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 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
Change in Outlays 0 -2.9 -4.0 -4.2 -4.3 -4.5 -4.7 -4.8 -5.0 -5.2 -15.4 -39.6

This option would take effect in January 2018.

In 2015, more than 4 million veterans with medical conditions or injuries that occurred or worsened during active-duty military service were 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 rated between zero and 100 percent in increments of 10), their number of dependents, and other factors—but not on their income or civilian employment history.

In addition, 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 must have low earnings 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 2015, for veterans who received the supplement, it boosted monthly VA disability payments by an average of about $1,250. In September 2015, about 350,000 veterans received IU payments.

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. More than 60 percent of veterans receiving the IU supplement were 65 or older in September 2015, up from about one-third in September 2010. That rise is attributed largely to the aging of Vietnam War veterans.

Under this option, beginning in January 2018, VA would stop making IU payments to veterans older than Social Security’s full retirement age, which varies from 65 to 67 depending on beneficiaries’ birth year. Therefore, at recipients’ full retirement age, VA disability payments would revert to the amount associated with the rated disability. By the Congressional Budget Office’s estimates, the savings from this option would be $40 billion between 2018 and 2026.

One rationale for this option is that most veterans older than Social Security’s full retirement age would not be in the labor force because of their age, so a lack of earnings for those veterans would probably not be attributable to service-connected disabilities. In particular, in 2015, about 35 percent of men ages 65 to 69 were in the labor force; for men age 75 or older, that number dropped to 11 percent. In addition, most recipients of IU payments who are older than 65 would have other sources of income: They would continue to receive regular VA disability payments and might also collect Social Security benefits. (Recipients of the IU supplement typically 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 basis of a veteran’s ability to work and that considering age would be unfair. In addition, replacing the income from the IU supplement would be hard or impossible for some disabled veterans. If they had been out of the workforce for a long time, their Social Security benefits might be small, and they might not have accumulated much in personal savings.