VA Disability Compensation: Comparison of VA Benefits with Those of Workers' Compensation Programs
Released: 1997-02-14T00:00:00

Letter

Background

Each of the 50 states and the District of Columbia has a workers’ compensation program. These programs vary by state, as each is authorized by its own state law. There are three federal workers’ compensation programs including the one authorized by FECA, which covers federal employees. Federal and most state workers’ compensation programs were initially enacted in the first part of the 20th century. VA’s disability compensation program, which was based to some extent on state workers’ compensation programs, was substantially overhauled with the enactment of the War Risk Insurance Act of 1917. The act directed VA to establish a schedule to compensate veterans for the average impairment in earning capacity resulting from injuries or diseases incurred during military service.

Differences in Program Objectives, Design, and Eligibility

The FECA program and other workers’ compensation programs differ in purpose and design from VA’s disability compensation program (see table 1). Cash benefits under FECA and the workers’ compensation programs and those provided under VA’s disability compensation program are provided for different purposes. FECA and other workers’ compensation programs primarily focus on compensating workers for their actual lost wages and permanent impairments resulting from occupational diseases or injuries. In contrast, VA’s disability program focuses on compensating veterans for the average reduction in earning capacity they are expected to experience as a result of service-connected conditions. An overall goal of workers’ compensation programs is to return injured employees to work, and in some workers’ compensation programs, benefits are terminated if the worker does not participate in vocational rehabilitation. VA’s disability compensation program focuses on providing monetary compensation for service-connected conditions. VA also provides other services, such as vocational rehabilitation, to eligible veterans. However, veterans are not required to participate in vocational rehabilitation in order to receive compensation.

Workers’ Compensation Programs

Workers’ compensation programs attempt to provide adequate benefits to injured workers while limiting employers’ liabilities strictly to workers’ compensation benefits. These programs provide cash benefits to employees for wage loss and permanent impairments. For selected permanent impairments, the programs use a schedule to determine monetary benefits, which are referred to as “schedule awards.” Workers’ compensation also provides medical care benefits and vocational rehabilitation to help employees return to work. In some programs, workers who refuse vocational rehabilitation services when these services are necessary for the person to be employed again may forfeit their right to receive wage-loss benefits. In addition, if an employee dies from a job-related injury or illness, the employee’s dependents can receive survivors’ benefits.

The compensation benefits that are paid to workers depend on the nature and extent of their injuries and the ability of injured employees to earn their usual wages. Employees whose injuries are not serious may only receive reimbursement for medical care for work-related injuries or illnesses. Many workers’ compensation claims result only in payment for medical care rather than in monetary awards for lost wages or permanent impairments.

Employees whose injuries or illnesses result in lost wages may be entitled to receive wage-loss benefits. Employees whose injuries or illnesses result in the permanent loss or loss of use of certain body parts or functions are entitled to compensation for permanent impairments. The majority of the monetary benefits that are paid to workers are for wages lost as opposed to permanent impairment. Often wage-loss benefits are paid for temporary disabilities, which may last a relatively short period of time. For example, according to the Department of Labor, for the claims submitted under FECA in fiscal year 1994 for which wage-loss benefits were paid during the first year after submission, the median amount paid was about $4,000. The median time period for which benefits were paid was about 70 days.

No two workers’ compensation programs are exactly alike. Despite the various differences among state, FECA, and the District of Columbia programs, to be eligible for benefits under any of these laws, workers’ injuries or occupational diseases must arise out of and occur in the course of employment. These criteria, though used somewhat differently among jurisdictions, generally mean that a worker’s illness or injury must occur in the course of performing his or her job in order to be compensable. To be eligible for monetary benefits under workers’ compensation, workers must experience an actual loss in wages or a permanent impairment.

Most states and the District of Columbia require that employees be out of work during a waiting period ranging from 3 to 7 days before benefits for lost wages can be paid. FECA requires a 3-day waiting period that begins after the expiration of any “continuation of pay” to which the worker may be entitled. Continuation of pay is a unique feature of FECA whereby FECA authorizes federal agencies to continue paying employees who are absent from work because of work-related traumatic injuries their regular salaries for up to 45 days before the 3-day waiting period begins. Continuation- of-pay benefits are not payable in occupational disease cases. Under state workers’ compensation programs, if an employee is absent from work continuously for 5 to 42 days after the date of injury, he or she is entitled to wage-loss benefits retroactive to the date of injury. Under FECA, an employee absent for 14 days after continuation of pay ends is eligible for restoration of benefits withheld during the 3-day waiting period.

VA’s Disability Compensation Program

While workers’ compensation programs attempt to protect the interests of both workers and employers, VA’s disability compensation program focuses on economic support for veterans. It is designed to provide cash benefits to veterans for physical or mental service-connected conditions. The benefits paid to veterans depend on the degree to which their specific conditions or injuries are believed to reduce the average earning capacity of veterans in general with that condition.

VA’s disability compensation program, like workers’ compensation programs, provides survivors’ benefits and vocational rehabilitation. Unlike most workers’ compensation programs, vocational rehabilitation is optional under VA. Both programs cover medical care, but VA generally provides care for veterans through the Veterans Health Administration. VA’s program, however, does provide for additional compensation for dependents; special needs related to a veteran’s condition; and special monthly compensation—statutory awards—for the loss or loss of use of certain body parts or functions, or procreative organs. VA also provides stipends to veterans in its vocational rehabilitation program in addition to monthly disability compensation.

To be eligible for compensation under VA’s disability compensation program, veterans must incur or aggravate injuries or diseases in the line of duty or during a period of active military service. Such illnesses and injuries are considered service-connected. Unlike workers’ compensation programs, a veteran’s injury or illness need not occur because of or in the course of actually performing his or her military-related duty to be compensable. Members of the military are covered 24 hours a day with respect to diseases or injuries they incur, because they are considered on duty 24 hours a day.

A veteran does not have to experience an actual reduction in earning capacity or loss in wages to be eligible for disability compensation. Thus, like workers’ compensation for permanent impairments, veterans can receive compensation even if they are working and regardless of the amount they earn.

Determining Compensation

Workers’ compensation programs base compensation on workers’ wages prior to their injury or the onset of occupational disease. Workers are paid a percentage of their wages or the wages they lose as a result of their work-related injury or disease, depending on whether they are being compensated for lost wages or permanent impairments. For selected permanent impairments, workers’ compensation programs use a schedule to determine monetary benefits, or “schedule awards.” For permanent impairments that do not appear on a schedule, programs may use one or more of three methods to determine compensation. In contrast, VA uses its Schedule for Rating Disabilities to determine the degree of impairment in earning capacity presumed to be associated with specific temporary and permanent conditions. This degree of impairment determines the basic amount of compensation veterans are eligible for. An individual veteran’s actual earnings lost as a result of a condition have no bearing on the compensation amount.

Determining Monetary Awards for Loss of Wages Under Workers’ Compensation

If employees are unable to earn their usual wages because of work-related disabilities, they are compensated for their lost wages. The amount of monetary compensation a worker receives under workers’ compensation is calculated by taking a specified percentage—in many jurisdictions, 66-2/3 percent—of the worker’s actual wage loss. Thus, the amount of compensation different employees receive for the same disability varies on the basis of their particular wage loss. Most states and the FECA program, however, place minimum and maximum limits on the weekly compensation amounts an individual can receive. Most programs compensate for lost wages for the duration of the wage loss. Workers who become permanently and totally disabled generally receive benefits for life.

An employee in Arizona, for example, who earns $600 a week and loses wages as a result of a work-related injury should theoretically receive $400 (66-2/3 percent x $600) a week in compensation. However, this employee would actually receive $323.10 a week because this is the maximum weekly benefit amount Arizona allows for wage loss. Under the FECA program, the same employee also would receive 66-2/3 percent (75 percent if the employee has dependents) of his or her lost wages. However, the employee would receive the full $400 because the weekly maximum FECA allows for wage loss is $1,299.38. This same worker would also receive the full $400 in the District of Columbia, which limits maximum weekly benefits to $723.34.

Determining Workers’ Compensation Awards for “Scheduled” Permanent Impairments

For certain permanent impairments, workers’ compensation programs use a schedule to determine the maximum amount of compensation that can be awarded. As of January 1995, the FECA, District of Columbia, and most state workers’ compensation programs each maintained a schedule that specified the maximum number of weeks of compensation a worker under their jurisdiction could receive for specific permanent impairments that result in the total loss or loss of use of certain members (such as a hand, arm, or foot), organs, and functions of the body. Benefits for these permanent impairments are called “schedule awards.” Permanent partial loss or loss of use of members, organs, or body functions listed on federal or state schedules is also compensable, but for less than the maximum number of weeks. The maximum amount of money and period of time during which compensation may be paid for specific functional losses are authorized by statute and vary by program. Table 2 shows the variation in the maximum number of weeks of compensation and dollars payable for certain permanent impairments among selected states and the FECA program. The maximum amount and weeks for the states we selected cover the range of these maximum limits across all states. However, the actual amount employees are paid is based on their salaries, so many employees receive less than the maximum.

For the types of impairments included on a workers’ compensation schedule, whether total or partial, the injured or disabled worker is awarded a percentage of his or her usual wages for no greater than the number of weeks specified on the schedule. For example, under FECA, an employee may receive 66-2/3 percent of his or her salary or wages if there are no dependents (75 percent if there are) for up to a maximum of 312 weeks for the total loss or loss of use of an arm. Accordingly, the loss or loss of use of an arm provides the same number of weeks of benefits to all injured federal workers, but workers with lower wages will receive a lesser amount of monetary benefits. If a worker loses 50-percent use of an arm, he or she would likely receive 66-2/3 percent of his or her salary or wages for 156 weeks, which is 50 percent of the maximum number of weeks allowed. Workers with permanent partial impairments continue to receive compensation for their loss until they receive the full amount they are eligible for, even if they are working. If the worker is unable to return to work or earn his or her usual wages after receiving the maximum amount allowable, the worker may apply for wage-loss benefits. Under FECA, workers cannot collect compensation for wage loss and permanent impairment concurrently.

Determining Workers’ Compensation Awards for “Nonscheduled” Permanent Impairments

For permanent impairments that are not included in the schedule, commonly called “nonscheduled” or “unscheduled” injuries, one or more of three methods may be used to determine the compensation amount. Nonscheduled injuries are normally injuries to the trunk, internal organs, nervous system, and other body systems that are not included in the list of injuries found in District of Columbia or state statutes that address workers’ compensation. FECA does not provide schedule awards for permanent impairments that do not appear on its schedule. The states and the District of Columbia may base awards for nonscheduled injuries on (1) functional limitation or impairment, (2) wage loss, (3) loss of wage-earning capacity, or (4) some combination of these three.

Impairment Method

The impairment approach compares the worker’s condition with that of a person with no impairment or with that of someone at the opposite end of the scale—a “totally disabled” person—and produces a rating of impairment as a percentage. Thus, it is basically an extension of the schedule applied to injuries not listed. For example, in a state that equates a person with no impairments to 500 weeks of benefits, a worker determined to have a 25-percent impairment may receive a percentage of his or her usual wages for 125 weeks (25 percent x 500).

Under this method, workers with the same permanent impairment receive the same number of weeks of compensation, even if the impairment is more or less disabling for different individuals. The same type of back injury, for example, would provide the same number of weeks of benefits to a professor and a carpenter, even though the professor is able to return to work and suffers only a temporary loss of wages, while, by contrast, the carpenter may be unable to return to work and suffers a permanent loss in wages. However, when a worker suffers a permanent loss of wages, he or she may apply for wage-loss benefits under workers’ compensation.

Wage-Loss Method

Under the wage-loss method, workers are compensated for a percentage of the actual loss of earnings that stems from their work-related illness or injury. The amount of benefits paid to workers depends upon the extent to which postinjury earnings are affected by the impairment or condition.

The degree of functional impairment alone has little or no bearing on the amount of benefits paid.

Loss-of-Wage-Earning-Capacity Method

This approach compensates the worker for the anticipated or projected loss of earning capacity as a result of his or her permanent disability. This is similar to what VA’s schedule conceptually does. However, VA’s schedule reflects the impact a condition is presumed to have on the average earning capacity among all veterans with that condition as opposed to its impact on each individual veteran’s earnings. States using this approach assess the seriousness of the worker’s medical condition; consider such factors as prior education, work experience, and other personal characteristics that affect one’s ability to obtain and retain employment; and estimate the worker’s loss in earning capacity in percentage terms. States normally express total earning capacity in terms of a specified number of weeks. For example, in a state that equates total loss of earning capacity with 600 weeks of benefits, a worker with a 20-percent loss of earning capacity would receive a percentage of his or her projected earning capacity for 120 weeks (20 percent x 600).

Combination of Methods

States can also use some combination of the three basic methods. For example, Texas pays workers benefits for permanent disabilities on the basis of their functional impairment for a limited number of weeks. However, workers can also receive additional benefits for loss of wages after their impairment benefits are exhausted. Only workers whose functional impairment is rated at least at 15 percent or higher are eligible for these supplemental benefits. Wisconsin also pays impairment benefits on the basis of loss of functional capacity for permanent disabilities for a limited number of weeks. However, if the worker does not return to work by the end of this period at the preinjury earnings level, additional benefits are based on loss of wage-earning capacity.

Determining Disability Compensation Amounts Under VA’s Program

The amount of compensation veterans are awarded for their service-connected conditions is based on a percentage evaluation, commonly called the disability rating, which VA’s Schedule for Rating Disabilities assigns to a veteran’s specific condition. The veteran receives the specific benefit amount the law sets for that disability rating level. Unlike workers’ compensation, VA does not base compensation on each individual veteran’s salary or wage loss, nor does it base compensation on how each veteran’s earning capacity is actually affected by his or her service-connected condition. Veterans with the same condition at the same level of severity usually receive the same basic cash benefit.

The rating schedule contains medical criteria and disability ratings. The medical criteria consist of a list of diagnoses, organized by body system, and a number of levels of medical severity specified for each diagnosis. The schedule assigns a disability rating to each level of severity associated with a diagnosis. These disability ratings, which are supposed to reflect the average impairment in earning capacity associated with each level of severity, range from 10 percent to 100 percent and correspond to specific dollar amounts of compensation set by law.

For example, VA has determined that the loss of a foot during military service results in a 40-percent impairment in earning capacity, on average, among all veterans with this injury. These veterans, therefore, are entitled to a 40-percent disability rating whether this injury actually reduces their earning capacity by more than 40 percent or does not reduce it at all. In 1996, all veterans having conditions with a disability rating of 40 percent received basic compensation of $380 per month. In 1996, under VA’s disability program, a veteran received basic compensation of $91 per month, or $1,092 annually, for a condition rated at 10 percent, and up to $1,870 per month, or $22,440 annually, for a condition rated at 100 percent (see table 3).

In contrast to many workers’ compensation programs, VA’s program does not place any limits on the total amount of monetary benefits veterans can receive or the time period for which they can receive these benefits. Veterans can receive disability compensation for their service-connected conditions for life.

Cash Benefit Comparisons

Monthly benefits for workers with higher earnings under FECA for selected scheduled permanent impairments will likely be higher than VA’s monthly disability compensation because schedule award amounts for permanent impairments under the workers’ compensation programs are based on workers’ wages. FECA monthly cash benefits for workers with lower salaries may not be higher, however, than VA cash benefits. For example, for the total loss or loss of use of an arm, a federal employee without dependents at a GS-12, step 1, salary level would receive about $2,341 a month for a maximum of 72 months (312 weeks) under FECA. Under VA’s disability compensation program, this same person would receive $1,124 a month. However, a federal employee at the GS-5, step 1, salary level would receive about $1,065 a month (see table 4).

Comparisons of initial monthly benefit payments alone under FECA and VA do not provide a complete picture of the differences in compensation amounts, for several reasons. FECA payments for schedule awards are limited to 6 years or less, whereas VA disability payments are made to disabled veterans for the duration of the impairment, so the payment of several decades’ worth of benefits is not uncommon. FECA payments and VA disability payments can be—and usually are—increased over time. A dollar paid to a recipient today is worth more than a dollar paid at some future date, in terms of both value to the recipient and cost to the government, because a dollar received today can be invested to provide more than a dollar’s benefit in the future. For these reasons, a comparison of the present value, also known as the lump-sum equivalent, of potential total payment under each program provides a better indication of the relative value of benefits under these two programs (see app. II for a detailed description of benefit calculations).

In the long run, at the GS-12, step 1, salary level and below, compensation under VA’s disability program is generally higher than FECA compensation for selected permanent impairments. For example, the schedule award benefit for the total loss or loss of use of an arm for an employee at the GS-12, step 1, salary level is limited to a maximum of $186,203 ($540 x 312 weeks, adjusted for cost-of-living allowance) under FECA. The present value, or lump-sum equivalent, of this amount would be $158,561. Assuming that a veteran is compensated for the loss or loss of use of an arm for 30 years, using the 1996 compensation levels and adjusting for future increases in benefits, the veteran would receive $756,474, and the present value would be $289,365.

In general, for selected permanent impairments, the maximum amount of benefits a federal worker at the GS-15, step 10, salary level would receive also would be lower than the benefits received under VA. However, the present value of benefits at this salary level would be higher under FECA for some of the impairments we looked at (see tables 5 and 6).

Agency Comments and Our Evaluation

In commenting on a draft of this report, VA stated that comparisons of VA’s disability compensation program with other workers’ compensation programs are not meaningful because the programs are so dissimilar. VA also stated that its compensation program is the best method for providing monetary benefits to people disabled during military service. Throughout this report we have recognized the differences and, in some cases, the similarities among the VA disability and workers’ compensation programs’ objectives, components, and characteristics. VA’s comments are included as appendix III. VA also provided technical comments on the draft report, which we incorporated as appropriate.

The Department of Labor also reviewed a draft of this report and provided technical comments, which we have also included as appropriate.

We are sending copies of this report to the Subcommittee’s Ranking Minority Member, other interested congressional committees and subcommittees, and the Secretaries of Veterans Affairs and Labor. Copies will also be made available to others upon request.

This report was prepared under the direction of Clarita A. Mrena, Assistant Director. Other GAO contacts and staff acknowledgments are listed in appendix IV. If you have any questions about this report, please contact me on (202) 512-7101 or Ms. Mrena on (202) 512-6812.

Total Claims Filed and Cash Benefits Paid Under Workers’ Compensation, by State, for Time Period Specified

Total amount of cash benefits paid (continued)

Not available.

Assumptions Underlying the Comparison of Benefits Under FECA and the VA Disability Compensation Program

This appendix presents the specific assumptions that we adopted to estimate the present value, or lump-sum equivalent, benefits of FECA and VA disability compensation for this report.

Benefit Escalation Rate

The monthly amount of benefits paid under FECA and VA are adjusted periodically in order to compensate partially or fully for the effects of inflation. We were told by a VA official that recent increases in VA benefits have been consistent with Social Security Administration cost-of-living increases. Accordingly, we assumed that VA disability benefits will increase at an annual rate of 4 percent. This is consistent with the Social Security Administration’s long-range projections of the annual increases in the Consumer Price Index. We also assumed that FECA benefits would increase at the same annual rate.

Discount Rate

Consistent with standard practice, we used a discount rate of 6.6 percent. This represents the cost of borrowing to the federal government (that is, the 30-year Treasury rate) as of December 1996.

Comments From the Department of Veterans Affairs

GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

Connie D. Wilson, Senior Evaluator, collected a major portion of the evidence presented, and Timothy J. Carr, Senior Economist, provided the present value calculations of FECA and VA benefit payments. Ed Tasca, Senior Evaluator, provided technical assistance on workers’ compensation programs.

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