Background

In 2017, 4.5 million veterans with medical conditions or injuries that were incurred or that worsened during active-duty service received disability compensation from the Department of Veterans Affairs (VA). The amount of compensation such veterans receive depends on the severity of their disabilities (which are rated between zero and 100 percent in increments of 10), the number of their dependents, and other factors—but not on their income or civilian employment history.

In addition, VA may increase certain veterans' disability compensation to the 100 percent level, even though VA has not rated their service-connected disabilities at that level. To receive the supplement, termed an Individual Unemployability (IU) payment, disabled veterans must apply for the benefit and meet two criteria. First, veterans generally must be rated between 60 percent and 90 percent disabled. Second, VA must determine that veterans' disabilities prevent them from maintaining substantially gainful employment—for instance, if their employment earnings would keep them below the poverty threshold for one person. In 2017, for veterans who received the supplement, it boosted their monthly VA disability payment by an average of about $1,200. In September 2017, about 380,000 veterans received IU payments. Of those veterans, the Congressional Budget Office estimates, about 180,000 were age 67 or older. That age group has been the largest driver of growth in the program.

VA's regulations require that IU benefits be based on a veteran's inability to maintain substantially gainful employment because of the severity of a service-connected disability and not because of age, voluntary withdrawal from work, or other factors. About 48 percent of veterans receiving the IU supplement were 67 or older in September 2017, up from about 40 percent in September 2010. That rise is attributed largely to the aging of Vietnam War veterans.

Option

This option consists of two alternatives, both beginning in January 2020. Under the first alternative, VA would stop making IU payments to veterans age 67 or older (the full retirement age for Social Security benefits for those born after 1959). That restriction would apply to both current and prospective recipients. Therefore, at age 67, VA disability payments would revert to the amount associated with the rated disability level.

Under the second alternative, veterans who begin receiving the IU supplement after January 2020 would no longer receive those payments once they reach age 67. In addition, no new applicants who are age 67 or older would be eligible for IU benefits after that date. Unlike under the first alternative, veterans who are already receiving IU payments and are age 67 or older after the effective date of the option would continue to collect the IU supplement.

Effects on the Budget

By CBO's estimates, the savings from the first alternative, in which veterans age 67 or older may no longer collect the IU supplement, would be $48 billion between 2020 and 2028. That reduction in spending is the result of a decrease in the number of veterans who would qualify for the supplement. CBO estimates that the number of veterans who would no longer receive or qualify for the IU supplement would total nearly 235,000 in 2020. That number would increase to 382,000 veterans in 2028, with savings totaling $7 billion in that year. Disability payments for those who lost eligibility would be reduced by an average of $1,300 per month in 2020, increasing to $1,600 by 2028.

The savings from the second alternative, which would end IU payments to new recipients and bar applications from veterans who are age 67 or older after the effective date of the option, would total $7 billion between 2020 and 2028. The number of veterans who would not collect IU payments under this alternative grows from 8,300 in 2020 to 83,000 in 2028. The savings from this alternative equal $2 billion in that final year of the projection period.

CBO projects the number of veterans receiving the IU supplement on the basis of past growth in the number of new recipients (by age) and adjusts that number to account for the morbidity of beneficiaries and other factors, such as the backlog of disability cases to be decided. For IU recipients who would no longer receive the supplement under this option, CBO determines per-veteran savings by reducing the payment amount to a level that corresponds to the veteran's overall disability rating. CBO estimates that rating on the basis of historical data on IU recipients and anticipated changes in the distribution of their ratings. The largest sources of uncertainty in the estimate of savings over the next 10 years are CBO's estimates of the number of participants who would be affected by the option and of the disability ratings of those affected. Changes in policy, such as increased efforts by VA and private organizations to inform veterans about this benefit or the level of assistance given by those entities in developing a claim, may affect the number of applicants with fully developed claims, and consequently contribute to uncertainty regarding the savings from this option.

Other Effects

One argument 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 their lack of earnings would probably not be attributable to service-connected disabilities. In 2017, about 35 percent of men ages 65 to 69 were in the labor force; for men age 75 or older, that number dropped to about 10 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 60s and probably have worked enough in prior years 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 due to his or her disabilities and that age should not be a factor in deciding a claim. 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.