November 13, 2013
OPTIONS FOR REDUCING THE DEFICIT: 2014 TO 2023

Mandatory SpendingOption 9

600 - Income Security

Eliminate Concurrent Receipt of Retirement Pay and Disability Compensation for Disabled Veterans

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Outlays 0 -9 -11 -11 -11 -12 -13 -13 -15 -14 -41 -108

Note: This option would take effect in October 2014.

Military service members who retire—either following 20 or more years of military service under the longevity-based retirement program or early because of a disability—are eligible for retirement annuities from the Department of Defense (DoD). In addition, veterans with medical conditions or injuries that were incurred or worsened during active-duty military service (excluding those resulting from willful misconduct) are eligible for disability compensation from the Department of Veterans Affairs (VA).

Until 2003, military retirees who were eligible for disability compensation could not receive both their full retirement annuity and their disability compensation. Instead, they had to choose between receiving their full retirement annuity from DoD or receiving their disability benefit from VA and forgoing an equal amount of their DoD retirement annuity; that reduction in the retirement annuity is generally referred to as the VA offset. Because the retirement annuity is taxable and disability compensation is not, most retirees chose the second alternative.

As a result of several laws, starting with the National Defense Authorization Act for 2003, two classes of retired military personnel who receive VA disability compensation (including those who retired before the enactment of those laws) can now receive payments that make up for part or all of the VA offset, benefiting from what is often called concurrent receipt. Specifically, retirees whose disabilities arose from combat are eligible for combat-related special compensation (CRSC), and veterans who retire with 20 or more years of military service and who receive a VA disability rating of 50 percent or more are eligible for what is termed concurrent retirement and disability pay (CRDP). CRSC is exempt from federal taxes, but CRDP is not; some veterans would qualify for both types of payments but must choose between the two.

This option would eliminate concurrent receipt of retirement pay and disability compensation beginning in 2015: Military retirees currently drawing CRSC or CRDP would no longer receive those payments, nor would future retirees. As a result, the option would reduce federal spending by $108 billion between 2015 and 2023, the Congressional Budget Office estimates.

In 2012, of the roughly 2 million military retirees, about half were subject to the VA offset; about 40 percent of that latter group—or 420,000 retirees—got concurrent receipt payments totaling $7 billion. Spending for concurrent receipt, which was just over $1 billion in 2005, has climbed sharply because of both an expansion of the program and an increase in the share of military retirees receiving disability compensation. In particular, the share of military retirees receiving a longevity-based retirement annuity who also receive disability compensation rose from 33 percent in 2005 to 45 percent in 2012.

One argument for this option is that disabled veterans would no longer be compensated twice for their service, reflecting the reasoning underlying the creation of the VA offset. However, military retirees who receive VA disability payments would still receive higher after-tax payments than would retirees who are not disabled and who have the same retirement annuity because VA disability benefits are not taxed.

An argument against this option is that the DoD retirement system and the VA disability program compensate for different characteristics of military service: rewarding longevity in the former case and remunerating for pain and suffering in the latter. In addition, a determination of disability by VA is a gateway to receiving other VA services (such as health care or vocational training), yet many veterans consider the disability-rating process onerous. If fewer retirees applied for VA disability compensation because concurrent receipt was no longer available, some veterans might bypass other VA services for which they would be entitled otherwise. Moreover, some retirees would find the loss of income financially difficult.