VA’s pension program is means-tested and provides a minimum level of economic security for veterans with financial need. It is one of two cash benefits programs administered by VA. The other is disability compensation, which pays benefits to veterans who have disabilities related to their military service—often referred to as “service-connected” disabilities. The pension program, on the other hand, which is the subject of this report, pays benefits to low-income veterans who either are elderly or have disabilities unrelated to their military service. Each program also provides benefits to eligible survivors. A veteran who applies for and meets requirements for both disability compensation and pension benefits will receive benefits through whichever program provides higher benefits. In 2006, VA paid over $34 billion in compensation and pension benefits to about 3.5 million veterans and survivors. Of this amount, $30.9 billion was paid in compensation benefits to 3,014,282 veterans and their survivors. The remaining $3.5 billion was paid in means-tested pension benefits to 535,380 veterans and their survivors. The amount of financial assistance provided by the pension program is relatively modest and intended to raise pensioners’ incomes to a level set out in statute. Pensioners are awarded an amount equal to the difference between their countable income, as determined by VA, and the maximum pension amounts as updated annually by statute. The maximum pension amount varies according to the pensioner’s current income and number of dependents. In 2006, veterans with no income and no dependents could receive as much as $10,579 annually, while survivors with no income and no dependents could receive a maximum of $7,094 per year. Pensioners are required to report any changes in income, dependency, or other relevant circumstances to VA so that benefit levels can be adjusted accordingly. Generally, for each dollar of income received from other sources, the VA pension is reduced by the same amount. To determine a veteran’s initial eligibility for the pension program, VA’s regional office staff employ several criteria, including the veteran’s military status, age or disability, and income. (App. II provides a summary of this process.) Eligibility for pension benefits is restricted to veterans who are at least 65 or have total and permanent disabilities unrelated to their military service. Also, VA considers the income of all family members, including spouses and children, but excludes the income of other individuals residing in the household. Various sources of income are considered when determining income eligibility, including employment, interest and dividends, retirement, annuities, workers’ compensation, Social Security retirement and Disability Insurance benefits. Unreimbursed medical expenses that exceed 5 percent of the maximum pension amount may be deducted from income in determining eligibility. Eligibility for the surviving spouses and children of such veterans is based on similar factors. Once pensioners have been awarded benefits, VA makes ongoing eligibility determinations and adjusts benefit levels as needed. Pensioners are required to inform VA of any changes in their circumstances—such as hospitalization or incarceration, as well as changes in income and assets—that could affect their eligibility or benefit levels. To further assess ongoing eligibility and benefit levels, VA also requires pensioners who have any income other than Social Security to file an annual report with VA. Then, VA evaluates the information in this report to determine if pensioners continue to meet eligibility requirements. In 2006, most VA pensioners had nonpension incomes well below the federal poverty level, were beyond retirement age, and had multiple impairments, and the population had been decreasing in number. In addition to low incomes, the majority of VA pensioners had few assets and limited education. Since 1978, the total pension population has been decreasing, although there have been increases in numbers of pensioners from more recent service periods, including the Vietnam era and the Gulf War. Most pensioners have very low annual incomes outside of their pension benefits. According to our analysis of VA data, veteran pensioners’ average annual nonpension income was $4,573 in 2006. This was well below the 2006 federal poverty level of $9,800 for a single adult. Survivors had a lower average annual nonpension income of $3,046. Both veterans and survivors under 65 had lower average annual nonpension incomes than those 65 and older. Social Security benefits and non-Social Security retirement income accounted for much of the difference, as shown in table 1. When VA pension benefits are included, most veterans had annual incomes above the federal poverty level. This is not true of survivors, who receive smaller pension awards than veterans. Pension benefits in 2006 averaged $8,232 per year for veterans and $4,260 per year for survivors, for an average total income, respectively, of $12,805 and $7,306. In a 2002 VA study, pensioners reported having few assets and low levels of education. Less than half of pensioners reported owning their own homes, with ownership rates for spouses being lower than those for veterans. Even fewer pensioners owned vehicles. About one-third of veterans reported owning a car, and only about one-fifth of spouses reported owning a car. Moreover, pensioners generally reported low levels of education, with those over age 65 reporting less education than those under age 65. More than half of veterans and spouses over age 65 reported not having a high school diploma, compared with 22 percent of veterans under age 65 and 44 percent of spouses under age 65. Over a third of pensioners under age 65 reported having a high school diploma, and less than 7 percent reported completion of a bachelor’s or higher degree. The average age of VA pensioners is approximately 70, with approximately 60 percent over age 65 and less than 20 percent age 55 or younger. Significant numbers are over age 75, as shown in figure 1. The average age is highest for surviving spouses of deceased veterans, who constitute approximately one-third of all pensioners. In 2006, their average age was 72, while that of veterans was 69. About three-quarters of all surviving spouses are over age 65, compared to just over half of all veterans. Less than 2 percent of all pensioners are younger than age 45. Most VA pensioners have no spouse or dependent children, according to information the pensioners provided to VA in 2006. As shown in figure 2, about 82 percent of pensioners receive benefits for themselves alone, and most of the remaining 18 percent are veterans living with dependents. Proportionately few pensioners have dependent children eligible for pension benefits: About 22,000 of the half-million pensioners receive VA payments for support of their children, in most cases for one or two children. Most veteran pensioners have multiple disabling conditions, with approximately 95 percent reporting at least one impairment and nearly 75 percent reporting two or more impairments. As shown in figure 3, excluding those impairments classified as “other,” musculoskeletal conditions were the most common type of impairment among veteran pensioners. For veterans under age 65, the next most common type of impairment was mental, while for veterans age 65 and older it was cardiovascular. Many pensioners require aid and attendance in their activities of daily living, such as dressing and feeding themselves. According to VA, slightly less than one-third of pensioners are housebound or in need of aid and attendance, and most of these pensioners are age 65 and older. While more than 40 percent of pensioners age 65 and over require aid and attendance, less than 15 percent of younger pensioners do. Only a small number of pensioners reside in a nursing home—less than one-half of 1 percent of pensioners under age 65 and 3 percent of pensioners age 65 and over. In a 2002 VA study, about 95 percent of veterans and 87 percent of surviving spouses reported having some form of health insurance. Medicare was a source of coverage for 50 percent of veterans and 69 percent of surviving spouses. Over half of veterans also reported health care coverage through VA or military hospitals. Less than 15 percent of veterans relied on Medicaid for their health insurance and less than 15 percent of veterans had private health insurance. By contrast, 47 percent of surviving spouses relied on Medicaid, making it the second most common source of coverage after Medicare, while 18 percent reported having private insurance. As shown in table 2, the total number of pensioners has been decreasing in recent years, although the number of pensioners from more recent service periods has been increasing. In 2006, the three pension programs served about 535,000 veterans and survivors, a 75 percent decrease from 1978, when participation peaked at almost 2 million. VA attributes the overall reduction in numbers largely to the death of World War II era pensioners and the greater availability of Social Security retirement benefits, which often raise veterans’ incomes above the VA pension program’s eligibility levels. While total program enrollment has declined, the Vietnam era and Gulf War cohorts of pensioners have increased in number in recent years, as shown in table 3. VA expects the Vietnam era cohort to continue to increase in number as more Vietnam era veterans meet the 65-year age requirement for pension eligibility. An estimated 5.2 million of these veterans will be age 65 or older in the year 2015. However, VA has no estimate of how many also will have qualifying wartime service, meet income requirements, and submit pension claims. Further, the number of Gulf War veterans receiving pensions increased by nearly 300 percent between 2000 and 2006, although they are still less than 5,400 in number. Even with increases in these two cohorts, VA estimates that the total pensioner population will continue to decline in size through at least 2017. The main reason for caseload termination is death, followed by increased income, as shown in figure 4. In January 2007, about 70 percent of veteran pension cases and 50 percent of surviving spouse cases were terminated as a result of the death of the pensioner. Increased income was the reason for termination in about a fifth of veteran cases and in about two-fifths of surviving spouse cases.