VA Life Insurance:

Administrative Costs for Three Programs Should Be Paid From Excess Funds

HRD-92-42: Published: Mar 10, 1992. Publicly Released: Mar 10, 1992.

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Stephen P. Backhus
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Pursuant to a congressional request, GAO examined the feasibility of the Department of Veterans Affairs (VA) using a portion of dividends paid to policyholders in three of its life insurance programs to pay for the programs' administrative costs.

GAO found that: (1) VA investments purchased from the three life insurance programs will average about 9-percent interest annually for the next 7 or 8 years; (2) those earnings and a lower-than-average mortality rate for many of the insured have caused the programs' annual income to accumulate above the solvency levels that VA actuarially determined were necessary; (3) VA expects the three life insurance programs to accrue substantial excess income for the foreseeable future; (4) VA has previously reduced the annual excess reserves by paying dividends to policyholders, and paid over $1 billion in dividends to policyholders in 1990; (5) VA used $27 million in appropriations to pay the three programs' administrative costs for 1990; (6) if VA had used the 1990 excess income to fund the programs' administrative costs, it would have returned $1 billion instead of $1.3 billion to policyholders, decreasing the average individual policyholder return by about $10; (7) veterans' groups opposed the use of excess income to pay administrative costs, since they believed that the government agreed to pay the costs and that veterans had a vested right to the excess income; and (8) neither the insurance contracts, VA regulations, nor the relevant statutes expressly guarantee those benefits, and the insurance policies state that the applicable statutes are subject to amendment. GAO believes that it would be neither illegal nor unfair to policyholders for VA to recover the programs' administrative costs from excess income.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has not yet acted on this recommendation.

    Matter: Congress should amend 38 U.S.C. 1982 to require that the three VA insurance programs pay administrative costs from excess interest income. This could be accomplished by changing the period following "Secretary" to a semicolon and adding: "provided, however, that to the extent excess revenues (the balance of funds remaining at the end of each fiscal year, beginning with the fiscal year ending before the date of enactment of this proviso, after claims have been paid and reserves have been appropriately funded) for the programs authorized under sections 1901, 1923, and 1940 are available, the cost of administration shall be paid from such excess."


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