Veterans' Pension Benefits: Improvements Needed to Ensure Only Qualified Veterans Receive Benefits
Published: 2012-06-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testinony discusses the Department of Veterans Affairs (VA) pension program, which provides economic benefits to wartime veterans age 65 and older or who have disabilities that are unrelated to their military service, as well as to their surviving spouses and dependent children. To qualify for VA pension benefits, a claimant must have limited income and assets. Recently, concerns have been raised that some organizations are marketing financial products and other services to help individuals whose assets exceed the programs financial eligibility thresholds qualify for these benefits. These organizations may charge substantial fees for products and services that may not always be in claimants best long-term interests.
In our report released today on VAs pension program, we identified vulnerabilities in VAs procedures for assessing financial eligibility. We also found that there is no prohibition on claimants transferring assets prior to applying for benefits, and some claimants do so. Other means-tested programs, such as Medicaid, conduct a look-back review to determine if an individual has transferred assets for less than fair market value, and if so, may deny eligibility for benefits for a period of time. This control helps ensure that only those in financial need receive benefits.
This testimony is based on our report and focuses on what is known about organizations that are marketing financial products and services to veterans and survivors to enable them to qualify for VA pension benefits.
section_title: What GAO Found
paragraphs: In summary, we identified over 200 organizations that market financial and estate planning services to help pension claimants with excess assets qualify for pension benefits. These organizations consist primarily of financial planners and attorneys who offer products such as annuities and trusts. All 19 organizations our investigative staff contacted said a claimant can qualify for pension benefits by transferring assets before applying, which is permitted under the program. Two organization representatives said they helped pension claimants with substantial assets, including millionaires, obtain VAs approval for benefits. Some products and services provided, such as deferred annuities, may not be suitable for the elderly because they may not have access to their funds within their expected lifetime without facing high withdrawal fees. Also, such asset transfers may result in ineligibility for Medicaid coverage for long-term care for a period of time. The majority of the 19 organizations contacted charged fees, ranging from a few hundred dollars for benefits counseling to $10,000 for establishment of a trust. In our report we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets prior to applying for pension benefits, similar to other federally supported means-tested programs, such as Medicaid. We also recommended that VA obtain timely information on asset transfers, strengthen income and asset verification processes, and provide clearer guidance to claims processors. VA concurred with our recommendations and agreed that a look back and penalty period for asset transfers was needed.

section_title: Letter
paragraphs: I am pleased to be here to discuss the Department of Veterans Affairs’  (VA) pension program, which provides economic benefits to wartime  veterans age 65 and older or who have disabilities that are unrelated to  their military service, as well as to their surviving spouses and dependent  children. To qualify for VA pension benefits, a claimant must have limited  income and assets. Recently, concerns have been raised that some  organizations are marketing financial products and other services to help  individuals whose assets exceed the program’s financial eligibility  thresholds qualify for these benefits. These organizations may charge  substantial fees for products and services that may not always be in  claimants’ best long-term interests.
In our report released today on VA’s pension program, we identified  vulnerabilities in VA’s procedures for assessing financial eligibility. We  also found that there is no prohibition on claimants transferring assets  prior to applying for benefits, and some claimants do so. Other means- tested programs, such as Medicaid, conduct a look-back review to  determine if an individual has transferred assets for less than fair market  value, and if so, may deny eligibility for benefits for a period of time. This  control helps ensure that only those in financial need receive benefits.
VA’s three PMC’s are located in Milwaukee, WI; Philadelphia, PA; and Saint Paul, MN. year-old veteran and contacted 25 judgmentally selected organizations  which included both financial planners and attorneys. We had discussions  with representatives of 19 of these organizations. A more detailed  explanation of our methodology is available in our full report. Our audit  work was conducted in accordance with generally accepted government  auditing standards. Our investigative work was conducted in accordance  with Quality Standards for Inspection and Evaluation published by the  Council of the Inspectors General on Integrity and Efficiency.
In summary, we identified over 200 organizations that market financial  and estate planning services to help pension claimants with excess  assets qualify for pension benefits. These organizations consist primarily  of financial planners and attorneys who offer products such as annuities  and trusts. All 19 organizations our investigative staff contacted said a  claimant can qualify for pension benefits by transferring assets before  applying, which is permitted under the program. Two organization  representatives said they helped pension claimants with substantial  assets, including millionaires, obtain VA’s approval for benefits. Some  products and services provided, such as deferred annuities, may not be  suitable for the elderly because they may not have access to their funds  within their expected lifetime without facing high withdrawal fees. Also,  such asset transfers may result in ineligibility for Medicaid coverage for  long-term care for a period of time. The majority of the 19 organizations  contacted charged fees, ranging from a few hundred dollars for benefits  counseling to $10,000 for establishment of a trust. In our report we asked  Congress to consider establishing a look-back and penalty period for  pension claimants who transfer assets prior to applying for pension  benefits, similar to other federally supported means-tested programs,  such as Medicaid. We also recommended that VA obtain timely  information on asset transfers, strengthen income and asset verification  processes, and provide clearer guidance to claims processors. VA  concurred with our recommendations and agreed that a look back and  penalty period for asset transfers was needed.
subsections: section_title: Background
paragraphs: In fiscal year 2011, VA provided about $ 4.3 billion in pension benefits for  about 517,000 recipients. These benefits are available to low-income  wartime veterans who are 65 and older, or who are under age 65 but are  permanently and totally disabled due to conditions unrelated to their  military service. Surviving spouses and dependent children may also  qualify for these benefits. Average annual payments in fiscal year 2011  were $9,669 for veterans and $6,209 for survivors.
VA provides pension benefits through its Veterans Benefits Administration  (VBA), and claims processors assess claims at VBA’s three PMCs. VA  also accredits representatives of veterans service organizations,  attorneys, and claims agents to assist claimants with the preparation and   To become accredited, an  submission of VA claims at no charge. individual must meet certain requirements set forth in federal law.
To qualify for pension benefits, claimants’ countable income must not  exceed annual pension limits that are set by statute. These income limits are also the maximum annual pension payment that a beneficiary may  receive and may vary based on whether claimants are veterans or  survivors, their family composition, as well as whether they need enhanced  benefits, such as aid and attendance or housebound benefits.example, to qualify for pension benefits in 2012 a veteran with no  dependents and who is in need of aid and attendance benefits cannot have  income that exceeds $20,447. In determining if a claimant’s income is  below program thresholds, VA includes recurring sources of income such  as Social Security retirement and disability benefits, but not income from  public assistance programs such as Supplemental Security Income (SSI).
See 38 C.F.R. § 3.275. For claimants who are veterans, VA also assesses the net worth  of the veteran’s spouse to determine financial eligibility. determine if claimants’ financial resources are sufficient to pay for their  expenses without assistance from VA.
VA pension claimants may also be eligible for other means-tested  programs, such as Medicaid, a joint federal-state health care financing  program that provides coverage for long-term care services for certain  individuals who meet specific income and resource thresholds. Each state  administers its Medicaid program and establishes specific income and  resource eligibility requirements that must fall within federal standards.  Similarly, the SSI program provides cash benefits to individuals who are  65 or older, blind, or disabled who have limited income and whose  resources are $2,000 or less.
section_title: Organizations Help Veterans Transfer Assets to Qualify for Pension Benefits
paragraphs: We identified over 200 organizations located throughout the country that  market their services to help veterans and their surviving spouses qualify  for VA pension benefits by transferring or preserving excess assets.  These organizations consist primarily of financial planners and attorneys  offering products and services such as annuities and the establishment of  trusts, to enable potential VA pension claimants with excess assets to  meet financial eligibility criteria for VA pension benefits. For example, one  organization’s website advertised that it develops financial plans which  include various insurance products, and that its specific area of expertise  is to help VA pension claimants with hundreds of thousands of dollars in  assets obtain approval for these benefits. Under current federal law and  regulations, VA pension claimants are allowed to transfer assets and  reduce their net worth prior to applying for benefits, so services being  marketed and provided by these organizations to qualify for VA pension  benefits are legally permissible under program rules. In contrast, for  Medicaid—another means tested program—federal law explicitly restricts  eligibility for coverage for long term care for certain individuals who  transfer assets for less than fair market value prior to applying., As a  result, when an individual applies for Medicaid coverage for long-term  care, states conduct a look-back—a review to determine if the applicant  transferred assets for less than fair market value prior to applying.  Individuals who have transferred assets for less than fair market value  during the 60 months prior to applying may be denied eligibility for long- term care coverage for a period of time, known as the penalty period.  For example, gifting assets would generally be considered a transfer of  assets for less than fair market value and result in a penalty period. Also,  under the SSI program, claimants who transfer assets for less than fair  market value prior to applying may become ineligible for these benefits for  up to 36 months.
During our investigative calls, all 19 organizations correctly noted that  pension claimants can legally transfer assets prior to applying. They  indicated it is possible to qualify for VA pension benefits despite having  excess assets, and almost all provided information on how to transfer  these assets. (See figure 1 for transcript excerpts of calls with  organizations on services they provide to qualify for VA pension benefits.)
A number of different strategies may be used to transfer pension  claimants’ excess assets so that they meet financial eligibility thresholds.  Among the 19 organizations our investigative staff contacted, about half  advised transferring excess assets into an irrevocable trust with a family  member as the trustee to direct funds to pay for the veteran’s expenses.  A similar number also advised placing excess assets into some type of  annuity. Among these, several advised placing excess assets into an  immediate annuity that generates income for the client. In employing this  strategy, assets that VA would count when determining financial eligibility  for pension benefits are converted into monthly income. This monthly  income would fall below program thresholds and enable the claimant to  still qualify for the benefits. About one-third of the organizations  recommended strategies that included the use of both annuities and  trusts. For example, one organization we contacted advised repositioning  some excess assets into an irrevocable trust, with the son as the trustee,  and placing remaining excess assets into a deferred annuity that would  not be completely accessible, since most of the funds could not be  withdrawn without a penalty. In addition, several organization  representatives we interviewed also told us they may advise using  caretaker agreements to enable a client to qualify for VA pension  benefits. Organizations told us this strategy generally involves the  pension claimant transferring assets to family members as part of a  contract, in exchange for caretaker services to be provided by these  family members for the remainder of the claimant’s lifetime.
Some organization representatives we interviewed told us that  transferring assets to qualify for VA pension benefits is advantageous for  elderly pension claimants because it enables them to have more income  to pay for care expenses and remain out of a nursing home for a longer  period of time. For example, representatives from one organization said  the use of immediate income annuities allows pension claimants to  increase their monthly income that, combined with the VA pension, could  help pay for assisted living or in-home care costs. Other financial  planners and attorneys said if claimants do not conduct financial or estate  planning to qualify for the VA pension and instead spend down their  assets prior to applying, the monthly amount of the pension benefit they  eventually receive may be insufficient to pay for their long-term care.  They said that, as a result, these claimants may decide to seek Medicaid  coverage for nursing home care because of their lack of financial  resources, when they could have remained in an assisted living facility or  at home with the aid of the VA pension. Some of these organizations told  us that nursing home care financed by Medicaid is more costly for the  government than if the veteran had received the VA pension benefit and  obtained care in a lower-cost assisted living facility.
Many organizations we identified also conduct presentations on VA  pension benefits at assisted living or retirement communities to identify  prospective clients. According to attorneys and officials from state attorneys  general offices we spoke with, managers of assisted living facilities or  retirement communities may have an interest in inviting organization  representatives to conduct presentations on VA pension benefits because  these benefits allow them to obtain new residents by making the costs  more affordable. For example, we obtained documentation indicating that  one retirement community paid an organization representative a fee for a  new resident he helped the facility obtain. Another community in another  state paid organization representatives fees to assist residents in  completing the VA pension application.
subsections: section_title: Some Products and Services May Adversely Affect Claimants
paragraphs: Some products may not be suitable for elderly veterans because they  may lose access to funds they may need for future expenses, such as  medical care. To help elderly clients become financially eligible for VA  pension benefits, some organizations may sell deferred annuities which  would make the client unable to access the funds in the annuity during  their expected lifetime without facing high withdrawal fees, according to  some attorneys we spoke with. An elderly advocacy organization  representative we spoke with also noted that elderly individuals are  impoverishing themselves by purchasing these products when they may  need the transferred assets to pay for their long-term care expenses. As  part of our investigative work, one organization provided a financial plan  to qualify for VA pension benefits that included both an immediate annuity  as well as a deferred annuity for an 86-year-old veteran that would  generate payments only after the veteran’s life expectancy.
Some organizations that assist in transferring assets to qualify people for  VA pension benefits may not consider the implications of these transfers  on eligibility for Medicaid coverage for long-term care. Individuals who  transfer assets to qualify for the VA pension may become ineligible for  Medicaid coverage for long-term care services they may need in the  future. For example, asset transfers that may enable someone to qualify  for the VA pension program, such as gifts to someone not residing in a  claimant’s household, the purchase of deferred annuities, or the  establishment of trusts, may result in a delay in Medicaid eligibility if the  assets were transferred for less than fair market value during Medicaid’s  60-month look-back period. According to several attorneys we spoke with,  some organization representatives are unaware or are indifferent to the  adverse effects on Medicaid eligibility of the products and services they  market to qualify for the VA pension. As a result, potential pension  claimants may be unaware that the purchase of these products and  services may subsequently delay their eligibility for Medicaid.
In addition to the potential adverse impact of transferring assets, we heard  concerns that marketing strategies used by some of these companies may  be misleading. According to several attorneys we spoke with, some  organization representatives market their services in a way that may lead  potential pension claimants and their family members to believe they are  veterans advocates working for a nonprofit organization, or are endorsed  by VA. As a result, they may fail to realize these representatives are  primarily interested in selling financial products. For example, some  organization representatives may tell attendees during presentations at  assisted living facilities that their services consist of providing information  on VA pension benefits and assisting with the application, and do not  disclose they are insurance agents selling annuities to help people qualify  for these benefits. One elder law attorney we spoke with said many  attendees at these presentations may have Alzheimer’s disease or  dementia and are not in a position to make decisions about their finances.  Therefore, they are vulnerable to being convinced that they must purchase  a financial product to qualify for these benefits.
Concerns have also been raised that VA’s accreditation of individuals to  assist with applying for VA benefits may have unintended consequences.  According to attorneys and officials in one state, organization  representatives use their VA accreditation to assist in preparing claims as a  marketing tool that generates trust and allows them to attract clients.  Claimants may not understand that this accreditation only means that the  individual is proficient in VA’s policies and procedures to assist in preparing  and submitting VA benefits claims and does not ensure the products and  services these individuals are selling are in claimants’ best interests.
Finally, some organizations may provide erroneous information to clients,  or fail to follow through on assisting them with submitting the pension  application, which can adversely affect pension claimants. For example,  one veteran said he was told by an organization representative to sell his  home prior to applying for the VA pension and that he did not have to  report the proceeds from the sale on the application. He followed this  advice and was approved for benefits, but VA later identified these  assets, which caused him to incur a debt to VA of $40,000 resulting from  a benefit overpayment. Organizations may also promise assistance with  the application process to any interested pension claimant but,  unbeknownst to the claimant, may not follow through in providing this  service if the claimant does not want to transfer assets. For example, the  daughter of a veteran we spoke with, who sought application assistance  from an organization representative, told us the representative never  submitted her father’s pension claim to VA as promised. She learned of  this about a year after she thought the claim was submitted and had to  reapply through a county veterans service officer. Her father was  approved 2 months later but passed away less than a month after his  approval. She believes her father could have received benefits for a year  if the representative had submitted the claim, and believes the  representative did not do so because she did not want to use his services  to transfer assets.
section_title: Costs for Services to Transfer Assets Varied, but Some Organizations May be Charging Prohibited Fees
paragraphs: The costs of services provided by these organizations to assist in  qualifying for VA pension benefits varied, but organizations may be  charging prohibited fees. Among the 19 organizations our investigative  staff contacted for this review, about one-third said they did not charge for  their services to help qualify claimants for VA pension benefits. For  example, financial planners told us that, generally, there are no direct  costs associated with transferring assets into an annuity, but that costs  would be included in the terms of the annuity, such as the commission  earned by the insurance agent. Among organizations that did charge for  services, fees ranged from a few hundred dollars for benefits counseling  up to $10,000 for the establishment of a trust. Also, although federal law  prohibits charging fees to assist in completing and submitting applications  for VA benefits, representatives from veterans advocacy groups and  some attorneys we spoke with raised concerns that these organizations  may be charging for fees related to the application, or find ways to  circumvent this prohibition, such as by claiming they are charging for  benefits counseling. For example, one organization our investigative staff  contacted charged $850 to have an attorney work on the application  process, a $225 analysis fee, and $1,600 for the establishment of a trust.  Another organization representative indicated he charged a “long term  planning fee” of $1,200 to be paid prior to services being provided. The  organization representative asked that someone other than the veteran  pay this fee, claiming that only disinterested third parties can be charged  fees but not the veteran. Also, in a case identified by officials in one state,  a veteran was charged $3,000 by an individual for assistance in applying  for VA pension benefits which were ultimately denied. In addition,  concerns have been raised that fees charged may be excessive for the  services provided. For example, in July 2011, California enacted a law  generally prohibiting unreasonable fees from being charged for these  services.
section_title: Concluding Observations
paragraphs: The VA pension program provides a critical benefit to veterans, many of  whom are elderly and have limited financial resources to support  themselves. Current federal law allows individuals to transfer assets prior  to applying for VA pension benefits and still be approved. As a result,  claimants who have sufficient assets to pay for their expenses can  transfer these assets and qualify for this means-tested benefit. This  arrangement circumvents the intended purpose of the program and  wastes taxpayer dollars. A number of organizations help claimants with  these asset transfers, but some of the products and services provided  may have adverse implications for the claimant such as delaying eligibility  for Medicaid coverage for long-term care or causing claimants to lose  access to their financial resources. Accordingly, we asked Congress to  consider establishing a look-back and penalty period for pension  claimants who transfer assets at less than fair market value prior to  applying for pension benefits, similar to other federally supported means- tested programs.
Chairman Kohl, Ranking Member Corker, and Members of the  Committee, this concludes my prepared statement. I would be pleased to  answer any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgements
paragraphs: For further information about this testimony, please contact Daniel Bertoni  at (202) 512-7215 or bertonid@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this testimony. Other key contributors to this testimony include Jeremy  Cox, Paul Desaulniers, Alex Galuten, Nelson Olhero, Martin Scire, and  Walter Vance.
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