Mandatory Spending

Function 700 - Veterans' Benefits and Services

Restrict VA's Individual Unemployability Benefits to Disabled Veterans Who Are Younger Than the Full Retirement Age for Social Security

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Outlays 0 -0.8 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 -6.3 -15.3

Note: This option would take effect in October 2014.

More than 3.4 million veterans with medical conditions or injuries that were incurred or worsened during active-duty service are receiving disability compensation from the Department of Veterans Affairs (VA). The amount of compensation they receive depends on the severity of their disabilities (which are generally assigned a single composite rating in an increment of 10 on a scale up to 100 percent), their number of dependents, and other factors—but not on their income or civilian employment history.

However, VA may supplement the regular disability compensation payments for veterans whom it deems unable to engage in substantial work. To qualify for those supplemental benefits, termed individual unemployability (IU) payments, veterans may not earn more than the federal poverty guidelines (commonly referred to as the federal poverty level) and generally must be rated between 60 percent and 90 percent disabled. A veteran qualifying for the IU supplement receives a monthly disability payment equal to the amount that he or she would receive if rated 100 percent disabled. In 2012, for those veterans who received the supplement, it boosted monthly VA disability payments by an average of about $1,500. The largest increases were paid to veterans rated 60 percent disabled: For them, the supplement raised the monthly payment by about $1,800, on average. In 2012, nearly 300,000 veterans received IU payments.

Under this option, VA would no longer make IU payments to veterans who are past Social Security’s full retirement age, which varies from 65 to 67 depending on beneficiaries’ birth year. Therefore, at the full retirement age, VA disability payments would revert to the amount associated with the rated disability level. By the Congressional Budget Office’s estimates, the savings from this option between 2015 and 2023 would be $15 billion.

VA’s regulations require that IU benefits be based on a veteran’s inability to maintain substantial employment because of the severity of a service-connected disability—and not because of age, voluntary withdrawal from work, or other factors. Consequently, a veteran may begin to receive IU payments, or continue to receive them, after the full retirement age for Social Security. In 2005 (the most recent year for which VA reports such statistics), more than 80,000 veterans who received the IU supplement, or about one-third of the total number in that year, were over the age of 65.

One rationale for this option is that most veterans who are older than Social Security’s full retirement age would not be in the labor force because of their age, so for those veterans, a lack of earnings would probably not be attributable to service-connected disabilities. In particular, in 2010, about 35 percent of men who were 65 to 69 years old were in the labor force, and that number dropped to 10 percent for those age 75 or older. In addition, most recipients of IU payments who are over age 65 would have other sources of income: They would continue to receive regular VA disability payments and might collect Social Security benefits as well. (Most recipients of the IU supplement begin collecting it in their 50s and probably have worked enough to earn Social Security benefits.)

An argument for retaining the current policy is that IU payments should be determined solely on the criterion of a veteran’s ability to work and that having age be a consideration would be unfair. In addition, some disabled veterans would find it difficult or impossible to replace the income provided by the IU supplement. If they had been out of the workforce for a long time, their Social Security benefits might be small, and they might not have been able to accumulate much in personal savings.