  sometimes been granted to veterans who have employment potential.
subsections: section_title: VA Lacks Key Criteria and Guidance Needed to Determine Unemployability
paragraphs: VA rating specialists making IU decisions are required to determine  whether the claimant is capable of obtaining or retaining substantially  gainful employment, which agency guidelines define as “that which is  ordinarily followed by  to earn their  livelihood with earnings common to the particular occupation in the  community where the veteran resides.” However, VA regulations and  guidelines do not provide the criteria and guidance that are needed to  determine whether a claimant has the ability to obtain or retain  substantially gainful employment or is unemployable because of his or her  service-connected disabilities.
VA guidelines also define substantially gainful employment as any  employment greater than marginal employment. Marginal employment  generally exists when a veteran’s annual earned income does not exceed  the poverty threshold for one person. In addition, the guidelines  recognize that the terms “unemployability” and “unemployable” are not  synonymous for compensation purposes because a veteran may be  unemployed or unemployable for a variety of reasons. As noted in the  guidelines, rating specialists are to determine whether the severity of the  service-connected conditions preclude the veteran from obtaining or  retaining substantially gainful employment. In doing so, the rating  specialists are to identify and isolate the effects of extraneous factors such  as age, nonservice-connected conditions, availability of work, or  voluntary withdrawal from the labor market when determining whether a  veteran is unemployable solely by reason of service-connected disabilities.
However, the guidelines do not state how rating specialists are to isolate  these factors from the veteran’s service-connected disabilities or how  these factors should be considered in making IU decisions. For example,  the guidelines do not specify how rating specialists are to determine  whether a veteran’s lack of work or marginal employment is the result of  the veteran’s service-connected disabilities or extraneous factors such as  local labor market conditions or the veteran’s “voluntary withdrawal” from  the labor force. In particular, the guidelines do not specify the criteria  rating specialists should use in determining whether a veteran, who is not  working or has only marginal employment, has the ability to obtain or  retain substantially gainful employment. For instance, the guidelines do  not mention how factors such as education, skills, or prior work history  should be used to assess a veteran’s ability to work.
Recognizing the deficiencies in VA’s regulations and guidelines, the Court  of Appeals for Veterans Claims urged VA to “undertake a broad-based  review and revision” of unemployability regulations. In 2001, the agency  proposed regulatory changes to address this and other problems with its  IU decision making. The proposal included changes intended to define  key terms, such as substantially gainful employment. During the public  comment period, however, VA received numerous comments from  veterans groups that were strongly opposed to the proposed regulations.  In December 2005, VA withdrew this regulatory proposal and initiated a  new effort to develop a proposal for revising IU regulations. As of March  2006, VA was still in the process of drafting this new regulatory proposal.
section_title: VA Guidelines Lack Procedures for Obtaining Necessary Evidence for Determining Unemployability
paragraphs: VA also lacks adequate procedures for obtaining necessary evidence to  support IU decisions. In particular, VA does not have procedures for rating  specialists to obtain (1) complete and corroborated employment  information from IU claimants and their employers, and (2) vocational  assessments of IU claimants that could supplement medical information,  even though the agency has an in-house vocational rehabilitation service.
subsections: section_title: VA Does Not Have Sufficient Procedures to Obtain Complete and Corroborated Employment Information
paragraphs: VA guidelines state that, when making an IU determination, rating  specialists are to ensure that the “evidence is sufficient to evaluate . . . the  veteran’s current . . . employment status.” Such evidence generally comes  from two sources. First, the IU application form requires veterans to  furnish employment and earnings history (e.g., jobs held, number of hours  worked, type of work performed, and accommodations) for the 5-year  period preceding the date the veteran claims to have become too disabled  to work and for the entire time after that date. Second, the guidelines  instruct the rating specialist to request related information from each of  the claimant’s employers for the 12-month period prior to the date the  veteran last worked.
At the VA regional offices we visited, several rating specialists stated that  the employment information submitted by claimants and employers is  sometimes incomplete. VA guidelines state that it is essential that the form  contain the claimant’s complete work history but does not specify what is  acceptable for decision making when the work history is less than  complete. According to an analysis conducted at a VA regional office,  failure of the veteran to submit the requested employment information did  not serve as a basis for denying an IU claim.
Also, when assessing the eligibility of claimants who report recent prior  work experience, rating specialists told us that they sometimes have  difficulty obtaining corroborating information from employers. VA  regional office officials stated that it is often difficult to obtain relevant  information from employers because, among other reasons, they have  moved, gone out of business, maintained poor records, or had such  turnover that no one remembers the claimant. One VA regional office  official stated that he has instructed his staff not to “hold a benefit hostage  to the employer information.” We reviewed 29 case files in which IU  benefits were awarded at three of the VA regional offices we visited. We  found that 23 case files contained employment history information  submitted by the claimant but only eight of these contained evidence from  employers. Three case files did not contain claimant or employer  employment forms. In the remaining three case files, the veterans claimed  to have not worked or to have been self-employed.
When a veteran claims not to have worked or to have been marginally self- employed during the past 5 years, agency guidelines for IU decision  making do not give rating specialists the procedures to obtain  corroborating evidence in the form of earned income information from  other federal databases. As a result, rating specialists are unable to  confirm (or refute) the veteran’s claim. Specifically, rating specialists are  unable to obtain earnings information from SSA and the IRS. In addition,  VA does not have access to earnings information from the NDNH  database, which contains quarterly information on earnings. Some rating  specialists stated that, if available, they sometimes considered information  in the medical exam report or hospital records showing that the claimant  had been out of work as evidence of unemployability.
section_title: VA Lacks Procedures for Obtaining Vocational Assessments of IU Claimants That Could Supplement Medical Information
paragraphs: VA regulations on IU decision making do not contain procedures for rating  specialists to request vocational assessments of IU claimants that could  supplement claimants’ medical information. VA guidelines require rating  specialists to consider medical information when granting IU benefits.  Specifically, the medical evidence must support a current evaluation of the  extent of all the veteran’s disabilities and reflect the veteran’s condition in  the past 12 months. At the regional offices we visited, managers stated that  their rating specialists rely heavily on medical examinations conducted by  VHA clinicians to make IU determinations. Rating specialists at one of  these regional offices stated that these medical reports were often the only  information they have upon which to base a decision that is not self- reported.
Some rating specialists we interviewed, however, expressed concern that  they were awarding IU benefits based on medical reports that provided  insufficient support for determining unemployability. VA regional office  officials and rating specialists told us that the current medical reports may  have limited applicability to IU decision making. Medical reports may have  limited applicability because, as we have noted in a prior report, while  most medical impairments may influence the extent to which an individual  is capable of engaging in gainful activity, vocational and other factors are  often considered to be more important determinants of work capacity. It  is these other factors, along with the person’s medical condition, that are  considered in a vocational assessment of work potential.
Vocational assessments can supplement the results of medical  examinations by taking into consideration factors such as the veteran’s  education, training, prior work experience, skills, and abilities, to identify  the extent to which the veteran is employable. Yet, when making IU  determinations, rating specialists do not have procedures to obtain  vocational assessments from VR&E counselors. Rating specialists have  access to vocational assessments only when they already exist prior to the  request for IU benefits. According to VA officials we spoke with, rating  specialists generally make employability determinations without the  benefit of a vocational assessment. At 3 of the VA regional offices we  visited, our review of 29 case files in which IU benefits were awarded  found that 25 lacked any vocational assessment.
Lacking vocational assessments for most IU claims, officials at some  regional offices we visited told us that they sometimes asked VHA  clinicians to assess and make a determination on a claimant’s  employability. Of the 29 case files we reviewed, 7 contained medical  reports that gave opinions on the veterans’ employability. These opinions  ranged from a comment that the claimant is not a good candidate for  working with the public to comments that one veteran is “unemployable in  any function” and another is simply “unemployable.” Two cases contained  employability decisions that were based on examinations of the claimant’s  functional capabilities. One official in a regional office indicated that  medical reports containing opinions on employability often dictate their IU  decisions. A senior VHA management official explained that these medical  reports should not be the only source used to render an opinion regarding  a claimant’s unemployability because the agency’s clinicians are currently  not trained to conduct medical examinations that support decisions on  employability.
Rating specialists at some of the VA regional offices we visited stated that,  when available, the assessments in VR&E case files were very relevant to  IU decision making. VR&E managers and counselors suggested that  permitting rating specialists to obtain VR&E assessments of IU claimants  could address the need for vocational information. VR&E officials stated  that their counselors are qualified to conduct such assessments and,  where appropriate, VR&E counselors could also use this opportunity to  use incentives to encourage return to work, develop return-to-work plans  in collaboration with the claimant, and identify and provide needed  accommodations or services for those who can work. By incorporating  vocational assessments into its IU decision-making process, VA can  modernize its disability programs by enabling veterans to realize their full  productive potential without jeopardizing the availability of benefits for  veterans who cannot work.
section_title: VA Staff Express Concerns that They May Have Awarded IU Benefits to Veterans with Employment Potential
paragraphs: We discussed IU decision-making criteria and evidence requirements with  managers and rating specialists at the regional offices we visited. During  these discussions, some rating specialists expressed concerns that they  may have awarded IU benefits to some veterans who appeared to be  employable. These rating specialists told us that they awarded IU benefits  in these cases with the expectation that VA would identify these  beneficiaries in the income matching process as having earnings above the  IU threshold and discontinue their IU benefits. Another rating specialist  stated that he felt compelled by the workload at his regional office to  make IU determinations based on existing evidence, even when necessary  information was lacking.
VR&E managers and counselors at the regional offices we visited stated  that VA has awarded IU benefits to veterans making good progress in their  VR&E-sponsored vocational rehabilitation. Our analysis of VA’s electronic  case files identified 683 veterans who received both IU benefits and a  stipend from VR&E, which is generally provided only to veterans who are  attending college and who are expected to seek employment at the  conclusion of their vocational rehabilitation. VR&E officials and rating  staff at three of the VA regional offices we visited brought to our attention  veterans who had received VR&E assistance and were making good  progress in their rehabilitation plans, only to drop out of the program  when they were awarded IU benefits.
section_title: VA’s Earnings Enforcement Process is Inefficient and Ineffective
paragraphs: VA has an inefficient and ineffective process to enforce the earnings limit  for ongoing eligibility for IU benefits. VA’s main enforcement mechanism  is its computerized match that identifies beneficiaries with earnings, which  is supplemented with a manual review to assess whether these earnings  are within the limit and meet other ongoing eligibility criteria. However,  this process relies on old data, outdated and time-consuming procedures,  insufficient guidance, and weak eligibility criteria. Moreover, the agency  does not track and review its enforcement activities to better ensure their  effectiveness.
subsections: section_title: VA Uses a Multi-Step Process to Evaluate Beneficiaries’ Ongoing Eligibility
paragraphs: VA utilizes a multi-step annual computer match and manual process,  referred to as its Income Verification Match, to evaluate both the ongoing  eligibility of its IU and pension beneficiaries. During 2004 and 2005, VA’s  income match, in coordination with SSA and IRS, assessed beneficiaries’  income for 2002. VA provided SSA and IRS with data on VA’s 2004  beneficiaries that the agencies matched to their 2002 income data. SSA  matched VA beneficiaries to its wage and self-employment earnings to  provide VA with 2002 earned income data for IU and pension beneficiaries.  To provide VA with data on unearned income for its pension beneficiaries,  IRS matched the beneficiaries with its 2002 unearned income data. VA’s  Hines Information Technology Center (ITC) used SSA’s match results to  identify IU beneficiaries with earned income above $6,000 in 2002 for  further review. Hines ITC combined the results of the computer matches  for IU and other beneficiaries to produce and mail documents to  employers and to the Pension Maintenance Centers (PMC) for further  review.
Hines ITC identified 8,563 IU beneficiaries with earnings over $6,000 in  2002 for review by VA’s three PMCs. For each identified beneficiary, Hines  ITC produced and mailed a letter to the employer requesting earnings data  to verify SSA-reported earnings. It also produced and mailed to the PMCs  several documents for follow-up on each beneficiary, such as a letter for  the veteran and a tracking sheet. The three PMCs manually reviewed the  information provided by Hines ITC and employers and may have also  contacted the veterans, as needed, to determine whether they continued to  meet ongoing IU eligibility criteria. In general, IU beneficiaries who have  exceeded the annual IU earnings threshold (set in 2002 at $9,039), have  worked 12 consecutive months or more, and have not been employed in a  sheltered workshop or family business should have their IU benefits  discontinued. PMCs close the cases when they find beneficiaries meet the  eligibility criteria and forward cases that needed additional information for  a decision to VA regional offices for further review. The VA regional  offices should obtain whatever additional information is needed to  determine whether benefits should be discontinued and inform the veteran  if VA decides to do so.
section_title: VA’s Process to Evaluate Beneficiaries’ Ongoing IU Eligibility Is Inefficient
paragraphs: In its computer matching process to evaluate ongoing IU benefit eligibility,  VA used SSA earnings data that is about 1.5 years old, despite the fact that  the data is available earlier and more recent earnings data is available from  another federal database. Using old earnings data, along with other  processing delays in its review, means that IU beneficiaries with earnings  above the IU threshold can continue to receive benefits for up to 2.5 years  before VA can determine that their IU benefits should be discontinued.  Quick identification of IU beneficiaries who are no longer entitled to  benefits is important because VA typically will only discontinue their  benefits and will not collect any overpayments. Although SSA earnings  data could be available as early as September following the end of a tax  year, VA postpones the match of IU benefits and waits for unearned  income from IRS so that it can evaluate both IU eligibility and pension  payments at the same time. Also, HHS’ NDNH can provide more current  earnings data than SSA, but VA does not have the statutory authority to  access this database. The NDNH database includes quarterly wage data for  up to 8 quarters, which can be compiled into annual data for matching  purposes. Although VA currently lacks access to the NDNH database,  other agencies—such as SSA, IRS, and the Department of Housing and  Urban Development—have sought and gained statutory authority to  access the NDNH to improve their enforcement efforts. In addition to  gaining statutory authority, to obtain access to the NDNH, VA would need  to meet data security and privacy safeguarding requirements HHS has  established to ensure the security and confidentiality of NDNH data.
VA’s enforcement process is also inefficient because VA has not updated  its computer matching program to reflect annual changes in its IU earnings  threshold. The program identified those who earned more than $6,000  rather than the annual IU threshold, which was $9,093 for 2002. As a result,  the PMC staff told us that they manually reviewed many more cases than  necessary. VA’s Hines ITC officials told us that they are prohibited from  making any changes in the matching program until the agency has  replaced its current compensation and pension payment system, which  may take place in 2007.
VA’s enforcement process experiences additional delays because the  computer matching information is transmitted manually to VA’s  enforcement staff rather than electronically. VA’s ITC mails thousands of  paper documents to employers and VA’s three PMCs. It mails letters to  veterans’ employers to provide verification of veterans’ earnings to the  PMCs. ITC also mails a tracking sheet and a letter for each veteran earning  over $6,000 to the PMCs, where the information is manually collated and  reviewed. The center officials told us that they use information from the  computer match, employers, and veterans to assess whether beneficiaries  meet ongoing IU eligibility criteria and they close the case for those who  meet the criteria. If a center did not have sufficient information to  determine eligibility, it mailed the case file to a VA regional office for  further review. Although VA currently mails paper documents generated  from the match to its PMCs and regional offices, software exists to  transfer the confidential information electronically, and VA officials  acknowledged that doing so would make the process more timely.
One action VA has recently taken to enhance enforcement is to reinstate a  procedure that requires IU beneficiaries to annually complete a form to  provide their earnings and employment status. VA had discontinued use of  the form about 6 years ago to reduce the paperwork burden for  beneficiaries and instead was annually sending a letter to IU beneficiaries  to remind them of their responsibility to notify VA of their employment  and earnings. However, VA officials believed that the annual reminder had  not resulted in sufficient compliance and in September 2005, reinstituted  the requirement to complete the VA form. Because the agency has very  recently implemented this change, we cannot assess its effectiveness.  Although the agency believes that this information will improve its ability  to monitor veterans’ ongoing eligibility, it still plans to continue the  income verification match.
section_title: VA Has Insufficient Guidance to Evaluate Beneficiaries’ Earnings
paragraphs: VA’s written guidance for evaluating beneficiaries’ earnings also hinders  enforcement by failing to clarify that PMC staff should use all the available  earnings information from the match and other sources, such as  employers, to assess beneficiaries’ initial and continuing eligibility.  Lacking this written guidance, VA staff focus on whether beneficiaries’  earnings and employment qualified them for benefits for the match year.  For example, when PMC staff receive earnings data for veterans who were  granted benefits during the match year, the staff disregard the earnings,  regardless of the amount, and close the case. Staff do so because they only  consider earnings subsequent to granting benefits and know that the new  beneficiaries could not have worked for 12 consecutive months in the  match year. The match data and the beneficiaries’ application information,  however, could show that veterans may not have fully disclosed their  earnings during the application process and may have exceeded the IU  threshold. Staff also disregard some of the earnings information provided  by employers that could have had a bearing on eligibility. Although VA’s  letters to employers request earnings information for the match year and 2  subsequent years, management’s verbal guidance at one center was to  disregard the earnings from the subsequent years and only consider the  earnings of the match year.
section_title: VA Has Weak Criteria to Evaluate Beneficiaries’ Ongoing Eligibility
paragraphs: VA has weak criteria to determine whether veterans should continue to  receive IU benefits. In evaluating IU beneficiary eligibility, PMCs allow  beneficiaries to continue to receive IU benefits if their earnings at the time  of the review did not exceed the IU threshold. However, some IU  beneficiaries can have earnings far above the IU threshold because VA,  under current law, continues to provide them benefits until they have  maintained employment for 12 consecutive months. In effect, this law  allows beneficiaries to retain their benefits despite unlimited earnings, so  long as they do not work for 12 consecutive months. For example, a  beneficiary could earn $50,000 from January to September, choose to stop  working for reasons other than his or her service-connected disability, and  still be allowed to retain his or her IU benefits.
section_title: VA Management Does Not Track and Review the Outcome of Its Enforcement Activities
paragraphs: VA does not effectively track and review the results of its enforcement  activities. VA does not track the results of cases reviewed by PMCs or  those sent to regional offices. As a result, the agency does not know the  results of these reviews or the reasons for continuing or discontinuing IU  benefits. For example, the agency does not know how many beneficiaries  were identified by its computerized match with earnings below the IU  threshold or had higher earnings and continued to receive benefits. Also,  without sufficient information to monitor enforcement, the agency cannot  ensure that beneficiary cases are being fully reviewed or that appropriate  actions are taken to discontinue benefits.
section_title: VA’s Practices to Manage Its Disability Benefits Lag Behind Other Disability Programs
paragraphs: Private-sector and SSA disability programs provide important features that  VA’s IU benefits lack. Unlike VA, private insurers have developed  assessment processes that focus on return to work and use a wide variety  of assessment tools, expertise, and incentives to evaluate claimants’ ability  to work and encourage and enable those with work potential to return to  the labor force. Likewise, SSA requires applicants to provide substantial  information for assessment purposes and, in recent years, has  implemented a new program to provide return-to-work services and is  conducting pilots to test new methods to return applicants and  beneficiaries to work. In addition, SSA has implemented critical  management practices to help ensure the financial integrity of its disability  programs.
subsections: section_title: Private Insurers’ Eligibility Assessment Processes Focus on Return-to-Work
paragraphs: The eligibility assessment processes of three U.S. private insurers we  reviewed focused on returning people with disabilities to work. The  private insurers’ assessment processes we reviewed both evaluated a  person’s potential to work and assisted those with work potential to return  to the labor force. Insurers provided assessment and other services shortly  after disability onset and throughout the duration of the claim, as needed.  Their ongoing assessment process is closely linked to their definition of  disability that shifts over time from less to more restrictive—that is, from  an inability to perform one’s own occupation to an inability to perform any  occupation. Both the definitional shift and the ongoing assessment  process recognize the possibility for improvement in an individual’s work  capacity by providing supports and services, such as workplace  adaptations or training as well as financial and other incentives to  encourage claimants to return to work.
Throughout the duration of the claim, private insurers use a wide variety  of tools and expertise to assess the claimant’s work potential and develop  and implement an individualized return-to-work plan for those with work  potential. As part of the process of assessing whether a claimant can  perform his or her own occupation, insurers directly contact the claimant,  the treating physician, and the employer to collect medical and vocational  information and initiate return-to-work efforts, as needed. For example,  insurers consult medical staff and use other resources, such as medical  guidelines, which describe disabilities and their treatment and duration, to  evaluate whether the treating physician’s diagnosis and the expected  duration of the disability are in line with the claimant’s reported symptoms  and test results. Insurers’ contacts with treating physicians may also be  aimed at ensuring that the claimant has an appropriate treatment plan  focused on timely recovery and return to work. Insurers may also use an  independent medical examination or tests of basic skills, interests, and  aptitudes to clarify the medical or vocational limitations and capabilities  of a claimant. In addition, they may use medical or vocational specialists  to identify possible accommodations for the claimant and may also  contact employers to encourage them to provide workplace  accommodations for a claimant who has the capacity to work. To  determine whether a claimant can go back to his current job, or if not,  engage in other work, insurers will identify a claimant’s remaining skills  and abilities (i.e., transferable skills) by comparing the claimant’s  capabilities and limitations with the demands of the claimant’s own  occupation. Included in these assessment tools and methods are services  to help the claimant return to work, such as job placement, job  modification, and retraining.
The definition of disability shifts after 2 years from being unable to  perform one’s own occupation to being unable to perform any occupation.  This period provides an opportunity for claimants who have the potential  to work to recover medically and develop skills to return to work. During  this period, insurers may provide financial and other assistance to help  claimants with work potential make a successful transition. Insurers try to  develop the best strategies for managing each claim, which can include,  for example, helping to plan medical care or providing vocational services  to help claimants acquire new skills, adapt to assistive devices, or find new  positions. For those requiring vocational intervention to return to work,  the insurers develop an individualized return-to-work plan, as needed.
Work incentives are an important feature of the private insurers’ programs  to encourage and facilitate a claimant’s return to work. These incentives  require the claimant to obtain appropriate medical treatment and can  result in a possible loss of benefits if the claimant does not participate in a  return-to-work program, if such a program would benefit the individual.  To support these requirements, these disability systems help the individual  obtain the appropriate medical care and provide financial incentives to  promote participation in rehabilitation, such as reimbursement for family  care costs. Insurers may provide additional financial benefits to those who  participate in a return-to-work plan. For example, one insurer told us that  claimants may receive an additional benefit equal to 10 percent of their  disability payment for participating in rehabilitation. To further encourage  rehabilitation and return to work, insurers may allow claimants who work  to supplement their disability benefit payments with earned income.  Conversely, insurers may reduce or terminate benefits for claimants who  could work, but do not. Claimants’ benefits may also be terminated if they  refuse to accept a reasonable accommodation that would enable them to  work.
If the insurer initially determines that the claimant has no work potential,  it monitors the claimant’s condition for changes that could increase the  potential to work. After 2 years, it reassesses the claimant’s eligibility  under the more restrictive definition of disability. The insurer continues to  look for opportunities that may enable these claimants to return to work.  For example, opportunities may occur for claimants when there are  improvements in medical treatments and technology, such as new  treatments for cancer or AIDS.
section_title: VA Lacks Some of SSA’s Eligibility Assessment and Return-to-Work Efforts
paragraphs: Both VA and SSA disability programs are on our high-risk list, in part,  because they do not reflect the current state of science, technology,  medicine, or labor market conditions. Nevertheless, SSA’s disability  programs have efforts to assess eligibility and encourage return-to-work  that VA’s disability compensation program lacks. For example, SSA  requires applicants to provide substantial information for assessment  purposes and in recent years has implemented a new program to provide  return-to-work services and is conducting pilots to test new methods to  return applicants and beneficiaries to work. Moreover, in 2003, SSA’s  Commissioner announced in a testimony to the Congress that a key  operational goal for the agency’s disability programs is to foster return-to- work efforts at all stages of decision making.
As with VA’s definition of individual unemployability, SSA’s definition of  disability for its two disability programs includes both medical and  employment criteria. For the agency’s Disability Insurance (DI) and  Supplemental Security Income (SSI) programs, the Social Security Act  defines disability as the inability to engage in any substantial gainful  activity by reason of any medically determinable physical or mental  impairment(s) that is expected to result in death or has lasted or can be  expected to last for a continuous period of not less than 12 months. In  addition to SSA’s medical criteria, an applicant must also meet non- medical program criteria for both of its disability programs. For DI  benefits, an individual must have contributed earnings to the DI program,  have sufficient annual earnings to receive one credit per year, and  generally have at least 20 credits for the last 40 quarters ending with the  onset of a disability. To receive SSI benefits, individuals must have  limited assets and income.
To collect key decision-making information, SSA requires a DI or SSI  applicant to provide the agency with extensive medical and vocational  information, including the illness, injuries, or conditions and how they  affect the applicant’s ability to work; 15 years of prior work history; the  requirements of the applicant’s longest lasting job; medications taken and  medical history; education and training; and any vocational rehabilitation.  If needed, SSA may also collect additional information from the applicant  about his or her pain, fatigue, and ability to perform common daily and  other specific activities, like meal preparation or ability to stand and sit, as  well as the use of accommodations.
To assess claims for eligibility, SSA generally uses both a disability  examiner and a medical consultant. If needed, the medical consultant will  use the collected information to determine what an applicant can still do,  despite physical or mental limitations, referred to as the applicant’s  residual functional capacity. The residual functional capacity will be used  by the decision makers, along with other vocational information in the  applicant’s file, to determine if the applicant can perform his or her prior  job. If not, the decision makers will use this information to determine if  the applicant can perform another job in the national economy. Although  these vocational decisions can be complex, SSA may include, but does not  require, that vocational specialists provide input to decision making. SSA,  however, has acknowledged the need to strengthen its decision making  and has proposed, along with other changes, to establish a national  network of medical, psychological, and vocational experts to assist SSA  decision makers throughout the country.
The SSA Commissioner’s recent commitment to fostering return-to-work  efforts is illustrated by some of the agency’s ongoing programs and pilot  tests. In September 2004, SSA completed implementation of its Ticket to  Work and Self-Sufficiency Program. The program is intended to provide  beneficiaries with greater choice in vocational rehabilitation and  employment services so that they can work and become self-sufficient.  While we reported in March 2005 that the program was having limited  success, the agency has proposed steps to strengthen the program, such  as expanding eligibility and improving incentives to encourage  participation by service providers and beneficiaries. Furthermore, SSA has  developed a Work Opportunity Initiative, with several demonstration  projects, to provide both applicants and beneficiaries with medical  coverage or cash incentives to support their ability to work.
section_title: SSA Has Implemented Practices to Help Ensure the Financial Integrity of Its Disability Programs
paragraphs: While supporting people with disabilities is an essential function of SSA’s  disability programs, the agency is also responsible for ensuring the  programs’ financial integrity. In 1997, we designated SSI a high-risk  program after several years of reporting on specific instances of abuse and  mismanagement, increasing overpayments, and poor recovery of  outstanding SSI overpayments. SSA’s actions since then included  developing a major SSI legislative proposal with numerous overpayment  deterrence and recovery provisions. The ensuing enacted legislation  directly addressed a number of our prior recommendations and warranted  removal of the SSI program from our high-risk list in 2003. We have,  however, continued to monitor the program to ensure that improvements  have been sustained.
To help ensure that applicants’ and beneficiaries’ earnings do not exceed  allowed levels, SSA has incorporated several procedures into its eligibility  assessments. In assessing eligibility, SSA must determine whether an  applicant is working and earning an amount that exceeds its established  thresholds. As part of this process, DI and SSI applicants must provide  SSA with information on their past work and any current work. If  applicants indicate that they are currently working or receiving earnings,  or SSA obtains other information that suggests that they may have  earnings, SSA requires additional information on their work and earnings.  SSA field staff generally must then verify the applicants’ reported earnings  using another reliable source of information. SSA also uses its online  query system to access the NDNH database, which has recent earnings,  new hire, and unemployment information, to verify the earnings for DI and  SSI applicants it has designated as high risk, such as those whose stated  income does not appear to cover their expenses. SSA has found that online  access to NDNH data to verify earnings for the SSI program has a high  return on investment. For example, using a pilot evaluation, SSA estimated  that if it verified earnings online prior to benefit payment, it could annually  reduce overpayments by $30.8 million and have a 3.6 to 1 return-on- investment ratio.
After benefits are granted, SSA performs frequent computer matches that  are intended to assess earnings for all its beneficiaries. These matches  compare earnings information from its beneficiary databases with two  federal earnings databases to detect and prevent overpayments. For its  computer matches, SSA uses both its own master earnings file with  earnings information from employers and the self-employed and the  NDNH database. SSA uses both databases because the SSA database has  more complete earnings information than the NDNH database, whereas  the NDNH database has more current earnings information in its quarterly  wage database, as well as other important employment data, according to  SSA officials. SSA performs periodic matches using its master earnings file  to detect and prevent beneficiary overpayments for all its SSI and DI  beneficiaries. In addition, SSA performs quarterly matches using NDNH  quarterly earnings to detect and prevent overpayments to all SSI  beneficiaries. SSA has also found that using NDNH data for the matches  can be very cost-effective. In evaluating fiscal year 2002 computer matches  using NDNH data, SSA estimated that it could annually realize $199 million  in benefits from collecting and preventing overpayments and expend $23  million for matching, following up on matches, and overpayment  collection, yielding an estimated 8.7-to-1 benefit-to-cost ratio. SSA also  plans to expand its use of the NDNH database to perform matches to  evaluate all DI beneficiary earnings.
SSA has automated many features of its matching process and follow-up  verification and collection activities to help improve the efficiency and  effectiveness of its disability programs. SSA’s computerized matching  process can not only detect potential unreported or underreported  earnings, but can also electronically forward matches to the field office  responsible for follow-up and provide workload statistics to each level of  management to help monitor the process. Field office staff can also use  SSA computer systems to view specific information on the match  (including the amount of earnings detected), document their follow-up,  and initiate collection activities, as needed. For example, the system will  send a letter to a current beneficiary who has received a benefit  overpayment with information about this debt, such as the amount owed,  and options for repayment. Through automation, the agency has increased  its ability to ensure that matches are followed up and more efficiently  initiate efforts to collect overpayments. SSA’s systems also have built in  security features to help ensure that SSA meets legal requirements to  manage the privacy of the earnings and employment data.
SSA uses various collection methods and other tools to manage the debt  owed by current and past beneficiaries who received disability benefit  overpayments. SSA will withhold monthly disability benefits to collect  overpayments from beneficiaries who are still on its rolls. In fiscal year  2005, SSA collected $2 billion in overpayments using this method. When  the person is no longer on SSA’s benefit rolls, the agency uses its own  billing and follow-up system to collect overpayments. That system enables  SSA to send a series of progressively stronger notices requesting  repayment and to make telephone calls to negotiate repayment. The  agency collects several hundred million dollars a year using this approach.  In addition, SSA uses other more aggressive debt collection tools, such as  tax refund offsets and administrative wage garnishment, to collect debt  from prior benefit recipients who are no longer on its benefit rolls. When  unable to collect debts from current or prior beneficiaries, SSA will write  off the debts. In 2005, SSA reported debt collection of $2.4 billion, writing  off debt of $842 million, which left outstanding debt of $13.1 billion at year  end. Table 2 provides a list of the tools used by the agency to manage  overpayment debt.
To help monitor its debt collection efforts and their effectiveness, SSA also  tracks and reports key debt management activities and performance  indicators. For example, SSA’s annual performance and accountability  reports provide data on the quarterly cumulative totals for the debt  outstanding, collected, and written off, and the varying age of delinquent  debt. SSA also provides 5 years of trend data on the results and  effectiveness of its activities, such as the percentage of outstanding debt  that is delinquent or not expected to be collected and the average cost to  collect a dollar of debt, which was $0.09 for fiscal year 2005. Furthermore,  to help monitor its achievement of its strategic goals to improve debt  management, SSA measures and sets a goal for the percentage of debt in  collection for its Old-Age, Survivors, and Disability Insurance; and SSI  programs. The indicators compare debt that is scheduled for collection  through benefit withholding or installment payment with total outstanding  debt. For fiscal year 2005, SSA reported that it met its collection goals,  with 53 percent of SSI debt and 42 percent of Old-Age, Survivors and  Disability Insurance debt in collection arrangements.
section_title: Conclusions
paragraphs: VA’s management of IU benefits lacks the strong controls needed for  ensuring the integrity of the process for determining the initial and  ongoing eligibility for these benefits. In particular, VA lacks the criteria,  guidance, and procedures to ensure that its IU decisions are well  supported. For example, the guidelines do not mention how factors such  as education, skills, or prior work history should be used to assess a  veteran’s ability to obtain or retain substantially gainful employment in  cases when the veteran is not working or is only marginally employed. As  a result, the agency cannot assure that it is providing IU benefits only to  those who are unemployable due to their service-related disabilities. In  addition, due to limitations in the procedures to obtain evidence, VA rating  specialists may not have sufficient information for determining whether  claimants are unemployable. Without the procedures needed to collect  complete and corroborated employment and earnings histories, rating  specialists lack access to important indicators of future employability.  Moreover, without having the procedures needed to obtain vocational  assessments from VA’s own vocational counselors, rating specialists lack  important information that is needed to determine whether a claimant may  be able to obtain or retain substantially gainful employment.
Further, VA’s income verification process lacks access to timely data, uses  an outdated earnings threshold, and relies on a manual process for follow- up on earnings matches, which results in the agency’s inability to  effectively identify overpayments. In addition, VA’s methods for  determining ongoing eligibility may allow veterans who do not meet the  ongoing eligibility criteria to continue to receive IU benefits. Moreover,  VA’s limited ability to detect and stop IU payments to beneficiaries no  longer eligible to receive them not only increases the cost of IU benefits, it  can create an opportunity for program misuse. Finally, because VA does  not track the results of its enforcement efforts, the agency cannot  determine whether its efforts are cost-effective and cannot hold itself  accountable to veterans or other taxpayers.
Finally, the continuing deployment of our military forces to armed conflict  has focused national attention on ensuring that those who incur  disabilities while serving their country are provided the services needed to  help them reach their full potential. Yet, VA is among the federal disability  programs we have identified as high-risk, in part, because it is poorly  positioned to provide meaningful and timely support to help veterans with  disabilities return to work. VA’s management of IU benefits exemplifies  these problems. Approaches from other disability programs demonstrate  the importance of providing return-to-work services and using vocational  expertise to assess the claimant’s condition and provide the appropriate  services. Incorporating return-to-work practices in IU decision making  could help VA modernize its disability program to enable veterans to  realize their full productive potential without jeopardizing the availability  of benefits for veterans who cannot work.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Veterans Affairs take the following  steps to improve management of IU benefits:  1. To help ensure that IU decisions are well-supported and IU benefits are   provided only to veterans whose service-connected disabilities prevent  them from obtaining or retaining substantially gainful employment, VA  should clarify and strengthen its eligibility criteria, guidance, and  procedures for determining unemployability. For example, VA could:    clarify in its regulations and guidelines how vocational factors, such as  education, skills, or prior work history, should be used to assess a  claimant’s eligibility;    establish procedures for rating specialists to request VR&E to conduct  vocational assessments of IU claimants as appropriate; and    seek legislative authority to use earnings data from the National  Directory of New Hires.  2. To improve the efficiency and effectiveness of VA’s enforcement efforts  to monitor ongoing eligibility, VA should update procedures and  strengthen criteria for the enforcement of the IU earnings limit. For  example, VA could:    update and automate its enforcement process, including using more  current earnings data and threshold amounts in its income verification  match;    clarify guidance on the review of IU beneficiary earnings following the    annually track and report on the results of matching process and  related enforcement activities.  3. To help modernize its IU decision-making process, VA should develop a  strategy to ensure that IU claimants with work potential receive  encouragement and assistance to return to work, while protecting benefits  for those unable to work. For example, VA could encourage claimants to  return to work by having vocational counselors from VR&E develop  return-to-work plans and provide assistance to claimants with work  potential.
section_title: Agency Comments
paragraphs: We provided a draft of this report to VA, SSA, and HHS for comment. VA  agreed with our conclusions and concurred with our recommendations,  and stated that it has implemented and plans to implement program  changes in areas that we identified as needing attention. The actions  described by VA should strengthen its management of IU benefits;  however, we believe that further steps are needed to fundamentally  transform IU benefits into a meaningful and timely way of supporting  unemployed veterans with service-connected disabilities.  For example,  VA seeks to improve decision making on initial and ongoing eligibility by  increasing its collection of employment and earnings data.  While these are  positive developments, our recommendations envision a more  comprehensive effort to restore the integrity of IU decision making  through a series of reforms that would seek to strengthen IU criteria,  guidance, and procedures for determining initial eligibility and enforcing  the earnings limit.
VA also proposes to encourage IU claimants to consider employment by  including a motivational letter with the notice informing them that they  have been approved for IU benefits.  While we recognize VA’s intent is  positive, providing such letters after veterans have been determined to be  unemployable does not provide them with the timely support needed to  return to work.  Our recommendation envisions that VA implement a  number of fundamental reforms that transform IU benefits from simply  providing compensation for unemployed veterans with service-connected  disabilities to incorporating a broad range of vocational rehabilitation  services and assistance that encourage and support such veterans to  realize their full productive capacity, while protecting benefits for veterans  unable to work.  VA will need to expand upon the initiatives outlined in its  comments to take full advantage of IU benefit decision making, not only as  a means to restore the lost incomes of veterans with service-connected  disabilities but, when appropriate, to restore their ability to pursue a  livelihood and take their place as fully productive members of society.
VA’s comments appear in app. V.  In addition, VA, SSA, and HHS provided  technical comments, which are reflected in the report as appropriate.
We will send copies of this report to the Secretary of Veterans Affairs,  Secretary of Health and Human Services, Commissioner of the Social  Security Administration, relevant congressional committees, and other  interested parties. We will also make copies available to others upon  request. In addition, the report will be available at no charge on GAO’s  Web site at http://www.gao.gov. Please contact me at (202) 512-7215 if you  or your staff have any questions about this report. Contact points for our  offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Other major contributors to this report are listed in  appendix VI.
section_title: Appendix I: IU Beneficiaries and Estimated Expenditures
paragraphs: We estimated the number of Individual Unemployability (IU) beneficiaries  for 1996 to 2005 from monthly internal Department of Veterans Affairs  (VA) reports on activity under the Disability Compensation program. For  each year, we identified the number of IU beneficiaries from the “end of  month” total in the September report for that year. Figure 5 shows the  growth in number of IU beneficiaries from 1996 to 2005.
At the time of our study, VA did not report or maintain separate data on IU  expenditures. We estimated VA’s annual added expenditures due to IU  benefits for 1996 to 2005 from monthly internal VA reports showing  expenditures on the Disability Compensation program. Using data in the  September report for each year, we computed average monthly payments  due to IU benefits for 1996 to 2005, annualized this amount, and factored  in the number of beneficiaries to estimate total expenditures on IU  benefits for each year. Figure 6 shows the growth in IU expenditures from  1996 to 2005.
section_title: Appendix II: Lifetime Present Value Analysis of IU Benefits
paragraphs: To illustrate the value of IU benefits, we calculated the present value of  the added benefits due to IU that would be available over a lifetime to  veterans who begin to receive IU benefits at different ages and with  schedular disability ratings of 60-, 70-, 80-, and 90-percent. We chose the  ages of 20, 25, 35, 45, 55, 65, and 75 to illustrate the added value of IU  benefits over a wide range of ages at which veterans could begin to receive  such benefits.
For each age and disability rating combination, we calculated the present  value of the added increment due to IU that would be received over a  lifetime. Our present value analysis uses annuity factors that are based on  two key assumptions: the length of time benefits will be received, and the  rate at which future payments will be discounted (on the basis that a  dollar today is worth more than a dollar received a year from today). For  the first assumption about life span, we used Social Security  Administration general population mortality tables for males. For the  second assumption about the discount rate, we assumed that the rate of  interest absent inflation (the real interest rate) is 3 percent, and that  inflation is constant at 3 percent annually, resulting in an assumed nominal  interest rate (which is the sum of the real interest rate and inflation) of 6  percent. Because the yearly cost-of-living adjustment of VA compensation  rates is linked to the consumer price index, we assumed that this  adjustment is equal to the rate of inflation, resulting in a net discount rate  for our calculations of 3 percent a year. The present value of the additional  amount of disability compensation provided to veterans granted IU  benefits for selected ages and schedular ratings is provided in table 3.
section_title: Appendix III: Examples from VA’s Rating Schedule for Selected Medical Conditions
section_title: Appendix IV: Example of Procedures to Calculate Combined Disability Ratings
paragraphs: Veteran has 50% earning  capacity remaining.
As a result of second  disability, the veteran has  lost an additional 20% of  earning capacity.
As a result of both  disabilities the veteran has  lost 70% of earning capacity.
section_title: Appendix V: Comments from the Department of Veterans Affairs
section_title: Appendix VI: GAO Contacts and Staff Acknowledgements
subsections: section_title: Acknowledgements
paragraphs: Carol Dawn Petersen, Assistant Director; Joseph J. Natalicchio, Analyst-in- Charge; and Julie M. DeVault, Senior Analyst; made significant  contributions to all aspects of this report. Crystal Bernard, Margie K.  Shields, and Jonathan Elkin also made significant contributions. Joan  Vogel, Walter Vance, Vanessa Taylor, Roger Thomas, and Joseph  Applebaum provided technical assistance.