Social Security Disability Insurance (SSDI) replaces a portion of earnings for an eligible worker whose illness or injury--while not necessarily caused by a work-related incident--results in an inability to work. As an insurance program, workers (including active-duty military) and employers in covered occupations, as well as self-employed individuals, contribute to the program through the Federal Insurance Contributions Act (FICA) payroll tax and the Self-Employment Contributions Act (SECA) tax. Currently, 94% of all workers are covered by Social Security. Conversely, Veterans Disability Compensation (VDC) provides payments to veterans for illnesses and injuries that are caused or aggravated by military service. VDC is a compensation program funded through a mandatory appropriation as part of the Department of Veterans Affairs (VA) annual budget. VDC is not insurance and therefore, neither veterans nor active military personnel contribute directly toward the funding of the program. SSDI and VDC--administered by the Social Security Administration (SSA) and the VA, respectively--are two of the largest federal disability programs. In December 2013, there were more than 8.9 million disabled workers receiving payments through SSDI at a cost of approximately $10.3 billion per month. The number of veterans receiving disability compensation was less than half that amount at the end of FY2012, with more than 3.5 million recipients. Total monthly receipts for VDC were just under $3.7 billion in FY2012. Although SSDI and VDC both serve the goal of providing income security for individuals with disabilities, these programs fundamentally differ in how they define "disability" and determine eligibility for benefits. For example, an individual must be unable to work to be eligible for SSDI benefits, yet employability is not a factor in VDC disability determinations. Indeed, veterans that receive a disability rating from the VA will not necessarily be eligible for SSDI benefits, unless their particular condition prevents them from entering the civilian workforce under specific SSA guidelines. This report seeks to clarify why one group of individuals with disabilities may be eligible for benefits under VDC, but ineligible for benefits under SSDI (and vice versa), through a description and comparison of several distinguishing characteristics of the SSDI and VDC programs. This report concludes with a discussion of the challenges facing the administration of both programs, including processing delays for pending claims and appeals. These issues will be of particular interest to Congress due to the high numbers of SSDI claims resulting from a combination of the recent economic decline, an increase in the number of baby-boomers approaching retirement age and their most disability-prone years. In addition, the extension of presumptive conditions has expanded the pool of veterans eligible for VDC. SSDI was established in 1956 as a component of the Old Age, Survivors and Disability Insurance (OASDI) program. Its primary purpose is to replace a portion of an insured worker's earnings, should a medically determinable illness or injury impede his or her ability to work. For SSDI benefits, an individual must have a sufficient work history and must be unable to engage in any employment that brings income in excess of the s ubstantial g ainful a ctivity (SGA) threshold, as a result of one or more medical conditions that is expected to last 12 months or longer, or result in death. To ensure that a condition is long-term, a worker only becomes eligible to apply for SSDI five months after the onset of a disability, and the worker is further evaluated to determine if the disability will last longer than 12 months or result in death. Once payments commence, claimants may be eligible for up to 12 months of retroactive benefits for the period between the date of disability-onset and their benefits application date. Monthly payments are determined based on a worker's past earnings and can be supplemented if the claimant has qualifying dependents. Individuals with disabilities become eligible to receive health care benefits through Medicare, 24 months after becoming eligible for SSDI. Benefit payments continue until the individual (1) dies; (2) reaches the retirement age, at which point his or her benefits remain the same, but are paid out of the Old-Age and Survivors Insurance (OASI) trust fund; or (3) experiences an improvement in his or her medical condition, enabling him or her to return to the workforce. In December 2013, over 8.9 million disabled workers were receiving an average of $1,146.43 per month in SSDI cash benefits. Disability determinations for SSDI benefits entail a five-step process (see Figure 1 ). First, an applicant files for benefits with the SSA at the agency's website, a field office, or through a toll-free phone line. The responsibility for adjudicating the application then shifts to medical and vocational experts at state-level Disability Determination Services (DDS) agencies. A disability examiner from the DDS will then determine if the claimant's income falls below the SGA threshold (Step 1), condition is current and expected to last longer than 12 months or result in death (Step 2), and condition meets the SSA medical listings (Step 3), If the first three steps are satisfied, the claimant is deemed eligible to receive SSDI benefits. If the claimant's condition does not meet--or is not equal in severity to--a condition in the SSA medical listings, he or she can be further evaluated for SSDI eligibility by examining whether the claimant's remaining capacities would enable him or her to perform their past work (Step 4), and condition would still enable him or her to work in other jobs that exist within the national economy (Step 5). If a disability examiner decides that an individual meets the requirements for a particular step, the application proceeds to the next step for further review. With the exception of Step 3, if an individual does not meet the requirements at any step in the process, their application is denied. If an SSDI claimant reaches Step 3 of the evaluation process, a DDS official has already determined that the claimant's earnings do not exceed the SGA threshold and that the condition is both long-term and limits the claimant's ability to work. If the claimant's condition meets, or is equal in severity to, the SSA's Medical Listings (at Step 3), the claimant is deemed eligible to receive benefits. If the claimant's condition does not meet SSA's Medical Listings, the claimant can still meet eligibility requirements if he or she is unable to perform past work (Step 4) or other types of work that exist in the national economy (Step 5). The disability determination process can be long and complex and is largely contingent upon receipt of all necessary documents by SSA. Processing time for initial application decisions averaged 107 days at the end of November 2013. If, at any point in the assessment process, a claimant's application is denied by the state DDS, that individual can begin the appeals process. If an application for SSDI benefits is denied at any point in the five-step determination process, a claimant can appeal the ruling up to four possible levels (see Figure 2 ). The appeals process includes three levels of administrative review through SSA before a case can then be appealed to the U.S. court system, in this order: 1. reconsideration of the claimant's application by the state DDS office, 2. a hearing by an Administrative Law Judge (ALJ), 3. a review by Social Security Appeals Council (SSAC), and 4. filing suit against SSA in U.S. district court. If a claimant's initial application or subsequent appeal is denied, he or she must request an appeal to the next level, in writing, within 60 days of receiving the prior decision. Claimants can also present any additional evidence or comments to support their cases at any step in the administrative appeals process. U.S. district court is generally the final level of appeal pursued in SSDI cases. On rare occasions, SSDI cases can be appealed beyond U.S. district court to the U.S. court of appeals and, ultimately, the U.S. Supreme Court. Upon receipt of the initial appeal request, the state DDS office will "reconsider" the application, which involves a review by a disability examiner who was not involved in the initial application process. To have a case reconsidered, the claimant completes and submits a Request for Reconsideration and an Appeal Disability Report (online or a paper form) to SSA. SSA will then send the case to the state DDS office, although 10 states currently do not conduct the reconsideration step. A DDS official--other than the person who made the first determination--reviews the claimant's medical records along with any additional evidence provided and makes a new determination about the claimant's disability. After a review of the medical records, the claimant is notified in writing of the decision. If the claimant disagrees with the reconsideration decision, he or she may then request a formal hearing with an Administrative Law Judge (ALJ). If a claimant disagrees with the reconsidered judgment, he or she can appeal the decision by completing and submitting a Request for Hearing by an ALJ and an Appeal Disability Report (online or a paper form) to SSA. SSA will then send the request to the Office of Disability Adjudication and Review, where claimants can request a face-to-face meeting with the ALJ assigned to their case. After talking with the claimant and his or her representative, the claimant will be notified in writing of the ALJ's decision on the case. If the ALJ rules against the claimant, the case can be further appealed to the Social Security Appeals Council (SSAC). SSA can also bring a case to the SSAC, even if the ALJ has ruled in the claimant's favor. A claimant whose appeal is denied by an ALJ can complete and submit a Request for Review of Decision/Order of Administrative Law Judge (in paper form) to SSA, who forwards the request to the Office of Disability Adjudication and Review. An official from the SSAC will review the claimant's medical records and will either remand the case back to the ALJ for further review, deny the request to review the case, or make a new independent determination. Claimants will be notified in writing of the decision on the case. If a claimant disagrees with the decision of the SSAC, or the claimant's request for appeal is denied, he or she can file a civil suit in U.S. district court for further review and judgment. The case will be heard by a district court judge who will notify the claimant in writing of the decision on the case. Prior to World War I, disability compensation was part of a pension system based on service during a particular conflict. The current ratings system for disabilities began in the 1940s and, with adjustments, is still in use today. The current system relies on ratings (0% to 100% in 10% increments) for one or more disabling injuries or illnesses resulting from--or aggravated by--military service, with a total percentage rating determining the level of compensation. Eligibility for VDC benefits is determined using a two-step process. First, a claimant must prove that he or she is a veteran, defined as a "... person who served in the active military, naval, or air service, and who was discharged or released there from under conditions other than dishonorable," which is determined largely upon official military service records. Second, claimants must demonstrate that injuries, diseases, or other medical conditions are related to military service. Although veterans must adhere to time restrictions for several other VA benefits and services, there are no time limits on filing claims for compensation related to most disabilities. The VA and Veterans Service Organizations (VSOs) assist veterans in the application process. A veteran who suffers from an injury or illness will apply for disability compensation with the VA. The initial VA disability assessment focuses solely on determining whether a condition(s) was caused or aggravated by military service. For VDC evaluations, veterans are given the benefit of the doubt when there is equal evidence that an injury or illness is, or is not, service-connected. If an injury, illness, or combination thereof is determined to be service-connected, the condition(s) are then evaluated based on the Veterans Affairs Schedule for Rating Disabilities (VASRD), a scale that ranges from 0% to 100% in increments of 10%. A "zero percent" rating means that a service-connected disability exists, but is not so disabling that it entitles the veteran to compensation payments, whereas a 100% rating means that the veteran is totally disabled by VDC standards. Claimants must receive at least a 10% rating based on the VASRD to be eligible for any compensation under VDC. Veterans who are severely disabled due to a service-connected condition(s) can also be considered for Special Monthly Compensation (SMC), which provides additional payments for (1) disabilities deriving from the loss of use of certain organs or extremities, and (2) veterans with a 100% disability rating who are so severely disabled that they require aid and attendance or are otherwise housebound. Ratings can be changed over time, as a result of a new condition(s), or if a condition(s) worsens over time. There are two ways for a veteran to receive a total (i.e., 100%) disability rating determination. The first possibility involves receiving a 100% disability rating based solely on the severity of a service-connected condition or combination of conditions. The second possibility is to qualify for an Individual Unemployability (IU) determination, which allows certain veterans to receive compensation at the 100% disabled rate, even if their disabilities (individually or combined) are not rated at that level. To qualify for the IU benefit, a veteran must be unable to work and (1) have one service-connected disability rated at least 60%, or (2) have two or more disabilities with one disability rated at least 40%, and a combined rating of at least 70%. The presumptive conditions policy of the VA entitles certain veterans, and/or survivors and dependents, to a presumption of service-connection for certain diseases or conditions related to certain conflicts or military service situations. Eligibility for presumptive disability benefits varies depending on the circumstances of a veteran's active-duty service and the type of diagnosis. Current groups include former POWs; Vietnam veterans exposed to Agent Orange; Atomic veterans exposed to ionizing radiation; Gulf War veterans with undiagnosed illnesses; veterans diagnosed with certain chronic diseases within one year of release from active duty; and veterans, with 90 days or more of continuous service, diagnosed with Lou Gehrig's disease following discharge from active duty. Disability compensation pays a monthly cash benefit to disabled veterans who are at least 10% disabled as a result of military service. Benefit payment amounts are contingent upon the claimant's level of disability based on the VASRD as determined by the VA. The claimant's marital status, number of children or other dependents, and certain disabilities (qualifying for SMC) are additional factors that will affect payment. At the end of FY2012, over 3.5 million veterans were receiving VDC benefits. Currently, there are four levels of appeals that a claimant could potentially undergo (see Figure 3 ). Regional VA offices make the first determination to allow or disallow veterans' claims, and claimants can initially appeal unsatisfactory VA office decisions to the Board of Veterans' Appeals (BVA), an internal administrative body to the VA. Appeals usually relate to a disagreement on the service-connectedness of a condition or dispute over a rating determination. If a claimant wishes to appeal the decision of the BVA, the case then moves outside of the VA to the Court of Appeals for Veterans Claims (CAVC), a federal court. CAVC decisions can be appealed to the Court of Appeals for the Federal Circuit and ultimately, the Supreme Court. There are clear differences in the general goals of SSA and VA disability compensation programs that have likely evolved from the SSDI focus on administering benefits primarily for a civilian work population, which contrasts with the VDC focus on compensating individuals for the adverse health conditions connected to military service. As observed in Table 1 , which draws comparisons between the populations of SSDI and VDC recipients, the SSDI program is more than twice as large as the VDC program, in terms of the number of recipients served. An SSDI recipient receives less than half the amount in cash payments as a comparable VDC recipient. Additionally, although the male-to-female ratio of SSDI recipients is relatively even, over 90% of all VDC recipients are men. The most prevalent disabilities for SSDI recipients are mental disorders and impairments related to the musculoskeletal system, whereas the most prevalent conditions among VDC recipients are auditory-related. Both programs tend to serve populations approaching retirement age as the typical VDC and SSDI recipients are all over the age of 55. A side-by-side comparison of important SSDI and VDC administrative rules is presented in Table 2 . As mentioned earlier in this report, both programs have separate funding sources (FICA and SECA taxes for SSDI vs. mandatory congressional budget appropriations for VDC), differing definitions of a disability, as well as agency-specific tools for determining program qualifications and eligibility. In addition, SSA does not provide benefits for individuals with short-term or partial disabilities, whereas the VDC program is non-contributory with benefits based on the severity of each service-connected condition(s) rather than earnings history. Both SSDI and VDC programs contain a health care component. Recipients of SSDI must wait 24 months from when they become eligible for SSDI to become eligible for Medicare. As stated earlier in this report, individuals must still wait an initial five months from the onset of a disability to become eligible for SSDI, generally resulting in a 29-month total wait-time for Medicare eligibility. Veterans do not pay premiums or enrollment fees for VA health care, and eligibility for VA health care is generally based on a variety of factors including, but not limited to, income, status as a former POW, and the existence of service-connected conditions. Veterans can receive treatment for service-connected conditions without being required to make copayments; however, under current law, most veterans are required to make copayments for the treatment of nonservice-connected conditions. Veterans who have a service-connected rating of 50% or more and are enrolled in the VA health care system do not pay copayments even for nonservice-connected care. SSDI and VDC apply similar restrictions (and terminology) for the level of earnings that certain beneficiaries are able to attain, while still maintaining eligibility for the programs. Both SGA (under the SSDI program) and s ubstantially g ainful e mployment (under the VDC program) refer to the level of work that a person can perform to be considered a "productive" member of the workforce, and therefore ineligible to receive benefits meant to compensate for an inability to work. In 2014, SSDI recipients who earn $1,070 per month ($1,800 for blind recipients) or less can still maintain eligibility for benefits. Moreover, SGA regulations under SSDI allow recipients to possibly deduct certain impairment-related expenses such as medication, medical supplies, and devices from their monthly earnings. Under the VDC program, gainful employment determinations are only made for recipients of IU compensation; there are no earnings restrictions for other VDC recipients. Gainful employmen t is indexed against the census poverty threshold for a single person, which was $11,945 per year for 2013. Figures for both SGA and gainful employment are adjusted annually to reflect growth in average wages. Differences also exist in the standards for SSDI and VDC disability determinations. For example, a military servicemember will generally undergo a disability evaluation through the DOD and VA before being considered for Social Security benefits. If he or she is determined to have sustained a service-connected condition, such as hearing loss, a rating percentage will be assigned and that servicemember will be compensated accordingly by the VA. However, with the use of adaptive technologies, such as telephone relay systems (TRS), even a veteran with severe or total hearing loss can still function effectively in a civilian work environment. Hence, the ability to attain gainful employment anywhere in the national economy--despite having a disability--would render him or her ineligible for SSDI benefits. Differences between the current SSDI and VDC evaluation systems make it possible for even a 100% disabled veteran to be denied SSDI coverage. Table 3 illustrates how these differences may operate in four different hypothetical scenarios. SSDI payment levels are based solely on a worker's past average monthly earnings and do not compensate recipients for short-term or temporary disabilities. Taking into account age, education and work experience, the recipient must not be able to engage in any work that exists in the national economy. In contrast, VDC--aimed at compensating veterans that have sustained injuries or illnesses as a result of military service--determines payment amounts based on the severity of veterans' service-connected condition(s), without regard for the employability of the veterans. Certain veterans who are unemployable, and have a rating of less than 100%, may be granted additional compensation through IU provisions. VDC benefits also receive differential treatment under the federal tax code. Any income from VA benefits cannot be taxed or apportioned, as opposed to SSDI, which may be taxable. Furthermore, for those veterans that do receive compensation through both programs, VDC benefits do not offset SSDI payment levels, or vice versa. Under current statute, the VASRD is used as the sole tool in determining compensation levels for veterans with service-connected disabilities. The VASRD ratings are presumed to reflect the "average" impact of the impairment on "average" earnings capacity or economic loss. However, because VDC is granted for any condition incurred or aggravated by military service, VDC is also provided for conditions that do not impact employment or earnings capacity; thus, payments for those conditions then reflect noneconomic loss. A 2007 report by the Veterans' Disability Benefits Commission concluded that VA disability compensation should additionally compensate veterans for "... their inability to participate in usual life activities and for the impact of their disabilities on quality of life," also called noneconomic loss. The Institute of Medicine has also made recommendations on developing and implementing a methodology that can be used to evaluate the impact of disabilities on veterans' quality of life. This methodology could presumably be used to recommend appropriate compensation for veterans' noneconomic loss. CRS is not aware of similar studies or efforts to identify ways to compensate SSDI recipients for noneconomic loss. Administering disability benefits through SSA and the VA has posed considerable challenges. Both agencies have faced criticism for a failure to thoroughly revise disability evaluation standards to reflect the changing nature of the U.S. labor market and advances in medical technology that have redefined the ability of individuals with disabilities to engage in productive work activities. SSA and the VA have also been criticized for their processes of adjudicating applications, and the high levels of claims and appeals pending. These were two of several government-wide findings that led the Government Accountability Office (GAO) to designate federal disability programs as "high-risk." According to SSA, the agency seeks to modernize the disability evaluation system and is currently in the process of revising its ratings system, and has further reviewed the role of SSDI in a comprehensive government-wide disability policy. For example, SSA has conducted outreach efforts to wounded warriors returning from Operations Iraqi Freedom (OIF) and Enduring Freedom (OEF) to begin the application process for SSA disability benefits prior to separating from the military. Moreover, in 2012, SSA announced a nationwide expansion of its streamlined medical records service, which will allow SSDI case processing sites to request military medical records from a centralized DOD site. In 2007, SSA developed a plan to eliminate hearings backlogs that increased due to the recent economic decline, increase in baby-boomer claims, and after coming under scrutiny by the GAO, which insisted SSA develop a more comprehensive strategy to reduce backlogs. To expedite the determination process, SSA instituted two new fast-track programs: (1) the Quick Disability Determination (QDD) process uses predictive computer models to flag disability applications with a high likelihood of receiving a favorable determination; and (2) the Compassionate Allowances (CAL) process expedites applicants with severe conditions that habitually receive a favorable determination. Between FY2009 and FY2013, pending initial disability claims fell from 779,854 to 707,700; however, pending disability claims at the redetermination level increased during the same period from 161,264 to 197,788. Also, under the provisions of the Ticket to Work and Work Incentives Improvement Act of 1999 ( P.L. 106-170 ), SSA provides vouchers to Social Security disability beneficiaries that can be used to receive vocational rehabilitation or other employment support services from public or private providers within the SSA Employment Network. SSA has also developed a work incentive policy that enables SSDI recipients to work and still receive monthly benefits with the goal of helping those individuals to eventually achieve self-sufficiency. In 2014 recipients that earn in excess of $770 per month enter a "trial work" period, where they can test their ability to perform on-the-job without losing disability benefits. The disability is not considered to be ended until the recipient is able to work for at least nine months over a 60-month period. SSA also recently concluded the Accelerated Benefits Demonstration project, which tested the health and employment outcomes of SSDI recipients who received health benefits sooner than the 24-month waiting period. Key finding from the study results demonstrated that participants (1) made extensive use of available program services, (2) reported fewer unmet medical needs, and (3) were encouraged to seek work, although employment levels did not increase in comparison with a control group. The results further suggest that continued tracking of participants' employment gains will be important to understand the long-term impacts of providing early health benefits to SSDI beneficiaries. As of January 13, 2014, the VA has 636,064 veterans' claims pending for disability compensation and 60.8% (approximately 386,727) of those claims have been pending for 125 days or longer (i.e., from the date the claim was received by the VA). The number of claims pending has been of growing concern to veterans, VSOs, and Members of Congress. Congress appropriated additional resources toward reducing the accumulation of claims and appeals. The average number of days to process a rating-related claim was 181 days in FY2001, prior to the OIF and OEF military conflicts. Because of ongoing efforts by the VA to add personnel and make greater use of technology, the average processing time has been reduced to 175.3 days as of January 2014. In addition to the issues surrounding pending claims, GAO has also specifically cited the VA for inconsistencies in the ratings systems across the VA regional offices. In a separate response to criticism on their process for awarding benefits, the VA--citing the 1956 Bradley Report--asserts that their "... disability ratings represent noneconomic factors, such as pain and suffering, in addition to average loss of earnings." They further state that prior proposals to update the ratings system have proven unpopular with Congress and VSOs. Nevertheless, a recently established advisory committee will advise the VA Secretary on reviews of the VASRD.

Summary:
Social Security Disability Insurance (SSDI) and Veterans Disability Compensation (VDC)--administered by the Social Security Administration (SSA) and the Department of Veterans Affairs (VA) respectively--are two of the largest federal disability programs, but strongly differ along several dimensions, including the populations served, how each program defines a "disability," as well as varying eligibility requirements. First, SSDI is an insurance program that replaces a portion of earnings for an eligible worker whose illness or injury--while not necessarily caused by a work-related incident--results in an inability to work. SSDI is one of several federal programs funded through the Federal Insurance Contributions Act (FICA) payroll tax and the Self-Employment Contributions Act (SECA) tax to which all workers and employers in covered occupations (including military personnel) and self-employed individuals make contributions. On the other hand, VDC is not insurance, but is a compensation program in that payments are made to veterans who develop medical conditions that are related to their service in the military. VDC is non-contributory and neither veterans nor active military personnel pay into the program, which is funded through a mandatory appropriation as part of the VA annual budget. Second, while the purpose of both SSDI and VDC is to provide income security, SSDI provides a financial "safety-net" to eligible civilian and military workers due to their inability to work as a result of long-term or terminal injury or illness. Conversely, VDC provides veterans with tax-free, cash benefits specifically for service-connected illnesses or injuries. The ability to work is not factored into VDC disability determinations, although additional compensation is available for veterans who are unemployable as the result of a service-connected condition(s). Third, SSDI only compensates workers who are fully disabled, whereas VDC compensates veterans for both partial and fully disabling injuries and illnesses. The VA is further guided by a principle that views disability compensation as an obligation, owed to veterans, for injuries affecting employment that were incurred or aggravated by their service to the country. SSDI benefits are granted solely on medical and economic grounds and other noneconomic factors are not considered. Eligibility requirements generally tend to be more stringent for SSDI than VDC, and most veterans, even if qualified for VDC, will not likely meet the criteria for both programs. Both SSA and the VA have faced challenges in the administration of benefits and have been criticized for a lack of interagency coordination, processes that are "out-of-sync" with modern conceptions of disability, and extensive processing delays for claims and appeals. These issues led, in part, to a Government Accountability Office (GAO) investigation and determination of federal disability programs as "high risk." Both agencies have made efforts to address issues surrounding pending claims and appeals, but differ in their responses to other recommendations. This report provides a description and comparative analysis of the SSDI and VDC programs. These issues will be of particular interest to Congress because of the expected increase in the numbers of SSDI and VDC claims. The recent economic decline and aging baby-boomers have continued to place a strain on SSA's resources. The aging of the veteran population and expansion of presumptive conditions policies have contributed to the increase in VDC claims.