Military and Veterans' Benefits: Observations on the Concurrent Receipt of Military Retirement and VA Disability Compensation
Published: 2003-03-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Because pending legislation would modify current law, which requires that military retirement pay be reduced by the amount of VA disability compensation benefit received, the Subcommittee on Personnel, Senate Committee on Armed Services asked GAO to discuss the treatment of concurrent benefit receipt in other programs. GAO was also asked to discuss its broader work on federal disability programs.
section_title: What GAO Found
paragraphs: Three factors are important to weigh in deliberations on the merits of modifying the military offset provision. First, many benefit programs use offset provisions when individuals qualify for benefits from more than one program. Generally, the provisions are designed to treat beneficiaries of multiple programs fairly and equitably in relation to all other program beneficiaries, consistent with the program's purpose. Moreover, eliminating the military retirement offset provision could establish a precedent for other federal benefit programs that could prove costly. Second, the proposed modifications to the concurrent receipt provisions in the military retirement system would have implications not only for the Department of Defense's retirement costs but would also increase the demand placed on the Department of Veterans Affairs' (VA) claim processing system. This would come at a time when the system is still struggling to correct problems with quality assurance and timeliness. Third, such increased demand would come at a time when the VA disability program compensation, along with other federal disability programs, is facing the need for more fundamental reform. Modifying the concurrent receipt provisions adds to the current patchwork of federal disability policies and programs at a time when transformation and modernization are needed. While we are not taking a position on whether military retirement should be modified, as the Congress and other policymakers deliberate this issue, it would be appropriate to consider how modifying the offset would affect the pursuit of more fundamental reforms.

section_title: Letter
paragraphs: Because pending legislation would  modify current law, which requires  that military retirement pay be  reduced by the amount of VA  disability compensation benefit  received, the Subcommittee asked  GAO to discuss the treatment of  concurrent benefit receipt in other  programs. GAO was also asked to  discuss its broader work on federal  disability programs.
Three factors are important to weigh in deliberations on the merits of  modifying the military offset provision. First, many benefit programs use  offset provisions when individuals qualify for benefits from more than one  program. Generally, the provisions are designed to treat beneficiaries of  multiple programs fairly and equitably in relation to all other program  beneficiaries, consistent with the program’s purpose. Moreover, eliminating  the military retirement offset provision could establish a precedent for other  federal benefit programs that could prove costly.
Examples of Offset Provisions in Benefit Programs   Social Security benefits may be offset by   Social Security retirement or disability benefits based on own record (reduces spousal or  dependent benefits)
Second, the proposed modifications to the concurrent receipt provisions in  the military retirement system would have implications not only for the  Department of Defense’s retirement costs but would also increase the  demand placed on the Department of Veterans Affairs’ (VA) claim  processing system. This would come at a time when the system is still  struggling to correct problems with quality assurance and timeliness. www.gao.gov/cgi-bin/getrpt?GAO-03-575T.
To view the full report, including the scope  and methodology, click on the link above.  For more information, contact Cynthia A.  Bascetta at (202) 512-7101.
Third, such increased demand would come at a time when the VA disability  program compensation, along with other federal disability programs, is  facing the need for more fundamental reform. Modifying the concurrent  receipt provisions adds to the current patchwork of federal disability  policies and programs at a time when transformation and modernization are  needed. While we are not taking a position on whether military retirement  should be modified, as the Congress and other policymakers deliberate this  issue, it would be appropriate to consider how modifying the offset would  affect the pursuit of more fundamental reforms.
Mr. Chairman and Members of the Subcommittee:  Thank you for inviting me to discuss issues involved with the concurrent  receipt of military retirement pay from the Department of Defense (DOD)  and disability compensation from the Department of Veterans Affairs (VA).  Pending legislation would modify current law, which requires that military  retirement pay be reduced by the amount of VA disability compensation  benefit received. You asked us to discuss the treatment of concurrent  benefit receipt in other programs as well as our broader work on federal  disability programs.
To help you in your deliberations on this matter, I will explain the use of  offset provisions in other federal benefit programs as well as in state and  private sector programs. I will also discuss some of the implications of  modifying the concurrent receipt provisions for the VA disability  compensation program. In addition, I will address the more fundamental  problems facing VA’s disability program. My statement is based on a  review of GAO reports on Workers’ Compensation, Social Security, and VA  benefit programs and other literature relating to DOD retirement and VA  disability compensation.  I will also draw on our broader work on federal  disability programs, which we recently designated as high-risk because  they are not well positioned to provide meaningful and timely support to  Americans with disabilities (see Related GAO Products). Our work for this  testimony was conducted in March 2003, in accordance with generally  accepted government auditing standards.
In summary, three factors are important to weigh in your deliberations on  the merits of modifying the military retirement offset provision. First,  many benefit programs use offset provisions when individuals qualify for  benefits from more than one program.  The use of offset provisions in  numerous benefit programs is a common method for dealing with the  consequences of beneficiaries qualifying for more than one benefit  program.  The rationales for these offset provisions vary, but they are  generally designed to treat beneficiaries of multiple programs fairly and  equitably in relation to all other program beneficiaries, consistent with the  program’s purpose. Moreover, eliminating the military retirement offset  provision could establish a precedent for other federal benefit programs  that could prove costly.  Second, the proposed modifications to the  concurrent receipt provisions in the military retirement system would  have implications not only for DOD’s retirement costs, but would also  increase the demand placed on VA’s claims processing system.  This would  come at a time with this system is still struggling to correct problems with  quality assurance and timeliness. Third, the VA disability compensation  program, along with other federal disability programs, is facing the need  for more fundamental reform.  Modifying the concurrent receipt provision  would add to the current patchwork of federal disability policies and  programs at a time when transformation and modernization should be  considered.  While we are not taking a position on whether the military  retirement offset provision should be modified, as the Congress and other  policymakers deliberate this issue, it would be appropriate to consider  how modifying the offset would affect the pursuit of more fundamental  reforms.
subsections: section_title: Background
paragraphs: Generally, DOD provides longevity retirement pay to military service  members upon completion of 20 creditable years of active duty service.  DOD also provides disability retirement pay to eligible servicemembers  who are determined unfit for duty–that is, unable to perform their military  duties. To qualify for military disability retirement, the servicemember’s  disability must have been determined by DOD medical personnel to be  permanent and the servicemember must have (1) at least 20 years of  creditable service or (2) an evaluation board determination that the  servicemember has a physical disability rating of at least 30 percent, and  either at least 8 years of creditable service or a disability resulting from  active duty. Nearly 1.5 million retired servicemembers received retirement  and disability retirement pay in fiscal year 2002. In fiscal year 2000, the  average disability retiree who had been an officer received about $2,022  per month, while the average enlisted disability retiree received about  $698 per month.
VA provides monthly disability compensation to veterans who have  service-connected disabilities to compensate them for the average  reduction in earnings capacity that is expected to result from injuries or  diseases incurred or aggravated by military service. 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. Many veterans claim multiple disabilities, and veterans can  reapply for higher ratings and more compensation if their disabilities  worsen. For veterans who claim more than one disability, VA rates each  claim separately and then combines them into a single rating. About   65 percent of compensated veterans receive payments based on a rating of  30 percent or less and about 8 percent are rated at 100 percent. Average  monthly compensation payments in 2002 ranged from about $100 for a   10-percent rating to over $2,100 for a 100-percent rating.
Military retirees with disabilities incurred during their military service may  receive military retirement pay (based on either longevity or disability,  whichever is more financially advantageous to the servicemember) from  DOD and disability compensation from VA. For example, a servicemember  who incurs a disability may still be fit for duty, depending on the nature  and severity of the impairment. If that servicemember completes 20 years  of creditable service, he or she may retire based on longevity and also  qualify for VA disability compensation for the same impairment or a  different impairment that is also service-connected. Similarly, a  servicemember who incurs a disability and is found unfit for duty may  receive military retirement pay based on disability if he or she meets  additional eligibility requirements. This servicemember may also qualify  for VA disability compensation for the same impairment or a different  impairment that is also service-connected.
Current law requires that military retirement pay be reduced (“offset”) by  the amount of VA disability benefits received. In 1891, Congress passed  legislation to prohibit what it regarded to be dual compensation for either  past or current service and a disability pension. Despite the reduction in  military retirement pay, it is often to a retiree’s advantage to receive VA  disability compensation in lieu of military retirement pay. These VA  benefits provide an after-tax advantage because they are not subject to  federal income tax, as military retirement pay generally is. In addition, the  disability compensation VA pays can be increased if medical reevaluation  of the retiree’s condition is found by VA to have worsened. Because VA  disability compensation is based on the severity of the disability and not  on actual earnings (as is military retirement pay), the VA benefit may, in  some instances, be larger than the amount of military retirement pay.
For certain retirees with serious disabilities, the National Defense  Authorization Act of 2000 provides a cash benefit that is less than what  they would have received through concurrent receipt of their military  retirement pay and VA disability compensation. The statute states that  these special compensation payments are not military retirement pay. As  such, they are not subject to the offset provisions, and the legislation did  not change the statute that prohibits concurrent receipt. The special  compensation payments were reauthorized in 2001 and 2002.
In addition, the 2003 National Defense Authorization Act (P.L. 107-314)  authorized a new category of “special compensation” for retirees with  disabilities, including those who received a Purple Heart or have a  disability due to “combat-related” activities. Under the new law, eligible  retirees would now be able to receive the financial equivalent of  concurrent receipt, although, again, the legislation did not repeal the  statute prohibiting concurrent receipt. Military retirees may become  eligible for this special compensation if (1) their disability is attributable to  an injury for which the member was awarded the Purple Heart, and is not  rated less than a 10-percent disability by DOD or VA; or (2) they receive a  disability rating of at least 60 percent from either DOD or VA for injuries  that were incurred due to involvement in “armed conflict,” “hazardous  service,” “duty simulating war” and through an instrumentality of war.  Retirees who are eligible under this new special compensation category  will no longer be entitled to the special compensation payments first  enacted in 2000. The Congressional Budget Office (CBO) estimated that  this new special compensation would cost about $6 billion over 10 years.   Table 1 shows the 2003 monthly payments amounts of the special  compensation enacted in 2000 as well as the monthly payment amounts  for the new category of special compensation.
Current proposals before Congress pertaining to concurrent receipt  would, if enacted, expand the number of those eligible to simultaneously  receive the equivalent of their full retirement pay and compensation for a  disability beyond the 2003 National Defense Authorization Act. CBO  estimated that an earlier version of these proposals would cost about $46  billion over 10 years. Over a longer time horizon, the additional financial  liability would be of even greater significance because of mounting  concerns about the long-term fiscal consequences of federal entitlements.
section_title: Many Programs Use Offset Provisions When Individuals Are Eligible for Benefits from More than One Program
paragraphs: Among the programs that provide benefits to individuals based on their  previous work experience or their inability to continue working because  of disability, many use offset provisions when an individual qualifies for  benefits under more than one program. The specific rationales for these  offset provisions vary, but they generally focus on restoring equity and  fairness by treating beneficiaries of more than one program in a similar  manner as beneficiaries who qualify for benefits under only one of the  programs. Table 2 provides examples of benefit programs that include  offset provisions. (See app. I for a description of these programs.)
Some programs use offset provisions to ensure that the total benefits  received from two programs do not exceed the total income received  while working. For example, the Social Security Disability Insurance (DI)  program provides benefits to insured persons to replace the income lost  when they are unable to work because of physical or mental impairments.  In addition to DI benefits, some individuals may also be eligible for  workers’ compensation (WC) if the illness or injury is work-related. WC  benefits are designed to replace the loss of earnings resulting from work- related illnesses or injuries. Each state and the District of Columbia  generally requires employers operating in its jurisdictions to provide WC  insurance for their employees. The Social Security Administration (SSA)  generally requires that DI benefits be reduced for persons who also  receive WC. This offset applies when combined DI and WC benefits  exceed 80 percent of the injured worker’s average current earnings. The  reduction can apply even if the DI and WC benefits are for unrelated  injuries or illnesses. In 1971, the Supreme Court validated the WC offset  provision stating that it was intended to provide an incentive for injured  employees to return to work because the Congress did not believe it was  desirable for injured workers to receive disability benefits that, in  combination with their WC benefits, exceeded their preinjury earnings.
Some programs use offset provisions to adjust benefit computation  formulas that were not originally designed to account for individuals or  their dependents working under more than one retirement system. An  example is Social Security’s Government Pension Offset (GPO) provision,  enacted in 1977 to equalize the treatment of workers covered by Social  Security and those with government pensions not covered by Social  Security. The Social Security Act requires that most workers be covered  by Social Security benefits. In addition to paying retirement and disability  benefits to covered workers, Social Security also generally pays benefits to  spouses of retired, disabled, or deceased workers. Although state and local  government workers were originally excluded from Social Security, today  about two-thirds of state and local government workers are covered by  Social Security. Prior to 1977, a spouse receiving a pension from a  government position not covered by Social Security could receive a full  pension benefit and a full Social Security spousal benefit as if he or she  were a nonworking spouse. The GPO prevents spouses from receiving a  full spousal benefit in addition to a full pension benefit earned from  noncovered government employment.
Offset provisions are also used by state governments. For example,   29 states and the District of Columbia permit insurers to reduce WC cash  payments when the beneficiary also receives other types of benefits, such  as those from Social Security retirement, survivor, or disability programs  or from government or private pension plans. In addition, as required by  federal law, states must deduct from unemployment compensation the  value of pensions, retirement pay, or annuities based on previous work in  certain situations. The purpose of this offset is to reduce the incentive for  retirees who receive pensions to file for unemployment compensation and  increase their incentive to seek work.
Private sector insurers also use offsets. Our study of three large private  disability insurers found that nearly two-thirds of those receiving private  long-term disability benefits from the three private insurers also received  DI benefits. In such cases, the private disability benefit payments were  generally reduced by the amount of the DI benefit payment.
section_title: Modifying the Concurrent Receipt Provisions Has Implications for the VA Disability Compensation Program
paragraphs: In addition to the cost of the benefits, allowing concurrent receipt would  have implications for VA program management. Allowing concurrent  receipt of military retirement pay and VA disability compensation could  provide new incentives for military retirees to file for VA compensation or  to seek increases in their disability ratings for VA compensation that they  are already receiving. These new claims could further tax VA’s claims  processing system. We recently reported that VA faces long-standing  challenges to improve the timeliness and quality of disability claims  decisions. In addition to creating delays in veterans’ receipt of entitled  benefits, untimely, inaccurate, and inconsistent claims decisions can  negatively affect veterans’ receipt of other VA benefits and services,  including health care, because VA’s assigned disability ratings help  determine eligibility and priority for these benefits. While the cost of  these new benefits and VA’s administrative challenges in processing the  claims may not provide sufficient bases to retain the offset, they warrant  consideration in weighing this matter.
section_title: VA Disability Programs Face Fundamental Problems
paragraphs: While VA has had difficulty making decisions in a timely and consistent  manner, VA’s disability programs also face more fundamental problems.  Our concerns about the long-standing challenges that VA faces in claims  processing contributed to our recent decision to place federal disability  programs, including VA’s programs, on our high-risk list of programs that  need urgent attention and transformation to ensure that they function in  the most economical, efficient, and effective manner possible. This  designation was based in part on our finding that these programs use  outmoded criteria for determining disability. For example, VA’s disability  ratings schedule is still primarily based on physicians’ and lawyers’  judgments made in 1945 about the effect service-connected conditions had  on the average individual’s ability to perform jobs requiring manual or  physical labor. Although VA is revising the medical criteria for its Schedule  for Rating Disabilities, the estimates of how impairments affect veterans’  earnings have generally not been reexamined. As a result, changes in the  nature of work that have occurred over the last half-century—which  potentially affect the extent to which disabilities limit one’s earning  capacity—are overlooked by the program’s criteria. For example, in an  increasingly knowledge-based economy, one could consider whether  physical impairments such as the loss of an extremity still reduce earning  capacity by 40 to 70 percent.
These outdated concepts persist despite scientific advances and economic  and social changes that have redefined the relationship between  impairments and the ability to work. Advances in medicine and technology  have reduced the severity of some medical conditions and have allowed  individuals to live with greater independence and function in work  settings. Moreover, the nature of work has changed as the national  economy has become increasingly knowledge-based. Without a current  understanding of the impact of physical and mental conditions on earnings  given labor market changes, VA and other agencies administering federal  disability programs may be overcompensating some individuals while  undercompensating or denying benefits to other individuals because of  outdated information on earning capacity. At the same time, the projected  slowdown in growth of the nation’s labor force makes it imperative that  those who can work are supported in their efforts to do so.
In reexamining the fundamental concepts underlying the design of federal  disability programs, approaches used by other disability programs may  offer valuable insights. For example, our prior review of three private  disability insurers shows that they have fundamentally reoriented their  disability systems toward building the productive capacities of people with  disabilities, while not jeopardizing the availability of cash benefits for  people who are not able to return to the labor force. As we previously  reported, to fully incorporate scientific advances and labor market  changes into the disability programs would require more fundamental  change, such as revisiting the programs’ basic orientation from incapacity  to capacity. Reorienting programs in this direction would align them with  broader social changes that focus on building and supporting the work  capacities of people with disabilities. Such a reorientation would require  examining complex program design issues such as beneficiaries’ access to  medical care and assistive technologies, the benefits offered and their  associated costs, and strategies to return beneficiaries to work.  Moreover,  reorientation of the federal disability programs would necessitate the  integration of the many programs and policies affecting people with  disabilities, including those of DOD and VA.
Mr. Chairman, this concludes my prepared remarks. I would be happy to  answer any questions that you or the other Subcommittee members might  have.
section_title: Contacts and Acknowledgments
paragraphs: For further information regarding this testimony, please contact me at  (202) 512-7101 or Carol Dawn Petersen at (202) 512-7215. Suit Chan,  Beverly Crawford, and Shelia Drake also contributed to this statement.
section_title: Appendix I. Benefits and Eligibility Requirements for Programs Containing Offset Provisions
paragraphs: Benefits provided  Cash benefits to workers and their dependents  who qualify as beneficiaries under the Old-Age  Survivors, and Disability Insurance (OASDI)  programs of the Social Security Act. OASDI  replaces a portion of earnings lost as a result of  retirement, disability, or death.  Cash benefits to retired or disabled railroad  workers, their dependents and survivors. Railroad  workers may also receive sickness and  unemployment benefits.   Cash benefits to coal miners who have become  totally disabled due to coal workers’  pneumoconiosis, and to widows and other  surviving dependents of miners who have died of  this disease  Cash benefits to retired or disabled federal  employees, and survivors of federal employees  and retirees.
Eligibility  The worker and his/her eligible family  members must meet different sets of  requirements for each type of benefit. An  underlying condition of payment of most  benefits is that the worker has contributed to  Social Security for the required period of time.  Railroad worker must have had at least 120  months of creditable railroad service or 60  months of creditable railroad service if such  service was performed after 1995.  Coal miner must have worked in the nation’s  coal mines or a coal preparation facility and  become totally disabled from pneumoconiosis.
Federal employees whose initial federal  employment began after December 31, 1983,  or who voluntarily switched from Civil Service  Retirement System (CSRS) to FERS. The  worker must have at least 5 years of creditable  civilian service. Survivor and disability benefits  are available after 18 months of civilian service  Specific eligibility requirements and benefit  amounts vary from state to state.
Various cash and medical benefits to workers  injured while working or who have occupational  diseases.   Temporary financial assistance to eligible workers  who are unemployed through no fault of their own  and are actively engaged in job search.
Short- or long-term disability insurance, or both,  to replace income lost by employees because of  injuries and illnesses.
Worker must meet the state requirements for  wages earned or time worked during an  established period of time, and be determined  unemployed through no fault of his/her own,  and meet other eligibility requirements of  his/her state law.  Specific eligibility requirements vary from plan  to plan.