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entitled 'Veterans' Disability Benefits: VA Should Improve Its 
Management of Individual Unemployability Benefits by Strengthening 
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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

May 2006: 

Veterans' Disability Benefits: 

VA Should Improve Its Management of Individual Unemployability Benefits 
by Strengthening Criteria, Guidance, and Procedures: 

VA Individual Unemployability Benefits: 

GAO-06-309: 

GAO Highlights: 

Highlights of GAO-06-309, a report to congressional requesters. 

Why GAO Did This Study: 

As part of its Disability Compensation program, the Department of 
Veterans Affairs (VA) provides Individual Unemployability (IU) benefits 
to veterans of any age who are unemployable because of service-
connected disabilities. Over the last decade, the number of IU 
beneficiaries and benefit costs have more than tripled. In 2005, about 
220,000 veterans received an estimated $3.1 billion in IU benefits. In 
response to a congressional request, GAO assessed VA’s management of IU 
benefits. This report (1) examines the added value of IU benefits for 
veterans of selected ages and disability ratings, (2) assesses the 
criteria, guidance, and procedures used for initial decision making, 
(3) assesses VA’s ongoing eligibility enforcement procedures, and (4) 
compares VA’s decision-making and enforcement procedures with those 
used by other disability programs. 

What GAO Found: 

Under VA’s disability compensation program, VA can award IU benefits 
(that is, total disability compensation) to veterans of any age who 
cannot work because of service-connected disabilities even though VA 
did not rate their impairments at the total disability level. The added 
value of IU benefits over a veteran’s lifetime depends upon the 
veteran’s level of impairment at the time he or she begins receiving IU 
benefits and the length of time these benefits are received. To 
illustrate the potential amount of IU benefits that could be received, 
GAO estimated the lifetime present value of the added benefits in 
disability compensation for veterans with different impairment levels 
who began receipt of IU benefits in 2005 at different ages. GAO found 
that the lifetime present value of these benefits can range from: 

* about $300,000 to over $460,000 for veterans age 20 in 2005, and 
* about $89,000 to about $142,000 for veterans age 75 in 2005. 

GAO also found that just under half (45.6 percent) of new IU 
beneficiaries was awarded IU benefits at the age of 60 or older, and 19.2 
percent were age 75 or older. 

VA’s criteria, guidance, and procedures for awarding IU benefits do not 
ensure that its IU decisions are well supported. VA regulations and 
guidelines lack key criteria and guidance that are needed to determine 
unemployability.VA guidelines also do not give rating specialists the 
procedures to obtain the employment history and vocational assessments 
needed to support IU decisions. As a result, some VA staff told us that 
IU benefits have been granted to some veterans with employment 
potential. 

In addition, VA’s process for ensuring the ongoing eligibility of IU 
beneficiaries is inefficient and ineffective. This enforcement process 
relies on old data, outdated, time-consuming manual procedures, 
insufficient guidance, and weak eligibility criteria. Moreover, the 
agency does not track and review its enforcement activities to better 
ensure their effectiveness. 

VA is among the federal disability programs GAO has identified as high 
risk and in need of modernization, in part, because it is poorly 
positioned to provide meaningful and timely support to help veterans 
with disabilities return to work. Specifically, VA’s compensation 
program does not reflect the current state of science, technology, 
medicine, and the labor market. VA’s management of IU benefits 
exemplifies these problems because its practices lag behind those of 
other disability programs. Approaches from other disability programs 
demonstrate the importance of providing return-to-work services and 
using vocational expertise to assess the claimant’s condition and 
provide the appropriate services. Incorporating return-to-work 
practices in IU decision making could help VA modernize its disability 
program to enable veterans to realize their full potential without 
jeopardizing the availability of benefits for veterans who cannot work. 

What GAO Recommends: 

GAO recommends that VA should clarify and strengthen its IU eligibility 
criteria, guidance, and procedures for initial and ongoing eligibility 
decisions; and develop a return-to-work strategy for IU claimants. VA 
agreed with our conclusions and concurred with our recommendations, and 
stated that it has implemented and plans to implement program changes 
in areas that we identified as needing attention. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-309]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Cristina Chaplain at 
(202) 512-7215 or ChaplainC@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

The Added Value of IU Benefits Over A Lifetime Depends on the Veteran's 
Individual Circumstances: 

VA's Decision-making Criteria, Guidance, and Procedures Do Not Ensure 
That IU Decisions Are Well Supported: 

VA's Earnings Enforcement Process is Inefficient and Ineffective: 

VA's Practices to Manage Its Disability Benefits Lag Behind Other 
Disability Programs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: IU Beneficiaries and Estimated Expenditures: 

Appendix II: Lifetime Present Value Analysis of IU Benefits: 

Appendix III: Examples from VA's Rating Schedule for Selected Medical 
Conditions: 

Appendix IV: Example of Procedures to Calculate Combined Disability 
Ratings: 

Appendix V: Comments from the Department of Veterans Affairs: 

Appendix VI: GAO Contacts and Staff Acknowledgements: 

Tables: 

Table 1: VA Basic Monthly Disability Compensation Rates in 2005: 

Table 2: SSA's Debt Collection Tools for Benefit Overpayments: 

Table 3: Lifetime Present Value of Increased Benefits for Veterans 
Receiving IU by Selected Ages and Schedular Ratings: 

Table 4: VA's Rating Schedule for Selected Medical Conditions: 

Figures: 

Figure 1: Types of Service-Connected Impairments of IU Beneficiaries as 
of October 2005: 

Figure 2: Ages of IU Beneficiaries as of October 2005: 

Figure 3: Estimated Lifetime Present Values of the Added Benefits for 
Veterans Awarded IU Benefits in 2005 at Selected Ages and Schedular 
Ratings: 

Figure 4: Ages of New IU Beneficiaries from October 2004 to October 
2005: 

Figure 5: Number of IU Beneficiaries for 1996 to 2005: 

Figure 6: Estimated IU Expenditures for 1996 to 2005: 

Figure 7: Procedures to Calculate Combined Disability Rating: 

Abbreviations: 

DI: Disability Insurance: 

HHS: Department of Health and Human Services: 

IRS: Internal Revenue Service: 

ITC: Information Technology Center: 

IU: Individual Unemployability: 

NDNH: National Directory of New Hires: 

PMC: Pension Maintenance Center: 

SSA: Social Security Administration: 

SSI: Supplemental Security Income: 

VA: Department of Veterans Affairs: 

VHA: Veterans Health Administration: 

VR&E: Vocational Rehabilitation & Employment Service: 

United States Government Accountability Office: 

Washington, DC 20548: 

May 30, 2006: 

The Honorable Jeff Miller: 
Chairman: 
Subcommittee on Disability Assistance and Memorial Affairs: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Larry E. Craig: 
Chairman: 
Committee on Veterans' Affairs: 
United States Senate: 

The Honorable Henry E. Brown, Jr. 
Chairman: 
Subcommittee on Health: 
Committee on Veterans' Affairs House of Representatives: 

The Department of Veterans Affairs (VA) manages a range of benefit 
programs that, among other things, compensate veterans for disabilities 
incurred or aggravated during active military service. Military 
personnel in combat are now surviving injuries that would have been 
fatal in past conflicts, but along with this survival has come an 
increased rate of disabilities.[Footnote 1] With the continuing 
deployment of our military forces to armed conflicts in Iraq and 
Afghanistan and the use of military personnel in other efforts 
involving fighting terrorism and national preparedness, the effective 
and efficient management of VA's disability programs is of paramount 
importance.[Footnote 2] The largest of these programs is the Disability 
Compensation program, which as of September 2005, paid an estimated $29 
billion in benefits to 2.6 million veterans in compensation for lost 
earning capacity due to service-connected disabilities. Through this 
program, VA provides benefits to veterans in accordance with a Schedule 
for Rating Disabilities that categorizes disabilities on a scale 
ranging from 0 percent to 100 percent (in increments of 10 percentage 
points), which is intended to equate to the average loss in earning 
capacity resulting from the service-connected disability. Under VA's 
regulations governing Individual Unemployability (IU), VA can grant 
total disability compensation benefits at the 100-percent level to 
veterans of any age whose service-connected disabilities are rated at 
60 percent or higher and have caused them to be unemployable. Although 
disability compensation benefits are provided to veterans regardless of 
their income, VA places an earnings limit on the continued receipt of 
IU benefits. This limit applies only to the veteran's earnings, and not 
to the veteran's unearned income or household income. Managing IU 
benefits involves not only assessing initial eligibility for benefits, 
but also ensuring beneficiaries' ongoing eligibility by identifying 
those who are not in compliance with the earnings limit. 

VA has experienced a marked increase in IU beneficiaries and 
expenditures at a time when advances in medicine and technology, along 
with labor market changes, have provided greater opportunity for people 
with disabilities to seek and maintain employment.[Footnote 3] This 
trend has caused concern among Members of Congress about VA's 
management of IU benefits. Our analysis of VA data shows that the 
number of IU beneficiaries and payments has more than tripled since the 
mid-1990s. From September 1996 to September 2005, the number of 
veterans receiving IU benefits has increased from about 71,000 to about 
220,000. Moreover, we estimated that IU benefit payments from 1996 to 
2005 have grown from about $857 million to $3.1 billion. In September 
2005, nearly half of all veterans receiving disability compensation who 
were rated between 60 percent and 90 percent received IU benefits. (See 
app. I for a discussion of our estimation methods and figures showing 
IU beneficiaries and expenditures over the last decade.) 

This report continues GAO's long-standing reviews of VA and other 
federal disability programs. In January 2003, GAO determined that 
federal disability programs, including those of VA, were in urgent need 
of attention and transformation, and placed the modernization of 
federal disability programs on its high-risk list.[Footnote 4] With 
regard to VA, we have reported that the agency's Disability 
Compensation program has struggled to make timely and accurate 
decisions and that the program does not reflect the current state of 
science, technology, medicine, and the labor market. Over the last 2 
decades, GAO, the VA Inspector General, and the United States Court of 
Appeals for Veterans Claims,[Footnote 5] have raised a number of 
concerns about VA's management of IU benefits, including problems with 
both the decision-making process and enforcement procedures. Many of 
these problems remain to be addressed. You asked us to examine the 
criteria VA uses in determining initial eligibility for IU benefits and 
VA's efforts to enforce ongoing eligibility. In response to your 
request, this report (1) examines the potential added value of IU 
benefits over a lifetime for veterans of selected ages and disability 
ratings, (2) assesses the extent to which VA has the decision-making 
criteria, guidance, and procedures to ensure its IU decisions are well 
supported, (3) assesses the extent to which VA has efficient and 
effective enforcement procedures, and (4) compares decision-making and 
enforcement procedures used by other disability programs with VA's 
procedures. 

To examine the potential added value of IU benefits, we estimated 
lifetime present value of IU benefits for veterans of various ages with 
disability ratings between 60 percent and 90 percent. (See app. II for 
more information on our methods.)[Footnote 6] To assess VA's IU 
decision-making criteria and processes, we reviewed agency regulations 
and guidance, GAO reports, Court of Appeals for Veterans Claims 
decisions, VA Inspector General reports, and VA's 2001 proposal to 
revise the regulations governing IU decision making. Additionally, we 
interviewed officials from VA's Compensation and Pension Service 
central office, Vocational Rehabilitation and Employment (VR&E) 
Service, and Veterans Health Administration (VHA). We visited four VA 
regional offices,[Footnote 7] where we interviewed officials and 
reviewed a small number of case files for veterans who had been awarded 
IU benefits to improve our understanding of the IU decision-making 
process. We also discussed the provision of IU benefits with officials 
of several veterans service organizations.[Footnote 8] To assess VA's 
procedures for the enforcement of the IU earnings limit, we reviewed VA 
regulations and policies, and other agency documents. We also performed 
work at the agency's Compensation and Pension Service central office, 
Hines Information Technology Center, Pension Maintenance 
Centers,[Footnote 9] and the four regional offices we visited. In 
addition, we interviewed information technology staff from the Social 
Security Administration (SSA) who were responsible for conducting the 
computer match of VA records and SSA earnings data. To compare VA's 
procedures with those of other disability programs, we reviewed 
disability programs administered by SSA and private-sector long-term 
disability insurers.[Footnote 10] For information on decision making in 
other programs, we relied primarily on prior GAO reports, but also 
supplemented this information with interviews with relevant officials 
to ensure our information was current. We also interviewed SSA 
officials to gain more information about SSA's own enforcement 
activities. In addition, because several agencies use the National 
Directory of New Hires (NDNH) to enforce earnings limits in their 
programs, we interviewed officials in the Department of Health and 
Human Services (HHS) regarding access to and the reliability of NDNH 
data, which contains information on quarterly wages, new hires, and 
unemployment insurance compensation.[Footnote 11] We conducted our work 
between January 2005, and March 2006, in accordance with generally 
accepted government auditing standards. 

Results in Brief: 

The added value of IU benefits over a veteran's lifetime depends upon 
the veteran's schedular rating at the time he or she begins receiving 
IU benefits and the length of time these benefits are received. To 
illustrate the potential amount of IU benefits that could be received, 
GAO estimated the lifetime present value of the increase in disability 
compensation benefits for veterans with schedular disability ratings 
between 60 and 90 percent who began receipt of IU benefits in 2005 at 
different ages. For example, for younger veterans, those at age 20 in 
2005, the estimated lifetime present value of these benefits can range 
from almost $300,000 to over $460,000. For veterans awarded IU benefits 
at age 75 in 2005, the lifetime present value of these benefits can 
range from about $89,000 to about $142,000. In addition, GAO's analysis 
of the age at which veterans begin to receive IU benefits shows that 
just under half of new IU beneficiaries were awarded IU benefits at 
the age of 60 or older. For example, GAO found that 45.6 percent of 
veterans awarded IU benefits from October 2004 to October 2005 were age 
60 or older, and 19.2 percent were age 75 or older. 

VA's regulations and guidelines for awarding IU benefits do not ensure 
that its decisions are well supported. VA regulations and guidelines 
lack key criteria and guidance that are needed to determine 
unemployability. VA rating specialists making IU decisions are required 
to determine whether the claimant is capable of obtaining or retaining 
substantially gainful employment. VA guidelines, however, do not 
specify the criteria for determining whether someone has the ability to 
obtain or retain substantially gainful employment. Instead, rating 
specialists rely on the concept of marginal employment when making IU 
decisions. The guidelines generally define marginal employment as 
annual earnings at or below the poverty threshold for one person, which 
was $10,160 for 2005. However, the guidelines do not state how rating 
specialists are to determine whether a veteran who is not working or is 
engaged in only marginal employment has the ability to obtain or retain 
substantially gainful employment. In addition, VA guidelines do not 
give rating specialists the procedures to obtain the employment and 
earnings history and vocational assessments needed to support IU 
decisions. As a result, VA ratings specialists and some vocational 
rehabilitation staff told us that unemployability benefits have 
sometimes been granted to veterans who may have employment potential. 

In addition, VA has an inefficient and ineffective process to enforce 
the earnings limit for ongoing eligibility for IU benefits. VA's main 
enforcement mechanism is its computerized match that identifies 
beneficiaries with earnings, which is supplemented with a manual review 
to assess whether those IU beneficiary are in compliance with ongoing 
eligibility criteria. While effective enforcement relies on quickly 
identifying veterans who are no longer qualified, VA's process relies 
on 1.5-year old earnings data when more current data is available. VA 
also manually transmits information, which further slows down the 
process. In addition, the agency's written guidelines do not require 
staff to thoroughly evaluate all available earnings information to 
identify those who are not qualified. Furthermore, other earnings 
related criteria may allow veterans with high earnings to retain their 
benefits. Finally, the agency does not track and review its enforcement 
activities to ensure their effectiveness. 

VA's practices for its IU benefits lag behind the practices used by 
other disability programs. VA lacks several features used by the 
private-sector disability programs we reviewed and by SSA to provide a 
more thorough assessment of a claimant's ability to work as well as 
supports and incentives to encourage them to return to work. Private 
insurers have developed assessment processes that focus on return to 
work, using a variety of assessment tools and expertise to evaluate 
claimants' ongoing eligibility and assist those with work potential to 
return to the labor force. They also offer various financial and other 
incentives to encourage claimants to return to work. Like insurers, SSA 
also has access to medical and vocational specialists to evaluate a 
claimant's ability to work, and provides assistance and incentives to 
help its beneficiaries' return to work. Furthermore, SSA has taken 
advantage of federal opportunities to evaluate beneficiaries' ongoing 
eligibility and to detect and recover benefit overpayments, such as 
federal databases with recent employment and earnings information to 
detect unreported beneficiary earnings and federal debt collection 
methods. 

To help VA ensure the integrity of its processes for determining the 
initial and ongoing eligibility for IU benefits, we recommend that the 
Secretary of Veterans Affairs (1) clarify and strengthen its 
eligibility criteria, guidance, and procedures for determining 
unemployability and (2) update procedures and strengthen criteria for 
the enforcement of the IU earnings limit. Moreover, to help VA 
modernize its disability program to enable veterans to realize their 
full productive potential without jeopardizing the availability of 
benefits for veterans who cannot work, we also recommend that the 
Secretary develop a strategy to ensure that IU claimants with work 
potential receive encouragement and assistance to return to work, while 
protecting benefits for those unable to work. 

We provided a draft of this report to VA, SSA, and HHS for comment. VA 
agreed with our conclusions and concurred with our recommendations, and 
stated that it has implemented and plans to implement program changes 
in areas that we identified as needing attention. The actions described 
by VA should strengthen its management of IU benefits; however, we 
believe that further steps are needed to fundamentally transform IU 
benefits into a meaningful and timely way of supporting unemployed 
veterans with service-connected disabilities. VA's comments appear in 
app. V. In addition, VA, SSA, and HHS provided technical comments, 
which are reflected in the report as appropriate. 

Background: 

Under VA's Disability Compensation program, the agency can award total 
(100 percent) disability compensation to veterans who cannot work 
because of service-connected disabilities, even though their schedular 
rating is less than 100 percent.[Footnote 12] Specifically, VA will 
consider a veteran for IU benefits if the veteran has a single 
disability rated at least 60 percent or multiple disabilities rated at 
least 70 percent (with at least one disability rated at 40 percent or 
more) and there is some evidence that the veteran cannot work. In some 
instances, veterans with lower ratings may also be evaluated for and 
granted IU eligibility. 

As shown on table 1, veterans receiving an IU total disability 
compensation rate may receive substantially greater benefits than they 
would have received based on their schedular rating. IU benefits, like 
other VA disability compensation benefits, are exempt from federal 
taxation. 

Table 1: VA Basic Monthly Disability Compensation Rates in 2005: 

Disability rating (percent): 10; 
Monthly payment: $108; 
Disability rating (percent): 60; 
Monthly payment: $839. 

Disability rating (percent): 20; 
Monthly payment: 210; 
Disability rating (percent): 70; 
Monthly payment: 1,056. 

Disability rating (percent): 30; 
Monthly payment: 324; 
Disability rating (percent): 80; 
Monthly payment: 1,227. 

Disability rating (percent): 40; 
Monthly payment: 466; 
Disability rating (percent): 90; 
Monthly payment: 1,380. 

Disability rating (percent): 50; 
Monthly payment: 663; 
Disability rating (percent): 100; 
Monthly payment: 2,299. 

Source: VA, Fact Sheet: Disability Compensation - 2005 Rates 
(Washington, D.C.: December 2004). 

[End of table] 

VA created IU benefits in 1934. By statute, VA is required to adopt and 
apply a schedule of ratings to compensate veterans for reductions in 
average earning capacities resulting from service-connected medical 
conditions.[Footnote 13] This statute calls for compensation benefits 
to be tied to a schedule of ratings that is to be based, "as far as 
practicable," upon the average impairments of earning capacity 
resulting from such injuries in civil occupations.[Footnote 14] The 
statute does not mention individual unemployability as a basis for 
granting benefits. However, VA regulations allow the agency to grant 
total (100 percent) disability compensation to a veteran who is 
unemployable due to his or her service-connected disabilities, but does 
not meet the requirements for a total disability using the rating 
schedule. Veterans can receive IU benefits when their service-connected 
disabilities result in their inability to obtain or retain 
"substantially gainful employment," which VA defines as employment that 
is "ordinarily followed by [individuals without disabilities] to earn 
their livelihood with earnings common to the particular occupation in 
the community where the veteran resides." 

VA's Process for Making IU Decisions and Enforcing Compliance with Its 
Earnings Limit: 

Staff at VA's 57 regional offices make virtually all eligibility 
decisions for VA disability compensation benefits, including IU 
benefits. These regional offices employ non-medical rating specialists 
to evaluate veterans' eligibility for these benefits. Upon receipt of 
an application for compensation benefits, the rating specialist would 
typically refer the veteran to a VA medical center or clinic for an 
examination. Based on the medical examination and other available 
information, the rating specialist must first determine which of the 
veteran's conditions are (or are not) service-connected. For service- 
connected conditions, the rating specialist compares the diagnosis with 
the rating schedule to assign a disability rating. (App. III provides 
examples of selected impairments from VA's disability rating schedule.) 
As figure 1 shows, the service-connected impairments of IU 
beneficiaries include a wide range of medical conditions. Multiple 
disabilities will result in a combined degree of disability, which is 
expressed as a percentage and represents the overall effect on a 
veteran of all his or her service-connected disabilities. (App. IV 
explains VA's process for compiling combined ratings.) VA's IU 
determinations are subject to appeal to the Board of Veterans' Appeals 
and subsequently the U.S. Court of Appeals for Veterans Claims. 

Figure 1: Types of Service-Connected Impairments of IU Beneficiaries as 
of October 2005: 

[See PDF for image] 

Note: VA's database lists up to six impairments for each beneficiary. 
This figure reflects all impairments listed in the VA database for IU 
beneficiaries. 

[End of figure] 

VA rating specialists initiate IU evaluations when a veteran submits an 
application for IU benefits or his or her application for compensation 
benefits contains evidence of unemployability.[Footnote 15] In all 
cases, before granting benefits, rating specialists must evaluate the 
impact that the veteran's service-connected disability has had on his 
or her ability to perform substantially gainful employment, which for 
decision-making purposes is generally interpreted as employment that is 
more than "marginal employment." VA generally defines marginal 
employment as employment for which the worker's annual earned income is 
at or below the poverty threshold for one person established by the 
U.S. Census Bureau--$10,160 for 2005.[Footnote 16] However, marginal 
employment may also be held to exist, on a case by case basis, when a 
veteran maintaining employment at a sheltered workshop[Footnote 17] or 
family business receives annual earnings above the poverty threshold. 
VA rating specialists are to rely on various sources of information for 
the evidence needed to support such a determination, including an 
employment and earnings history furnished by the claimant, basic 
employment information from the claimant's employers (if any), and a 
medical exam report from VHA.[Footnote 18] If the claimant had received 
vocational rehabilitation assistance from VA or disability benefits 
from SSA, the rating specialist might also seek information on these 
services or benefit decisions.[Footnote 19] Finally, under its 
regulations, VA rating specialists are not to consider age as a factor 
in determining eligibility for IU benefits; thus, veterans of any age 
may be determined eligible for IU benefits. 

When we analyzed VA data to determine the ages of all veterans 
receiving IU benefits as of October 2005, we found that the 
majority of veterans receiving IU benefits were age 60 or older. Our 
analysis of VA data shows that 219,725 veterans were receiving IU 
benefits in October 2005. As shown in figure 2, 51 percent of IU 
beneficiaries were age 60 or older and 38 percent were age 65 or older. 

Figure 2: Ages of IU Beneficiaries as of October 2005: 

[See PDF for image] 

[End of figure] 

Studies and Proposals for Strengthening VA's Provision of IU Benefits: 

In 1987, we issued a report that identified several problems with VA's 
administration of IU benefits and made several recommendations for 
improvement.[Footnote 20] We found that VA did not require sufficient 
medical and vocational evaluation of IU claimants to support award 
decisions. To address this weakness, we recommended that, in cases 
involving IU benefits, VA ensure that its (1) examining physicians 
provide observations on how the service-connected medical condition 
impairs the veteran's functional capabilities and (2) vocational 
counselors provide vocational information, including an assessment of 
how the veteran's service-connected condition affects job skills and 
employment potential. Furthermore, we identified potential overpayments 
to IU beneficiaries and suggested that the Congress provide VA with 
access to Internal Revenue Service (IRS) earnings information to 
monitor IU eligibility and help detect and prevent overpayments. Since 
we made the recommendations, the Congress provided the agency with 
access to IRS earnings data, which the agency is using to monitor 
compliance with the ongoing earnings limit. However, to date, VA has 
not implemented our recommendation that its vocational counselors 
assess the veteran's job skills and employment potential so that this 
information could be used in the IU decision-making process. 

More recently, two studies highlighted the need for fundamental changes 
to VA's disability decision making. In 2004, the VA Vocational 
Rehabilitation and Employment Task Force study recommended that 
vocational professionals from VA's VR&E should provide more complete 
vocational assessments to assist in disability and vocational 
decisions.[Footnote 21] More specifically, the task force recommended 
that VR&E perform a functional capacity evaluation that would identify 
what work a veteran could do in the paid economy despite his or her 
disabilities. Also, a 2005 VA Inspector General study pointed to the 
need for improved IU initial and ongoing eligibility 
determinations.[Footnote 22] The VA Inspector General found that some 
veterans receiving IU benefits may not have been entitled because VA 
had not aggressively used IRS and SSA records and developed proper 
controls to monitor their income through the verification process. 

In addition, the Veterans' Disability Benefits Commission was created 
by the National Defense Authorization Act of 2004 (Pub. L. No. 108-136) 
to independently evaluate compensation to veterans and their survivors 
for disabilities and deaths attributable to military service. Among 
other things, the Commission plans to include IU benefits in its 
review. The law requires the Commission to provide a report to the 
Congress, with recommendations as needed, which addresses the 
appropriateness of benefits and the standards for granting benefits. 

The Added Value of IU Benefits Over A Lifetime Depends on the Veteran's 
Individual Circumstances: 

In a recently issued report, we noted that additional benefits are 
available to veterans with total disabilities.[Footnote 23] In 
particular, awarding IU benefits increases a veteran's monthly 
disability compensation. The increase in the monthly compensation for 
IU beneficiaries is the difference between the compensation at the 
veteran's schedular rate and the compensation at the 100-percent rate. 
For example, a schedular rating of 60 percent would entitle a veteran 
to $839 per month in 2005. The veteran, however, would be entitled to 
$2,299 per month if granted IU benefits--a difference of $1,460 per 
month or $17,520 per year.[Footnote 24] The lower the veteran's 
schedular rating, the higher his or her increase in monthly disability 
compensation when awarded IU benefits. 

When the present value of IU benefits is considered over a veteran's 
lifetime, the value of these added benefits depends upon the veteran's 
schedular rating at the time he or she begins receiving IU benefits and 
the length of time these benefits are received. To illustrate the 
potential amount of added benefits that could be received due to IU, we 
estimated the lifetime present value of the increase in disability 
compensation benefits for veterans with schedular disability ratings 
between 60 and 90 percent who began receipt of IU benefits in 2005 at 
different ages. To calculate these lifetime present values, we used the 
SSA general population mortality tables for males to estimate the 
lifespan of IU beneficiaries.[Footnote 25] Because benefits awarded to 
younger veterans would be expected to be received for a longer length 
of time in comparison with older veterans, younger veterans are 
estimated to receive more in benefits than older veterans who have the 
same schedular rating. Also, because the lower the veteran's schedular 
rating, the greater the increase in monthly disability compensation 
benefits when awarded IU benefits, veterans with lower ratings were 
estimated to receive more in added IU benefits than those of the same 
age with higher schedular ratings. For example, for younger veterans, 
those at age 20 in 2005, the estimated lifetime present value of these 
benefits can range from almost $300,000 to over $460,000. Even for 
older veterans, the value of these benefits can be substantial. For 
veterans awarded IU benefits at age 75 in 2005, the lifetime present 
value of these benefits can range from about $89,000 to about $142,000. 
The estimated lifetime present values of the added benefits for 
veterans awarded IU benefits in 2005 at selected ages and schedular 
ratings is shown in figure 3. 

Figure 3: Estimated Lifetime Present Values of the Added Benefits for 
Veterans Awarded IU Benefits in 2005 at Selected Ages and Schedular 
Ratings: 

[See PDF for image] 

[End of figure] 

When we analyzed VA data to determine the age at which veterans begin 
receiving IU benefits, we found that just under half of new IU 
beneficiaries were awarded IU benefits at the age of 60 or older. For 
example, we found that 45.6 percent of veterans awarded IU benefits from October 2004 to October 2005 were age 60 or older, and 19.2 percent were age 75 or older.[Footnote 26] See figure 4 for the age distribution of new IU beneficiaries from October 2004 to October 2005. Data for the 2 prior year periods show a similar pattern in the age distribution of new IU beneficiaries. 

Figure 4: Ages of New IU Beneficiaries from October 2004 to October 
2005: 

[See PDF for image] 

[End of figure] 

In addition to disability compensation benefits, some IU beneficiaries 
are also entitled to military disability retirement benefits or normal 
retirement benefits based on years of military service.[Footnote 27] In 
general, however, an offset provision restricts most veterans from 
receiving the full value of both benefits, unless they have 20 or more 
years of service. Recent legislation allows veterans with combat- 
related disabilities and 20 or more years of service to receive the 
full value of both benefits.[Footnote 28] Also, recent legislation is 
phasing out the offset for veterans who have 20 or more years of 
military service and disability ratings of 50 percent or more. The 
phase out is taking place between January 1, 2004, and December 31, 
2013, but IU beneficiaries with 20 or more years of service will be 
eligible for full concurrent receipt with no offset beginning October 
1, 2009.[Footnote 29] However, the recent legislation to eliminate the 
benefit offset is likely to affect relatively few IU beneficiaries, as 
our review of IU beneficiary data as of October 2005 shows that only 
about 8 percent of all IU beneficiaries have 20 years or more of 
service. 

VA's Decision-making Criteria, Guidance, and Procedures Do Not Ensure 
That IU Decisions Are Well Supported: 

VA's regulations and guidelines for awarding IU benefits do not ensure 
that its decisions are well supported. VA regulations and guidelines 
lack key criteria and guidance that are needed to determine 
unemployability. In addition, VA guidelines do not give rating 
specialists the procedures to obtain the employment and earnings 
history, and vocational assessments needed to support IU decisions. As 
a result, VA rating specialists and some vocational rehabilitation 
staff told us that unemployability benefits have sometimes been granted 
to veterans who have employment potential. 

VA Lacks Key Criteria and Guidance Needed to Determine Unemployability: 

VA rating specialists making IU decisions are required to determine 
whether the claimant is capable of obtaining or retaining substantially 
gainful employment, which agency guidelines define as "that which is 
ordinarily followed by [persons without disabilities] to earn their 
livelihood with earnings common to the particular occupation in the 
community where the veteran resides." However, VA regulations and 
guidelines do not provide the criteria and guidance that are needed to 
determine whether a claimant has the ability to obtain or retain 
substantially gainful employment or is unemployable because of his or 
her service-connected disabilities. 

VA guidelines also define substantially gainful employment as any 
employment greater than marginal employment. Marginal employment 
generally exists when a veteran's annual earned income does not exceed 
the poverty threshold for one person.[Footnote 30] In addition, the 
guidelines recognize that the terms "unemployability" and 
"unemployable" are not synonymous for compensation purposes because a 
veteran may be unemployed or unemployable for a variety of reasons. As 
noted in the guidelines, rating specialists are to determine whether 
the severity of the service-connected conditions preclude the veteran 
from obtaining or retaining substantially gainful employment. In doing 
so, the rating specialists are to identify and isolate the effects of 
extraneous factors such as age,[Footnote 31] nonservice-connected 
conditions, availability of work, or voluntary withdrawal from the 
labor market when determining whether a veteran is unemployable solely 
by reason of service-connected disabilities. 

However, the guidelines do not state how rating specialists are to 
isolate these factors from the veteran's service-connected disabilities 
or how these factors should be considered in making IU decisions. For 
example, the guidelines do not specify how rating specialists are to 
determine whether a veteran's lack of work or marginal employment is 
the result of the veteran's service-connected disabilities or 
extraneous factors such as local labor market conditions or the 
veteran's "voluntary withdrawal" from the labor force. In particular, 
the guidelines do not specify the criteria rating specialists should 
use in determining whether a veteran, who is not working or has only 
marginal employment, has the ability to obtain or retain substantially 
gainful employment. For instance, the guidelines do not mention how 
factors such as education, skills, or prior work history should be used 
to assess a veteran's ability to work. 

Recognizing the deficiencies in VA's regulations and guidelines, the 
Court of Appeals for Veterans Claims urged VA to "undertake a broad- 
based review and revision" of unemployability regulations.[Footnote 32] 
In 2001, the agency proposed regulatory changes to address this and 
other problems with its IU decision making.[Footnote 33] The proposal 
included changes intended to define key terms, such as substantially 
gainful employment. During the public comment period, however, VA 
received numerous comments from veterans groups that were strongly 
opposed to the proposed regulations. In December 2005, VA withdrew this 
regulatory proposal and initiated a new effort to develop a proposal 
for revising IU regulations. As of March 2006, VA was still in the 
process of drafting this new regulatory proposal. 

VA Guidelines Lack Procedures for Obtaining Necessary Evidence for 
Determining Unemployability: 

VA also lacks adequate procedures for obtaining necessary evidence to 
support IU decisions. In particular, VA does not have procedures for 
rating specialists to obtain (1) complete and corroborated employment 
information from IU claimants and their employers, and (2) vocational 
assessments of IU claimants that could supplement medical information, 
even though the agency has an in-house vocational rehabilitation 
service. 

VA Does Not Have Sufficient Procedures to Obtain Complete and 
Corroborated Employment Information: 

VA guidelines state that, when making an IU determination, rating 
specialists are to ensure that the "evidence is sufficient to 
evaluate...the veteran's current...employment status." Such evidence 
generally comes from two sources. First, the IU application form 
requires veterans to furnish employment and earnings history (e.g., 
jobs held, number of hours worked, type of work performed, and 
accommodations) for the 5-year period preceding the date the veteran 
claims to have become too disabled to work and for the entire time 
after that date. Second, the guidelines instruct the rating specialist 
to request related information from each of the claimant's employers 
for the 12-month period prior to the date the veteran last worked. 

At the VA regional offices we visited, several rating specialists 
stated that the employment information submitted by claimants and 
employers is sometimes incomplete. VA guidelines state that it is 
essential that the form contain the claimant's complete work 
history[Footnote 34] but does not specify what is acceptable for 
decision making when the work history is less than complete. According 
to an analysis conducted at a VA regional office, failure of the 
veteran to submit the requested employment information did not serve as 
a basis for denying an IU claim. 

Also, when assessing the eligibility of claimants who report recent 
prior work experience, rating specialists told us that they sometimes 
have difficulty obtaining corroborating information from employers. VA 
regional office officials stated that it is often difficult to obtain 
relevant information from employers because, among other reasons, they 
have moved, gone out of business, maintained poor records, or had such 
turnover that no one remembers the claimant. One VA regional office 
official stated that he has instructed his staff not to "hold a benefit 
hostage to the employer information." We reviewed 29 case files in 
which IU benefits were awarded at three of the VA regional offices we 
visited.[Footnote 35] We found that 23 case files contained employment 
history information submitted by the claimant but only eight of these 
contained evidence from employers. Three case files did not contain 
claimant or employer employment forms. In the remaining three case 
files, the veterans claimed to have not worked or to have been self- 
employed. 

When a veteran claims not to have worked or to have been marginally 
self-employed during the past 5 years, agency guidelines for IU 
decision making do not give rating specialists the procedures to obtain 
corroborating evidence in the form of earned income information from 
other federal databases. As a result, rating specialists are unable to 
confirm (or refute) the veteran's claim. Specifically, rating 
specialists are unable to obtain earnings information from SSA and the 
IRS. In addition, VA does not have access to earnings information from 
the NDNH database, which contains quarterly information on earnings. 
Some rating specialists stated that, if available, they sometimes 
considered information in the medical exam report or hospital records 
showing that the claimant had been out of work as evidence of 
unemployability. 

VA Lacks Procedures for Obtaining Vocational Assessments of IU 
Claimants That Could Supplement Medical Information: 

VA regulations on IU decision making do not contain procedures for 
rating specialists to request vocational assessments of IU claimants 
that could supplement claimants' medical information. VA guidelines 
require rating specialists to consider medical information when 
granting IU benefits. Specifically, the medical evidence must support a 
current evaluation of the extent of all the veteran's disabilities and 
reflect the veteran's condition in the past 12 months. At the regional 
offices we visited, managers stated that their rating specialists rely 
heavily on medical examinations conducted by VHA clinicians to make IU 
determinations.[Footnote 36] Rating specialists at one of these 
regional offices stated that these medical reports were often the only 
information they have upon which to base a decision that is not self- 
reported. 

Some rating specialists we interviewed, however, expressed concern that 
they were awarding IU benefits based on medical reports that provided 
insufficient support for determining unemployability. VA regional 
office officials and rating specialists told us that the current 
medical reports may have limited applicability to IU decision making. 
Medical reports may have limited applicability because, as we have 
noted in a prior report, while most medical impairments may influence 
the extent to which an individual is capable of engaging in gainful 
activity, vocational and other factors are often considered to be more 
important determinants of work capacity.[Footnote 37] It is these other 
factors, along with the person's medical condition, that are considered 
in a vocational assessment of work potential. 

Vocational assessments can supplement the results of medical 
examinations by taking into consideration factors such as the veteran's 
education, training, prior work experience, skills, and abilities, to 
identify the extent to which the veteran is employable. Yet, when 
making IU determinations, rating specialists do not have procedures to 
obtain vocational assessments from VR&E counselors. Rating specialists 
have access to vocational assessments only when they already exist 
prior to the request for IU benefits.[Footnote 38] According to VA 
officials we spoke with, rating specialists generally make 
employability determinations without the benefit of a vocational 
assessment.[Footnote 39] At 3 of the VA regional offices we visited, 
our review of 29 case files in which IU benefits were awarded found 
that 25 lacked any vocational assessment.[Footnote 40] 

Lacking vocational assessments for most IU claims, officials at some 
regional offices we visited told us that they sometimes asked VHA 
clinicians to assess and make a determination on a claimant's 
employability. Of the 29 case files we reviewed, 7 contained medical 
reports that gave opinions on the veterans' employability. These 
opinions ranged from a comment that the claimant is not a good 
candidate for working with the public to comments that one veteran is 
"unemployable in any function" and another is simply "unemployable." 
Two cases contained employability decisions that were based on 
examinations of the claimant's functional capabilities. One official in 
a regional office indicated that medical reports containing opinions on 
employability often dictate their IU decisions. A senior VHA management 
official explained that these medical reports should not be the only 
source used to render an opinion regarding a claimant's unemployability 
because the agency's clinicians are currently not trained to conduct 
medical examinations that support decisions on employability. 

Rating specialists at some of the VA regional offices we visited stated 
that, when available, the assessments in VR&E case files were very 
relevant to IU decision making. VR&E managers and counselors suggested 
that permitting rating specialists to obtain VR&E assessments of IU 
claimants could address the need for vocational information. VR&E 
officials stated that their counselors are qualified to conduct such 
assessments and, where appropriate, VR&E counselors could also use this 
opportunity to use incentives to encourage return to work, develop 
return-to-work plans in collaboration with the claimant, and identify 
and provide needed accommodations or services for those who can work. 
By incorporating vocational assessments into its IU decision-making 
process, VA can modernize its disability programs by enabling veterans 
to realize their full productive potential without jeopardizing the 
availability of benefits for veterans who cannot work. 

VA Staff Express Concerns that They May Have Awarded IU Benefits to 
Veterans with Employment Potential: 

We discussed IU decision-making criteria and evidence requirements with 
managers and rating specialists at the regional offices we visited. 
During these discussions, some rating specialists expressed concerns 
that they may have awarded IU benefits to some veterans who appeared to 
be employable. These rating specialists told us that they awarded IU 
benefits in these cases with the expectation that VA would identify 
these beneficiaries in the income matching process as having earnings 
above the IU threshold and discontinue their IU benefits. Another 
rating specialist stated that he felt compelled by the workload at his 
regional office to make IU determinations based on existing evidence, 
even when necessary information was lacking. 

VR&E managers and counselors at the regional offices we visited stated 
that VA has awarded IU benefits to veterans making good progress in 
their VR&E-sponsored vocational rehabilitation. Our analysis of VA's 
electronic case files identified 683 veterans who received both IU 
benefits and a stipend from VR&E, which is generally provided only to 
veterans who are attending college and who are expected to seek 
employment at the conclusion of their vocational 
rehabilitation.[Footnote 41] VR&E officials and rating staff at three 
of the VA regional offices we visited brought to our attention veterans 
who had received VR&E assistance and were making good progress in their 
rehabilitation plans, only to drop out of the program when they were 
awarded IU benefits. 

VA's Earnings Enforcement Process is Inefficient and Ineffective: 

VA has an inefficient and ineffective process to enforce the earnings 
limit for ongoing eligibility for IU benefits. VA's main enforcement 
mechanism is its computerized match that identifies beneficiaries with 
earnings, which is supplemented with a manual review to assess whether 
these earnings are within the limit and meet other ongoing eligibility 
criteria. However, this process relies on old data, outdated and time- 
consuming procedures, insufficient guidance, and weak eligibility 
criteria. Moreover, the agency does not track and review its 
enforcement activities to better ensure their effectiveness. 

VA Uses a Multi-Step Process to Evaluate Beneficiaries' Ongoing 
Eligibility: 

VA utilizes a multi-step annual computer match and manual process, 
referred to as its Income Verification Match, to evaluate both the 
ongoing eligibility of its IU and pension beneficiaries.[Footnote 42] 
During 2004 and 2005, VA's income match, in coordination with SSA and 
IRS, assessed beneficiaries' income for 2002. VA provided SSA and IRS 
with data on VA's 2004 beneficiaries that the agencies matched to their 
2002 income data. SSA matched VA beneficiaries to its wage and self- 
employment earnings to provide VA with 2002 earned income data for IU 
and pension beneficiaries. To provide VA with data on unearned income 
for its pension beneficiaries, IRS matched the beneficiaries with its 
2002 unearned income data. VA's Hines Information Technology Center 
(ITC) used SSA's match results to identify IU beneficiaries with earned 
income above $6,000 in 2002 for further review.[Footnote 43] Hines ITC 
combined the results of the computer matches for IU and other 
beneficiaries to produce and mail documents to employers and to the 
Pension Maintenance Centers (PMC) for further review. 

Hines ITC identified 8,563 IU beneficiaries with earnings over $6,000 
in 2002 for review by VA's three PMCs. For each identified beneficiary, 
Hines ITC produced and mailed a letter to the employer requesting 
earnings data to verify SSA-reported earnings. It also produced and 
mailed to the PMCs several documents for follow-up on each beneficiary, 
such as a letter for the veteran and a tracking sheet. The three PMCs 
manually reviewed the information provided by Hines ITC and employers 
and may have also contacted the veterans, as needed, to determine 
whether they continued to meet ongoing IU eligibility criteria. In 
general, IU beneficiaries who have exceeded the annual IU earnings 
threshold (set in 2002 at $9,039), have worked 12 consecutive months or 
more, and have not been employed in a sheltered workshop or family 
business should have their IU benefits discontinued.[Footnote 44] PMCs 
close the cases when they find beneficiaries meet the eligibility 
criteria and forward cases that needed additional information for a 
decision to VA regional offices for further review. The VA regional 
offices should obtain whatever additional information is needed to 
determine whether benefits should be discontinued and inform the 
veteran if VA decides to do so. 

VA's Process to Evaluate Beneficiaries' Ongoing IU Eligibility Is 
Inefficient: 

In its computer matching process to evaluate ongoing IU benefit 
eligibility, VA used SSA earnings data that is about 1.5 years old, 
despite the fact that the data is available earlier and more recent 
earnings data is available from another federal database. Using old 
earnings data, along with other processing delays in its review, means 
that IU beneficiaries with earnings above the IU threshold can continue 
to receive benefits for up to 2.5 years before VA can determine that 
their IU benefits should be discontinued. Quick identification of IU 
beneficiaries who are no longer entitled to benefits is important 
because VA typically will only discontinue their benefits and will not 
collect any overpayments.[Footnote 45] Although SSA earnings data could 
be available as early as September following the end of a tax 
year,[Footnote 46] VA postpones the match of IU benefits and waits for 
unearned income from IRS so that it can evaluate both IU eligibility 
and pension payments at the same time. Also, HHS' NDNH can provide more 
current earnings data than SSA, but VA does not have the statutory 
authority to access this database. The NDNH database includes quarterly 
wage data for up to 8 quarters, which can be compiled into annual data 
for matching purposes.[Footnote 47] Although VA currently lacks access 
to the NDNH database, other agencies--such as SSA, IRS, and the 
Department of Housing and Urban Development--have sought and gained 
statutory authority to access the NDNH to improve their enforcement 
efforts.[Footnote 48] In addition to gaining statutory authority, to 
obtain access to the NDNH, VA would need to meet data security and 
privacy safeguarding requirements HHS has established to ensure the 
security and confidentiality of NDNH data. 

VA's enforcement process is also inefficient because VA has not updated 
its computer matching program to reflect annual changes in its IU 
earnings threshold. The program identified those who earned more than 
$6,000 rather than the annual IU threshold, which was $9,093 for 2002. 
As a result, the PMC staff told us that they manually reviewed many 
more cases than necessary. VA's Hines ITC officials told us that they 
are prohibited from making any changes in the matching program until 
the agency has replaced its current compensation and pension payment 
system, which may take place in 2007. 

VA's enforcement process experiences additional delays because the 
computer matching information is transmitted manually to VA's 
enforcement staff rather than electronically. VA's ITC mails thousands 
of paper documents to employers and VA's three PMCs. It mails letters 
to veterans' employers to provide verification of veterans' earnings to 
the PMCs. ITC also mails a tracking sheet and a letter for each veteran 
earning over $6,000 to the PMCs, where the information is manually 
collated and reviewed. The center officials told us that they use 
information from the computer match, employers, and veterans to assess 
whether beneficiaries meet ongoing IU eligibility criteria and they 
close the case for those who meet the criteria. If a center did not 
have sufficient information to determine eligibility, it mailed the 
case file to a VA regional office for further review. Although VA 
currently mails paper documents generated from the match to its PMCs 
and regional offices, software exists to transfer the confidential 
information electronically, and VA officials acknowledged that doing so 
would make the process more timely. 

One action VA has recently taken to enhance enforcement is to reinstate 
a procedure that requires IU beneficiaries to annually complete a form 
to provide their earnings and employment status. VA had discontinued 
use of the form about 6 years ago to reduce the paperwork burden for 
beneficiaries and instead was annually sending a letter to IU 
beneficiaries to remind them of their responsibility to notify VA of 
their employment and earnings. However, VA officials believed that the 
annual reminder had not resulted in sufficient compliance and in 
September 2005, reinstituted the requirement to complete the VA form. 
Because the agency has very recently implemented this change, we cannot 
assess its effectiveness. Although the agency believes that this 
information will improve its ability to monitor veterans' ongoing 
eligibility, it still plans to continue the income verification match. 

VA Has Insufficient Guidance to Evaluate Beneficiaries' Earnings: 

VA's written guidance for evaluating beneficiaries' earnings also 
hinders enforcement by failing to clarify that PMC staff should use all 
the available earnings information from the match and other sources, 
such as employers, to assess beneficiaries' initial and continuing 
eligibility. Lacking this written guidance, VA staff focus on whether 
beneficiaries' earnings and employment qualified them for benefits for 
the match year. For example, when PMC staff receive earnings data for 
veterans who were granted benefits during the match year, the staff 
disregard the earnings, regardless of the amount, and close the case. 
Staff do so because they only consider earnings subsequent to granting 
benefits and know that the new beneficiaries could not have worked for 
12 consecutive months in the match year. The match data and the 
beneficiaries' application information, however, could show that 
veterans may not have fully disclosed their earnings during the 
application process and may have exceeded the IU threshold. Staff also 
disregard some of the earnings information provided by employers that 
could have had a bearing on eligibility. Although VA's letters to 
employers request earnings information for the match year and 2 
subsequent years, management's verbal guidance at one center was to 
disregard the earnings from the subsequent years and only consider the 
earnings of the match year. 

VA Has Weak Criteria to Evaluate Beneficiaries' Ongoing Eligibility: 

VA has weak criteria to determine whether veterans should continue to 
receive IU benefits. In evaluating IU beneficiary eligibility, PMCs 
allow beneficiaries to continue to receive IU benefits if their 
earnings at the time of the review did not exceed the IU threshold. 
However, some IU beneficiaries can have earnings far above the IU 
threshold because VA, under current law, continues to provide them 
benefits until they have maintained employment for 12 consecutive 
months.[Footnote 49] In effect, this law allows beneficiaries to retain 
their benefits despite unlimited earnings, so long as they do not work 
for 12 consecutive months. For example, a beneficiary could earn 
$50,000 from January to September, choose to stop working for reasons 
other than his or her service-connected disability, and still be 
allowed to retain his or her IU benefits. 

VA Management Does Not Track and Review the Outcome of Its Enforcement 
Activities: 

VA does not effectively track and review the results of its enforcement 
activities. VA does not track the results of cases reviewed by PMCs or 
those sent to regional offices. As a result, the agency does not know 
the results of these reviews or the reasons for continuing or 
discontinuing IU benefits. For example, the agency does not know how 
many beneficiaries were identified by its computerized match with 
earnings below the IU threshold or had higher earnings and continued to 
receive benefits. Also, without sufficient information to monitor 
enforcement, the agency cannot ensure that beneficiary cases are being 
fully reviewed or that appropriate actions are taken to discontinue 
benefits. 

VA's Practices to Manage Its Disability Benefits Lag Behind Other 
Disability Programs: 

Private-sector and SSA disability programs provide important features 
that VA's IU benefits lack. Unlike VA, private insurers have developed 
assessment processes that focus on return to work and use a wide 
variety of assessment tools, expertise, and incentives to evaluate 
claimants' ability to work and encourage and enable those with work 
potential to return to the labor force. Likewise, SSA requires 
applicants to provide substantial information for assessment purposes 
and, in recent years, has implemented a new program to provide return- 
to-work services and is conducting pilots to test new methods to return 
applicants and beneficiaries to work. In addition, SSA has implemented 
critical management practices to help ensure the financial integrity of 
its disability programs. 

Private Insurers' Eligibility Assessment Processes Focus on Return-to- 
Work: 

The eligibility assessment processes of three U.S. private insurers we 
reviewed focused on returning people with disabilities to 
work.[Footnote 50] The private insurers' assessment processes we 
reviewed both evaluated a person's potential to work and assisted those 
with work potential to return to the labor force. Insurers provided 
assessment and other services shortly after disability onset and 
throughout the duration of the claim, as needed. Their ongoing 
assessment process is closely linked to their definition of disability 
that shifts over time from less to more restrictive--that is, from an 
inability to perform one's own occupation to an inability to perform 
any occupation. Both the definitional shift and the ongoing assessment 
process recognize the possibility for improvement in an individual's 
work capacity by providing supports and services, such as workplace 
adaptations or training as well as financial and other incentives to 
encourage claimants to return to work. 

Throughout the duration of the claim, private insurers use a wide 
variety of tools and expertise to assess the claimant's work potential 
and develop and implement an individualized return-to-work plan for 
those with work potential. As part of the process of assessing whether 
a claimant can perform his or her own occupation, insurers directly 
contact the claimant, the treating physician, and the employer to 
collect medical and vocational information and initiate return-to-work 
efforts, as needed. For example, insurers consult medical staff and use 
other resources, such as medical guidelines, which describe 
disabilities and their treatment and duration, to evaluate whether the 
treating physician's diagnosis and the expected duration of the 
disability are in line with the claimant's reported symptoms and test 
results. Insurers' contacts with treating physicians may also be aimed 
at ensuring that the claimant has an appropriate treatment plan focused 
on timely recovery and return to work. Insurers may also use an 
independent medical examination or tests of basic skills, interests, 
and aptitudes to clarify the medical or vocational limitations and 
capabilities of a claimant. In addition, they may use medical or 
vocational specialists to identify possible accommodations for the 
claimant and may also contact employers to encourage them to provide 
workplace accommodations for a claimant who has the capacity to work. 
To determine whether a claimant can go back to his current job, or if 
not, engage in other work, insurers will identify a claimant's 
remaining skills and abilities (i.e., transferable skills) by comparing 
the claimant's capabilities and limitations with the demands of the 
claimant's own occupation. Included in these assessment tools and 
methods are services to help the claimant return to work, such as job 
placement, job modification, and retraining. 

The definition of disability shifts after 2 years from being unable to 
perform one's own occupation to being unable to perform any occupation. 
This period provides an opportunity for claimants who have the 
potential to work to recover medically and develop skills to return to 
work. During this period, insurers may provide financial and other 
assistance to help claimants with work potential make a successful 
transition. Insurers try to develop the best strategies for managing 
each claim, which can include, for example, helping to plan medical 
care or providing vocational services to help claimants acquire new 
skills, adapt to assistive devices, or find new positions. For those 
requiring vocational intervention to return to work, the insurers 
develop an individualized return-to-work plan, as needed. 

Work incentives are an important feature of the private insurers' 
programs to encourage and facilitate a claimant's return to work. These 
incentives require the claimant to obtain appropriate medical treatment 
and can result in a possible loss of benefits if the claimant does not 
participate in a return-to-work program, if such a program would 
benefit the individual. To support these requirements, these disability 
systems help the individual obtain the appropriate medical care and 
provide financial incentives to promote participation in 
rehabilitation, such as reimbursement for family care costs. Insurers 
may provide additional financial benefits to those who participate in a 
return-to-work plan. For example, one insurer told us that claimants 
may receive an additional benefit equal to 10 percent of their 
disability payment for participating in rehabilitation. To further 
encourage rehabilitation and return to work, insurers may allow 
claimants who work to supplement their disability benefit payments with 
earned income. Conversely, insurers may reduce or terminate benefits 
for claimants who could work, but do not. Claimants' benefits may also 
be terminated if they refuse to accept a reasonable accommodation that 
would enable them to work. 

If the insurer initially determines that the claimant has no work 
potential, it monitors the claimant's condition for changes that could 
increase the potential to work. After 2 years, it reassesses the 
claimant's eligibility under the more restrictive definition of 
disability. The insurer continues to look for opportunities that may 
enable these claimants to return to work. For example, opportunities 
may occur for claimants when there are improvements in medical 
treatments and technology, such as new treatments for cancer or AIDS. 

VA Lacks Some of SSA's Eligibility Assessment and Return-to-Work 
Efforts: 

Both VA and SSA disability programs are on our high-risk list, in part, 
because they do not reflect the current state of science, technology, 
medicine, or labor market conditions. Nevertheless, SSA's disability 
programs have efforts to assess eligibility and encourage return-to- 
work that VA's disability compensation program lacks. For example, SSA 
requires applicants to provide substantial information for assessment 
purposes and in recent years has implemented a new program to provide 
return-to-work services and is conducting pilots to test new methods to 
return applicants and beneficiaries to work. Moreover, in 2003, SSA's 
Commissioner announced in a testimony to the Congress that a key 
operational goal for the agency's disability programs is to foster 
return-to-work efforts at all stages of decision making. 

As with VA's definition of individual unemployability, SSA's definition 
of disability for its two disability programs includes both medical and 
employment criteria. For the agency's Disability Insurance (DI) and 
Supplemental Security Income (SSI) programs, the Social Security 
Act[Footnote 51] defines disability as the inability to engage in any 
substantial gainful activity[Footnote 52] by reason of any medically 
determinable physical or mental impairment(s) that is expected to 
result in death or has lasted or can be expected to last for a 
continuous period of not less than 12 months. In addition to SSA's 
medical criteria, an applicant must also meet non-medical program 
criteria for both of its disability programs. For DI benefits, an 
individual must have contributed earnings to the DI program, have 
sufficient annual earnings to receive one credit per year, and 
generally have at least 20 credits for the last 40 quarters ending with 
the onset of a disability.[Footnote 53] To receive SSI benefits, 
individuals must have limited assets and income. 

To collect key decision-making information, SSA requires a DI or SSI 
applicant to provide the agency with extensive medical and vocational 
information, including the illness, injuries, or conditions and how 
they affect the applicant's ability to work; 15 years of prior work 
history; the requirements of the applicant's longest lasting job; 
medications taken and medical history; education and training; and any 
vocational rehabilitation. If needed, SSA may also collect additional 
information from the applicant about his or her pain, fatigue, and 
ability to perform common daily and other specific activities, like 
meal preparation or ability to stand and sit, as well as the use of 
accommodations. 

To assess claims for eligibility, SSA generally uses both a disability 
examiner and a medical consultant.[Footnote 54] If needed, the medical 
consultant will use the collected information to determine what an 
applicant can still do, despite physical or mental limitations, 
referred to as the applicant's residual functional capacity.[Footnote 
55] The residual functional capacity will be used by the decision 
makers, along with other vocational information in the applicant's 
file, to determine if the applicant can perform his or her prior job. 
If not, the decision makers will use this information to determine if 
the applicant can perform another job in the national economy. Although 
these vocational decisions can be complex, SSA may include, but does 
not require, that vocational specialists provide input to decision 
making. SSA, however, has acknowledged the need to strengthen its 
decision making and has proposed, along with other changes, to 
establish a national network of medical, psychological, and vocational 
experts to assist SSA decision makers throughout the country.[Footnote 
56] 

The SSA Commissioner's recent commitment to fostering return-to-work 
efforts is illustrated by some of the agency's ongoing programs and 
pilot tests.[Footnote 57] In September 2004, SSA completed 
implementation of its Ticket to Work and Self-Sufficiency 
Program.[Footnote 58] The program is intended to provide beneficiaries 
with greater choice in vocational rehabilitation and employment 
services so that they can work and become self-sufficient. While we 
reported in March 2005 that the program was having limited 
success,[Footnote 59] the agency has proposed steps to strengthen the 
program, such as expanding eligibility and improving incentives to 
encourage participation by service providers and beneficiaries. 
Furthermore, SSA has developed a Work Opportunity Initiative, with 
several demonstration projects, to provide both applicants and 
beneficiaries with medical coverage or cash incentives to support their 
ability to work. 

SSA Has Implemented Practices to Help Ensure the Financial Integrity of 
Its Disability Programs: 

While supporting people with disabilities is an essential function of 
SSA's disability programs, the agency is also responsible for ensuring 
the programs' financial integrity. In 1997, we designated SSI a high- 
risk program after several years of reporting on specific instances of 
abuse and mismanagement, increasing overpayments, and poor recovery of 
outstanding SSI overpayments. SSA's actions since then included 
developing a major SSI legislative proposal with numerous overpayment 
deterrence and recovery provisions. The ensuing enacted legislation 
directly addressed a number of our prior recommendations and warranted 
removal of the SSI program from our high-risk list in 2003.[Footnote 
60] We have, however, continued to monitor the program to ensure that 
improvements have been sustained. 

To help ensure that applicants' and beneficiaries' earnings do not 
exceed allowed levels, SSA has incorporated several procedures into its 
eligibility assessments. In assessing eligibility, SSA must determine 
whether an applicant is working and earning an amount that exceeds its 
established thresholds. As part of this process, DI and SSI applicants 
must provide SSA with information on their past work and any current 
work. If applicants indicate that they are currently working or 
receiving earnings, or SSA obtains other information that suggests that 
they may have earnings, SSA requires additional information on their 
work and earnings. SSA field staff generally must then verify the 
applicants' reported earnings using another reliable source of 
information. SSA also uses its online query system to access the NDNH 
database, which has recent earnings, new hire, and unemployment 
information, to verify the earnings for DI and SSI applicants it has 
designated as high risk, such as those whose stated income does not 
appear to cover their expenses. SSA has found that online access to 
NDNH data to verify earnings for the SSI program has a high return on 
investment. For example, using a pilot evaluation, SSA estimated that 
if it verified earnings online prior to benefit payment, it could 
annually reduce overpayments by $30.8 million and have a 3.6 to 1 
return-on-investment ratio.[Footnote 61] 

After benefits are granted, SSA performs frequent computer matches that 
are intended to assess earnings for all its beneficiaries. These 
matches compare earnings information from its beneficiary databases 
with two federal earnings databases to detect and prevent overpayments. 
For its computer matches, SSA uses both its own master earnings file 
with earnings information from employers and the self-employed and the 
NDNH database.[Footnote 62] SSA uses both databases because the SSA 
database has more complete earnings information than the NDNH database, 
whereas the NDNH database has more current earnings information in its 
quarterly wage database, as well as other important employment data, 
according to SSA officials. SSA performs periodic matches using its 
master earnings file to detect and prevent beneficiary overpayments for 
all its SSI and DI beneficiaries. In addition, SSA performs quarterly 
matches using NDNH quarterly earnings to detect and prevent 
overpayments to all SSI beneficiaries. SSA has also found that using 
NDNH data for the matches can be very cost-effective. In evaluating 
fiscal year 2002 computer matches using NDNH data, SSA estimated that 
it could annually realize $199 million in benefits from collecting and 
preventing overpayments and expend $23 million for matching, following 
up on matches, and overpayment collection, yielding an estimated 8.7- 
to-1 benefit-to-cost ratio. SSA also plans to expand its use of the 
NDNH database to perform matches to evaluate all DI beneficiary 
earnings. 

SSA has automated many features of its matching process and follow-up 
verification and collection activities to help improve the efficiency 
and effectiveness of its disability programs. SSA's computerized 
matching process can not only detect potential unreported or 
underreported earnings, but can also electronically forward matches to 
the field office responsible for follow-up and provide workload 
statistics to each level of management to help monitor the process. 
Field office staff can also use SSA computer systems to view specific 
information on the match (including the amount of earnings detected), 
document their follow-up, and initiate collection activities, as 
needed. For example, the system will send a letter to a current 
beneficiary who has received a benefit overpayment with information 
about this debt, such as the amount owed, and options for repayment. 
Through automation, the agency has increased its ability to ensure that 
matches are followed up and more efficiently initiate efforts to 
collect overpayments. SSA's systems also have built in security 
features to help ensure that SSA meets legal requirements to manage the 
privacy of the earnings and employment data. 

SSA uses various collection methods and other tools to manage the debt 
owed by current and past beneficiaries who received disability benefit 
overpayments. SSA will withhold monthly disability benefits to collect 
overpayments from beneficiaries who are still on its rolls. In fiscal 
year 2005, SSA collected $2 billion in overpayments using this method. 
When the person is no longer on SSA's benefit rolls, the agency uses 
its own billing and follow-up system to collect overpayments. That 
system enables SSA to send a series of progressively stronger notices 
requesting repayment and to make telephone calls to negotiate 
repayment. The agency collects several hundred million dollars a year 
using this approach. In addition, SSA uses other more aggressive debt 
collection tools, such as tax refund offsets and administrative wage 
garnishment, to collect debt from prior benefit recipients who are no 
longer on its benefit rolls. When unable to collect debts from current 
or prior beneficiaries, SSA will write off the debts. In 2005, SSA 
reported debt collection of $2.4 billion, writing off debt of $842 
million, which left outstanding debt of $13.1 billion at year end. 
Table 2 provides a list of the tools used by the agency to manage 
overpayment debt. 

Table 2: SSA's Debt Collection Tools for Benefit Overpayments: 

Debt collection tool: SSA billing and follow-up; 
Description: Collection of debt using a series of progressively 
stronger notices requesting repayment and telephone calls to negotiate 
repayment. 

Debt collection tool: Benefit withholding; 
Description: Collection of overpayments from monthly disability 
benefits for individuals still on the disability rolls. 

Debt collection tool: Mandatory cross-program recovery; 
Description: Collection of a former SSI recipient's debt from any DI 
benefits due to that person. 

Debt collection tool: Tax refund offset; 
Description: Collection of a former beneficiary's delinquent debt from 
a federal tax refund. 

Debt collection tool: Administrative offset; 
Description: Collection of a former beneficiary's delinquent debt from 
a federal payment other than a tax refund. 

Debt collection tool: Administrative wage garnishment; 
Description: Collection of a former beneficiary's delinquent debt from 
their current wages from their employer. 

Debt collection tool: Credit bureau reporting; 
Description: Reporting delinquent debt to a credit bureau to encourage 
repayment. 

Source: GAO analysis of SSA information. 

[End of table] 

To help monitor its debt collection efforts and their effectiveness, 
SSA also tracks and reports key debt management activities and 
performance indicators. For example, SSA's annual performance and 
accountability reports provide data on the quarterly cumulative totals 
for the debt outstanding, collected, and written off, and the varying 
age of delinquent debt.[Footnote 63] SSA also provides 5 years of trend 
data on the results and effectiveness of its activities, such as the 
percentage of outstanding debt that is delinquent or not expected to be 
collected and the average cost to collect a dollar of debt, which was 
$0.09 for fiscal year 2005. Furthermore, to help monitor its 
achievement of its strategic goals to improve debt management, SSA 
measures and sets a goal for the percentage of debt in collection for 
its Old-Age, Survivors, and Disability Insurance; and SSI programs. The 
indicators compare debt that is scheduled for collection through 
benefit withholding or installment payment with total outstanding debt. 
For fiscal year 2005, SSA reported that it met its collection goals, 
with 53 percent of SSI debt and 42 percent of Old-Age, Survivors and 
Disability Insurance debt in collection arrangements. 

Conclusions: 

VA's management of IU benefits lacks the strong controls needed for 
ensuring the integrity of the process for determining the initial and 
ongoing eligibility for these benefits. In particular, VA lacks the 
criteria, guidance, and procedures to ensure that its IU decisions are 
well supported. For example, the guidelines do not mention how factors 
such as education, skills, or prior work history should be used to 
assess a veteran's ability to obtain or retain substantially gainful 
employment in cases when the veteran is not working or is only 
marginally employed. As a result, the agency cannot assure that it is 
providing IU benefits only to those who are unemployable due to their 
service-related disabilities. In addition, due to limitations in the 
procedures to obtain evidence, VA rating specialists may not have 
sufficient information for determining whether claimants are 
unemployable. Without the procedures needed to collect complete and 
corroborated employment and earnings histories, rating specialists lack 
access to important indicators of future employability. Moreover, 
without having the procedures needed to obtain vocational assessments 
from VA's own vocational counselors, rating specialists lack important 
information that is needed to determine whether a claimant may be able 
to obtain or retain substantially gainful employment. 

Further, VA's income verification process lacks access to timely data, 
uses an outdated earnings threshold, and relies on a manual process for 
follow-up on earnings matches, which results in the agency's inability 
to effectively identify overpayments. In addition, VA's methods for 
determining ongoing eligibility may allow veterans who do not meet the 
ongoing eligibility criteria to continue to receive IU benefits. 
Moreover, VA's limited ability to detect and stop IU payments to 
beneficiaries no longer eligible to receive them not only increases the 
cost of IU benefits, it can create an opportunity for program misuse. 
Finally, because VA does not track the results of its enforcement 
efforts, the agency cannot determine whether its efforts are cost- 
effective and cannot hold itself accountable to veterans or other 
taxpayers. 

Finally, the continuing deployment of our military forces to armed 
conflict has focused national attention on ensuring that those who 
incur disabilities while serving their country are provided the 
services needed to help them reach their full potential. Yet, VA is 
among the federal disability programs we have identified as high-risk, 
in part, because it is poorly positioned to provide meaningful and 
timely support to help veterans with disabilities return to work. VA's 
management of IU benefits exemplifies these problems. Approaches from 
other disability programs demonstrate the importance of providing 
return-to-work services and using vocational expertise to assess the 
claimant's condition and provide the appropriate services. 
Incorporating return-to-work practices in IU decision making could help 
VA modernize its disability program to enable veterans to realize their 
full productive potential without jeopardizing the availability of 
benefits for veterans who cannot work. 

Recommendations for Executive Action: 

We recommend that the Secretary of Veterans Affairs take the following 
steps to improve management of IU benefits: 

1. To help ensure that IU decisions are well-supported and IU benefits 
are provided only to veterans whose service-connected disabilities 
prevent them from obtaining or retaining substantially gainful 
employment, VA should clarify and strengthen its eligibility criteria, 
guidance, and procedures for determining unemployability. For example, 
VA could: 

* clarify in its regulations and guidelines how vocational factors, 
such as education, skills, or prior work history, should be used to 
assess a claimant's eligibility; 

* establish procedures for rating specialists to request VR&E to 
conduct vocational assessments of IU claimants as appropriate; and: 

* seek legislative authority to use earnings data from the National 
Directory of New Hires. 

2. To improve the efficiency and effectiveness of VA's enforcement 
efforts to monitor ongoing eligibility, VA should update procedures and 
strengthen criteria for the enforcement of the IU earnings limit. For 
example, VA could: 

* update and automate its enforcement process, including using more 
current earnings data and threshold amounts in its income verification 
match; 

* clarify guidance on the review of IU beneficiary earnings following 
the match; and: 

* annually track and report on the results of matching process and 
related enforcement activities. 

3. To help modernize its IU decision-making process, VA should develop 
a strategy to ensure that IU claimants with work potential receive 
encouragement and assistance to return to work, while protecting 
benefits for those unable to work. For example, VA could encourage 
claimants to return to work by having vocational counselors from VR&E 
develop return-to-work plans and provide assistance to claimants with 
work potential. 

Agency Comments: 

We provided a draft of this report to VA, SSA, and HHS for comment. VA 
agreed with our conclusions and concurred with our recommendations, and 
stated that it has implemented and plans to implement program changes 
in areas that we identified as needing attention. The actions described 
by VA should strengthen its management of IU benefits; however, we 
believe that further steps are needed to fundamentally transform IU 
benefits into a meaningful and timely way of supporting unemployed 
veterans with service-connected disabilities. For example, VA seeks to 
improve decision making on initial and ongoing eligibility by 
increasing its collection of employment and earnings data. While these 
are positive developments, our recommendations envision a more 
comprehensive effort to restore the integrity of IU decision making 
through a series of reforms that would seek to strengthen IU criteria, 
guidance, and procedures for determining initial eligibility and 
enforcing the earnings limit. 

VA also proposes to encourage IU claimants to consider employment by 
including a motivational letter with the notice informing them that 
they have been approved for IU benefits. While we recognize VA's intent 
is positive, providing such letters after veterans have been determined 
to be unemployable does not provide them with the timely support needed 
to return to work. Our recommendation envisions that VA implement a 
number of fundamental reforms that transform IU benefits from simply 
providing compensation for unemployed veterans with service-connected 
disabilities to incorporating a broad range of vocational 
rehabilitation services and assistance that encourage and support such 
veterans to realize their full productive capacity, while protecting 
benefits for veterans unable to work. VA will need to expand upon the 
initiatives outlined in its comments to take full advantage of IU 
benefit decision making, not only as a means to restore the lost 
incomes of veterans with service-connected disabilities but, when 
appropriate, to restore their ability to pursue a livelihood and take 
their place as fully productive members of society. 

VA's comments appear in app. V. In addition, VA, SSA, and HHS provided 
technical comments, which are reflected in the report as appropriate. 

We will send copies of this report to the Secretary of Veterans 
Affairs, Secretary of Health and Human Services, Commissioner of the 
Social Security Administration, relevant congressional committees, and 
other interested parties. We will also make copies available to others 
upon request. In addition, the report will be available at no charge on 
GAO's Web site at [Hyperlink, http://www.gao.gov]. Please contact me at 
(202) 512- 7215 if you or your staff have any questions about this 
report. Contact points for our offices of Congressional Relations and 
Public Affairs may be found on the last page of this report. Other 
major contributors to this report are listed in appendix VI. 

Signed by: 

Cristina T. Chaplain: 
Acting Director, Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: IU Beneficiaries and Estimated Expenditures: 

We estimated the number of Individual Unemployability (IU) 
beneficiaries for 1996 to 2005 from monthly internal Department of 
Veterans Affairs (VA) reports on activity under the Disability 
Compensation program. For each year, we identified the number of IU 
beneficiaries from the "end of month" total in the September report for 
that year. Figure 5 shows the growth in number of IU beneficiaries from 
1996 to 2005. 

Figure 5: Number of IU Beneficiaries for 1996 to 2005: 

[See PDF for image] 

[End of figure] 

At the time of our study, VA did not report or maintain separate data 
on IU expenditures. We estimated VA's annual added expenditures due to 
IU benefits for 1996 to 2005 from monthly internal VA reports showing 
expenditures on the Disability Compensation program. Using data in the 
September report for each year, we computed average monthly payments 
due to IU benefits for 1996 to 2005, annualized this amount, and 
factored in the number of beneficiaries to estimate total expenditures 
on IU benefits for each year. Figure 6 shows the growth in IU 
expenditures from 1996 to 2005. 

Figure 6: Estimated IU Expenditures for 1996 to 2005: 

[See PDF for image] 

[End of figure] 

[End of section] 

Appendix II: Lifetime Present Value Analysis of IU Benefits: 

To illustrate the value of IU benefits, we calculated the present value 
of the added benefits due to IU that would be available over a lifetime 
to veterans who begin to receive IU benefits at different ages and with 
schedular disability ratings of 60-, 70-, 80-, and 90-percent. We chose 
the ages of 20, 25, 35, 45, 55, 65, and 75 to illustrate the added 
value of IU benefits over a wide range of ages at which veterans could 
begin to receive such benefits. 

For each age and disability rating combination, we calculated the 
present value of the added increment due to IU that would be received 
over a lifetime. Our present value analysis uses annuity factors that 
are based on two key assumptions: the length of time benefits will be 
received, and the rate at which future payments will be discounted (on 
the basis that a dollar today is worth more than a dollar received a 
year from today). For the first assumption about life span, we used 
Social Security Administration general population mortality tables for 
males.[Footnote 64] For the second assumption about the discount rate, 
we assumed that the rate of interest absent inflation (the real 
interest rate) is 3 percent, and that inflation is constant at 3 
percent annually, resulting in an assumed nominal interest rate (which 
is the sum of the real interest rate and inflation) of 6 percent. 
Because the yearly cost-of-living adjustment of VA compensation rates 
is linked to the consumer price index,[Footnote 65] we assumed that 
this adjustment is equal to the rate of inflation, resulting in a net 
discount rate for our calculations of 3 percent a year. The present 
value of the additional amount of disability compensation provided to 
veterans granted IU benefits for selected ages and schedular ratings is 
provided in table 3. 

Table 3: Lifetime Present Value of Increased Benefits for Veterans 
Receiving IU by Selected Ages and Schedular Ratings: 

Age awarded IU: 20; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: $10,068; 
Annuity factor: 26.4768; 
Lifetime present value of compensation based on the schedular 
rating[B]: $266,568; 
Lifetime present value of the added benefits due to IU[C]: $463,874. 

Age awarded IU: 20; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 26.4768; 
Lifetime present value of compensation based on the schedular 
rating[B]: 335,514; 
Lifetime present value of the added benefits due to IU[C]: 394,928. 

Age awarded IU: 20; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 26.4768; 
Lifetime present value of compensation based on the schedular 
rating[B]: 389,844; 
Lifetime present value of the added benefits due to IU[C]: 340,598. 

Age awarded IU: 20; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 26.4768; 
Lifetime present value of compensation based on the schedular 
rating[B]: 438,456; 
Lifetime present value of the added benefits due to IU[C]: 291,986. 

Age awarded IU: 20; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 26.4768; 
Lifetime present value of compensation based on the schedular 
rating[B]: 730,442; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 25; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 25.4894; 
Lifetime present value of compensation based on the schedular 
rating[B]: 256,627; 
Lifetime present value of the added benefits due to IU[C]: 446,574. 

Age awarded IU: 25; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 25.4894; 
Lifetime present value of compensation based on the schedular 
rating[B]: 323,002; 
Lifetime present value of the added benefits due to IU[C]: 380,200. 

Age awarded IU: 25; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 25.4894; 
Lifetime present value of compensation based on the schedular 
rating[B]: 375,306; 
Lifetime present value of the added benefits due to IU[C]: 327,896. 

Age awarded IU: 25; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 25.4894; 
Lifetime present value of compensation based on the schedular 
rating[B]: 422,104; 
Lifetime present value of the added benefits due to IU[C]: 281,097. 

Age awarded IU: 25; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 25.4894; 
Lifetime present value of compensation based on the schedular 
rating[B]: 703,202; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 35; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 22.9946; 
Lifetime present value of compensation based on the schedular 
rating[B]: 231,510; 
Lifetime present value of the added benefits due to IU[C]: 402,865. 

Age awarded IU: 35; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 22.9946; 
Lifetime present value of compensation based on the schedular 
rating[B]: 291,388; 
Lifetime present value of the added benefits due to IU[C]: 342,987. 

Age awarded IU: 35; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 22.9946; 
Lifetime present value of compensation based on the schedular 
rating[B]: 338,572; 
Lifetime present value of the added benefits due to IU[C]: 295,803. 

Age awarded IU: 35; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 22.9946; 
Lifetime present value of compensation based on the schedular 
rating[B]: 380,791; 
Lifetime present value of the added benefits due to IU[C]: 253,584. 

Age awarded IU: 35; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 22.9946; 
Lifetime present value of compensation based on the schedular 
rating[B]: 634,375; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 45; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 19.8757; 
Lifetime present value of compensation based on the schedular 
rating[B]: 200,109; 
Lifetime present value of the added benefits due to IU[C]: 348,222. 

Age awarded IU: 45; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 19.8757; 
Lifetime present value of compensation based on the schedular 
rating[B]: 251,865; 
Lifetime present value of the added benefits due to IU[C]: 296,466. 

Age awarded IU: 45; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 19.8757; 
Lifetime present value of compensation based on the schedular 
rating[B]: 292,650; 
Lifetime present value of the added benefits due to IU[C]: 255,681. 

Age awarded IU: 45; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 19.8757; 
Lifetime present value of compensation based on the schedular 
rating[B]: 329,142; 
Lifetime present value of the added benefits due to IU[C]: 219,189. 

Age awarded IU: 45; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 19.8757; 
Lifetime present value of compensation based on the schedular 
rating[B]: 548,331; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 55; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 16.1821; 
Lifetime present value of compensation based on the schedular 
rating[B]: 162,921; 
Lifetime present value of the added benefits due to IU[C]: 283,511. 

Age awarded IU: 55; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 16.1821; 
Lifetime present value of compensation based on the schedular 
rating[B]: 205,060; 
Lifetime present value of the added benefits due to IU[C]: 241,372. 

Age awarded IU: 55; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 16.1821; 
Lifetime present value of compensation based on the schedular 
rating[B]: 238,265; 
Lifetime present value of the added benefits due to IU[C]: 208,167. 

Age awarded IU: 55; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 16.1821; 
Lifetime present value of compensation based on the schedular 
rating[B]: 267,976; 
Lifetime present value of the added benefits due to IU[C]: 178,456. 

Age awarded IU: 55; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 16.1821; 
Lifetime present value of compensation based on the schedular 
rating[B]: 446,432; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 65; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 12.1007; 
Lifetime present value of compensation based on the schedular 
rating[B]: 121,830; 
Lifetime present value of the added benefits due to IU[C]: 212,004. 

Age awarded IU: 65; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 12.1007; 
Lifetime present value of compensation based on the schedular 
rating[B]: 153,340; 
Lifetime present value of the added benefits due to IU[C]: 180,494. 

Age awarded IU: 65; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 12.1007; 
Lifetime present value of compensation based on the schedular 
rating[B]: 178,171; 
Lifetime present value of the added benefits due to IU[C]: 155,663. 

Age awarded IU: 65; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 12.1007; 
Lifetime present value of compensation based on the schedular 
rating[B]: 200,388; 
Lifetime present value of the added benefits due to IU[C]: 133,447. 

Age awarded IU: 65; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 12.1007; 
Lifetime present value of compensation based on the schedular 
rating[B]: 333,834; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Age awarded IU: 75; 
Schedular Rating (percent): 60; 
2005 annual amount of schedular compensation[A]: 10,068; 
Annuity factor: 8.1091; 
Lifetime present value of compensation based on the schedular 
rating[B]: 81,642; 
Lifetime present value of the added benefits due to IU[C]: 142,071. 

Age awarded IU: 75; 
Schedular Rating (percent): 70; 
2005 annual amount of schedular compensation[A]: 12,672; 
Annuity factor: 8.1091; 
Lifetime present value of compensation based on the schedular 
rating[B]: 102,759; 
Lifetime present value of the added benefits due to IU[C]: 120,955. 

Age awarded IU: 75; 
Schedular Rating (percent): 80; 
2005 annual amount of schedular compensation[A]: Age awarded IU2005 
annual amount of schedular compensation[A]: 14,724; 
Annuity factor: 8.1091; 
Lifetime present value of compensation based on the schedular 
rating[B]: 119,398; 
Lifetime present value of the added benefits due to IU[C]: 104,315. 

Age awarded IU: 75; 
Schedular Rating (percent): 90; 
2005 annual amount of schedular compensation[A]: 16,560; 
Annuity factor: 8.1091; 
Lifetime present value of compensation based on the schedular 
rating[B]: 134,287; 
Lifetime present value of the added benefits due to IU[C]: $89,427. 

Age awarded IU: 75; 
Schedular Rating (percent): 100; 
2005 annual amount of schedular compensation[A]: 27,588; 
Annuity factor: 8.1091; 
Lifetime present value of compensation based on the schedular 
rating[B]: 223,714; 
Lifetime present value of the added benefits due to IU[C]: NA[D]. 

Source: GAO analysis using VA 2005 schedular disability compensation 
rates and annuity factors described above. 

[A] Disability compensation is paid monthly. The monthly compensation 
has been multiplied by 12 to provide annual compensation figures. 

[B] To calculate the lifetime present values of disability compensation 
associated with a veteran's schedular rating, we multiplied the annual 
schedular compensation by the annuity factor. 

[C] The lifetime present value of the increase in disability 
compensation for veterans granted IU benefits is the difference in the 
lifetime present value of compensation at the 100-percent rate and the 
lifetime present value of compensation at the schedular rate. Due to 
rounding, the sum of the compensation based on the schedular rating and 
the added compensation due to the receipt of IU benefits may not 
exactly equal the compensation amount at the 100-percent rate. 

[D] Veterans with a 100-percent schedular rating would receive the 
maximum basic disability compensation and would not be awarded IU 
benefits. 

[End of table] 

[End of section] 

Appendix III: Examples from VA's Rating Schedule for Selected Medical 
Conditions: 

Table 4: VA's Rating Schedule for Selected Medical Conditions: 

Percent rating: 0; 
Mental impairments: major depressive disorder: Symptoms do not 
interfere with occupational or social functioning or require continuous 
medication; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: Incapacitating attacks occurring less than 
once every two months on average over the last several months. 

Percent rating: 10; 
Mental impairments: major depressive disorder: Mild or transient 
symptoms decrease work efficiency and ability to perform occupational 
tasks only during periods of significant stress, or symptoms controlled 
by continuous medication; 
Physical injury: removal of ribs: Removal of one rib, or the partial 
removal of two or more ribs without potential for regrowth; 
Illness: migraine headaches: Incapacitating attacks occurring once in 
two months on average over the last several months. 

Percent rating: 20; 
Mental impairments: major depressive disorder: [Empty]; 
Physical injury: removal of ribs: Removal of two ribs; 
Illness: migraine headaches: [Empty]. 

Percent rating: 30; 
Mental impairments: major depressive disorder: Symptoms such as 
depressed mood and anxiety cause occasional decrease in work efficiency 
and intermittent periods of inability to perform occupational tasks, 
although generally functioning satisfactorily; 
Physical injury: removal of ribs: Removal of three or four ribs; 
Illness: migraine headaches: Incapacitating attacks occurring once a 
month on average over last several months. 

Percent rating: 40; 
Mental impairments: major depressive disorder: [Empty]; 
Physical injury: removal of ribs: Removal of five or six ribs; 
Illness: migraine headaches: [Empty]. 

Percent rating: 50; 
Mental impairments: major depressive disorder: Symptoms such as 
flattened affect, panic attacks more than once a week, and impairment 
of short-and long-term memory cause reduced reliability and 
productivity; 
Physical injury: removal of ribs: Removal of more than six ribs; 
Illness: migraine headaches: Very frequent, completely incapacitating 
and prolonged attacks, producing severe economic inadaptability. 

Percent rating: 60; 
Mental impairments: major depressive disorder: [Empty]; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: [Empty]. 

Percent rating: 70; 
Mental impairments: major depressive disorder: Symptoms such as 
suicidal ideation and obsessional rituals cause deficiencies in most 
areas, such as work, school, family, judgment, thinking, or mood; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: [Empty]. 

Percent rating: 80; 
Mental impairments: major depressive disorder: [Empty]; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: [Empty]. 

Percent rating: 90; 
Mental impairments: major depressive disorder: [Empty]; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: [Empty]. 

Percent rating: 100; 
Mental impairments: major depressive disorder: Symptoms such as 
persistent delusions or hallucinations and grossly inappropriate 
behavior cause total occupational and social impairment; 
Physical injury: removal of ribs: [Empty]; 
Illness: migraine headaches: [Empty]. 

Source: GAO analysis of VA regulations. 

[End of table] 

[End of section] 

Appendix IV: Example of Procedures to Calculate Combined Disability 
Ratings: 

Figure 7: Procedures to Calculate Combined Disability Rating: 

[See PDF for image] 

Note: In order to obtain a 50 percent rating, migraine headaches must 
be characterized by very frequent, completely prostrating and prolonged 
attacks productive of severe economic inadaptability. 

[End of figure] 

[End of section] 

Appendix V: Comments from the Department of Veterans Affairs: 

The Deputy Secretary Of Veterans Affairs: 
Washington: 

April 24, 2006: 

Ms. Cristina Chaplain: 
Director: 
Education, Workforce, and Income Security Team: 
U. S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Chaplain: 

The Department of Veterans Affairs (VA) has reviewed your draft report, 
VETERANS' DISABILITY BENEFITS: VA Should Improve Its Management of 
Individual Unemployability Benefits by Strengthening Criteria, 
Guidance, 

and Procedures (GAO-06-309), agrees with your conclusions, and concurs 
with your recommendations. 

The Veterans Benefits Administration has already implemented program 
changes in areas the Government Accountability Office (GAO) identified 
as needing attention. Improvements will be ongoing. The enclosure 
details actions taken to implement each recommendation in your report. 
It also provides some technical clarification. 

VA appreciates the opportunity to comment on your draft report. 

Signed by: 

Gordon H. Mansfield: 

Enclosure: 

Department of Veterans Affairs (VA) comments to: 

Government Accountability Office (GAO) draft report VETERANS' 
DISABILITY BENEFITS: VA Should Improve Its Management of Individual 
Unemployability Benefits by Strengthening Criteria, Guidance, and 
Procedures (GAO-06-309): 

GAO recommends that the Secretary of Veterans Affairs take the 
following steps to improve management of Individual Unemployability 
(IU) benefits: 

1. To help ensure that IU decisions are well-supported and provide IU 
benefits only to veterans whose service-connected disabilities prevent 
them from obtaining or retaining substantially gainful employment, VA 
should clarify and strengthen its eligibility criteria, guidance, and 
procedures for determining unemployability. 

Concur - VA has taken the following steps to strengthen its eligibility 
criteria, guidance, and procedures for determining unemployablility: 

* Our regional offices have been instructed to send a 21-8940 in all 
disability claims where unemployability is directly claimed or may be 
an inferred issue. This form provides essential information in 
determining entitlement. 

* It is now mandatory that regional offices send the form 21-4192 to 
all employers listed on the 21-8940 requesting information about 
employment history. 

* The annual mailing of form 21-4140 to veterans in receipt of IU 
benefits has been reinstituted, requiring that they certify employment 
activity in the previous year. 

* The period during which a veteran must complete the 21-4140 has been 
extended to age 70 from the previous age 60. 

Veterans Benefits Administration (VBA) decision makers review these 
guidelines along with specific information from past employers, from 
medical treatment records, from Social Security Administration (SSA) 
records, and from Vocational Rehabilitation and Employment (VR&E) 
records to determine eligibility when the claimant has met established 
schedular disability percentage requirements. We will investigate the 
information contained in the National Directory of New Hires to 
determine whether and what stage it would be appropriate to use this 
data. 

Department of Veterans Affairs (VA) comments to: 

Government Accountability Office (GAO) draft report VETERANS' 
DISABILITY BENEFITS: VA Should Improve Its Management of Individual 
Unemployability Benefits by Strengthening Criteria, Guidance, and 
Procedures (GAO-06-309): 

2. To improve the efficiency and effectiveness of VA's enforcement 
efforts to monitor ongoing eligibility VA should update procedures and 
strengthen criteria for the enforcement of the IU earnings limit. 

Concur - VA has strengthened enforcement efforts by reinstating the VA 
Form 21-4140 annual certification of employment history for all 
veterans in receipt of IU benefits who are under the age of 70. By 
reinstituting this form VA believes it will get timely notice of return 
to work. It also forms a basis for further actions should the veteran 
have failed to properly notify us of return to work. VA's income 
verification match with the Internal Revenue Service and the SSA 
monitors wage income at central locations. If income exceeds the 
established poverty threshold, development is initiated by the 
appropriate Pension Center to investigate the veteran's employment 
status. VA recently shortened the time delay between the year the 
earnings were received and the year in which we receive the information 
from IRS and SSA. In calendar year 2006 VA will process two years of 
earning data. We will investigate the information contained in the 
National Directory of New Hires to determine whether and what stage it 
would be appropriate to use this data. 

3. To help modernize its IU decision-making process, VA should develop 
a strategy to ensure that IU claimants with work potential receive 
encouragement and assistance to return to work, while protecting 
benefits for those unable to work. 

Concur - VA currently provides applications for Vocational 
Rehabilitation and Employment to all veterans granted compensation at 
the 10 percent level or higher and again each time the combined 
evaluation is increased. Additionally, a control is set for follow-up 
by the VR&E. Our aim is to encourage disabled veterans to utilize the 
resources available to them including training on resume writing, 
interviewing skills, testing relating to skills, abilities and 
aptitudes, and where appropriate training to enable them to return to 
the workforce or improve their ability to obtain, maintain and advance 
in the world of work. We are providing guidance to insure that stations 
follow this procedure when awarding IU benefits. We are also currently 
working on a motivational letter to be sent at the time of the initial 
IU award. 

[End of section] 

Appendix VI: GAO Contacts and Staff Acknowledgements: 

GAO Contacts: 

Cristina T. Chaplain, Acting Director, (202) 512-7215, 
ChaplainC@gao.gov: 

Cynthia A. Bascetta, Director, (202) 512-7215, BascettaC@gao.gov: 

Acknowledgements: 

Carol Dawn Petersen, Assistant Director; Joseph J. Natalicchio, Analyst-
in-Charge; and Julie M. DeVault, Senior Analyst; made significant 
contributions to all aspects of this report. Crystal Bernard, Margie K. 
Shields, and Jonathan Elkin also made significant contributions. Joan 
Vogel, Walter Vance, Vanessa Taylor, Roger Thomas, and Joseph Applebaum 
provided technical assistance. 

FOOTNOTES 

[1] GAO, VA Disability Benefits and Health Care: Providing Certain 
Services to the Seriously Injured Poses Problems, GAO-05-444T 
(Washington, D.C.: Mar. 17, 2005). 

[2] GAO, Military Personnel: Preliminary Observations on Recruiting and 
Retention Issues within the U.S. Armed Forces, GAO-05-419T (Washington, 
D.C.: Mar. 16, 2005); and GAO, National Preparedness: Integration of 
Federal, State, and Local Efforts Is Critical to an Effective National 
Strategy for Homeland Security, GAO-02-621T (Washington, D.C.: Apr. 11, 
2002). 

[3] For more information on how the relationship between impairments 
and work has been redefined, see GAO, SSA Disability: Return-to-Work 
Strategies From Other Systems May Improve Federal Programs, GAO/ HEHS-
96-133 (Washington, D.C.: July 11, 1996); and GAO, SSA Disability: 
Other Programs May Provide Lessons for Improving Return-to-Work 
Efforts, GAO-01-153 (Washington, D.C.: Jan. 12, 2001). 

[4] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: 
January 2003). 

[5] Previously known as the U.S. Court of Veterans Appeals. 

[6] For consistency purposes, we have used 2005 data throughout the 
report. 

[7] We visited the VA regional offices in Milwaukee, Wisconsin; 
Oakland, California; Philadelphia, Pennsylvania; and St. Petersburg, 
Florida; which we chose because of their differing workloads and 
location in different regions of the United States. 

[8] The American Legion, Disabled American Veterans, and Paralyzed 
Veterans of America. 

[9] VA's three Pension Maintenance Centers are located in Milwaukee, 
Wisconsin; Philadelphia, Pennsylvania; and St. Paul, Minnesota. 

[10] We reviewed and reported upon the practices of the three U.S. 
private insurers in our 2001 report entitled SSA Disability: Other 
Programs May Provide Lessons for Improving Return-to-Work Efforts, GAO-
01-153 (Washington, D.C.: Jan. 12, 2001). To update our information, we 
contacted the insurers in 2005 and two of the three insurers told us 
they still used similar practices. The other insurer would not comment 
on its current practices. 

[11] The data on quarterly wages is reported by states and federal 
agencies within 1 to 4 months after each reporting quarter. Data on new 
hires is reported within 30 days from the date of hire and unemployment 
insurance compensation is reported within 1 month of the end of a 
quarter. 

[12] For VA's regulations governing the adjudication of IU benefits, 
see Title 38, U.S. Code of Federal Regulation, Chapter 1, Part 3 and 
Part 4. 

[13] See 38 U.S.C. §1155 for the statute giving VA broad authority to 
create a rating schedule and compensate veterans for the average loss 
in earnings resulting from service-connected medical conditions. 

[14] For VA's Schedule of Disability Ratings, see Title 38, U.S. Code 
of Federal Regulations, Chapter 1, Part 4. 

[15] In accordance with the decision of the U.S. Court of Appeals for 
Veterans Claims in Norris v. West, 12 Vet. App. 413 (1999), VA rating 
specialists must infer that claimants for disability compensation are 
also seeking IU benefits if they meet the schedular requirements and 
their files contain evidence that they are not gainfully employed. 

[16] The 2005 poverty threshold is $10,160 for an individual without a 
family who is under 65 years of age and is $9,367 for an individual 
without a family who is 65 years of age or older. 

[17] A sheltered workshop is a workplace that provides a supportive 
environment where individuals with disabilities can acquire job skills 
and vocational training. 

[18] Employers report such information as the claimant's rate of pay, 
duties and responsibilities, and reason for leaving. 

[19] If available evidence is insufficient to award IU benefits and the 
record shows that the claimant is receiving Social Security disability 
benefits, complete copies of the SSA records must be obtained and 
considered. 

[20] See GAO, Veterans' Benefits: Improving the Integrity of VA's 
Unemployability Compensation Program, GAO/HRD-87-62 (Washington, D.C.: 
Sept. 21, 1987). 

[21] VA Vocational Rehabilitation and Employment Task Force, Report to 
the Secretary of Veterans Affairs: The Vocational Rehabilitation and 
Employment Program for the 21st Century Veteran (Washington, D.C.: 
March 2004). 

[22] The Department of Veterans Affairs, Office of the Inspector 
General, Review of State Variances in VA Disability Compensation 
Payments, Report No. 05-00765-137 (Washington, D.C.: May 19, 2005). 

[23] See GAO, Disability Benefits: Benefit Amounts for Military 
Personnel and Civilian Public Safety Officers Vary by Program 
Provisions and Individual Circumstances, GAO-06-4 (Washington, D.C.: 
Apr. 7, 2006). 

[24] Dependents and other circumstances can increase a veteran's 
monthly compensation. Veterans with a 30 percent schedular rating or 
higher can receive additional monthly compensation for each dependent, 
ranging from $39 to $130 for a spouse and $26 to $88 for a child in 
2005, depending upon the veteran's schedular rating. Other special 
circumstances that increase monthly compensation include, for example, 
the loss of use of a limb or sensory organ, required attendant care, a 
spouse with a disability, or a child age 18 or older attending school. 

[25] See appendix II for more information on the assumptions we made 
and the methods we used. 

[26] We calculated the number of new beneficiaries because VA's 
beneficiary database does not include the date that each veteran began 
receiving IU benefits. We used VA beneficiary database information for 
the month of October for 4 years from 2002 to 2005. For annual 
estimates we compared consecutive years. For example, all IU 
beneficiaries on the 2005 database, but not on the 2004 database, were 
identified as new IU beneficiaries for October 2004 to October 2005. 

[27] Military disability retirement benefits and normal retirement 
benefits based on years of military service are provided by the 
Department of Defense. Entitlement to these benefits is determined at 
the time a person leaves military service. To qualify for disability 
retirement, a person must be found unfit for duty due to a disability 
incurred or aggravated during active service, and have either (1) a 
disability rating of 30 percent or more, or (2) a disability rating 
less than 30 percent and 20 or more years of service. A person who is 
found fit for duty and has 20 or more years of military service 
generally would qualify for normal retirement. 

[28] Beginning in May 2003, these veterans can receive a special 
benefit under the Combat-Related Special Compensation Payment program 
equal to the amount of the offset. 

[29] In 2003, the Congress authorized Concurrent Retirement and 
Disability Payments to phase in the concurrent receipt of retirement 
and disability compensation benefits for eligible veterans from January 
1, 2004 to December 31, 2013. The National Defense Authorization Act 
for Fiscal Year 2006, however, reduces the phase-in time for IU 
beneficiaries so that IU beneficiaries with 20 or more years of 
military service will receive the full value of both benefits starting 
in October 2009. 

[30] Marginal employment may also be held to exist, on a case by case 
basis, when a veteran who receives annual earnings above the poverty 
threshold is employed at a sheltered workshop or family business. 
Depending on the circumstances, a veteran so employed may be determined 
eligible to receive IU benefits. 

[31] As noted earlier, VA rating specialists are not to consider age 
when making IU determinations. 

[32] See Halestad v. Derwinski, 3 Vet. App. 213, 216 (1992). 

[33] For VA's former proposed rules for its IU benefits decision 
making, see 66 Fed. Reg. 49886 (Oct. 1, 2001). 

[34] Employment history for the 5-year period preceding the date on 
which the veteran claims to have become too disabled to work and for 
the entire time after that date. 

[35] At the Milwaukee, Wis; Oakland, Calif; and St. Petersburg, Fla; 
regional offices, we reviewed 29 case files with the assistance of a 
rating specialist or decision review officer. 

[36] In addition to VHA, QTC Management, Inc., conducts disability 
examinations for 10 VA regional offices on an as needed basis. 

[37] GAO, SSA Disability: Program Redesign Necessary to Encourage 
Return to Work, GAO/HEHS-96-62 (Washington, D.C.: Apr. 24, 1996). 

[38] Generally, rating specialists have access to vocational 
assessments only when the claimant sought (1) assistance from VA's VR&E 
Service, which prepared an assessment as part of its normal service; 
(2) assistance from a Vet Center, which sent the veteran to a private 
firm for a vocational assessment as part of a treatment plan; or (3) 
disability benefits from SSA, which conducted a vocational assessment 
and included the results in the claimant's records. 

[39] Only veterans receiving disability compensation benefits are 
eligible for VA vocational rehabilitation benefits. Of the 2.6 million 
veterans currently receiving disability benefits, about 95,000 (or less 
than 4 percent) are receiving vocational rehabilitation services. 

[40] The remaining 4 case files contained assessments conducted by SSA 
and private vocational counselors for Vet Centers, which provide 
services to veterans and their families, such as readjustment 
counseling, community education, and providing access to other VA and 
community services. 

[41] Using VA's Compensation and Pension Master File, we identified all 
disability compensation beneficiaries who received both IU benefits and 
stipends from VR&E. Using VR&E's case management database, we obtained 
information on financial and other support provided to a number of 
these veterans selected through a randomization process. 

[42] VA also uses the match to assess the incomes of the surviving 
spouses and children of certain deceased veterans who receive death 
pension benefits. 

[43] The IVM threshold was established by VA at the inception of its 
computer matching effort in 1991. 

[44] VA has a few exceptions to its IU earnings threshold. For example, 
beneficiaries who work in protected environments, such as a sheltered 
workshop or family business, may be considered to be marginally 
employed and still eligible for IU benefits, even when their earnings 
exceed the IU threshold. In addition, beneficiaries who have been 
receiving IU benefits for 20 years or more cannot have their benefits 
terminated, regardless of their earnings and employment. 

[45] VA can collect IU benefit overpayments only in certain situations, 
such as when it determines benefits were obtained fraudulently or makes 
a mistaken overpayment. 

[46] The earnings data available in September is nearly 100 percent 
complete, according to an SSA official responsible for maintaining the 
data. 

[47] NDNH data has some limitations. For example, NDNH does not contain 
complete information on some types of workers, such as independent 
contractors, subcontractors, and self-employed individuals, and persons 
who perform services such as child care for private homes. 

[48] To obtain access to the NDNH database, an agency must seek 
authority from the Congress through enactment of legislation, which the 
Congress must pass and the President must sign. Moreover, the agencies 
may use the NDNH data only for those purposes authorized by law. 

[49] See 38 U.S.C. §1163. 

[50] For more information on the medical and vocational tasks, tools, 
methods and expertise used by private insurers to assess disability 
claims and provide return-to-work assistance, see VA Benefits: Other 
Programs May Provide Lessons for Improving Individual Unemployability 
Assessments, GAO-06-207T (Washington, D.C.: Oct. 27, 2005) and SSA 
Disability: Other Programs May Provide Lessons for Improving Return-to- 
Work Efforts, GAO-01-153 (Washington, D.C.: Jan. 12, 2001). The 2001 
report also examined social insurance disability programs in Germany, 
Sweden, and The Netherlands, which have also invested in return-to-work 
efforts and have implemented practices similar to those in the U.S. 
private sector. Although these countries' disability programs operate 
in a somewhat different social and political context than U.S. federal 
programs, the experiences of these countries show that return-to-work 
strategies can apply to a broad population with a wide range of skills 
and disabilities. 

[51] 42 U.S.C. §§ 423(d) and 1382c(a)(3). 

[52] SSA has established earnings criteria as an indication of whether 
applicants are able to engage in substantial gainful activity. In 2005, 
the substantial gainful activity level for individuals who have 
impairments other than blindness was $830 in earnings per month. For 
blind individuals, the level was $1,380 in earnings per month. In 
addition, SSA has established a substantial gainful activity level for 
self-employed individuals that is not based solely on earnings but 
includes such factors as the significance of the individual's 
contribution to the business. (See 20 C.F.R. §§ 404.1575 and 416.975.) 

[53] Younger workers may qualify with fewer credits. Credits are based 
on an individual's total annual earnings and a maximum of four credits 
can be earned each year. For 2005, annual wages or net earnings from 
self-employment income to obtain one credit was $920. 

[54] If the applicant is not satisfied with the initial decision, he or 
she may request reconsideration of the decision and also has an 
opportunity thereafter to request a hearing before an Administrative 
Law Judge and for an additional review by SSA's Appeals Council. For 
additional information on SSA's current disability decision making 
process, see GAO, Social Security Disability Insurance: SSA Actions 
Could Enhance Assistance to Claimants with Inflammatory Bowel Disease 
and Other Impairments, GAO-05-495 (Washington, D.C.: May 31, 2005). 

[55] SSA does not evaluate the residual functional capacity of all 
applicants. Instead, SSA uses a sequential assessment process to more 
quickly identify individuals who the agency believes are clearly 
eligible or ineligible for benefits. For example, SSA denies benefits 
to individuals who are working and earning more than the agency's 
threshold amount or do not have a severe impairment. SSA grants 
benefits to applicants whose earnings are below the threshold level and 
whose impairments meet or equal the agency's pre-established list of 
medical criteria for impairments considered severe enough to prevent an 
individual from earning wages above the established threshold. 

[56] For more information about this change and others proposed by 
SSA's Commissioner to improve disability decision making, see the 
agency's notice of final rulemaking for its administrative review 
process for adjudicating initial disability claims. 71 Fed. Reg. 16424 
(Mar. 31, 2006). 

[57] For many years, SSA has had work incentives incorporated into its 
disability programs to protect the cash and medical benefits of 
beneficiaries who try to work. GAO, however, has reported that the 
incentives were ineffective in motivating beneficiaries to work. For 
related GAO testimony, see Social Security Disability: Multiple Factors 
Affect Return to Work, GAO/T-HEHS-99-82 (Washington, D.C.: Mar. 11, 
1999). 

[58] SSA also implemented two supporting programs. The Benefits 
Planning, Assistance, and Outreach program enables community groups to 
provide outreach and information to SSA beneficiaries with disabilities 
to help them make informed choices about using a ticket and returning 
to work. The Protection and Advocacy for Beneficiaries of Social 
Security projects provide a broad range of advocacy related services to 
beneficiaries with disabilities that may be needed by beneficiaries to 
secure employment. 

[59] For the GAO report on SSA's Ticket Program, see Social Security 
Administration: Better Planning Could Make the Ticket Program More 
Effective, GAO-05-248 (Washington, D.C.: Mar. 2, 2005). 

[60] For GAO's report, see High-Risk Series: An Update, GAO-03-119 
(Washington, D.C.: January 2003). 

[61] This estimate is based on a judgmental selection of field offices 
for the study and does not represent a statistical estimate for the 
nation, according to an SSA Office of Inspector General report 
entitled, Review of the Social Security Administration's Office of 
Child Support Enforcements Pilot Evaluation, A-01-00-20006 (Baltimore, 
Md.: May 30, 2001). 

[62] SSA also has access to earnings data from 18 states to help 
monitor and prevent overpayments, according to an SSA official. 

[63] For additional information on SSA's debt management activities and 
results, see SSA's Annual Performance and Accountability Report for 
fiscal year 2005. 

[64] We used estimates for males because 2001 data from the Bureau of 
Labor Statistics show that over 93 percent of veterans are male. 

[65] A cost of living adjustment is not guaranteed, but the Congress 
has historically passed annual adjustments based on a percentage equal 
to the increase in Social Security benefits. 

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