The veterans compensation program provides eligible veterans and their survivors with benefits to compensate for the loss of potential earnings due to service-connected disability or death.
The accrual deficit reflects an expense for future payments to current veterans already receiving benefits, veterans who are not currently receiving benefits but are projected to in the future, and a portion of those in active military service projected by the Department of Veterans Affairs (VA) to become eligible for benefits in the future. The cash deficit reflects compensation payments made in the current year to current veterans but not the estimated costs of future benefits.
The veterans compensation liability represents the estimated future spending associated with this fiscal exposure that has been reflected in the accrual deficit and will be reflected in future cash deficits. The table below shows the reported veterans compensation liability—or the present value of the estimated cost of future benefit payments earned as of the end of the year and payable in the future—and the corresponding change in each year from 2009 to 2013. An increase in the liability represents accrued expenses in excess of cash payments.
Veterans Compensation Liabilities (By Fiscal Year, Dollars in Billions)
|Change in liability from previous year||-149.2||223.8||58.9||227.9||213.2|
What drives changes in veterans compensation liabilities?
Changes in the veterans compensation liability can affect the accrual deficit without a corresponding change to the cash deficit. The changes may reflect changes to the structure of the program or the benefit formula or changes to VA’s assumptions of future conditions. VA estimates the compensation liability using assumptions for the number of beneficiaries, life expectancy, future cost of living adjustments, and interest rates, among other things; the liability is sensitive to changes in these assumptions.
In some years, the veterans compensation liability has fluctuated due to changes in assumptions used to estimate the value of future benefits. In 2011, for example, a change to the real interest rate assumption contributed to a $58.9 billion increase in the liability. In both 2012 and 2013, the liability increased by more than $200 billion due to multiple factors: changes in the assumptions used to calculate future benefits paid, an increase in the assumed disability claims rate, and a decrease in the discount rate which increases the present value of the liability. In addition, the liability could also be affected by program changes, such as to the veterans benefit package. For example, in 2010, the veterans compensation liability increased to reflect newly recognized payments to veterans suffering from exposure to Agent Orange during the Vietnam conflict.