Department of Veterans Affairs

Recommendations and Actions

DVA05: Consolidate Department of Defense and Department of Veterans Affairs Compensation and Retired Pay Programs

Background

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) administer overlapping compensation, retired pay, and pension programs. Dual adjudication processes are used, although by law, each department must consider the existence of the other's programs when making eligibility determinations and payments.(1)

The largest overlap occurs when service members separated from active duty under honorable conditions, based either on disability or length of service, are also eligible for disability compensation from the VA. At the beginning of fiscal year 1990, approximately 442,270 (or 31 percent) of the 1.4 million veterans who were receiving regular and medical retirement pay from DOD were also receiving VA disability payments.(2)

As an example of the effects of the overlap, a retired service member entitled to $3,000 of military retired pay per month may also be entitled to VA disability compensation of $300 per month. The veteran can waive (i.e., not receive) $300 of his or her retired pay to receive the VA compensation. The waiver is advantageous because-- unlike military retired pay based on length of service--VA compensation is nontaxable. In this case, the veteran would still receive $3,000 per month, only $2,700 of which would be taxable.(3)

By law, the total benefits from both departments may not exceed the higher of the two benefits. If VA compensation exceeds military retired pay, it must be informed by DOD that military retired pay has been discontinued before full VA compensation can be paid. Similar restrictions apply to the payment of VA dependency and indemnity compensation (i.e., service-connected death benefits) and DOD Survivor Benefit Plan annuities.

Due to these legal requirements, VA and DOD must maintain close liaison with each other. Because of the complexity of the programs, coordination does not always prevent erroneous payments, especially when changes in the rate of payments occur based on cost-of-living adjustments or basic entitlement changes in either program. Veterans find the dual systems confusing, particularly when their benefits are adjusted.

An increased administrative burden falls on VA, since it must deal with separate military payment centers for each branch of service. In April 1993, VA Secretary Jesse Brown directed that a VA task force be assembled to (1) identify the size, complexity, and administrative costs of the respective payment systems, and (2) identify areas where consolidation could enhance service delivery and result in cost savings. The VA believes that its computers currently have the capacity to meet the additional workload requirements. The three largest veterans organizations (VSOs) support consolidation and streamlining initiatives. He addressed a letter that same month to DOD Secretary Les Aspin, requesting that DOD assist the VA initiative.

In the same month he requested DOD to assist the VA initiatives. A task force of officers from each service branch and the Office of the Secretary of Defense was established to determine whether consolidation or streamlining of medical disability discharge procedures within the department was feasible.(4) Members of the task force concluded that complete consolidation within the military is not recommended.(5)

The task force advised that the primary objective of their respective medical and physical evaluation boards is to determine a service member's fitness for duty--unlike VA's disability compensation adjudication process, which focuses on a veteran's overall civilian employability and eligibility for additional compensation to make the veteran whole. Since VA must apply these additional factors in rendering decisions, VA's ratings are often higher than DOD's.

Determinations by the boards of the various military services are job specific, and each service branch cites its own unique physical demands as justification for separate systems. The Navy, for example, will not retain a sailor with diabetes because of the lack of adequate medical facilities aboard ship. The Navy will also separate sailors for less severe knee impairments than the other branches because of the requirement to rapidly ascend and descend ship ladders.

Members of the DOD task force strongly believe that each branch must remain empowered to determine and enforce its own fitness for duty standards.(6) They consider DOD procedures to be critical to its ability to maintain a fit force, especially as the military engages in the process of downsizing. There will be fewer desk jobs, for example, for members of the armed forces who cannot be deployed for combat, making the separation of those members based on the services' particular criteria an operational necessity directly affecting the military's ability to accomplish its mission in the event of an emergency.

Streamlining or consolidating elements of the disability compensation programs administered by the VA and DOD would result in improved service to the veterans who are their customers. Another likely outcome of this process would be identification of additional restructuring opportunities within other VA and DOD benefits programs. The enhanced efficiencies achieved through the streamlining or consolidation of these processes would result in additional cost savings and improved service delivery to a greater number of veterans.

Actions

1. The Department of Veterans Affairs and the Department of Defense task forces should jointly examine their disability compensation adjudication and disbursement processes, identify potential areas that can be streamlined or consolidated, and expeditiously implement the resulting recommendations.

2. VA and DOD should also identify other overlapping benefit programs (e.g., education, life insurance, and burial) that could offer similar restructuring opportunities.

Implications

Some VSO leaders advise that retired military personnel would be likely to oppose consolidation efforts because they expect and receive preferential treatment when dealing with their respective service branches. These leaders anticipate that these retirees would object to a system that treated them on equal basis with all other veterans.

DOD questions whether consolidation of the military retired pay and VA pensions programs is technically feasible, based on reports that VAs computer systems are already operating at capacity and need modernization. DOD would oppose any decision that would entrust their retirees pay and DOD emergency recall capabilities to the VA.

Fiscal Impact

Since specific processes to be streamlined or consolidated have not been identified, there are no identifiable cost savings that can be estimated. Logically, streamlining of existing processes and consolidation of duplicative procedures would result in increased efficiency and reduced costs.

Endnotes

1. Interview with J. Gary Hickman, Director, Compensation and Pension Service, Veterans Benefits Administration (VBA), U.S. Department of Veterans Affairs.

2. U.S. Department of Defense (DOD), Office of the Inspector General, Medical Disability Discharge Procedures, Audit Report Number 92-100 (Washington, D.C., June 8, 1992).

3. Interview with Robert Yurgal, Chief of Analysis and Budget, VBA.

4. Interview with John F. Mazzuchi, Ph.D., Acting Deputy Assistant Secretary of Defense for Professional Affairs and Quality Assurance, Department of Defense.

5. Interview with Colonel Edward A. Miller, M.D., Director, Professional Affairs, Office of the Assistant Secretary of Defense (Health Affairs), Department of Defense, and members of the DOD disability task force.

6. Interview with members of the DOD Disability Task Force.

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