Financial Management:

Review of VA's Actuarial Model for Veterans' Compensation Benefits

AIMD-99-46: Published: Jan 29, 1999. Publicly Released: Jan 29, 1999.

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Pursuant to a legislative requirement, GAO reviewed the Department of Veterans Affairs' (VA) revised actuarial model for veterans' compensation benefits, focusing on whether: (1) VA's revised actuarial model complies with Statement of Federal Financial Accounting Standards (SFFAS) No. 5; and (2) future liability estimates can be improved.

GAO noted that: (1) VA's revised model resulted in an estimate for fiscal year (FY) 1997 that was much more consistent with SFFAS No. 5 than that previously used because it included estimates for anticipated changes in disability ratings and for incurred but not reported claims; (2) during GAO's review, VA officials were informed that the model needed further refinements to comply more fully with SFFAS No. 5; (3) specifically, the revised model did not include 1.5 million current active military personnel, some of whom have sustained injuries and may qualify for future benefits; (4) instead, it only included those who had separated from active military service as of September 30, 1997; (5) in response, VA modified its model for FY 1998 by including the current military population, which, according to VA officials, will further increase the liability estimate by about $12 billion; (6) the VA Office of the Inspector General is currently testing the underlying data used in the model as part of its audit of the FY 1998 financial statements; (7) GAO also noted certain limitations in the data used in the model to develop the estimated liability; (8) VA's FY 1997 liability estimate was based on 1 to 3 years of experience for various data elements; (9) studying the experience over such a limited time period may not fully represent the universe of veterans and therefore could cause distortions in predicting future benefits; (10) in addition, VA did not group claimants by conflict-related exposures, such as Agent Orange; (11) therefore, the model did not reflect the impact of such events on future benefits; (12) VA's model did not consider the time lag between date of discharge and date of the initial award, although a veteran's likelihood of filing a claim decreases the longer he/she is out of the service; (13) these data, if considered along with age and beneficiary type, would provide a better basis for predicting the likelihood that a veteran would seek a compensation award; and (14) with better experience data over a more extended period of time, VA's model would be more predictive, resulting in a more reasonable liability estimate.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: VA improved its FY 1999 model for estimating VA's liability for veterans compensation benefits. VBA has worked annually with a contractor to refine the model to include changes and developments in veterans disabilities over an expanded period of time.

    Recommendation: The Secretary of Veterans Affairs should direct the Under Secretary for Benefits to further improve its model for estimating VA's liability for veterans' compensation benefits by refining the estimates by continuing to evaluate the actual experience of the compensation programs and expanding the period over which experience is studied.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: VA improved its FY 1999 model for estimating VA's liability for veterans compensation benefits. VBA worked annually with a contractor to determine the impact of conflict-related exposures and developed time lag information between the time military personnel are discharged and award of benefits, in addition to age and type (i.e., veteran, surviving spouse, or child)of beneficiaries.

    Recommendation: The Secretary of Veterans Affairs should direct the Under Secretary for Benefits to further improve its model for estimating VA's liability for veterans' compensation benefits by considering the impact of conflict-related exposures and the time lag between discharge and date of initial award, in addition to age and type of veterans and beneficiaries, as indications of the propensity for veterans to secure compensation benefits.

    Agency Affected: Department of Veterans Affairs

 

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