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No Lump-Sum Disabled Pay
Tom Philpott | October 27, 2006
Veterans' Disability Panel Rejects Lump-Sum Option

The Veterans’ Disability Benefits Commission has examined and rejected a proposal that the VA begin offering veterans with lower-rated disabilities a lump-sum payment instead of lifetime monthly compensation.

The 13-member commission reached its decision unanimously last week at a public meeting in Washington D.C. It did so after being briefed on the pros and cons of lump-sum VA disability payments, and hearing arguments against the idea from veterans’ service organizations.

The commission, created by Congress in 2004, is conducting the first comprehensive review of veterans’ disability benefits in 50 years. Its recommendations are to be delivered to lawmakers next fall.

One idea the commission won’t embrace is lump-sum compensation, rather than monthly disability pay, for veterans rated 10 or 20 percent disabled by the Department of Veterans Affairs (VA). Veterans with 10 and 20 percent ratings represent about three quarters of all disabled veterans.

Those with a 10-percent rating now receive $112 a month in disability compensation. Veterans rated 20 percent disabled get $218. The payments are adjusted annually to keep pace with inflation.

Under a lump-sum option, a 25-year-old veteran, newly-rated as 10 percent disabled, might be offered $11,000. A veteran with a 20 percent rating, who is also 25, might be offered $22,000. Veterans who have been receiving monthly compensation for years obviously would get smaller offers. Actual amounts are unknown. They would be based not only on age or disability but final economic assumptions used including “discount rates” that veterans attach to dollars paid today versus in the future. The goal of a lump sum option would be to balance fairness for veterans with savings to the VA.

Joseph V. Violante, legislative director for Disabled American Veterans, testified Oct. 19 against the lump-sum settlements, on behalf of 13 veterans’ groups and service associations. Later, in an interview, Violante said he was surprised to learn that commissioners, that same day, directed their staff to prepare a decision paper recommending rejection of all lump-sum options.

Commissioners intend to approve that decision formally at a future meeting, said Ray Wilburn, spokesman for the commission.

Veterans should be relieved, said Violante. Those tempted by lump sums, he said, “would be giving up a lot of their benefit…and would face the possibility of not being able to re-open their claim should conditions worsen.”

The idea of lump-sum offers for lower-rated disabled veterans was raised in 1956, the last time the VA disability system was overhauled. It has been endorsed periodically since then, by various studies. The Department of Defense uses lump sums under its own disability retirement program. Service members rated 30 percent disabled or more qualify for monthly disability retirement. But those rated 10 or 20 percent by DoD can only get a lump-sum disability severance.

Most DoD disabled retirees apply for a VA rating after leaving service. That can result in a higher rating and better benefits. Those with DoD ratings of 10 or 20 percent typically see their monthly VA compensation delayed until an amount equal to their lump sum from DoD is recouped.

CNA Corp., formerly known as the Center for Naval Analyses, was hired by this commission to study and report on the advantages and disadvantages of a lump-sum option for VA. CNA reviewed how an option might be designed, who should be eligible and what savings might be gained.

CNA said veterans might view lump sums as more useful in transitioning to civilian life. They also might enjoy having a choice. And because lump sum recipients would have fewer interactions with VA, the timeliness of the VA claims process might improve, said the CNA report.

VA compensation costs, over time, also would fall because total dollars paid in lump sums would be a lot less than paid over a lifetime as monthly compensation. Compensation savings, in time, could be 10 to 20 percent.

The VA also would save on administrative costs, CNA concluded. That would be especially true if veterans who accepted lump-sum payments were prohibited from applying for a “re-rating” as their disabilities worsened.

But CNA acknowledged that lump-sum settlements raise new worries about the welfare of veterans who accept such deals. Some would use lump-sum payments foolishly, placing their financial futures in greater jeopardy. Another issue is what these veterans can do if their disabilities worsened.

To better understand the implications, CNA tracked how VA disabilities in the year 2000 changed over the next five years. CNA found that by 2005 almost no veteran saw his or her disability rating drop and only five percent of disabilities had a rating increase. The average increase was between 20 and 30 percentage points. Skin, hearing, sight, gynecological and lymphatic conditions showed the smallest rating changes, an average of less than two percent. Ratings for post-traumatic stress disorder rose sharply, with that average between 30 and 40 percentage points.

To estimate both near-term costs and long-term potential savings from use of lump-sum settlements, CNA assumed they would be offered only to veterans rated 10 or 20 percent disabled and with conditions having no more than a two-percent probability of a rating increase over the next five years. Likely candidate conditions that fit the profile include tinnitus, thumb amputations, hypertension and scars on the face, neck or head.

CNA calculated that offering lump sums to newly-rated veterans with these ratings and types of conditions would raise VA compensation costs by $545 million in the first year. More surprisingly, the VA wouldn’t break even and begin to see net savings from this change for 25 years.

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Copyright 2013 Tom Philpott. All opinions expressed in this article are the author's and do not necessarily reflect those of Military.com.

 
About Tom Philpott

Tom Philpott has been breaking news for and about military people since 1977. After service in the Coast Guard, and 17 years as a reporter and senior editor with Army Times Publishing Company, Tom launched "Military Update," his syndicated weekly news column, in 1994. "Military Update" features timely news and analysis on issues affecting active duty members, reservists, retirees and their families. Tom also edits a reader reaction column, "Military Forum." The online "home" for both features is Military.com.

Tom's freelance articles have appeared in numerous magazines including The New Yorker, Reader's Digest and Washingtonian. His critically-acclaimed book, Glory Denied, on the extraordinary ordeal and heroism of Col. Floyd "Jim" Thompson, the longest-held prisoner of war in American history, is available in hardcover and paperback.