Veterans' Disability Benefits:

VA Should Improve Its Management of Individual Unemployability Benefits by Strengthening Criteria, Guidance, and Procedures

GAO-06-309: Published: May 30, 2006. Publicly Released: May 30, 2006.

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As part of its Disability Compensation program, the Department of Veterans Affairs (VA) provides Individual Unemployability (IU) benefits to veterans of any age who are unemployable because of service-connected disabilities. Over the last decade, the number of IU beneficiaries and benefit costs have more than tripled. In 2005, about 220,000 veterans received an estimated $3.1 billion in IU benefits. In response to a congressional request, GAO assessed VA's management of IU benefits. This report (1) examines the added value of IU benefits for veterans of selected ages and disability ratings, (2) assesses the criteria, guidance, and procedures used for initial decision making, (3) assesses VA's ongoing eligibility enforcement procedures, and (4) compares VA's decision-making and enforcement procedures with those used by other disability programs.

Under VA's disability compensation program, VA can award IU benefits (that is, total disability compensation) to veterans of any age who cannot work because of service-connected disabilities even though VA did not rate their impairments at the total disability level. The added value of IU benefits over a veteran's lifetime depends upon the veteran's level of impairment at the time he or she begins receiving IU benefits and the length of time these benefits are received. To illustrate the potential amount of IU benefits that could be received, GAO estimated the lifetime present value of the added benefits in disability compensation for veterans with different impairment levels who began receipt of IU benefits in 2005 at different ages. GAO found that the lifetime present value of these benefits can range from about $300,000 to over $460,000 for veterans age 20 in 2005, and about $89,000 to about $142,000 for veterans age 75 in 2005. GAO also found that just under half (45.6 percent) of new IU beneficiaries was awarded IU benefits at the age of 60 or older, and 19.2 percent were age 75 or older. VA's criteria, guidance, and procedures for awarding IU benefits do not ensure that its IU decisions are well supported. VA regulations and guidelines lack key criteria and guidance that are needed to determine unemployability. VA guidelines also do not give rating specialists the procedures to obtain the employment history and vocational assessments needed to support IU decisions. As a result, some VA staff told us that IU benefits have been granted to some veterans with employment potential. In addition, VA's process for ensuring the ongoing eligibility of IU beneficiaries is inefficient and ineffective. This enforcement process relies on old data, outdated, time-consuming manual procedures, insufficient guidance, and weak eligibility criteria. Moreover, the agency does not track and review its enforcement activities to better ensure their effectiveness. VA is among the federal disability programs GAO has identified as high risk and in need of modernization, in part, because it is poorly positioned to provide meaningful and timely support to help veterans with disabilities return to work. Specifically, VA's compensation program does not reflect the current state of science, technology, medicine, and the labor market. VA's management of IU benefits exemplifies these problems because its practices lag behind those of other disability programs. Approaches from other disability programs demonstrate the importance of providing return-to-work services and using vocational expertise to assess the claimant's condition and provide the appropriate services. Incorporating return-to-work practices in IU decision making could help VA modernize its disability program to enable veterans to realize their full potential without jeopardizing the availability of benefits for veterans who cannot work.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Veterans Affairs (VA) has taken several steps to help improve management of its Individual Unemployability benefits. Changes implemented by the agency to strengthen eligibility criteria, guidance, and procedures have included providing instructions to its regional offices to help ensure key forms to collect eligibility information are received by veterans and their employers. For example, in 2006, VA clarified using the Form 21-8940 to document employment history. To promote nationwide consistency in the processing of Individual Unemployability claims, VA issued a training letter in Jan. 2007, and recently developed a new IU training letter that will be released to regional offices by October 2010. Topics covered in the letter include evidence development, medical examination requests, and the effective date of awards. In addition, the agency has sought and gained legislative authority, which became effective in December 2007, to use earning data from The Department of Health and Human Service's (HHS) National Directory of New Hires (NDNH) to verify income for determining veterans' eligibility for Individual Unemployability benefits. To utilize this data, VA reports that it has entered into a memorandum of understanding, referred to as the computer matching agreement, with HHS to use NDNH data. VA expects to complete the determination of technical requirements to use NDNH data as early as June 2011. VA also contracted with Economic Systems, Inc. to review criteria related to unemployability. Ultimately, in a report to Congress in 2009, the agency considered but rejected recommended changes to Individual Unemployability eligibility criteria related to age limitations and retirement.

    Recommendation: To help ensure that IU decisions are well-supported and IU benefits are provided only to veterans whose service-connected disabilities prevent them from obtaining or retaining substantially gainful employment, VA should clarify and strengthen its eligibility criteria, guidance, and procedures for determining unemployability. For example, VA could: clarify in its regulations and guidelines how vocational factors, such as education, skills, or prior work history, should be used to assess a claimant's eligibility; establish procedures for rating specialists to request VR&E to conduct vocational assessments of IU claimants as appropriate; and seek legislative authority to use earnings data from the National Directory of New Hires.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: The agency has taken several efforts to improve the efficiency and effectiveness of its enforcement of ongoing eligibility assessments for veterans receiving unemployability benefits, by updating procedures and criteria to enforce the individual unemployability (IU) earnings limit. On February 21, 2007, the Veterans Benefit Administration (VBA) released Training Letter 07-01 to the field instructing regional offices on procedures for the handling and management of Individual Unemployability (IU) claims. The letter also provides guidance on procedures for cases involving substantial and marginal employment. VBA management also approved a project initiation request to update and increase the poverty threshold for making IU evaluation up to $10,294. In addition, VBA's manual provides instructions to the regional offices on the location of the Census Bureau Internet address for the poverty threshold and how to use it for cases involving IU. In addition, VA completed a cost analysis for the use of IRS Income Verification Match for the current computer matching agreement, which is estimated to save $18.9 million. The savings includes all income-related claims. The agency also reported that it expects to complete its cost analysis for the matching agreement with the Social Security Administration in October 2008.

    Recommendation: To improve the efficiency and effectiveness of VA's enforcement efforts to monitor ongoing eligibility, VA should update procedures and strengthen criteria for the enforcement of the IU earnings limit. For example, VA could: update and automate its enforcement process, including using more current earnings data and threshold amounts in its income verification match; clarify guidance on the review of IU beneficiary earnings following the match; and annually track and report on the results of matching process and related enforcement activities.

    Agency Affected: Department of Veterans Affairs

  3. Status: Closed - Implemented

    Comments: The Department of Veterans Affairs (VA) has developed an enclosure providing information on its Vocational Rehabilitation and Employment (VR&E) program that is included in the disability ratings information sent to veterans who are awarded a total disability rating based on Individual Unemployability regulations. The enclosure is intended to encourage interested veterans to contact the agency's VR&E program for return-to-work assistance. VA also contracted with Economic Systems, Inc. to review the relationship between Individual Unemployability and VR&E eligibility. Ultimately, in a report to Congress in 2009, the agency considered but rejected a policy recommendation made by Economic Systems, Inc. to incorporate a vocational rehabilitation assessment when determining eligibility for the Individual Unemployability benefit, because it would be too costly.

    Recommendation: To help modernize its IU decision-making process, VA should develop a strategy to ensure that IU claimants with work potential receive encouragement and assistance to return to work, while protecting benefits for those unable to work. For example, VA could encourage claimants to return to work by having vocational counselors from VR&E develop return-to-work plans and provide assistance to claimants with work potential.

    Agency Affected: Department of Veterans Affairs


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